Last June, the Occasional Paper no. 147 of the series of the same name published by the ECB dedicated to the study of the convergence process of the countries of the Union in the field of retail payments was released, entitled "Convergence of the European retail payments" signed by E. Martikainen, H. Schmiedel and T. Takalo. The aim of the work is to analyze the impact of the economic crisis and the SEPA project on the process of integrating payment instruments, from cash to debit and credit cards, from wire transfers to direct debits, from checks to electronic money.
Its relevance is beyond any doubt, considering that it affects the entire retail banking segment and that the economic effects expected from the creation of a single market for transactions are estimated at one per cent of European GDP, corresponding to savings of less than 130 billion euros per year. In Italy, the estimated savings, in terms of lower costs of computerized transactions compared to cash, are in the order of 10 billion euros per year. More specifically, the study seeks to answer two questions, namely whether and to what extent the European retail payments market has become more integrated during the period 1995-2011 and whether this process has accelerated since the introduction of the euro .
To measure the degree of integration achieved in the area, it uses data on payments made using cash and the other means mentioned above, rather than the size of the financial infrastructure dedicated to transactions, and employs statistical techniques based on sigma-type convergence ( if countries become more and more homogeneous over time, the distribution between transaction methods assumes less dispersion) and beta (countries that start from a lower level in the volumes of some type of instrument grow faster than those that start from a highest level). The clearest result obtained from the study is that after the introduction of the euro the dispersion of individual payment instruments decreased, with the exception of cash for which the process was much slower and of checks and money electronic whose data have been volatile, albeit for intuitively opposite reasons.
On the other hand, the positive integration process for cards, direct debits and transfers was verified, despite the fact that the study recognizes that changes in the habits of end users, although appreciable, are still slow and that the differences between countries remain significant. What is interesting to note is that convergence continued steadily even during the years of the economic crisis and that the effects of SEPA have not yet fully materialized. Since economic theory and empirical results tell us that integration promotes competition, efficiency and development, there is ample room for both policy makers and operators to prefigure and direct the future trajectories of a market as vast as the payments one European retail.
What is the role of the domestic market in this convergence scenario? Is it enough to be in Europe to be attracted to this new dimension? An interesting article by N. Coppari published, also in June, in the magazine Credito Popolare n.1/2013 entitled "The evolution of retail payment services and SEPA" proposes to answer these questions, in which, in addition to the issues of preparing the Italian system to ensure compliance with the commitments signed with Europe, a dynamic evaluation of the SEPA project is introduced in the sense that, to fully understand its benefits, it is necessary to consider the starting condition of the industry of payments. In short, making use of the same data made public by the ECB, the complexity of the whole SEPA operation is demonstrated, which, once completed, will see a series of instruments migrated to the new standards and others, of non-trivial volumes, such as bulletins postal and bank receipts, which will remain at home, presumably entrusted to differentiated technologies. The challenge is launched, but nothing is so obvious and obvious.
What is certain is that as this process progresses, the competitive forces between the suppliers of the services in question will increase, with increasingly aggressive policies from the point of view of both prices and the range of services. It is presumable that a comparison will open capable of recalling what happened in the last two decades for mobile telephony services. The reference is to new players, which are still in the start-up phase, such as payment and electronic money institutions, but also to large distribution networks and, in the near future, to direct producers who, with their own e-commerce platforms, they will tend to close the sales circuits with the provision of payment methods, accompanied by facilitations aimed at strengthening the degree of customer loyalty.
Evidence of this is the most recent growth in operations on self-operation digital platforms destined, over time, to reduce any other form of intermediated relationship, without distinction between goods and services subject to exchange via the internet. The recent case of the German BMW which has begun to offer payments on proprietary internet platforms for the purchase of high-value goods such as cars is emblematic of the disintermediation process that has begun. In general, the goal of taking possession of the payment decision-making chain will push new players to manage non-cash payments, thanks to the level of engagement towards the final consumers of their products. This trend will be strengthened by the growing importance represented by the so-called brand image and reputation, which will play a significant role in increasing the degree of trust in the players who intermediate the transactions of their main business.
The second instance concerns the increase in non-cash transactions determined by the growing use of new payment mechanisms and paradigms (the payment account) and new technologies (mobile phones and mobile apps). The banking system in general and the smaller one in particular, concentrated in retail banking, must be able to react to this decisive competitive pressure capable of generating widespread phenomena of disintermediation in payment services, with possible negative effects on credit and collection. It has the possibility of intervening both on the range of payment products offered and on the review of business models, with specific policies to defend its traditional market segments and to seek out new sales opportunities. For example, in emigrants' remittances the retail banking system is practically absent, considering that 95% of transactions are channeled via Money Transfer and Poste Italiane.
Then there is the large and growing market of social groups who have left their relationships with banks due to the crisis. Financial re-inclusion policies can easily be based on low counterparty risk payment services, before proceeding with the offer of more complex credit and financial products. Local banks have the advantage of direct knowledge of the situations of financial hardship that have arisen in recent years and can make up for them by reactivating basic banking services, which technology makes usable at low costs. Other initiatives may concern the satisfaction of service needs towards user basins that express a homogeneous demand, such as university students, road hauliers, local distribution chains, insurance agency networks and so on, which allows for immediate mass of some significance.
Turning to the issue of tools, the payment account and the related handling methods (cards, internet platforms, mobile telephony) allow for the use of now mature means, which include advanced security technologies, made increasingly reliable thanks also to the growing sensitivity of users towards more aware behaviors of use. The retail bank can issue, with specific offer programs, this type of instrument, in relation to which it should not be forgotten that the final objective is the growth in the number of automated transactions and not so much the free offer of a means of payment, however innovative, if one perceives that it is destined to remain unused.
Commissions relating to acquiring must also be carefully considered, to encourage the merchant to make use of the bank's POS network. The third aspect to consider is the integration of the tools we are talking about within more traditional processes such as collection and credit. Debit cards can automate the process of disbursing personal loans and create opportunities for business relationships with the shopping centers where the loan is used. Electronic payments produce the shift of the most recurring banking operations, including fundraising, towards internet banking platforms, increasing the use of a channel that has been introduced for years now, but is still underutilized. Payments then lend themselves to being integrated with the document digitization processes of all stages of information processing from accounting, to contracts, to daily branch operations.
Following this approach, it is possible to exploit the so-called economies of scope, which keep costs low by focusing on forms of joint production of a plurality of services, on which to spread the management costs. Finally, careful pricing policies can attract new customers by focusing on adequate levels of transparency. In short, the activities in question, considered as a whole, must be seen by the banks no longer as ancillary, but as real autonomous business lines, on which to base technological investment, marketing and renewal programs for organizational processes. An important point also concerns the communication channels of the policies to be pursued. If it is undeniable that at a systemic level the trade associations, the European Commission, the ECB and the NCBs have conveyed the objectives, tools and dates of the SEPA with a wealth of details on the rules to follow, perhaps greater incisiveness will also have to come at this point by Payment Services Providers, which obviously include banks, in representing their investment strategies and expected benefits, specifically accounting for them in the financial statements as occurs for other assets.
More generally, retail payments must be seen as a real nascent industry, inserted in a market context extending to the whole of the European Community with an increasing demand from consumers, stimulated by the plurality of channels available for transactions, by new actors determined to break the monopoly exercised so far by the banks, by innovative contents of both production and distribution processes, as well as by a framework of rules aimed at legality, transparency and cost reduction. The recent proposal for a new European Directive on payment services (PSD2) bears witness to the importance that the Union intends to give to the modernization of the reference framework, also in an anti-crisis function, with a clear stance, through a specific Regulation, with regards of the so-called interchange fee, which will have to be reduced to 0,2/0,3% of the value of debit or credit card transactions, which will give further impetus to the integration process by operating on the still high level of commissions. In its progressive affirmation, this new industry is destined to represent a factor in supporting the economic recovery, reducing the costly dependence on cash.
The hope is that rapid action on the part of the banks can help even those found there to emerge from critical conditions as a result not only of the general economic context, but also of credit policies not based on good management, exploiting the prospects low-risk on the retail payments side, provided we don't forget the lessons learned from behaviors that are not always inspired by the inflated call for sound and prudent management.
