Consultative paper on SEPA incentives
Norges Bank's letter of 25 April 2006 to the European Commission. Internal Market and Services DG - Financial Institutions
Referring to the Consultative paper on SEPA incentives published by the European Commission 13 February 2006, Norges Bank, (the Central Bank of Norway) would like to comment on some of the questions posed in the document.
The Norwegian payment system has high quality (e-invoicing, full end-to-end STP with all remittance information etc.) and high speed. The SEPA-products need to be at least as good or better. As regards Direct Debit agreements, the mandate lies with the debtor's bank. This is the solution used by personal customers and its use is currently growing. We also have a Direct Debit scheme where the mandate lies with the creditor. This product has never been popular.
The payment system in Norway is well-developed. We do not think that the public will accept solutions inferior to those they already have access to. The focus of the public seems to be on security issues, processing time and the costs of making payments. The processing time in Norway is already short, in many cases less than one working day. There should be a standard for structural remittance information for SEPA payments, both for person-to-business and business-to-business payments.
Question 17 and 29
There will probably not be a need for making SEPA schemes and frameworks mandatory. Even if self-regulation will not be sufficient to achieve the SEPA milestones by 2008, the focus should be on developing high-quality services rather than on the speed of implementation. Given that the schemes and frameworks allow for the development of improved payment services, banks will have strong incentives to develop these in order to gain market shares.
Should the SEPA schemes and frameworks be made mandatory, the schemes and frameworks should not hamper the development of better products. Neither should the schemes or frameworks introduce incentives to lower quality on national services. If the SEPA schemes and frameworks allow for the development of high quality services, banks can use the incentives given by strategic pricing to ensure adoption of the SEPA products. Low prices on the SEPA products compared to alternative payment services will make the adoption swifter.
In Norway a standard setting body is established by the industry. The standards are open and banks and ACHs are free to offer products that fulfil the standards.
Governments are large payers (social benefits) and should be early adopters of SEPA products to increase volumes and knowledge of those products. Moreover, the governments should promote account-based outgoing payments instead of cash-based outgoing payments. Governments are also large payees (taxes) and could require or encourage payments done with SEPA products. The condition is that SEPA products are of sufficient quality.
The government played an important role in abandoning float in Norway. Private banks were invited to deliver an offer for becoming main bank for government payments. A prerequisite for posting an offer was that float days should be abandoned.
Solutions should be sought to promote the use of only one number (in this case the IBAN), not both the IBAN and BIC.
In the Norwegian national debit card scheme, the card holder pays a fee to his or her bank. The merchant pays rent for the terminal and other service fees to the merchant's bank. No interchange fee has been needed to ensure the widespread use of the national debit card scheme.
In Norway, the rapid adoption of electronic payment services is often attributed to the use of the pricing mechanism. When prices on the use of cheques were introduced, the use of cheques declined rapidly and cheques are virtually non-existent in Norway today.
However, it is not certain that this automatically implies that all payment services should be priced to reflect the relative production costs. As cash is not priced per transaction, there could be an argument for having prices lower than production costs on relatively effective substitutes such as debit cards.
In our opinion, the need for account number portability cannot justify the costs of implementing such portability. Bank number portability will necessitate a central database with all account numbers identifying customers, banks etc.
Question 65, 67 and 72
It took 4 to 5 years from internet banking became common until e-invoicing grew to be popular. Two factors seem to have been important in this respect.
First, payees with many customers must offer the solution. It is therefore vital that utilities and other payees benefit from offering the service. Governments should act as forerunners promoting e-invoicing and using e-invoicing themselves.
Second, the sign-up must be easy for consumers, preferably with just one click in the web-based banking interface. In Norway, an agreement for e-invoicing is automatically proposed when a customer is paying to an entity offering this solution through his or her internet bank. The same is done with Direct Debit agreements, and the customer can accept the agreement through the internet bank. This scheme has proved easy and successful.
Inger-Johanne Sletner, Director Payment Systems Department
Harald Haare, Special Adviser Payment Systems Department