The average European has at least one payment card in his wallet, according to the European Central Bank, and there were 727 million in the EU in 2008, a 5% rise on the year before. This should be reason enough for banks and operators to speed up progress on making cards compliant with the rules of the Single Euro Payments Area (SEPA), a project to even out the price of cross-border euro payments in its 32 participating countries.

But the path to the single market never did run smooth. Merchants fear that the January 2011 changeover to SEPA – when all national cards become European – will herald a takeover by MasterCard’s Maestro and Visa’s V-Pay, which they say will mean higher costs.

DUOPOLY

What is bothering EU policy makers and merchants is the so-called multilateral interchange fee (MIF) that banks charge each other for processing transactions. “The interchange fee is fully passed on to merchants and in the end merchants fully pass it on to consumers,” explains Cécile Grégoire, a senior adviser on payment systems at EuroCommerce, a group representing retailers. “As the Commission has often repeated, it is an unfair tax on all retail sales.”

The Commission and the European Central Bank want to create a strictly European debit card to eat into Visa’s and MasterCard’s effective duopoly. Norbert Bielefeld, deputy director of payment systems at the European Savings Bank Group, says this is politically motivated. “A new European system is first and foremost a political goal. Somebody decided that to have systems governed in the US under US law is not good for your health.”

In 2007, the EU executive ruled that MasterCard should cap its fees for cross-border transactions – a decision the company is appealing – and the settlement of an anti-trust case against Visa is due any day. But Patrick Poncelet, a senior adviser with the European Banking Federation, says consumers will be the ones to pay if MIFs are killed off. “There will be no more economies of scale. You are bringing back cash,” he said. “You are going totally against the objective of making Europe a modern economy. There is no alternative model to the MIF.”

SHOW ME THE MONNET

However, there are signs of rival schemes emerging. Monnet is an idea backed by French and German banks, including Deutsche Bank and Société Générale, which could be launched this year.

PayFair is a merchant-friendly system being tested in Belgian supermarket Colruyt. It is not a banking initiative, which co-founder Dominique Buysschaert says is to its advantage. “You don’t need to be a bank to enter the payment business,” he told Europolitics. “We first made sure we had a large acceptance base.” Launched by a group of experts from the financial, IT and retailing sectors in 2007, Buysschaert says PayFair is the only European system that is actually up and running.

There is also the European Association of Payment Schemes, a loose grouping of five national ATM networks – including Link in the UK and Spain’s Euro 6000 – which calls itself a “scheme of schemes”. EAPS says customers using one of the cards in its network should be able to use it on every ATM or cash point where the EAPS logo is visible.

But Grégoire says these may not appeal to banks. “We would very much welcome PayFair and other initiatives, but we fear that interchange fees on Maestro and V-Pay will impede their development. They will not be lucrative enough for issuing banks.”

Dominique Buysschaert says it could take five to ten years to get the card system fully harmonised. But for Poncelet, SEPA is not about cards – or credit transfers and direct debits, for that matter. “What we have seen of SEPA is very basic and boring, it’s about harmonising old payment systems. The second step is yet to come.” In the future, he says, you should be able to make so-called m-payments via your mobile phone, which will be tied to your bank account. “SEPA is useful,” he concludes, “because it will be something all over Europe. It’s essential to harmonise. A bank account will always be the basis.”