Towards a cashless consumer society

Date: 10/11/05

So what is to be the role of cash in the Single European Payments Area? According to estimates, for every non-cash payments executed in the EU, there are between three and six cash payments.

The European Commission estimates that there are 56 billion non-cash payments in the EU each year. That would suggest that there are 170-340bn cash payments annually.

The architects of SEPA want to encourage non-cash payments. So how are they to encourage all these people currently using cash to switch to the other payment options - using debit cards, direct debit or a credit transfer?

If they do not, it will be difficult to convince banks to make the necessary costly investment in a pan- European payment system.

One of the barriers to a non-cash market is the legislative legacy of many member states, which has traditionally made it impossible for banks to charge for using cash. In Germany for example, there is a high court judgement ruling it out and in Ireland a national decree.

In France and Belgium there is no binding law but a gentleman's agreement between banks that they will not charge for using cash.

As a result the cost to society of producing cash and moving it between banks and retailers, amounting to EUR 30-50bn every year, has to be passed onto customers in another way.

But because consumers have the perception that cash is free to use, they may not be prepared to make payments any other way.

Norbert Bielefeld is the secretary of the cash working group at the European Payments Council, the group of banks committed to creating a pan-eurozone payment area. He argued that member states must tackle this anomaly if SEPA is to function correctly.

"If two-thirds of payments are made using a system - ie cash - that costs nothing, compared with other systems that have a price attached, do you think we can see real competition?" he said.

"If we want to produce a competitive economy that relies on non-cash payments, that can only happen if we have real competition between payment services so that customers can compare the merits of pricing," he said.

Any move could not take place overnight, as it would require a change in national legislation.

But Bielefeld points to Norway, where in the mid-1990s the central bank decided to pass onto the customer the cost of using cash.

"There has been a drastic move away from cash towards other forms of payment as a result," he said.

SEPA: a single payments area for the EU or the eurozone?

• When 'SEPA' was first touted at the beginning of the millennium, the then internal market commissioner Frits Bolkestein talked about a single payment area covering the entire EU
• Since then, things have shifted slightly and the common understanding of SEPA is now the single euro payment area
• The European Payments Council, a group of banks that committed themselves in 2002 to creating a harmonised payments system, brought about the change, supported by the European Central Bank which has been pushing for a pan-euro scheme
• The EPC announced in March that it would aim to create this harmonised system for the eurozone by 2008, but expected it to become available throughout the entire EU by 2010
• The European Commission is still bound to treat the entire EU when legislating: its imminent legal framework for payments will have to be enforced by the 25 member states

Article discusses the unequal competition between non-cash payments, which are charged for, and cash payments, which in most EU Member States are free.

European Commission: DG Internal Market and Services: Free movement of services: Financial Services: Payment services: Non-cash means of payment http://ec.europa.eu/comm/internal_market/payments/noncash_en.htm

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