Promoting Integration of European Retail Payment Systems: Role of Competition, Cooperation and Regulation

The present retail payments clearing and settlement infrastructure in both the EU and the euro area is still very fragmented. Therefore, it is understandable that, in recent years, a debate on the sluggishness of the integration of the European retail payment systems has emerged. The present paper aims at contributing to this debate by drawing some policy lessons from the theory of network economics. This is justifiable on the grounds that the retail payment industry inherently has many characteristics in common with other network industries, like telecommunications. In the paper, special emphasis is devoted to the important competition-cooperation nexus in retail payment systems. The main message of the paper is that the fundamental role of payment system regulators is to provide a level playing field for different service providers. Moreover, compatibility and interoperability, e.g. in the form of commonly adopted standards, are key requirements for the payment system efficiency, as they facilitate the contestability of the market (competition in the market). Regarding dynamic efficiency, the regulators also need to ensure adequate incentives for innovation and investment (competition for the market). In addition to discussing policy issues at a general level, the paper analyses developments in the European retail payment systems as well as the roles and aims of different stakeholders in the current process of building the Single Euro Payments Area (SEPA).