INDUSTRIAL POLICY

Michael Salmony 0:12

Hello, my name is Michael Salmony and I'd like to welcome you together with Javier and Ralf to another episode of the Payments Trilogue where we're doing some short versions of what we usually do on topics that I think are still relevant even in the summer period. And the topic we've chosen for today is industrial policy. ⁓

The idea behind that is we have wonderful plumbing in Europe. know, all the pipes are great. You know, we have SEPA and we have instant and adressability and all that. That's fantastic. But at the higher levels, it really gets incredibly fragmented. So if I want to pay in a harmonized way across Europe, I can either take a bundle of banknotes to Portugal or I can use some foreign scheme. I don't really have a pan-European solution here.

And that makes us dependent, see our sovereignty debate of last time. And it's very different to what you see in other countries. In the US, of course, they have a completely pan US payment solutions, not only the usual Visa, MasterCard, PayPal, which are even global champions, they also have Zelle and Venmo. And so they've completely done a fantastic pan geography solution, even though their plumbing is much worse than ours.

And in China, they famously have the wallets everywhere, which are a harmonized way of doing things. In Africa, they have mobile payments. So everywhere except Europe, seems we, ⁓ it's this, ⁓ harmonization as well. And one of the analysis is that there is that we don't have enough steer in Europe. We have a very low level steer, like incredibly detailed yeses on how to do two factor authentication.

And we have very high level ⁓ retail payment strategies, which says we should be more cooperative and find the right balance between this and that. And that's all great, but we're missing something in between. We're missing an industrial policy like Europe has on quantum and on energy and on postal services and on defense on everything, where there's some steer to make sure that there's the right balance between cooperation and competition.

where the state decides where it needs to intervene and where it lets the market work. And that works very well in other industries, but somehow not in payments. So we have this incredible fragmentation of Wero and EPI and EuroPA and EMPSA and lots of local solutions and Bizum and BIS and whatever. And we have lots of candidates which could do a pan-European solutions if only it were steered in that way. And Ralf, of course, is a big fan of the open banking based ones.

which would be a candidate and the ECB is proposing CBDC as the pan-European solution in competition to the private sector and instead of giving subsidies to the things that are worth encouraging, they take the money themselves to provide a competitor so that doesn't seem to make a lot of sense. So sorry, that was a bit of a long rant, but that is why I think we need some steer here. ⁓ Right, let me put that out there and... ⁓

maybe Ralf Javier, you chip in what you agree with and what you disagree with.

Ralf Ohlhausen 3:28

You wanna go first, have you?

Javier 3:30

Okay,

well, I fully agree that we are missing something, that there is a lack of continuity. We don't know what's the destination, so we should have set the destination and then how to get there, and that we don't know. And we are, I think we are working continuously on urgent matters. I think 25 years ago, the urgent matter was integration, integration of the market, and it took us years.

to devise SEPA as the solution to that integration. Then it was competition. And we didn't know that there was a lack of competition in the European market. Finally, we realized that what we needed was to integrate the new ⁓ companies, the fintechs, the payment institutions that needed even a regulation to be well identified. And that was what we created. And so as a consequence, PSD2 and Open Banking and all that.

The third topic was innovation. There was a lack of innovation in the European market and we were ⁓ pressed by the authorities to give a response to that innovation challenge. And we finally realized that what we needed was the instant payments solution. The industry produced that solution. And now it looks like the urgent matter is sovereignty and we still have to devise a solution to that debate.

running on urgent matters without having established plans. So we are lacking a plan, we are lacking a destination, and we are lacking the options how to get to that destination. And of course, nobody has any role assigned in that trip to nobody knows what destination. The last signal I see of this lack of consistency is the last retail payments strategy issued by the commission.

It was launched, I think, in 2020 and it lasted until 2024. It has completed its role and we don't have an assessment of what was good, what was bad, what functioned, what didn't function. And while it was also necessary to have a strategy in 2020, it looks like now it is not necessary to have a strategy in 2025. Why? Why did we need...

so urgently that retail payments strategy in 2020 and then we can live without any strategy now. I think that's the real problem. There is no not a realization that we need to have a well-established plan with the destination and with the assignation of roles to the different actors that have to play something in this matter. That's how I see the problem.

Michael Salmony 6:18

Very good. Ralf, what do you think?

Ralf Ohlhausen 6:20

Well, I don't have a nice solution to the problem. But I would like to repeat the proposal that EMPSA put on the table when at their conference back in April, and which sort of goes in direction is basically a suggestion on how to achieve

Yeah, well, a coherent way forward. And it's ⁓ based on their, like GSM roaming analogy between national solutions being made compatible into a European wide one. So that's their, as we know, their strategy, which is also reflected in EuroPA. ⁓ And we

The way they proposed it was that essentially there should be some governance of an EU-Pay label. so EU, European created ⁓ payment solutions could get that label if they were, ⁓ if they would follow the principles there. Then with that, the

⁓ the merchants would be become obliged. that's another regulation there merchants would be obliged to accept at least one of those EU-Pay payments. And the the third element bringing it together would be a regulation to impose interoperability of those

EU-Pay labeled solution. So essentially, the governance would mean that in order to get that EU-Pay label, you would have to be interoperable with all other ones that have that label. And therefore, it would be sufficient if one if a merchant any given merchant would accept one only one of those labels because then consumers that are using any other solution

could still make a payment at that merchant because it would be interoperable. And of course, that's exactly the model that the EMPSA is promoting that they are applying in their EuroPA initiative in, as you know, Italy and Spain and Portugal, which is being expanded. now what's missing though is to enforce and sorry, and EPI. ⁓

coming closer to it, at least so that's what they announced that they want to consider some more form of collaboration. I assume that it would be along similar lines, so they would sort of join the whole thing. And then we would have these national, mostly national mobile payment solutions, mostly instant payments, and they would be all interoperable through a hub or even bilateral connections. And this is one way to achieve it. So

Yeah, that's nice. And by the way, just to to spice it up. And of course, what they were saying is that this is at this conference. So this very much follows the GSM logic and the roaming logic and especially the roaming regulation logic that we had like 10, what is it 20 years ago, when all these operators in Europe were forced to

⁓ not just have the roaming, which was there before, but not charge extra for it. So it was basically mandated that it becomes a ⁓ everyone can roam like at home. And that's sort of what wouldn't happen here too. So we would have some commercial elements to be done. And of course, it would be very important. And that's what they said there, that then it's not the ECB coming out with their own SIM card, digital euro.

SIM card and then imposing that on everyone to have a sort of SIM card in their phone just for just for the digital euro. Anyway, so I thought it is worthwhile ⁓ maybe having a look at that, which I guess is an industrial policy that you had in mind.

Michael Salmony 10:59

Very good. mean, if one listens to you to this, there lots of elements in there, which I think smart people are thinking about, right? You mentioned the EMPSA, GSM logic, ⁓ Javier, you mentioned that we need a sort of North Star, something which we're actually heading for, that we all agree on. So I guess all the bits are there. So the thing that I'm really missing is someone to bring us together, you know, people who have these ideas, lock them in a room for a while.

until the white smoke comes up and said, okay, now we have a common agreement in a public private partnership probably on how we move forward, right? That seems to me really missing. mean, if you look at sort of PIX and UPI, I think they've really shown how to do that, you know, with some.

regulatory steer, you get the industry and the regulator work together and not against each other how to move this forward. But by the way, just on this, was talking to the ECB recently and they are talking more and more about this standard kernel, which it goes a bit in the direction that you Ralf were mentioning, right? So that they will actually make sure that the...

Javier 12:02

.

Michael Salmony 12:05

Digital euro is accepted everywhere at every merchant, but it's going to be open and standardized so that EPI and EMPSA and others can jump on it. And then we will have actually multiple solutions at the checkout, which Javier is always saying, I think, right, that we need competition and not just one single solution. So bits and pieces are moving in that direction, but it's the picture isn't really clear and it's not being steered. Would you disagree with that or do you think that's roughly fair?

Javier 12:30

No, no, fully

agree. think that we need to establish, as you said, a public-private partnership. The only thing is that we don't know how to start it, how to launch it. But we would need to have a true public-private partnership with equal trust in both directions. And I think still we are not yet there. We have not yet established the mutual trust in high levels that is needed.

to have a public-private partnership. Whenever we see something similar, it's more the public imposing some views on the private sector, in my view, in my humble view, and it's not that we have ⁓ that required trust in place.

Michael Salmony 13:19

Wow. Do you think that is bilateral? Do you think the the state, the ECB, the commission don't trust the banks and vice versa? The banks don't trust the regulators? Is it a mutual thing, this lack of trust?

Javier 13:34

I think it's mutual. think there has been some erosion on both directions. of course that any industry should be overseen and it may commit some mistakes. That is true since Adam Smith that was identified. And of course you have to be very careful when inviting the private sector to certain topics, but also the public sector

has seen its image and reputation eroded lately. yes, think in both cases, I think there is room to improve.

Michael Salmony 14:17

Okay, so Javier, you're always good for controversial spicy opinions. Thank you for that. That's really great. Okay, so, Ralf, do you want to have a...

Ralf Ohlhausen 14:24

Well, there is let me let me comment on that because

I think there is some at least some movement in this direction. Though I think we mentioned before that the the payment systems market expert group of the commission, where like an expert group of the commission is having meetings like twice a year or so on average, and where they get the advice from the from the market on

on strategy on their strategy, for example, and on whatever various topics and around payments. And so we had at the beginning of this year or end of last year created a subgroup. They're looking at the obstacles for instant payments at in particular POS. So in physical stores, point of sales terminals and so we

did this subgroup was looking at it and collecting obstacles, prioritizing them, and then also drafting recommendations. And as we record this here, ⁓ was just submitted, finished and submitted to the commission a couple of days ago. And one of the

without disclosing too much because I'm not sure how public this will be made. I hope it will be, but for now it's in the hands of the commission and the wider expert group. But one of the recommendations has to do with the public-private partnership. ⁓ Very much along the lines as just discussed because that is, I think, one of the obstacles that we have projects going in different directions rather than having them more harmonized. it's exactly the industrial policy question.

And yeah, so hopefully that recommendation will be picked up and we are looking, I think we should be looking at the commission to play this orchestrating role. And as we've mentioned here before, I think what we want is less regulation, but replace it with orchestration. So basically get the parties together. Don't tell them what to do. Don't regulate it, but facilitate the discussion and finding the best solutions.

And yeah, just one more thing and I will have to get it off my chest because when you when I think about industrial policy, I also have sort of two hearts beating in my chest here because the other side is that we of course want also innovation and competition. the

Michael Salmony 16:42

for.

Ralf Ohlhausen 17:02

the concern that we're spreading ourselves too thinly, that we have all these different initiatives and we're not getting our act together and we should sort of focus and concentrate and all of that. Okay, we've discussed it, we know the arguments, but there is also the counter arguments that it will stifle innovation and of course it will, if we limit the players, we'll have less competition. ⁓ So we got to find really a balanced approach here and I think overall

what we what we what we will need or what we'll have is at least, well, one or the bank based approach bank scheme approach, whether it's EMPSA or EPI or a joint of them, honestly, I don't mind it's the bank's business. But from an open banking perspective, that must be an alternative, that must be another way of doing it. Not being bank owned bank driven, but open banking based. And there

By definition, you already have already a multitude of players. Because even if it's scheme based like SPAA, this is not a scheme between PISPs. It's the scheme between PISPs and ASPSPs on the other side. you will PISPs are by nature European wide. They're not national bodies mostly. So each one of them is a European solution and hopefully we'll have not just three, four, but more.

of them. So I think we'll have many of those. And then of course, the third side of it is public money, cash today, digital euro tomorrow. And yeah, so I think there is probably space for that. In my mind, it should be like cash like, offline, as we've discussed before. But I think for me, those three types are ⁓ necessary in the market.

Michael Salmony 18:49

Okay, very good. In my role, not as regulator, but as coordinator of this...

I would say we've come to the end of our time and thank you very much Ralf and Javier for the very lively discussion on industrial policy. I hope it's made a few people think, it certainly made me think. Thank you very much.