JOINT RESEARCH CENTRE (JRC)
INSTITUTE FOR PROSPECTIVE TECHNOLOGICAL STUDIES (IPTS)
Sevilla, 15. 12. 1998
on Electronic Payment Systems
on behalf of the
Committee on Economic and Monetary Affairs and Industrial Policy of the European Parliament
IPTS has been charged, by the President of the Committee on Economic and Monetary Affairs and Industrial Policy of the European Parliament, to undertake a study on Electronic Payment Systems, to be completed by the end of February 1999.
Scope of the study
The study aims to provide a comprehensive panorama of the positions of all actors concerned with the EMU and the introduction of new payment systems within the EU. To this end, IPTS in co-operation with ESTO (European Science and Technology Observatory), is addressing to experts in Member States and on a global scale the following policy questions, which were formulated especially for this study, by the European Parliament.
1. Does the lack of a safe and widespread electronic payment system hamper the growth of electronic commerce?
Electronic commerce is growing fast. However, previous estimates of the rate of growth of electronic commerce have been over-optimistic. Is this because these estimates were based on certain questionable assumptions regarding consumers and firm behaviour? Are existing, conventional methods of payment adequate for the purposes of electronic commerce? What is the role played by firm and customer awareness of risks in the acceptance of both secured and unsecured methods of payment? What are the prevailing criteria for the adoption of various cost-effectiveness and safety levels currently achievable by available and emerging payment systems? Does the rapid diffusion of electronic commerce depend largely on unresolved safety and regulatory issues? Are there any other important barriers and drivers, which could be identified in the deployment of electronic commerce?
2. Will monetary union speed-up cross-border electronic commerce within the EU and worldwide?
This question relates to the previous one, but focuses more on cross-border payments on the Internet. What is known about the current size of cross-border payments? Has the lack of a common currency been a major constraint on the development of cross-border electronic commerce? Will the introduction of the Euro, consequently lead to a surge of such commerce? In particular, for which types of products and services do you expect cross-border electronic commerce to increase?
3. What are the costs of non-standardisation of electronic payment systems?
The necessity for the standardisation of electronic payment systems cannot be taken for granted. If electronic payment follows the "credit-card model" it might be expected that several payment systems could co-exist. How likely is such a scenario and what costs does non-standardisation entail for consumers, firms and regulators?
4. Should markets or regulators impose future standards – if necessary – for electronic payment systems?
Standardisation might either, evolve from market forces or, be imposed by regulators. Given existing market imperfections, there is no guarantee that market forces will produce the most efficient outcome. On the other hand, imposing standardisation by regulators runs the risk of stifling innovation in this field. Moreover, if international regulators fail to co-operate, it could lead to a fragmentation of markets. Are there any past examples of technological standardisation, which could serve as models for the development of interoperability standards for electronic payment systems in Europe, and on a global scale?
5. How to regulate issuers of electronic money?
It has been suggested that only financial institutions should be allowed to issue electronic money. However, the European Commission is now proposing a directive concerning the regulation of issuers of electronic money, who may have a different status from financial institutions. Which rules should be imposed upon issuers of electronic money and who should monitor them? Are the current proposals of the European Commission a sufficient answer to the need to regulate issuers of electronic money?
6. How will electronic money affect monetary policy-making?
The widespread use of electronic money could affect the stability of money demand. This would further diminish the relevance of monetary aggregates as guides for monetary policy making. Another possible effect of the widespread use of electronic money is a smaller demand for central bank money by commercial banks. As a consequence, it would be harder for central banks to steer the money market.
There have been several solutions proposed on how central banks should cope with these problems. If electronic money is only a substitute for "official" money, central banks could simply widen the definition of their monetary aggregates to include electronic money. As the most far-reaching way to secure its grip on the money market, the central bank could impose reserve requirements on electronic money balances. The above raises several questions:
How likely is the widespread use of electronic money? Can e-money be considered as a new "type" of money? Will it be limited to small amounts? Will it only be a substitute for "official" money? Over what volume would the replacement of "official" money by e-money represent a threat for monetary policy? Are the measures proposed to secure the central banks grip on the money market sufficient? What are the costs of these measures? Should electronic money affect monetary policy-making, what kind of measures would allow the central bank to keep control on the money market?
Dr. Demosthenes Papameletiou, European Commission, Joint Research Centre, IPTS, Tel.: +34. 95. 448 8289; Fax: +34. 95. 44 83 26; e-mail: firstname.lastname@example.org
Dr. Michael Rader, ESTO/ITAS, Tel.: +49. 7247. 82 2505; Fax: +49. 7247. 82 4806