MasterCard has launched a cash replacement intiative aimed at increasing the use of plastic debit cards across the euro zone through the adoption of multi-purpose chip cards.

The move comes as the bank-backed European Payments Council (EPC) prepares to deliver the industry's proposal for the introduction of a Single European Payments Area (Sepa) to the European Central Bank. The aim of Sepa is to enable European citizens to make cross-border payments, using both cash and payment cards, from a single bank account as easily and safely as in the national context today.

Currently customers can use euro note and coins across all euro zone countries, but face problems when making debit card payments as each EU state has a national debit card scheme with different brands, rules, standards, entry criteria and processing infrastructures.

MasterCard says in the current situation the consumer is, in effect, faced with plastic DMs, francs and guilders.

Alexander Labak, president, MasterCard Europe, says: "The MasterCard vision for Sepa stresses the need for a competitive model that will operate as efficiently inside and outside the eurozone and replace cash as the dominant form of payment."

A progress report published in December last year by the governing council of the European Central Bank highlighted the need for interoperability among national card schemes.

Research by EPC has shown that a phased move to replace cash with plastic debit cards could save the eurozone economy up to EUR50 billion. Cash still accounts for more than 70% of transactions in Europe, but this rate is falling. In Germany cash accounts for nearly 90% of payments, but in the UK, which is outside the eurozone, plastic transactions have now overtaken cash payments.

The European Commission yesterday announced a competition commission investigation into the retail banking sector, as Brussels turns up the pressure on banks to break down national barriers. Charlie MCreevy the EU internal markets commissioner, warned that the Commission would publish draft proposals to regulate the payments market if banks failed to demonstrate any progress.

"We cannot sit on our hands forever. We will do what is needed to ensure that industry delivers a single payments area," he says. "If necessary, the Commission will make some agreed industry standards mandatory."