In a fifth progress report on the delivery of the Sepa project, the ECB governing council "strongly recommends" setting up at least one additional European debit card scheme to challenge the hegemony of MasterCard.

Such a scheme could be set up either "by establishing a completely new scheme, or via an alliance between existing national schemes, or by expanding an existing national scheme," says the ECB.

Proposals to create a rival system have already been floated privately by some of the top banks and by domestic ACHs.

The central bank maintains that a new scheme could enhance competition between card schemes, between processors and between banks. It has called on the European Commission's competition directorate to reach a decision on the setting of interchange fees as soon as possible, "as the current uncertainty in the market is hampering the transformation of existing domestic schemes and the start of potential new schemes offering a European alternative".

The ECB's report also focusses on other potential gaps and pitfalls in the drive to deliver Sepa-compliant services by 2008, including the migration to direct debits and in the delivery of bank-to-corporate standards. It has called on the banking industry standard setter the EPC to start working on customer-to-bank and bank-to-customer standards and implementation guidelines, in particular for structured remittance data and automatic reconciliation in Sepa credit transfers and Sepa direct debits.

Communication between all stakeholders in the delivery of the Sepa infrastructure should also be improved. States the ECB: "While the banks have made substantial efforts to become ready for the launch of Sepa, the preparedness of public administrations, corporates, small and medium-sized enterprises (SMEs), merchants and software providers gives rise to some concern."

Read the full progress report here: