In its report, the ECB warns that the Sepa Cards Framework (SCF) adopted by the bank-backed European Payments Council leaves too much room for interpretation concerning practical implementation.

"The Eurosystem is concerned that the implementation of a Sepa for cards may lead to increases in card fees and could thus be paradoxically detrimental to European citizens and merchants," says the central bank.

The challenge for Sepa implementation, says the ECB, is to make the successful transition to a more integrated market while at the same time preserving the efficiency and low cost levels that characterise the existing national card schemes in Europe.

Policy issues highlighted by the ECB include the need for each card scheme to define and publicly disclose a medium to long-term strategy which is consistent with the objectives of Sepa; to protect confidentiality of personal data; to contribute to the design of standards with a clear commitment for implementation on time; to have a strategy on how to reduce fraud, and especially cross-border fraud; and to foster competition.

The latter issue has the potential to stir controversy, with the ECB calling upon competition authorities in particular to define harmonised rules concerning interchange fees.

Th ECB says plans by national banking communities to ditch domestic card systems in favour of internationally-accepted schems run by Visa and MasterCard - which typically charge higher fees - could lead to an increase in merchant costs in direct contradition with the objectives of the Sepa project.

"While the Eurosystem welcomes the willingness of Visa and MasterCard to offer domestic card services for the euro area, it is deeply concerned about a possible evolution whereby the two international card schemes progressively become the only providers of card payment services offered by banks in the euro area," says the ECB. "Up to now, the two schemes have functioned with very similar business models, with relatively high cost structures and high interchange fees, which leads the Eurosystem to fear that competition limited to these two systems would be insufficient to maintain the present low level of fees in Europe. Additional worries are triggered by uncertainties about the governance of the two systems."

The ECB is calling on the European Commission to clarify its stance on interchange fees and mandate a consistent stance across the Euro-zone - whether by abolishing interchange fees and/or defining a transparent formula for calculating fees.

Separately, the ECB has issued its third progress report on the Target2 project for harmonising large-value payments systems across the Euro area. The report covers recent decisions on outstanding pricing and legal issues and provides an update on contingency procedures, and the forthcoming testing and migration activities.

The go-live date for the single shared platform has been confirmed for 19 November 2007 as well as two subsequent migration waves on 18 February and 19 May 2008.

Read the full Sepa for cards report: