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S I N G L E E U RO PAY M E N T S A R E A
                                          N Ov E M b E R 2 0 0 8




SIxTh
PROGRE...
SINGLE EURO PAYMENTS AREA
                        SIXTH PROGRESS REPORT
                                 N OV E M B E R 20...
© European Central Bank, 2008

Address
Kaiserstrasse 29
60311 Frankfurt am Main
Germany

Postal address
Postfach 16 03 19
...
CONTENTS
EXECUTIVE SUMMARY                                             5

INTRODUCTION                                    ...
EXECUTIVE SUMMARY
The Eurosystem continues to strongly support           Despite mostly positive developments since the
  ...
will be launched. The Eurosystem is confident           and transitional, i.e. applicable for a limited
      that the migr...
EXECUTIVE
                                                                                                                ...
into account the newest developments                   the European payment industry, e.g. the EPC or
      (e.g. standard...
EXECUTIVE
                                                                                                                ...
INTRODUCTION
The Eurosystem continues to strongly support          In January 2008, SEPA for card payments was
the creatio...
The report is divided into six chapters.
       Chapter 1 presents a review of the status of
       the SEPA Credit Transf...
1 SEPA CREDIT TRANSFER, SEPA DIRECT
  DEBIT AND THE END-DATE FOR MIGRATION
1.1   SEPA CREDIT TRANSFER: PROGRESS AND       ...
any case, projects should already be in place to           Migration to SEPA credit transfer
       meet this November 200...
1 SEPA CREDIT
                                                                                                            ...
expenses. A common, high level of security             in December 2008 as part of the Core SDD
       for SEPA transactio...
1 SEPA CREDIT
                                                                                                            ...
most, such as corporates and SMEs with clients          The Eurosystem encourages the development
       in multiple count...
1 SEPA CREDIT
                                                                                                            ...
achieved, it is important for major actors, such as
       corporates and public administrations in the euro
       area, ...
2 SEPA FOR CARDS AND THE EMERGENCE OF
  ADDITIONAL EUROPEAN CARD SCHEMES
2.1   SEPA FOR CARDS: PROGRESS AND GUIDANCE      ...
concept of a monitoring framework for card             the clearing of card transactions inspired by the
       fees, in r...
2 SEPA FOR CARDS
                                                                                                         ...
Single Euro Payments Area
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Single Euro Payments Area
Single Euro Payments Area
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  1. 1. S I N G L E E U RO PAY M E N T S A R E A N Ov E M b E R 2 0 0 8 SIxTh PROGRESS REPORT EN
  2. 2. SINGLE EURO PAYMENTS AREA SIXTH PROGRESS REPORT N OV E M B E R 20 0 8 In 2008 all ECB publications feature a motif taken from the €10 banknote.
  3. 3. © European Central Bank, 2008 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone +49 69 1344 0 Website http://www.ecb.europa.eu Fax +49 69 1344 6000 All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. ISSN 1725-3071 (online)
  4. 4. CONTENTS EXECUTIVE SUMMARY 5 INTRODUCTION 11 1 SEPA CREDIT TRANSFER, SEPA DIRECT DEBIT AND THE END-DATE FOR MIGRATION 13 1.1 SEPA Credit Transfer: progress and guidance 13 1.2 SEPA Direct Debit: progress and guidance 16 1.3 Building on the SCT and SDD 18 1.4 An end-date for the migration towards the SCT and SDD 19 2 SEPA FOR CARDS AND THE EMERGENCE OF ADDITIONAL EUROPEAN CARD SCHEMES 21 2.1 SEPA for Cards: progress and guidance 21 2.2 Cards standardisation 22 2.3 SEPA compliance of three-party card schemes 23 2.4 The emergence of additional European card schemes 24 3 SEPA FOR INFRASTRUCTURES 27 3.1 SEPA for Infrastructures: progress and guidance 27 3.2 Credit transfer, direct debit and card payment processing 28 4 CASH 29 5 GOVERNANCE OF SEPA 31 6 SEPA MILESTONES 33 ANNEX 1 35 ECB Sixth single euro payments area (SEPA) progress report 3 November 2008
  5. 5. EXECUTIVE SUMMARY The Eurosystem continues to strongly support Despite mostly positive developments since the publication of the 5th Progress Report in July 2007, the creation of the Single Euro Payments Area (SEPA), in which “individuals and corporations the Eurosystem has observed that motivation for are able to make cashless payments throughout the project has been fading away among market the euro area from a single payment account participants, and that the constructive spirit of anywhere in the euro area using a single set the preparation phase has turned into a downbeat of payment instruments as easily, efficiently attitude. Therefore, the Eurosystem considers it and safely as they can make them today at the helpful to issue a further progress report, which national level”. SEPA is needed to move towards focuses on those areas where work remains to a more integrated payments market in Europe, be done by the market in order to overcome this which will bring substantial economic benefits. weariness and to ensure the success of SEPA. It is also a necessary step in the completion of the The addressees of the report are not only the introduction of the euro as the single currency banks and future payment institutions, but all of 15 and soon, with its adoption by Slovakia relevant stakeholders, such as corporates, public in January 2009, of 16 countries in Europe. As administrations, merchants and consumers. The such, SEPA is not just a business project, but is goals of SEPA can only be fully achieved if all also closely linked to the political ambition to stakeholders combine their efforts. move towards a more integrated, competitive and innovative Europe. The project to design The main messages are as follows: and set up SEPA is coordinated and promoted 1. BANKS NEED TO ENSURE MORE by the European Payments Council (EPC), the COMMUNICATION, CLEAR PRODUCT European banking industry’s self-regulatory OFFERINGS AND THE DELIVERY OF A body in the field of payment services. CONSISTENT CUSTOMER EXPERIENCE IN ORDER TO STIMULATE THE UPTAKE OF SEPA In its role as a catalyst for change, the Eurosystem CREDIT TRANSFER BY ALL CUSTOMERS, is closely monitoring the developments towards WITH PUBLIC ADMINISTRATIONS, IN SEPA. With the introduction of the SEPA PARTICULAR, BECOMING EARLY ADOPTERS. Credit Transfer (SCT) on 28 January 2008, the first benefits of SEPA have materialised for banks and, more importantly, have started to The Eurosystem is pleased with the successful reach the end-users of payment services. Most launch of the SEPA Credit Transfer on 28 January Automated Clearing Houses (ACHs) that were 2008. In order to stimulate the uptake of the SCT, processing credit transfers in euro have become which stands currently at 1.5% according to the SCT scheme-compliant. Also, in January 2008, Eurosystem’s euro area SCT indicator, banks SEPA for Cards started for card payments, but need to step up their communication efforts more effort is needed in this field to achieve towards all customers, including by providing the goals of the SEPA project, for example the information on IBAN and BIC, and to make emergence of at least one additional European clear product offers. They also need to deliver a card scheme. Preparations for the third type of customer experience for SCT that is comparable payment instrument, SEPA Direct Debit (SDD), to existing national credit transfers, instead of have continued over the past year, resulting in presenting SCT as a solution for cross-border the adoption of one rulebook for the Core service payments only. Vendors of enterprise resource and another for the Business-to-Business service planning systems or software for payments for the planned launch on 1 November 2009. also have a role to play in bringing SEPA to Moreover, the Payment Services Directive, corporates, public administrations and SMEs. If which is crucial in providing a sound legal basis they are not already using the SCT, major users, across the EU for the processing of payments such as corporates and public administrations, instruments, and especially for direct debits, should have preparations underway to do so by was adopted in November 2007. 1 November 2009, when the SEPA Direct Debit ECB Sixth single euro payments area (SEPA) progress report 5 November 2008
  6. 6. will be launched. The Eurosystem is confident and transitional, i.e. applicable for a limited that the migration will pick up speed, especially period only. Building on this guidance provided when the EPC implements further improvements by the ECB and the European Commission, the that respond to customer requirements. ECB has come forward with a further proposal of a SDD cross-border multilateral interchange The Eurosystem encourages public administrations fee for the interim period. The core elements to lead by example by becoming early adopters of this further proposal are: 1) the level of the of the SEPA payment instruments, as SEPA is a default interim MIF for cross-border SDD is major political objective for Europe and also an set at 8.8 cents, which has to be understood important facilitator for e-government projects. as a maximum (“ceiling”) also; 2) immediate discussion on a long term financial model for 2. THE LAST OBSTACLES FOR A TIMELY SDD is to be launched between the European LAUNCH OF SEPA DIRECT DEBIT SHOULD Commission and the EPC, ideally resulting BE OVERCOME, INCLUDING THE CLOSING in a concrete agreement by the end of the OF THE DEBATE ON THE MULTILATERAL first quarter of 2009 and 3) the interim MIF INTERCHANGE FEE (MIF); THE EPC IS TO for cross-border SDD is applied for a defined OPEN THE ADHERENCE PROCESS AND period which provides banks sufficient time to MONITOR THE REACHABILITY FOR SDD. adapt to the long term financial model for SDD. This would support the launch of the SDD for The SEPA Direct Debit is scheduled to start cross-border euro payments, which is the truly on 1 November 2009, with Core and Business- new payment service at European level and, as to-Business services, as well as an e-mandate such, vital for the success of SEPA. option. However, too many uncertainties may prevent the timely launch and successful take- The EPC, national SEPA migration committees, up of the scheme. To move forward, solutions public authorities and national legislators should must be found urgently, e.g. by providing clarity together focus on clearing up any uncertainties on the launch date, ensuring the continued in this regard. Notwithstanding this, the EPC is validity of existing mandates, meeting customer invited to open the adherence process as soon requirements, increasing communication efforts as possible for the SDD launch on 1 November and closing the MIF debate. 2009 and to monitor the reachability of its SEPA Direct Debit product. To address the uncertainty regarding the 3. SEPA NEEDS TO ENABLE END-TO-END applicability of a MIF, the European Central STRAIGHT-THROUGH-PROCESSING AND TO Bank (ECB), in close consultation with the MOVE BEYOND CORE AND BASIC PRODUCTS. European Commission, has suggested a way forward. Where a legacy default MIF exists for national direct debits, this could also be The full benefits of SEPA will only be reached applied in the respective national context if SEPA responds to customer needs. End- to the SDD. Any change or abolition of the to-end straight-through-processing is a major legacy MIF (e.g. as a result of a decision by the requirement for professional users. On a respective national competition authority or the business level, the messages should be able phasing out of the national direct debit scheme) to carry remittance information end-to-end should be applied to the SDD at national level in order to facilitate automatic reconciliation. as well. This will create a level playing field The ISO standard under development for a for SDD and legacy direct debit schemes, and “Structured creditor reference to the remittance will facilitate migration towards SDD. For information” should be made available to users the “cross-border” SDD, the idea of a default in the SEPA messages as soon as it becomes an MIF would be accepted by the European approved international standard. On a technical Commission provided it is properly justified level, common message standards should be ECB Sixth single euro payments area (SEPA) progress report 6 November 2008
  7. 7. EXECUTIVE SUMMARY offered all the way from one customer to the that setting an end-date is a necessary step and other customer, both in the customer-to-bank will work on the modalities (e.g. self-regulation or domain and in the bank-to-customer domain, i.e. regulation), as well as the end-date itself. respectively payment initiation and notification 5. THE MARKET IS ENCOURAGED TO TAKE A of payment, account report and account MORE AMBITIOUS APPROACH TOWARDS THE statement. The Eurosystem would like to invite SEPA FOR CARDS AND TO SUPPORT MARKET every bank to offer the standardised messages INITIATIVES TO CREATE A EUROPEAN CARD as a minimum to their professional customers. SCHEME. This will also serve as a basis for industry to successfully develop a SEPA-wide framework for e-invoicing services. The SEPA for Cards started on 1 January 2008, but has not been taken up by banks to Significant progress has been made towards the same extent as the SEPA Credit Transfer. developing SEPA online payments, which allow The EPC, following discussions with the customers to use their own Internet banking European Commission, has clarified key aspects application for the initiation of a payment at an of the SEPA Cards Framework (SCF). The online merchant. The Eurosystem encourages Eurosystem is convinced that the clarifications the EPC to finalise the e-Payments framework regarding the geographical coverage of card by the end of 2009. The Eurosystem welcomes schemes and the right of a merchant not to the cooperation agreement signed by the EPC accept certain brands or to decide to levy a with the association of GSM mobile telephone surcharge on certain card transactions have operators in June 2008 to jointly develop mobile corrected certain misunderstandings in the payment channels within SEPA. market, where developments were potentially leading away from the SEPA goals of more 4. SETTING A REALISTIC, BUT AMBITIOUS END- effective competition and greater efficiency. DATE FOR THE MIGRATION TO SCT AND SDD IS A NECESSARY STEP IN ORDER TO REAP Nevertheless, given the importance of card THE BENEFITS OF SEPA EARLY. payments for European citizens and the potential of cards to reduce the cost of cash for banks, To avoid a lengthy and costly migration process merchants and society as a whole, the Eurosystem towards SCT and SDD and, in particular, to would like the market to set itself more prevent an outcome whereby the benefits of SEPA ambitious goals in the field of card payments. are not achieved because SEPA payments are The Eurosystem expects at least one additional used for cross-border payments only, in a “mini- European card scheme to emerge that meets the SEPA” scenario, it is important for major actors, requirements of cardholders, banks, merchants, such as corporates and public administrations, competition authorities and the Eurosystem. The to migrate to the SCT and SDD as quickly as Eurosystem has been discussing this topic with possible. Of course, good product offerings and major European banks and other stakeholders and clear communication by banks are the first steps in has observed a growing understanding of the need convincing these customers to migrate. The next for and increasing support for a European card move is to eliminate the misconception in some scheme. At the moment, there are three market parts of the market that the migration to SEPA can initiatives to create such a European card scheme. be postponed indefinitely. It must be made clear to The Eurosystem welcomes these projects and all market actors that national credit transfer and considers them to be a clear signal that the market direct debit schemes will be phased out in the euro recognises the need for a European card scheme. area by setting a realistic, but ambitious end-date. The Eurosystem will thus continue its efforts to In addition to these schemes and market foster a general understanding among stakeholders initiatives, the EPC is called upon to take ECB Sixth single euro payments area (SEPA) progress report 7 November 2008
  8. 8. into account the newest developments the European payment industry, e.g. the EPC or (e.g. standardisation, three-party card schemes a representative of European card schemes, to and competition authorities’ decisions). At the become a member of EMVCo and PCI SSC, for very least, the SCF needs updating and revising. as long as these proprietary standards are used by Moreover, the EPC should start with the monitoring the European payment industry. The Eurosystem of the implementation of the SCF. The Eurosystem recommends that the European payment encourages all European banks to acknowledge industry, and especially the EPC, should involve the risks for the SEPA for Cards, become more stakeholders (e.g. terminal manufacturers, involved, maintain or regain strategic control over processors, but also merchants and cardholders) the cards market and to seize all the opportunities more, and in a more structured way in the SEPA that the SEPA for Cards can bring. cards standardisation programme. 6. THE EUROPEAN PAYMENT INDUSTRY 7. SECURITY IS THE BASIS FOR TRUST IN SEPA SHOULD ENSURE THAT IT HAS ADEQUATE PAYMENTS, AND ALL STAKEHOLDERS NEED INFLUENCE ON THE SEPA CARDS TO INTENSIFY THEIR EFFORTS. STANDARDS, WHICH SHOULD PREFERABLY BE NON-PROPRIETARY STANDARDS – The security of payments deserves special EPC TO ADVANCE THE SEPA CARDS attention. The Eurosystem welcomes the recent STANDARDISATION PROGRAMME. addition of security principles by the EPC to the SDD Rulebooks, making them mandatory In the field of SEPA cards standardisation, for all scheme participants. The Eurosystem the EPC, in cooperation with all stakeholders, expects each bank to implement exemplary is progressing towards finalisation of a risk management procedures, with a view to comprehensive framework of requirements contributing to the safety and attractiveness of for all domains of card payments (i.e. card-to- the SDD scheme as a whole. terminal, terminal-to-acquirer, acquirer-to-issuer and certification and type approval) by the end The Eurosystem is also pleased to see that the of 2008. However, the framework as it now EPC has created a dedicated working group on stands is a long way from being a set of standards information security and that it will define good that is ready to be implemented by the market. practices by the end of 2008. It is necessary to Moreover, certain elements seem to be missing, safeguard trust in electronic payment channels, such as the newest developments in the context as well as the availability and usability thereof. of ISO 20022. A new deadline of the end of 2009 If the full benefits of SEPA are to be realised, at the latest should therefore be set. In order to differing security practices or a “race to the meet this deadline, the EPC is invited to build on bottom” competition for reduced security the work of the existing European standardisation expenses must be avoided. A common, high initiatives with which it has been cooperating. level of security for Internet banking, card payments and online payments is needed. The Eurosystem recommends the European Banks are invited to commit to the appropriate payment industry to use non-proprietary security standards and recommendations, and standards (such as ISO standards) where to take into account not only the perspective of available and to actively work on creating such the banks, but also that of their customers when standards where they are not yet available. deciding on security issues. In recognition of Moreover, it recommends the European the fact that the safety of Internet banking and payment industry to become more active in the online payments is dependent on many actors, relevant global standardisation initiatives in coordination among stakeholders should be order to have adequate influence on standards promoted. For example, improved cooperation development. Finally, the Eurosystem invites with the European Commission is needed ECB Sixth single euro payments area (SEPA) progress report 8 November 2008
  9. 9. EXECUTIVE SUMMARY to investigate the harmonisation of the legal arrangements deserve special attention. Although framework for fighting e-crime. the EPC has made considerable progress in balancing the interests of different stakeholders 8. INFRASTRUCTURES ARE LEADING in the SEPA schemes, there is still considerable BY EXAMPLE, BUT THE REMAINING room for improvement as regards involving RESTRICTIONS ON INTEROPERABILITY the full range of stakeholders, from corporates SHOULD BE REMOVED. to public administrations and from retailers to consumers, without suggesting that these The effects of SEPA have so far been most should become members of the EPC Plenary. visible at the infrastructures level, i.e. the The Eurosystem would especially welcome the entities that offer an inter-bank funds transfer involvement of public administrations, which system. The Eurosystem is pleased to note are major customers for payment services and that most ACHs that were processing credit should act in line with the political objectives transfers in euro have become SCT scheme- of the SEPA project. Also, further progress compliant and have been processing SCTs since needs to be made regarding transparency and the scheme was launched in January 2008, delivering the SEPA goals. The EPC should supported by their messaging platforms. Several consider making several improvements to its infrastructures are making the step from offering governance arrangements in response to valid purely domestic operations towards becoming criticism from stakeholders, regulators and the pan-European service providers in a true Eurosystem. One short-term remedy would be euro-domestic market. The Eurosystem fully to strengthen the EPC Secretariat so that it can welcomes this approach. Remaining obstacles to adequately support the EPC in its many tasks. the SEPA for infrastructures should be removed: In the medium to longer-term, more substantial no bank or banking community should be forced changes are needed to improve the EPC’s by any entity to use a particular infrastructure effectiveness, transparency and accountability. (whether as a direct or an indirect participant) or 10. CLARITY AND CERTAINTY WITH REGARD TO to use specific proprietary technical standards. THE SEPA TASKS THAT THE EUROSYSTEM Furthermore, the Eurosystem encourages EXPECTS TO BE FULFILLED – all stakeholders (i.e. EPC, EACHA and all SEPA IMPLEMENTATION AND MIGRATION euro area ACHs) to continue their work on MILESTONES. achieving full interoperability of infrastructures. Infrastructures are expected to create a link with any other infrastructure upon request. In order to provide clarity and certainty as to the tasks that it expects to be fulfilled, the Eurosystem 9. GOOD GOVERNANCE OF THE SEPA PROJECT has identified a list of milestones for SEPA REQUIRES CHANGES IN THE EPC’S MANDATE implementation and migration. The list of SEPA AND ORGANISATION. milestones will enable better management of the SEPA project and improved measurement of The success of SEPA greatly depends on an the progress towards SEPA implementation and adequate governance of the project. Good migration, while at the same time contributing to governance arrangements for a project such as the preservation of momentum. In chronological SEPA means involving different stakeholders at order, the milestones are: ensuring the continued both European and national levels and balancing validity of existing mandates; SDD MIF; a review their interests, with transparency as well as with of Regulation 2560/2001; the setting of an end-date mechanisms that ensure the delivery of the for the SCT; the SDD launch; the transposition of SEPA targets. the Payment Services Directive; the e-invoicing framework; the setting of an end-date for the SDD; Given the crucial role played by the EPC a decision on additional European card schemes; in the SEPA project, the EPC’s governance and the implementation of SEPA cards standards. ECB Sixth single euro payments area (SEPA) progress report 9 November 2008
  10. 10. INTRODUCTION The Eurosystem continues to strongly support In January 2008, SEPA for card payments was the creation of the Single Euro Payments Area also launched, but more effort is needed in this (SEPA), in which “individuals and corporations field to achieve the goals of the SEPA project, are able to make cashless payments throughout for example the emergence of at least one the euro area from a single payment account additional European card scheme. anywhere in the euro area using a single set of payment instruments as easily, efficiently With regard to the third type of payment and safely as they can make them today at instrument, SEPA Direct Debit (SDD), the national level”. SEPA is needed to move preparations have continued over the past year, towards a more integrated payments market in resulting in the adoption of two Rulebooks Europe, which will bring substantial economic for the Core service and the Business-to- benefits to society. It is also a necessary step in Business service for the launch of the SDD on the completion of the introduction of the euro 1 November 2009. Even so, this important SEPA as the single currency of 15 and, soon, with its instrument is still beset by many uncertainties, adoption by Slovakia on 1 January 2009, of which need to be resolved urgently. 16 countries in Europe. As such, SEPA is not just a business project, but is also closely linked Progress has also been made in the fields of to the political ambition for a more integrated, e-payments and mobile payments. competitive and innovative Europe. SEPA is a major European objective, which in ambition, Moreover, the governance of the SEPA project size and complexity, is comparable with the as a whole and of the EPC as its main promoter changeover to the euro and the introduction of have been subject to discussion. euro banknotes and coins. The project to design and set up SEPA is coordinated and promoted Despite the mostly positive developments since the publication of the 5th Progress Report, by the European Payments Council (EPC), the European banking industry’s self-regulatory the Eurosystem has observed diminishing body in the field of payment services. In its motivation among market participants for role as a catalyst for change, the Eurosystem is the project and that the constructive spirit of closely monitoring the developments towards the preparation phase has been turning into a SEPA. To date, the Eurosystem has published downbeat attitude. Therefore, the Eurosystem five progress reports on the topic, all of which considers it helpful to issue a further progress assess the state of preparation and provide report, focusing on areas where work remains to guidance to the market. Moreover, a report be done by the market in order to overcome this specifically addressing card payment schemes weariness and to ensure the success of SEPA. was published in November 2006. The addressees of the report are not only the banks and future payment institutions, but all Since the publication of the fifth progress relevant stakeholders such as corporates, public report in July 2007, there have been many new administrations, merchants and consumers. The developments. The successful launch of SEPA goals of SEPA can be fully achieved only if in January 2008 was a major milestone. With all stakeholders actively combine their efforts. the introduction of the SEPA Credit Transfer Besides guidance to the market on how the (SCT) on 28 January 2008, the first benefits of remaining problems could be overcome, this SEPA have materialised for banks and, more progress report also contains milestones, with importantly, have started to reach the end- the aim of providing clarity and certainty with users of payment services. National SEPA regards to the tasks that need to be fulfilled to implementation and migration plans were drafted make SEPA implementation and migration a and published. Most automated clearing houses success. All stakeholders are requested to take (ACHs) that were processing credit transfers in up the guidance and tasks, so that the goals of euro have become SCT scheme-compliant. SEPA can be achieved. ECB Sixth single euro payments area (SEPA) progress report 11 November 2008
  11. 11. The report is divided into six chapters. Chapter 1 presents a review of the status of the SEPA Credit Transfer and SEPA Direct Debit instruments. Chapter 2 addresses SEPA card payments, including standardisation and the emergence of additional European card schemes. Developments in the infrastructures for processing, clearing and/or settlement of SEPA payments are covered in Chapter 3. The developments with regard to cash are described in Chapter 4. Chapter 5 deals with governance issues. Finally, Chapter 6 presents the SEPA milestones. ECB Sixth single euro payments area (SEPA) progress report 12 November 2008
  12. 12. 1 SEPA CREDIT TRANSFER, SEPA DIRECT DEBIT AND THE END-DATE FOR MIGRATION 1.1 SEPA CREDIT TRANSFER: PROGRESS AND In addition to compiling the Euro area SCT GUIDANCE indicator, the Eurosystem also assesses the take- up of SCT at the national level. The “National The SEPA Credit Transfer, which was SCT indicators” give a more comprehensive launched on 28 January 2008, has had a view on the situation in each country with successful start, with more than 4,000 banks regard to the market share of national legacy adhering to the scheme (i.e. Version 2.3 of the products and SEPA Credit Transfers. They SEPA Credit Transfer Scheme Rulebook). By are compiled biannually and are based on data the end of August, 4,350 banks had adhered received from a larger number of sources. The and, according to the EPC, nearly all banks national indicators will be published on the euro that are active in the payments business would area NCB websites from the end of 2008. adhere and be able to send and receive SCTs. It can therefore be concluded that reachability The uptake of the SCT is influenced by the pace of banks in SEPA has not been problematic. In of changeover procedures at the level of banks, the start-up phase, there were some teething promotion of the new instrument by banks and problems, for instance with regard to the use of preparations by users, for instance in updating incorrect BICs and the inaccurate application their ERP (Enterprise Resource Planning) of the scheme rules when making a SCT return system or payment software. At present, a large transaction, but these were quickly brought to number of banks have not yet finalised their the attention of the EPC by market participants operational preparations for the mass processing and subsequently addressed. of SCT transactions, and processing still requires manual intervention. Moreover, communication In the run-up to the launch, national SEPA by many banks has on average been minimal or implementation and migration plans were was only addressed to specific customers. The drafted and published. The Eurosystem ECB conducted a Corporate Survey in 2007 established 12 common provisions for the and 2008, to which over 300 companies, large and small, responded 2. In 2008, awareness of national plans and periodically monitored their transposition. The Eurosystem has decided to SEPA increased significantly to 80% (from 53% continue monitoring developments in the SEPA in 2007), but the main source of information closely now that it has moved on from being a remains the press, rather than banks, and survey concept to become a reality. It has compiled the respondents did not have a full appreciation of “Euro area SCT indicator” to monitor the take- the impact of SEPA. Banks therefore need to up of the SCT in the euro area. The indicator is step up their communication efforts, including based on data supplied by infrastructures by providing information on IBAN and (ACHs) located in the euro area. As such, it does BIC, and to make clear product offers to all not exactly measure all SCT transactions, e.g. it customers. Vendors of ERP systems or software does not include on-us transactions and for payments also have a role to play in bringing transactions cleared via bilateral clearing or SEPA to corporates, public administrations and correspondent banking, but provides a valuable SMEs. The Eurosystem invites those vendors and unique indicator of the percentage share of that are lagging behind to ensure that their SCT transactions in the total volume of credit products are ready for SEPA and offer them to transfer transactions. The indicator is updated their customers. On the other hand, customers monthly and is published on the ECB’s website. 1 might want to time their changeover processes According to the indicator, the use of the SCT to the roll-out of the SEPA Direct Debit, which (see graph below) has grown steadily since its is scheduled for launch in November 2009. In launch on 28 January 2008. In September 2008, 7 million SCT transactions were processed by 1 See http://www.ecb.europa.eu/paym/sepa/timeline/html/index. en.html. euro area CSMs, accounting for 1.5 % of the 2 The ECB Corporate Survey makes use of the European total credit transfer volume. Commission’s “European Business Test Panel”. ECB Sixth single euro payments area (SEPA) progress report 13 November 2008
  13. 13. any case, projects should already be in place to Migration to SEPA credit transfer meet this November 2009 deadline. (percentages) In the first eight months, the use of the SCT volume of transactions processed in SEPA format seems to have been mainly restricted to cross- as a percentage of total transactions border transactions in euro, which are commonly 1.6 1.6 estimated to account for around 2% of credit 1.5 1.5 1.5 1.4 1.4 transfers in Europe. However, the positive 1.4 1.3 1.3 news is that SEPA migration has started. The 1.2 1.2 1.2 1.1 1.1 Eurosystem is confident that this will speed 1.1 1.0 1.0 1.0 0.9 0.9 up, especially when further improvements 0.9 0.8 0.8 0.8 (see below) are implemented, when the SDD 0.7 0.7 0.6 0.6 becomes available from 1 November 2009, 0.5 0.5 0.5 and when broad agreement among stakeholders 0.4 0.4 28 Jan. Mar. Apr. May June July Aug. Sep. can be reached on setting an end-date for the - 29 Feb. 2008 migration of legacy credit transfers to the SCT. Source: ECB. The Eurosystem expects that the migration to SCT transactions will have reached a critical mass by the end of 2010. analyse the requirements for harmonising the bank-to-customer message standards, i.e. the In parallel to the roll-out of the SCT, in 2008 the messages for notification of payment, account EPC has worked on a number of changes and report and account statement. Finally, the EPC improvements requested by customer addressed the requirements from corporates representatives and/or banks. These updates related to remittance information. The EPC have been incorporated in Version 3.2 of the approved a guidance document which will allow SCT Rulebook, which was approved by the EPC early movers to implement the ISO standard that in June 2008 and is scheduled to replace the is under development for a “Structured creditor current Version 2.3 on 2 February 2009 3. In reference to the remittance information” as soon addition to some legal changes and factual as it is an approved international standard. corrections, the new version aims at improving the service quality of the product offered by However, the Eurosystem has identified some banks. The Eurosystem welcomes these remaining obstacles to the take-up of the SCT. improvements to the SCT, mainly the “(category) Customer experience of the SCT cannot yet be purpose” codes given by the Payer to signal the fully compared with the experience of existing purpose of the transaction (e.g. salary payment) national credit transfers. For example, it is and “reference party” codes to indicate that the not always possible to make payments with Payer and/or Payee are acting on behalf of a scheduled execution date and/or periodic another (legal) entity. Both of these payments, and some online banking applications improvements were in response to requests by 3 Version 3.2 of the SCT Rulebook is an update of Version 3.0 corporate users. Other changes resulted from the (approved in December 2006) and will replace the currently participation of Swiss financial institutions in “live” Version 2.3 on 2 February 2009. Although a Version 3.1 was developed, it was not approved. Some changes in the the SCT Scheme 4. The EPC also consulted Rulebook will only take effect as of 1 November 2009, the stakeholders on implementation guidelines implementation deadline for the Payment Services Directive. aimed at harmonising the customer-to-bank 4 SEPA now comprises 31 countries, i.e. the 27 EU Member States, Norway, Iceland, Liechtenstein and Switzerland, as message standards and enabling customers to well as territories that are deemed to be a part of the EU under initiate SCT (and SDD) in a uniform manner Article 299 of the Treaty of Rome (Martinique, Guadeloupe, French Guiana, Réunion, Gibraltar, the Azores, Madeira, Canary and approved the customer-to-bank Islands, Ceuta and Melilla, and the Aland Islands). The EPC implementation guidelines for SCT. has developed general principles and criteria for countries and Furthermore, the EPC has recently started to territories wishing to become part of SEPA. ECB Sixth single euro payments area (SEPA) progress report 14 November 2008
  14. 14. 1 SEPA CREDIT TRANSFER, require a specific screen to be opened or a SEPA the messages for payments initiation and SEPA DIRECT DEBIT AND THE country to be selected from a list of all countries notification of payment, account report and END-DATE FOR in the world. This shows that SEPA payments account statement. The EPC is invited to also MIGRATION are being offered by many banks in the euro develop the technical XML-schemas for the area as cross-border payments in euro, instead messages. The Eurosystem would like to invite of as normal “domestic” payments. With regard every bank to provide the message standards as to IBAN and BIC, the Eurosystem would like a minimum offer, meaning that bank proprietary to invite banks to start consistently using these messages could be used in the customer-to- identifiers instead of the national ones and to bank and bank-to-customer domain, but only in encourage all creditors to present these identifiers addition to the standardised messages. on their invoices or tax invoice statements. The Eurosystem welcomes the fact that banks have The Eurosystem encourages public agreed to facilitate or offer conversion services administrations, in accordance with the to IBAN and BIC for (corporate) customers ECOFIN conclusions of 22 January 2008, to that would like to update their account number lead by example and become early adopters of databases. To stimulate the use of SCT by the SEPA payment instruments, as SEPA is a smaller users, i.e. citizens and SMEs, it would major political objective for Europe and also an be helpful if banks would require them to use important facilitator for e-government projects. IBAN only; the bank of the ordering customer Central banks will migrate early to the SCT for would then add the correct BIC by retrieving their own payments, and promote the use of the this from databases available on the market. SCT by the public administrations for which Furthermore, the Eurosystem would welcome they may act as payment service provider. the abolition of national restrictions on the use of SCT, such as the requirement to use pricing In the medium term, further improvements will options other than SHARE for certain payments. be needed to make the SCT a lasting success, In the same vein, the market, together with the especially as far as eSEPA is concerned, as relevant national authorities, should resolve as SEPA should not end with only core and basic soon as possible the lack of clarity on Balance- products, but should respond to valid user of-Payments reporting via payment instructions. requirements. Paragraph 1.3 describes some of The Governing Council of the ECB gave clear these required improvements. Moreover, the guidance on this issue in February 2008. Eurosystem reaffirms its view that, in the long term, the payment industry needs to develop a It should be recalled that the benefits of switching more user-friendly account identifier than the to SEPA payments for large users, such as IBAN. corporates and public administrations, are as follows. First, there will be a single, streamlined The security of payments deserves special procedure for all European payments, instead of attention. The Eurosystem is pleased that the separate and sometimes laborious procedures EPC has set up a dedicated working group for domestic and intra-European cross-border on information security and will define good payments. Second, there will be a larger choice practices by the end of 2008. Electronic payment of banks competing for this service. Finally, channels provide outstanding efficiency for both prices for SEPA instruments will also reflect banks and their customers. Therefore, trust, increased economies of scale in their processing. availability and usability of e-channels must be In order to bring these professional users on safeguarded. Moreover, cyber crime is dynamic board, banks also need to deliver a service that and innovative, and all market participants, includes common message standards all the authorities and customers need to fight it way from one customer to the other customer, together. To reap the benefits of SEPA, we must both in the customer-to-bank domain and in avoid differing security practices or a “race to the bank-to-customer domain, i.e. respectively the bottom” competition for reduced security ECB Sixth single euro payments area (SEPA) progress report 15 November 2008
  15. 15. expenses. A common, high level of security in December 2008 as part of the Core SDD for SEPA transactions is essential, especially Rulebook. in the field of Internet banking, card payments and online payments. Banks are invited to The harmonisation of the European legal commit to the appropriate security standards framework is key for the SDD. The Payment Services Directive 6 (PSD) was formally adopted and recommendations, and to take into account the perspectives of the banks, as well as those in November 2007 and contains a number of of their customers when deciding on security provisions, which are crucial to provide a sound issues. Given that the safety of Internet banking legal basis across the EU for the processing and online payments is dependent on many of payment instruments, such as direct debits. actors (e.g. banks, software/hardware vendors, Another aim is to increase competition in the end-users, legislators, law enforcement), payment market by introducing the concept of coordination between stakeholders should be Payment Institutions, which can provide certain encouraged. For example, improved cooperation payment services under a lighter supervision with the community legislator is needed to framework. According to the European investigate the harmonisation of the legal Commission, the EU Member States are well framework for fighting e-crime. on track with regard to transposing the PSD into national law before the deadline of 1 November 1.2 SEPA DIRECT DEBIT: PROGRESS AND 2009. The PSD will facilitate the operational GUIDANCE implementation of SEPA, especially of the SDD. In the light of the importance of the PSD for In the past year, the EPC has made solid progress the implementation of SEPA, the Eurosystem towards finalising the two direct debit schemes would like to encourage Member States to foreseen. In June 2008, the EPC approved transpose the Directive into national legislation Version 3.1 of the SEPA Core Direct Debit in a timely and coherent way. Moreover, the Scheme Rulebook and Version 1.1 of the SEPA transposition process provides an excellent Business-to-Business (B2B) Scheme Rulebook. legislative opportunity to ensure the continued These two Rulebooks currently form the basis validity of existing direct debit mandates for for the roll-out of SDD, which is scheduled for use with the SDD, thereby avoiding a costly 1 November 2009 5. The EPC is urgently invited and time-consuming mandate renewal process. to reconfirm this launch date in order to give The continued validity of existing mandates is a clarity to all stakeholders. The EPC is also in the major critical success factor for a swift migration process of developing an e-mandate solution, to the SDD. The Eurosystem welcomes the i.e. a solution which allows the involved parties establishment by the European Commission to issue and process the necessary authorisation of a transposition working group to ensure a for a direct debit transaction in a paperless, fully harmonised transposition. electronic manner, which uses the validation services of the debtor’s bank to provide increased security. The EPC released the 5 Version 3.1 of the Core SDD Rulebook is an update of e-mandates Service Description for stakeholder Version 2.3 (approved in June 2007). Although a Version 3.0 consultation in June-July 2008 and is working was developed, it was not approved. The changes consist of legal changes, factual corrections and changes resulting from on the description of the “e-Operating Model” the adoption of a B2B Rulebook. The new version also aims (which could also serve as a technical basis for at improving the service quality, mainly by adding “(category) SEPA e-Payments; see Section 1.3), which has purpose” and “reference party”, which were also changed in the SCT Rulebook, as well as new detailed exception handling been submitted for stakeholder consultation in procedures and a change in the validity of mandates from 18 to October-November 2008. The Security Concept 36 months. 6 Directive 2007/64/EC of the European Parliament and of the will be the third aspect of the e-mandate services. Council of 13 November 2007 on payment services in the internal It is envisaged that the final version of the market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC e-mandate solution will be approved by the EPC and 2006/48/EC and repealing Directive 97/5/EC. ECB Sixth single euro payments area (SEPA) progress report 16 November 2008
  16. 16. 1 SEPA CREDIT TRANSFER, A second Community legislative process which on this guidance provided by the ECB and the SEPA DIRECT DEBIT AND THE has major consequences for the SDD is the European Commission, the ECB has come END-DATE FOR review of Regulation 2560/2001 on cross-border forward with a further proposal of a SDD cross- MIGRATION payments in euro 7. It is widely recognised that border multilateral interchange fee for the the adoption of the Regulation was the trigger interim period. The core elements of this further for the banking industry to start developing proposal are: 1) the level of the default interim MIF for cross-border SDD is set at 8.8 cents 10, SEPA in 2002. The European Commission has now adopted a proposal adapting the Regulation which has to be understood as a maximum to the current payments landscape, i.e. by (“ceiling”) also; 2) immediate discussion on a extending it to include direct debit transactions 8. long term financial model for SDD is to be This will mean that the prices for SDD products launched between the European Commission may not exceed those for the corresponding and the EPC, ideally resulting in a concrete national direct debit product. The review also agreement by the end of the first quarter of 2009 entails raising the exemption threshold for and 3) the interim MIF for cross-border SDD is Balance-of-Payments (BOP) reporting from applied for a defined period which provides €12,500 to €50,000 by 1 January 2010 at the banks sufficient time to adapt to the long term latest and a “sunset clause” for BOP reporting financial model for SDD. up to 1 January 2012 at the latest, meaning that reporting based on payment messages should One potential obstacle to the subsequent cease on that date. A revised Regulation would take-up of the SDD is the dissatisfaction of further facilitate the implementation of SEPA. end-users in major direct debit markets with the current service level and security of the A year ahead of its launch, many uncertainties SDD. With regard to the latter issue, the EPC remain with regard to the SDD, and these pose has recently added security principles to the an obstacle to its timely launch and successful SDD Rulebooks, making them mandatory take-up. Of these, the ongoing debate about a for all scheme participants. The Eurosystem multilateral interchange fee (MIF) is the most expects each bank to implement exemplary important. To support a timely launch, the ECB, risk management procedures, with a view of in close consultation with the European contributing to the safety and attractiveness of the Commission, has suggested a way forward 9. For entire SDD scheme. Regarding the service level, an interim period starting 1 November 2009, the banks should offer tailor-made solutions, and default MIF for the SDD at national level could banking communities should create transparent be equal to the MIF for the domestic direct debit, community Additional Optional Services (AOS) provided that a domestic MIF is in place on that for those clients or communities that are used to date and for as long this domestic MIF is allowed certain domestic service levels that are not or not under national (competition) law. This would yet encompassed by the SDD. In addition, the leave banks’ business models unaffected in the benefits of the SDD could be made more visible short term, create a level playing field for the by the EPC, national banking associations and SDD at national level and legacy direct debit individual banks, starting with communication schemes and thus facilitate the migration towards prospective users who stand to gain the towards the SDD at national level. Under this approach, the payment accounts are the basis for deciding whether a transaction is considered 7 Regulation (EC) No 2560/2001 of the European Parliament and domestic or cross-border (e.g. by the country of the Council of 19 December 2001 on cross-border payments in euro. codes in the two IBANs or BICs). The idea of a 8 See http://ec.europa.eu/internal_market/payments/crossborder/ default MIF for a cross-border SDD would be index_en.htm. 9 See ECB press release of 4 September 2008; http://www.ecb. accepted by the European Commission provided europa.eu/press/pr/date/2008/html/pr080904_1.en.html that it is objectively justified and transitional, 10 The median calculated on the basis of the current national i.e. applicable for a limited period only. Building multilateral interbank arrangements. ECB Sixth single euro payments area (SEPA) progress report 17 November 2008
  17. 17. most, such as corporates and SMEs with clients The Eurosystem encourages the development in multiple countries. of new inter-bank business rules and standards that take the SCT and/or SDD as The EPC, national migration committees, public their basis. In October 2007, in a follow-up authorities and national legislators should to the “European E-invoicing Initiative”, the together focus their attention on eliminating European Commission decided to establish uncertainties and overcoming the obstacles to an e-invoicing expert group whose goal is to the SDD launch and take-up, for example by develop a European e-invoicing framework. providing clarity on the launch date, ensuring The purpose of the framework is to establish continued validity of existing mandates, closing a common conceptual structure to support the MIF debate, meeting customer requirements the provision of e-invoicing services in an and increasing communication efforts. In open and interoperable manner across Europe. addition, it seems advisable that the EPC should Current e-invoicing services should thus not ensure that a testing plan and testing facilities for become obsolete, but the framework should SDD processing are in place. Notwithstanding define requirements that allow these solutions to this, the EPC is invited to open the adherence become fully compatible with SEPA. An interim process as soon as possible for the SDD launch report will be issued before the end of 2008. The on 1 November 2009 and to monitor the final report is due by the end of 2009 and will reachability for its SEPA Direct Debit product, address, inter alia, legal requirements, business so that migration can start swiftly. requirements, network models and standards. Based on the framework, service providers 1.3 BUILDING ON THE SCT AND SDD should be able to offer e-invoicing services to their customer across SEPA. The expert group The SEPA payment instruments ensure that has organised the work into three parallel work euro payments between any two payment streams: 1) legal and regulatory requirements; accounts within SEPA are processed smoothly 2) business requirements; and 3) network and without manual intervention. This is solutions supported by standards. A number commonly referred to as straight-through- of European countries already use e-invoicing processing (STP). For corporates, public services. E-invoicing saves considerable costs administrations, SMEs and consumers, real and resources as almost all paper and manual benefits will emerge once all euro payments work is deleted from the payment process. become “end-to-end STP”, i.e. are smoothly By means of e-government, including public processed from customer to customer without procurement, large potential savings can also be requiring manual intervention. This requires made. E-invoicing is an essential element in any that the SEPA payment instruments allow any e-government initiative and could preferably customer to initiate a payment electronically be implemented jointly with SEPA. The work and receive electronic confirmation once the conducted by the expert group is thus of great payment is settled. As described in Section 1.1, importance for SEPA and should proceed at full the Eurosystem invites banks to deliver as a speed to avoid the emergence of fragmented minimum offer the standardised messages in national solutions. the customer-to-bank and bank-to-customer domain. In addition, attention should be devoted In December 2007, the EPC decided to develop to the standardisation of the technical exchange a framework that allows customers to initiate of messages between banks and customers, SEPA payments at online merchants. The i.e. the messaging layer, enabling for instance technical side of the e-Payments framework multi-country users to use the same technical is being prepared in conjunction with the applications with multiple banks. e-Operating Model for the e-mandate solution ECB Sixth single euro payments area (SEPA) progress report 18 November 2008
  18. 18. 1 SEPA CREDIT TRANSFER, 1.4 AN END-DATE FOR THE MIGRATION for the SDD. The framework benefited from SEPA DIRECT DEBIT AND THE TOWARDS THE SCT AND SDD a national consultation conducted in the END-DATE FOR second half of 2007. The overall idea is that MIGRATION the framework can be applied to any SEPA During the migration phase, national payment payment instrument. However, the first step is schemes and SEPA schemes exist in parallel. The the online initiation of SEPA Credit Transfers. dual processing of the SEPA schemes next to the Customers will use their own Internet banking legacy credit transfer and direct debit schemes is application for the initiation of online payments. therefore unavoidable for an initial period. The Eurosystem encourages the EPC to finalise However, handling dual processes for a longer the e-Payments framework by the end of 2009. period would be expensive for both the banking industry and its customers, as documented in the Eurosystem’s 5th Progress Report, in the study by With regard to m-payments, the EPC decided to seek the active involvement of the mobile the ECB on “The economic impact of the Single Euro Payment Area” 11, and in the study by telephone industry. In June 2008, the EPC signed a cooperation agreement with GSMA, Capgemini commissioned by the European the association of GSM mobile telephone Commission entitled “SEPA: potential benefits at stake” 12. This view is shared by a growing operators. The purpose is to create a framework for cooperation between banks and mobile number of corporates and SMEs, which are operators to develop services that allow increasingly asking for a discontinuation of the consumers to initiate SEPA payments via their legacy instruments, because maintaining both mobile telephone. The first project is aimed at legacy and SEPA instruments will be very costly using the SIM card in the cell phone and Near for them. Field Communication (NFC) technology for payments via mobile phones. Similar pilots Furthermore, if national credit transfer and direct are currently running in national communities, debit schemes continued to exist for a longer but the goal is for the cooperation agreement period in parallel with the SCT and SDD, there to ensure that applications can be used SEPA- could be a risk that the SCT and SDD are used wide. Such services could broaden SEPA as for cross-border transactions only, while national they provide new, efficient ways for consumers credit transfer and direct debit schemes continue to make SEPA payments. This initiative is thus to be used for national transactions in a “mini- supported by the Eurosystem and any progress SEPA” scenario. This separate use would mean made is welcomed. that the SCT and SDD would find it very difficult to attain the number of transactions necessary for By designing a Priority Payments service, recovering the investments made and to benefit EBA has shown that initiatives for European from the economies of scale that SEPA brings. payments can also be taken outside the EPC. In this way, fragmentation would persist, and the The Eurosystem welcomes the fact that the competitive advantages for users arising from a EBA (Euro Banking Association) has made single payment market would not materialise. the business rules and standards for the service processor-neutral (i.e. Priority Payments can To avoid a lengthy and costly migration process be processed and settled via EURO1 and towards the SCT and SDD or a “mini-SEPA” TARGET2). The EBA has asked the EPC to outcome in which the full SEPA benefits are not consider transforming the service into a SEPA scheme and transferring it to the Scheme 11 The economic impact of the Single Euro Payments Area, by Management Entity of the EPC, which is the Heiko Schmiedel, ECB Occasional Paper No 71 (August 2007) http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp71.pdf natural organisation for the management of all 12 See http://ec.europa.eu/internal_market/payments/docs/sepa/ SEPA schemes. sepa-capgemini_study-final_report_en.pdf ECB Sixth single euro payments area (SEPA) progress report 19 November 2008
  19. 19. achieved, it is important for major actors, such as corporates and public administrations in the euro area, to migrate to the SCT and SDD as early as possible. Of course, attractive product offerings and clear communication by banks are the first steps in convincing these customers to migrate. The next step is to eliminate the misconception in some parts of the market that the migration to SEPA can be postponed indefinitely. It must be made clear to all market actors that national credit transfer and direct debit schemes will be phased out in the euro area. Setting a realistic, but ambitious end-date for each of these services would bring such clarity. The Eurosystem will continue to work towards fostering a general understanding among stakeholders that setting an end-date is a necessary step. There would be several, possibly incremental ways to implement an end-date: IBAN could be made mandatory for payments; SEPA message standards could be made mandatory for euro payments; clearing of non-SEPA credit transfers and direct debits with domestic proprietary standards could be phased out; or banking communities could agree to migrate their national payment schemes to SEPA. It can be argued that since payment instruments were collectively introduced by banks, these could be collectively phased out and replaced by similar instruments providing SEPA-wide reach to all users in the euro area and thus eliminating the current barriers to pan- European competition in the European retail payments market. There are also different ways of implementing the measures chosen: self- regulation by the banking industry, national legislation, Community legislation or an ECB regulation. The Eurosystem will seek the input of stakeholders on the modalities and timing of setting an end-date, as well as on the date(s) itself. ECB Sixth single euro payments area (SEPA) progress report 20 November 2008
  20. 20. 2 SEPA FOR CARDS AND THE EMERGENCE OF ADDITIONAL EUROPEAN CARD SCHEMES 2.1 SEPA FOR CARDS: PROGRESS AND GUIDANCE on all card transactions, as cards are often a more efficient means of payment to society SEPA for Cards started on 1 January 2008, with than other means of payments e.g. cash or banks beginning to distribute, issue, and acquire cheques. However, cost differences between or otherwise process SEPA Cards Framework- cards should be transparent and adequately compliant payment cards. The migration to priced so that when selecting a payment EMV, which is an important building block instrument, the user is aware of the relative for the SEPA for Cards, is advancing well. costs of different payment instruments. The Moreover, several individual card schemes have Eurosystem is convinced that these and other adapted their rules to the SEPA requirements. clarifications have corrected certain However, doubts remain as to whether all misunderstandings in the market, where card schemes have effectively unbundled and developments were potentially leading away untied processing activities from their scheme from the SEPA goals of more effective management functions. On the whole, the SEPA competition and greater efficiency. for Cards launch has been less visible than that of the SEPA Credit Transfer. This is mainly The EPC is invited to make further clarifications owing to the fact that the EPC chose not to on the SCF where needed, e.g. on the create a SEPA scheme for card payments, but requirement for card schemes to separate instead developed the SEPA Cards Framework scheme management functions from processing. (SCF) in 2005. In its 4th Progress Report, the In addition, the EPC should urgently establish Eurosystem deemed the SCF to be a general and mechanisms to monitor the implementation of multi-interpretable document. the SCF by banks and card schemes. In the meantime, the EPC has published The Eurosystem, in order to help the European “Questions & Answers clarifying key aspects banking industry to create a SEPA for Cards, of the SEPA Cards Framework” (June 2008), is considering developing SEPA compliance as a result of discussions with the European criteria for card schemes and corresponding Commission. These have, among other things, Terms of Reference. Just as with the SCT, clarified that, under the SEPA for Cards, all the take-up of the SEPA for Cards is being card schemes should review their rules and monitored by the Eurosystem. Information will amend them if necessary, so that acceptance, be gathered from card schemes, banks (via the acquiring and issuance is not restricted by EPC), card acquiring processors and possibly national borders. On the other hand, there is no from acquiring banks to compile “SEPA cards obligation for them to be effectively issued, indicators”. The Eurosystem investigated, as acquired and accepted throughout the whole of announced in the 5th Progress Report, the Europe, as this involves commercial decisions 1 This is in line with the PSD, which allows surcharging in on the part of banks, merchants and cardholders. Article 52.3: “The payment service provider shall not prevent the One other major clarification concerns the right payee from requesting from the payer a charge or from offering of a merchant not to accept certain brands or to him a reduction for the use of a given payment instrument. However, Member States may forbid or limit the right to request levy a surcharge on certain card transactions 1. charges taking into account the need to encourage competition and The Eurosystem sees this as an important promote the use of efficient payment instruments.”. Recital (42) provides the background: “In order to promote transparency and counterbalance to certain card schemes and competition, the payment service provider should not prevent card types (e.g. commercial cards) that, through the payee from requesting a charge from the payer for using a their MIFs or otherwise, place a heavy financial specific payment instrument. While the payee should be free to levy charges for the use of a certain payment instrument, burden on the merchant. The decision to use a Member States may decide whether they forbid or limit any such card for a specific purchase and the conditions practice where, in their view, this may be warranted in view of abusive pricing or pricing which may have a negative impact on for acceptance should be taken jointly by the the use of a certain payment instrument taking into account the customer and the merchant. To be crystal clear, need to encourage competition and the use of efficient payment the Eurosystem is not promoting surcharging instruments”. ECB Sixth single euro payments area (SEPA) progress report 21 November 2008
  21. 21. concept of a monitoring framework for card the clearing of card transactions inspired by the fees, in response to signals that the SEPA ISO 20022 work. So far, the EPC seems not to for Cards will lead to increased card fees for have recognised that ISO 20022 has the potential consumers and merchants in some countries. to become the industry standard for cards Although it has not been possible to establish messages. As an open standard, it would offer such a framework, the Eurosystem will closely the European banking industry independence monitor the market situation. from the owners of proprietary standards and/or implementations. The EPC is therefore invited 2.2 CARDS STANDARDISATION to consider the newest developments in ISO 20022 and to integrate them into the EPC cards In the field of cards standardisation, the standardisation programme. EPC, in cooperation with many stakeholders, is progressing towards finalisation of a Some of the standards being selected by the comprehensive framework of requirements EPC may not fully meet the requirements for card payments (EPC SEPA Cards of European stakeholders. The Eurosystem Standardisation Volume document) by the end recommends that the EPC should arrange for of 2008 deadline. This framework covers all greater and more structured involvement by domains of card payments, i.e. card-to-terminal, stakeholders (e.g. by terminal manufacturers, terminal-to-acquirer, acquirer-to-issuer, and processors, but also by merchants and certification and type approval. The EPC has cardholders) in the SEPA cards standardisation been successful in influencing and aligning the programme. Moreover, the dependence on efforts of existing European standardisation global standardisation efforts led by the initiatives. international card schemes, without proper European representation, leads to less than However, partly owing to the complexity of the optimal results for European stakeholders. topics at hand, the framework as it currently All effects of standardisation should be taken stands is far from being a set of standards into account, as it may also have negative side ready for implementation by the market, as it effects alongside the positive direct effects. does not contain the functional and technical An example is the investment mandated by specifications as foreseen earlier. In this sense, it international card schemes in terminal and data is more likely that the actual standards will not security measures aimed at processing data be set by the EPC, but rather delivered by the taken from the magnetic stripe of cards, which abovementioned standardisation initiatives and will no longer be the case for cards issued in endorsed by the EPC as SEPA cards standards. A the SEPA for Cards, where the EMV chip is new deadline for this stage should be set for the the chosen technology in combination with a end of 2009 at the latest, since the work on these PIN for card authentication and cardholder standardisation initiatives has been progressing verification. Here, in addition to investing well. In any case, the EPC has to ensure a solid in the migration to EMV cards and EMV follow-up in terms of communicating and terminals, European stakeholders (schemes, promoting the implementation of the SEPA processors, banks and merchants) will also cards standards. have to invest in terminals that offer protection for processing non-EMV cards, because other, With regard to the content of the standards, non-European communities are not investing in the context of ISO 20022, work started in in the safer EMV technology. The Eurosystem 2008 on developing message standards for recommends that the European payment card authorisation, clearing and settlement. industry should use non-proprietary standards Simultaneously, the Berlin Group, which is made (such as ISO standards) where available and up of various market participants in the cards actively work on creating such standards if market, has been working on a set of rules for they are not yet available. ECB Sixth single euro payments area (SEPA) progress report 22 November 2008
  22. 22. 2 SEPA FOR CARDS AND THE Regarding certification for the security compliance for three-party card schemes EMERGENCE OF ADDITIONAL evaluation for cards and terminals, the would be further investigated. The results EUROPEAN CARD Eurosystem notices that a variety of certification are presented in this section. First of all, the SCHEMES frameworks are currently applied in Europe. A Eurosystem is of the opinion that SEPA certification framework consists of the security compliance shall apply to all card market requirements for cards and terminals as set participants, according to the requirements by the card schemes, the evaluation by test and deadlines set in the EPC’s SEPA Cards laboratories of new cards and terminals, the Framework (SCF) and “The Eurosystem’s certification of the test results by a certification view on a SEPA for cards” (November 2006). authority, and finally the type approval of the From the cardholder’s perspective, the new cards and terminals by the card schemes. differences between three and four-party card Three conditions need to be fulfilled in order to schemes are hardly noticeable. Three-party achieve a harmonised framework: first, the need card schemes compete with four-party schemes to establish trust in such a framework; second, that offer similar kinds of services. The general the need for an appropriate and equivalent aim should therefore be for three-party card level of security for cards and terminals schemes to become SEPA-compliant to the used in SEPA; and finally the possibility for maximum extent possible. card and terminal manufacturers to receive certificates for the whole of SEPA from one of However, in the opinion of the Eurosystem, the certification authorities (under the “one-stop “pure” three-party card schemes, i.e. card shopping” concept). The Eurosystem underlines schemes which undertake both issuing and the need for a trusted pan-European certification acquiring within their own entity, should be framework and will continue to investigate the exempted from the SCF requirements regarding way forward, e.g. towards mutual recognition open access to the scheme, separation of of certification authorities. The EPC is invited scheme and processing and cross-border to acknowledge those certification authorities issuing and acquiring, since this would not be which meet the SCF requirements. compatible with their specific business model and organisational structure. The other SCF The Eurosystem recommends that the European requirements, for instance regarding technical payment industry should become actively standards for cards and terminals, should involved in the relevant global standardisation apply. initiatives in order to have adequate influence on standards development. The EPC could do Three-party card schemes with licensees require more by establishing the common positions of a tailored approach, given their specific business European banks towards these standardisation models and currently relatively small market initiatives. It could use its liaison relation with shares. Following a dialogue with market the relevant ISO committee to do so, as well as its participants, it has been agreed that partial seats on the advisory boards of EMVCo and PCI exemptions from SEPA compliance could be SSC. Finally, the Eurosystem invites the EPC considered, at least for the time being. The or a representative of European card schemes to exemptions relate to open access to the scheme, become a member of EMVCo and PCI SSC for separation of scheme and processing, and SEPA- as long as these proprietary standards are used by wide licensing. The SCF requirements for open the European payment industry. access to the scheme and separation of scheme and processing for authorisation, clearing and 2.3 SEPA COMPLIANCE OF THREE-PARTY CARD settlement are aimed at removing obstacles to SCHEMES competition for services in network industries with an essential facility (i.e. offering In its 5th Progress Report (July 2007), the competitive card services over a neutral Eurosystem stated that the issue of SEPA processing infrastructure). These SCF ECB Sixth single euro payments area (SEPA) progress report 23 November 2008

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