Percentage of banks in SEPA offering SEPA Credit Transfer services

As of October 2010, nearly 4500 banks in 32 countries offer SEPA Credit Transfer (SCT) services for euro payments. The payment service providers offering SCT services today represent more than 95 per cent of payment volumes in Europe. Due to mergers and acquisitions, the absolute number of SCT scheme participants has slightly decreased compared to previous Single Euro Payments Area (SEPA) market uptake reports featured in this newsletter. The EPC SCT Participant Register, which lists scheme participants (payment service providers offering SCT services), is publicly available at http://epc.cbnet.info/content/adherence_database.

Percentage of SEPA Credit Transfer transactions compared to total volume generated by customers

According to the SCT indicators compiled by the European Central Bank (ECB), the share of SCTs as a percentage of the total volume of credit transfers generated by bank customers amounts to 9.3 per cent as of August 2010. The ECB SCT indicators are publicly accessible at http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html.

A figure of 100 per cent would indicate that only SEPA services are used and have fully replaced non-SEPA instruments. The SCT indicators are based on aggregated data provided by clearing and settlement infrastructures in the euro area processing SEPA transactions. This data avoids double counting by excluding, for example, SEPA transactions sent via links between infrastructures. The data also excludes "on-us" transactions (SCTs between accounts at the same bank) as well as transactions cleared between banks bilaterally or via correspondent banking. The ECB SCT indicators also show SCT market uptake by country.

Percentage of banks in SEPA offering SEPA Direct Debit services

The EPC launched the SEPA Core Direct Debit Scheme (SDD Core) and the SEPA Business to Business Direct Debit Scheme (SDD B2B) on 2 November 2009. As of this date, banks throughout SEPA gradually started rolling out SDD services to their customers. All branches of banks in the euro area must be reachable for cross-border direct debits; e.g. SDD Core, by 1 November 2010 as mandated by Regulation (EC) No 924/2009 (Article 8).

In April 2010 the Commission services published a "Note on Application of Article 8 of Regulation (EC) No 924/2009 - Reachabillity for Direct Debit Transactions" (a link to this document is included below).  This guidance note states that it is the location of the branch of a credit institution (whether it is inside or outside the euro area), and not the location of the parent company, that determines whether the reachability obligation and deadline applies. Furthermore, no distinction should be made between branches with head offices located outside the EU and those with head offices inside the EU.

As of October 2010 3884 banks representing more than 80 percent of SEPA payments volume have signed up to the SDD Core Scheme. Of those, 3364 banks also adhere to the SDD B2B Scheme. The EPC Participant Registers for the SDD Core and the SDD B2B Schemes list scheme participants (payment service providers offering SDD Core and / or SDD B2B services) and are publicly available at http://epc.cbnet.info/content/adherence_database.

Percentage of SEPA Direct Debit transactions compared to total volume generated by customers

According to the SDD indicators compiled by the ECB, the share of SDD Core as a percentage of the total volume of direct debits generated by bank customers amounts to 0.07 per cent as of August 2010. The ECB SDD indicators are publicly accessible at http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html.

The figures are based on aggregated data from several clearing and settlement infrastructures/systems located in the euro area. As such, SDD transactions which are cleared bilaterally or processed within the same institution are excluded from this indicator.

SEPA for Cards: tracking EMV roll-out

As reported in the previous issues of the EPC Newsletter, good progress is being made in the realisation of a SEPA for Cards, which aims to enable a consistent customer experience when making or accepting payments with cards throughout the euro zone. The EPC's SEPA Cards Framework (SCF) outlines high level principles and rules which will deliver this consistent experience when implemented by banks and card schemes. The SCF recognises the EMV standard for SEPA-wide acceptance of payments with cards at very high levels of security. EMV is an industry standard to implement chip and PIN security for Point Of Sale (POS) card transactions.

An important indicator on the progress in this area is the number of cards, POS and ATMs in the market that use CHIP and PIN for the authorisation of a card payment. More specifically, the percentage of EMV-compliant cards, POS and ATMs in SEPA is monitored.

According to latest findings, in the second quarter 2010 EMV compliance is 71.89 per cent for cards, 93.31 per cent for POS and 95.46 per cent for ATMS. The progress of EMV roll-out based on the EPC findings is also reflected by the ECB SEPA Card indicators.

The Eurosystem has additionally developed a SEPA Card indicator for migration to EMV at transaction level. An 'EMV transaction' is understood to be a card payment transaction in which the following criteria are satisfied: an EMV compliant card is used at an EMV compliant terminal and EMV technology is used in the processing of the transaction. The indicator is calculated as the number of EMV transactions at POS terminals divided by the total number of transactions at POS terminals (irrespective of the country of issuance of the card). The indicator is affected slightly by transactions conducted with cards issued outside the SEPA area. According to the ECB SEPA Card indicators, as of December 2009 some 52 per cent of card payment transactions are EMV-compliant (latest data provided by the ECB).

Last but not least, the ECB SEPA Card indicators also track cardholders' use of their cards when travelling abroad (cross-border use of cards). That use depends on three things: the technical capabilities of the card and the terminal; the merchant's acceptance of the card in question; and the extent to which people have a uniform 'customer experience' across the SEPA area. This indicator is calculated as the number of POS transactions conducted using cards issued outside the country divided by the total number of POS transactions.

Cross-border transactions accounted for around 3.5 per cent of POS transactions in the euro area at the beginning and end of 2008. However, the indicator also shows higher values during the period from July to September 2008. This might be a result of summer holidays, as more people travel during the summer months. In 2009, the indicator was around 1 percent higher compared to 2008, with a similar pattern occurring in summer. A move to a significantly higher level would indicate that SEPA had been successful in changing the card industry, the card acceptance practices of merchants and/or the payment behaviour of cardholders.

The information cited above as regards the ECB SEPA Card indicators, plus additional data provided by the ECB on this subject, are available at http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html.

Public sector: SEPA ready?

SEPA is a policy-maker-driven public harmonisation initiative launched by EU-governments, the European Commission (EC) and the European Central Bank. It is designed to complete the EU internal market and monetary union. As a matter of principle it may therefore be expected that the public sector will pioneer the new SEPA payment services.

The First Annual Progress Report on the State of SEPA Migration in 2008 (February 2009) issued by the EC concluded that "since its launch, the uptake of SCT in the public sector has been very limited." The Second Annual Progress Report on the state of SEPA migration in 2009 (November 2009) prepared by the EC found that high-volume payment users such as public administrations - even if strongly committed to SEPA - were slow in migrating to SEPA with only 1.5 per cent weighted SCT migration rate in September 2009¹. This falls significantly short of the overall SCT migration rate in the euro area.

The Commission's Third Survey on Public Administrations' Preparedness and Migration to SEPA (October 2010), analyses the situation as of end February 2010 and confirms that public administrations clearly lag behind other users in terms of preparedness and migration to SEPA (a link to the survey is included below). The weighted SCT migration rate for the replying public administrations in the euro area was 2.73 per cent. This is significantly below the overall SCT migration rate in the euro area (6.2 % in February 2010).

"On the positive side", or so the survey states, "it should be noted that when compared to the last survey, the SCT migration rate by public administrations has increased (from 1.5 per cent in September 2009) and is expected to rise further by the end of this year, when individual public administrations at central government or federal level in Belgium, Germany, France (see also separate article in this newsletter; a link is included below) and Portugal plan to migrate their domestic traffic to SCT. The expected migration of a large share of payments initiated by central and local governments in France (contributing 60 million payments) and the migration of full payments traffic by the Federal Labour Agency in Germany (251 million payments), will substantially increase the public administration migration rate for SCT".

With regard to SDD migration, the results show that with the exception of Belgium and Germany, public administrations have not yet started to migrate to SDD. The weighted SDD rate for the replying public administrations in the euro area was only 0.06 per cent. Although this figure is low it exceeds the overall SDD migration rate for the euro area (0.04 per cent in February 2010). This figure is, however, expected to progressively increase after 1 November 2010, when the reachability obligation under Regulation (EC) No 924/2009 on cross-border payments in the European Community comes into force for euro area banks. As of that date, banks will have to be reachable for SDD transactions, if they are reachable for national direct debit transactions denominated in euro. On the other hand, it must be recognised that the use of direct debits by public administrations is generally very low or even nil.

Corporate sector: SEPA ready?

No new or additional information has become available since reporting the following in the previous issues of the EPC Newsletter: the SEPA Readiness Survey 2009 by Deloitte, focusing on the corporate sector, finds that SEPA readiness has significantly increased compared to 2008. The survey shows that corporates which have a dedicated SEPA team and strategy in place are already deriving significant benefits from implementation. At the same, the majority of companies now identify SEPA not only as a compliance issue, but also as a business opportunity. For detailed findings of the SEPA Readiness Survey 2009 refer to the article "SEPA Survey 2009: Corporate Readiness on the Rise. The findings confirm that early movers have everything to gain". A link to this article is set out below.

Validity of existing mandates under the SEPA Direct Debit Scheme

No new or additional information on the continued legal validity of existing direct debit mandates has become available since reporting the following in the previous issue of the EPC Newsletter: in any direct debit scheme, a mandate is completed by the debtor (a customer purchasing goods or services) to authorise the creditor (the provider of goods or services) to collect payments via direct debit. At the same time, a mandate usually includes the authorisation of the debtor bank to pay these collections. To facilitate migration of customers to the SDD Scheme, it is imperative that mandates existing today can be used under the SEPA scheme, even if these do not incidentally meet all the requirements of the SEPA mandate. Where necessary, EU Member States must devise legislative solutions to ensure the continued legal validity of existing mandates under the SDD Scheme.

According to the Second Annual Progress Report on the state of SEPA migration in 2009 this issue has been addressed in all EU Member States "with the important exception of Germany". Direct debits are used twice as much in Germany as in the whole of the European Union².

Setting a deadline for migration to SEPA

The EPC recognises the value of setting a deadline for migration to SEPA services. An end date for phasing out legacy euro payment instruments creates awareness, ensures planning security for all market participants and confirms the commitment to making SEPA a reality. The EPC proposes to set an end date for migration to the SEPA Schemes developed by the EPC in close dialogue with the customer community through EU Regulation. This option has the advantage of a concrete and tangible basis for migration as requested by the political drivers of the SEPA initiative and is in line with expectations expressed by several authorities including the EC since the start of the SEPA programme. As confirmed by the findings of a study requested by the EC in 2007, the benefits for bank customers inherent to the SEPA harmonisation exercise are contingent upon swift migration to a single set of SEPA payment instruments by both the demand and the supply sides³. In line with expectations expressed by the EU Finance Ministers, the European Parliament and the European Central Bank, the EPC believes that forthcoming Regulation must set end dates for the phasing out of existing national euro credit transfer and euro direct debit schemes to ensure that the high costs of running multiple payment schemes in parallel can be eliminated.

Gertrude Tumpel-Gugerell, Member of the Executive Board of the European Central Bank, recently reiterated: "To ensure the materialisation of SEPA benefits, a migration end date by regulation for SEPA credit transfer and SEPA direct debit is necessary and should be set by the EU legislator^"4. In the Seventh Progress Report on SEPA published by the ECB / Eurosystem in October 2010 it is stated that the "Eurosystem expects SCT and SDD to become the credit transfer and direct debit schemes used for euro payments in the EU. After the SEPA migration end date, they will have replaced national legacy credit transfer and direct debit schemes for euro payments" (a link to the Progress Report is included below). The European Parliament called on the EC to set a "clear, appropriate and binding end date, which date should not be later than 31 December 2012, for migrating to SEPA products^"5. EU Commissioner Michel Barnier, head of the Directorate-General Internal Market and Services, reiterated in April 2010: "(...) we need to give SEPA (...) a renewed momentum. I believe that binding end-dates are important in this regard^"6.

On 2 December 2009, the Economic and Financial Affairs Council (ECOFIN - comprising the Economics and Finance Ministers of the EU Member States) considered "that establishing definitive end-dates for SDD and SCT migration would provide the clarity and the incentive needed by the market, ensuring that the substantial benefits of SEPA are rapidly achieved and that the high costs of running both legacy and SEPA products in parallel can be eliminated". (see link below to the ECOFIN Conclusions on SEPA of December 2009).

At its inaugural meeting in June 2010, the SEPA Council - bringing together representatives of both the demand and supply sides including the EPC - endorsed a formal declaration stressing "their strong support for the establishment of end-date(s) for migration to SEPA Credit Transfers and SEPA Direct Debits by means of legislation at EU level".

At the meeting of the European Commission's Payment Systems Market Expert Group (PSMEG) on 23 March 2010, the EC tabled a Discussion Paper titled 'SEPA Migration End-Date', which contemplates, among other things, legislative measures to set a mandatory deadline for migration to SEPA. For a detailed EPC commentary on the EC's Discussion Paper of March 2010 refer to the article "On SEPA and US Health Care Reform" in the previous issue of this Newsletter (a link to this article is included below).

In June 2010, the Commission services published a working paper titled 'SEPA Migration End-Date' (a link to this document is included below) outlining the provisions of potential forthcoming Regulation which envisages setting end dates for euro credit transfer and euro direct debit schemes with so-called "essential requirements" and common standards (a link to the document is included below). For a detailed EPC commentary on the Commission services' working paper of June 2010 refer to the article "On Payments and Light Bulbs. Commission ready to write off SEPA via Regulation?" (a link is included below).

In October 2010 the EC announced that a public hearing will be held on 17 November 2010, to ensure all market participants are consulted on the most appropriate approach to regulatory intervention related to SEPA. The EC further indicated that it will introduce a formal proposal for such regulation once the arguments brought forth at this public hearing have been evaluated; which might be in late 2010 or at the start of 2011. For further detailed comments on this subject refer to the article "So what's in a Name? Explaining payment schemes, instruments and systems" in this newsletter (a link is included below). In the view of the EPC, clarity on payment terms is critical in the debate over the approach to setting end dates for migration to SEPA through EU Regulation.

Gerard Hartsink is the Chair of the EPC.

Please note: data, facts and figures cited in this article represent the latest data available as of the publication date of this issue of the EPC Newsletter (25 October 2010).

Related  links:

Commission´s Third Survey on Public Administrations´ Preparedness and Migration to SEPA (October 2010)

ECOFIN Conclusions on SEPA of December 2009

European Central Bank (ECB): Single Euro Payments Area - Seventh Progress Report (October 2010)

European Commission Discussion Paper "SEPA Migration End-Date" of March 2010

Commission services' Working Paper "SEPA Migration End-Date" of June 2010

Regulation (EC) No 924/2009 of the European Parliament and of the Council of 16 September 2009 on cross-border payments in the Community and repealing Regulation (EC) No 2560/2001

European Commission: Note on Application of Article 8 of Regulation (EC) No 924/2009 - Reachabillity for Direct Debit Transactions

Related articles in this issue:

So what's in a Name? Explaining payment schemes, instruments and systems. Clarity on payment terms is critical in the debate over the approach to setting end dates for migration to SEPA through EU regulation

The Quantum Leap for SEPA Direct Debit. From 1 November 2010, all banks in the euro area are reachable for SEPA Core Direct Debit

Preparation for SEPA by Public Administrations in France. France's public administrations are among the country's leading users of cashless payment systems

An Epic Voyage: the SEPA Odyssey. Looking to Homer provides useful insight on the integration of the euro payments market

Related articles in previous issues:

On Payments and Light Bulbs. Commission ready to write off SEPA via Regulation? (EPC Newsletter, Issue 7, July 2010)

On SEPA and US Health Care Reform. EC paper "SEPA Migration End Date": a commentary (EPC Newsletter, Issue 6, April 2010)

European ATM Fraud Losses Down 36 Percent. EMV rollout at ATMs in Europe is helping to reduce skimming losses in some countries (EPC Newsletter, Issue 6, April 2010)

SEPA Survey 2009: Corporate Readiness on the Rise. The findings confirm that early movers have everything to gain (EPC Newsletter, Issue 5, January 2010)

The X Factor. Are EU governments still committed to making SEPA a reality? (EPC Newsletter, Issue 4, October 2009)

Towards a SEPA migration end date? Commission services publish feedback on public consultation on possible end date(s) for SEPA migration (EPC Newsletter, Issue 4, October 2009)

¹ This rate decreased from 2.3 per cent shown in the second Commission services' survey on public administrations preparedness and migration to SEPA (status March 2009) to 1.5 per cent due to a statistical effect, namely that France provided an updated survey reply representing all of its public administration (PA) transactions. Given that France has a very large number of PA transactions (852 million) and has not started to use SCT yet, this brought down the euro area average considerably by increasing the statistical base compared to the previous survey. It is therefore important to note that this should not be perceived as an actual decline of SEPA transactions in the euro area compared to the survey results published in July 2009.

² SEPA2008: Uniform Payment Instruments for Europe. Association of German Banks. 2nd revised edition. September 2008.

³ SEPA: Potential Benefits at Stake (Capgemini) available at http://www.europeanpaymentscouncil.eu/knowledge_bank_detail.cfm?documents_id=283

⁴ "Priorities Of The Belgian Presidency Of The EU For The Financial Services Area", Speech by Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB, att the EUROFI Conference, Brussels, 28 September 2010 available at http://www.mondovisione.com/index.cfm?section=news&action=detail&id=93115 .

⁵ European Parliament Resolutions on the Implementation of the Single Euro Payments Area: http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P6-TA-2009-0139&language=EN&ring=B6-2009-0111 (March 2009) and http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2010-0057+0+DOC+XML+V0//EN (March 2010)

⁶ Michel Barnier, EU Commissioner for Internal Market and Services - Forging A New Deal Between Finance And Society: Restoring Trust In The Financial Sector - European Financial Services Conference, Brussels, 26 April 2010