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In your view, which of the following initiatives will have the greatest impact on the European payments market?

European Commission proposal for revised Payment Services Directive (PSD2)
European Commission proposal for new Regulation on interchange fees for card-based payment transactions
Work programme of Euro Retail Payments Board, chaired by European Central Bank
SecuRe Pay Forum recommendations for security of internet payments; for payment account access services; for security of mobile payments
Guidelines and technical standards issued by European Banking Authority pursuant to mandate provided by proposed PSD2 (Articles 86, 87)
or show results

 

EPC Newsletter
Issue 22 - April 2014

SEPA 2014 and beyond: stay engaged and join the debate.

The April 2014 edition of the EPC Newsletter offers food for thought on how to realise the potential of the Single Euro Payments Area (SEPA) going forward.

However, first things first: according to data made available by the European Central Bank, the vast majority of stakeholders in the euro area were expected to have achieved SEPA compliance by the formal 1 February 2014 deadline mandated by European Union (EU) law. Meeting this milestone has been a tremendous effort for everybody on the demand and supply side. In the view of the European Payments Council (EPC), congratulations are in order. The industry is proud to have contributed, together with all other stakeholders, to realising this unique integration project launched by the European Commission, the European Parliament, the European Central Bank and EU governments more than a decade ago.

This being said, SEPA remains a work in progress. Keeping in mind that the regulators will also claim a major role in determining how to achieve ‘SEPA 2.0’, the April 2014 edition of the EPC Newsletter addresses, among others, the following topics:

At the request of the European Commission, PwC produced another ‘Economic analysis of SEPA’ which was published in February 2014. Javier Santamaría, Chair of the EPC, provides a critical assessment of the report’s findings and recommendations aimed at identifying “benefits and opportunities ready to be unlocked by stakeholders”. Santamaría concludes: firstly, realistic targets, taking into consideration customer preferences, should be agreed with regard to progressing EU market integration in payment services. Secondly, the experience of SEPA roll-out so far suggests that there is room for improvement as regards alignment of objectives, policies and projects among the EU institutions and EU governments responsible for managing this policy-maker-driven integration project. Whether or not SEPA will deliver on its potential depends, at this stage, on the authorities re-instating – and adhering to – a harmonised vision of who should do what to achieve ‘SEPA 2.0’.

The European Central Bank launched, in November 2013, a public consultation on the draft ‘Recommendations for the security of mobile payments’ developed by the European Forum on the Security of Retail Payments (the SecuRe Pay Forum). The Forum is a “voluntary cooperative initiative between relevant authorities from the European Economic Area – supervisors of payment service providers and overseers in particular”. We outline the EPC response to the public consultation which concluded on 31 January 2014. While the EPC welcomes the SecuRe Pay Forum’s initiative, it cautions on the risks of stifling emerging solutions and business models by imposing too detailed security requirements at this early stage.

The European Parliament approved its amendments to the European Commission’s proposal for the revised Payment Services Directive (PSD2) in April 2014. Our commentator analyses the amendments approved by the European Parliament with regard to the new Article 67, (‘Refunds for payment transactions initiated by or through a payee’), and concludes: further clarification is required to ensure that consumers making SEPA Direct Debit (SDD) payments can continue to rely on the ‘no-questions-asked’ refund right when using the SDD Core Scheme. Concerning the proposed new set of rules related to the activity of third party payment service providers offering payment initiation or payment account information services, he finds that there remains considerable scope for amendments to ensure the security of bank customers’ funds and data with payment account access services.

Last but not least: the EPC again encourages all stakeholders to join the debate on the further evolution of the SEPA Credit Transfer (SCT) and SDD Schemes. The next generation SCT and SDD Rulebooks and associated implementation guidelines will be published in November 2014. These rulebook versions will then take effect in November 2015. As previously reported, all interested parties had been invited to submit suggestions for possible modifications to the next generation rulebooks by 28 February 2014. All proposed changes will be released for a three-month public consultation, this time between 19 May and 15 August 2014.

Please recommend the EPC Newsletter to your colleagues – subscription is free by clicking here. The next issue will be published in July 2014.

Focus: On Integration and Innovation

SEPA 2.0: Reflections on Realising the Potential of SEPA Going ForwardSEPA roll-out so far suggests that there is room for improvement as regards alignment of policies and coordination among the EU institutions and governments driving EU integration in the area of payments

29.04.14 By Javier Santamaría

Following the European Commission proposal, communicated on 9 January 2014, to give the option to continue processing non-SEPA formats in the euro area during an extra six-month transition period after 1 February 2014, recognition of what had actually been achieved by that date fell somewhat flat. According to data made available by the European Central Bank, the vast majority of stakeholders in the euro area were expected to have achieved compliance with the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ by the formal 1 February 2014 deadline. (The European Union (EU) co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States, adopted this legislative act in February 2012.) Meeting this milestone has been a tremendous effort for everybody on the demand and supply side. In the view of the European Payments Council (EPC), congratulations are in order. The industry is proud to have contributed, together with all other stakeholders, to realising this unique integration project launched by the EU institutions and EU governments more than a decade ago.

This being said, SEPA remains a work in progress and the EPC looks forward to continuing the dialogue with all stakeholders and the EU authorities driving the SEPA programme on the next steps. In February 2014, PwC published its ‘Economic analysis of SEPA. Benefits and opportunities ready to be unlocked by stakeholders’ including recommendations on the way forward. The report was compiled at the request of the Commission’s Directorate General Internal Market and Services with a view to estimate the ongoing benefits of SEPA “once fully embraced”. PwC finds, among other things, that SEPA “will potentially lead to 21.9 billion euros in annual savings” to the benefit of stakeholders. In addition, “SEPA may unlock 227 billion euros in liquidity and credit facilities” and “973,000 man years that are currently involved in various steps of the payment and reconciliation processes.” PwC says: “Whether or not SEPA will deliver on its promises is now largely up to businesses and banks, although politicians also have a say in its success by mandating farther-reaching standardisation.”

In this article, EPC Chair Javier Santamaría performs a detailed and critical analysis of the PwC report produced at the request of the Commission. He concludes: firstly, realistic targets, taking into consideration customer preferences, should be agreed with regard to progressing EU market integration in payment services. Secondly, the experience of SEPA roll-out so far suggests that there is room for improvement as regards alignment of objectives, policies and projects among the EU institutions and EU governments responsible for managing this policy-maker-driven integration project. Whether or not SEPA will deliver on its potential depends, at this stage, on the authorities re-instating – and adhering to – a harmonised vision of who should do what to achieve ‘SEPA 2.0’. Clarification of the matter has now been pending for several years.

Key Information in this Article

Extensive research previously carried out by or on behalf of the European Union (EU) institutions driving the SEPA initiative demonstrates that “economic theory and empirical findings support the fact that integration promotes competitiveness, efficiency and growth” and therefore, “the process of integration should be considered beneficial.”

In February 2014, PwC published a further study, entitled ‘Economic analysis of SEPA’, which was compiled at the request of the European Commission. It aims to identify the “most obvious outstanding issues after 1 February 2014” which would need to be addressed to “to complete the project that started 12 years ago with the adoption of the Lisbon agenda for a more competitive Europe.”

This report argues, among other things: “Whether or not SEPA will deliver on its promises is now largely up to businesses and banks, although politicians also have a say in its success by mandating farther-reaching standardisation.”

Following a detailed review of the ‘Economic analysis of SEPA’, this author concludes: the report, unfortunately, has little, if anything, to contribute to the ongoing debate on the most appropriate steps by all parties to achieve ‘SEPA 2.0’. 

  • The most slippery implication of the study would be to derive that businesses and banks have been blind and have not been able to recognise the direct economic benefits SEPA delivers.
  • Coming up with disputable figures reflecting “total quantifiable recurring annual benefits” as “carrots” aimed at incentivising stakeholders to complete the SEPA process has become redundant since the EU lawmakers, in 2012, established mandatory deadlines for migration to SEPA through EU Regulation.
  • The European Payments Council (EPC) has repeatedly pointed out that SEPA – like any other EU integration project aimed at generating macro-economic and systemic benefits – was not launched and will not be concluded as a result of market forces. It requires the political will and mandate to achieve it.

Realising the potential of SEPA going forward – the perspective of the EPC:

  • Realistic targets, taking into consideration customer preferences, should be agreed with regards to progressing EU market integration. SEPA – or integration – is not an end in itself. It is an interim stage that should not be judged on the direct outcomes, but on the situation it leaves for the market to reap further benefits. Payment habits and business models established on both the demand and supply sides will only change gradually once SEPA is achieved.
  • There is room for improvement as regards alignment of objectives, policies and projects among the EU institutions and governments responsible for managing the SEPA process. This requires, among other things, that the authorities re-instate – and adhere to – a harmonised vision of who should do what to achieve ‘SEPA 2.0’. On 19 December 2013 the European Central Bank announced the launch of the Euro Retail Payments Board (ERPB). This new entity will “help foster the development of an integrated, innovative and competitive market for retail payments in euro in the EU”. According to the information made available by the European Central Bank, “the European Commission is invited to join the ERPB as an observer”. In any event, the EPC suggests that going forward duplication of efforts carried out by the ERPB on the one hand and, possibly, the Commission on the other be avoided.

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SEPA Credit Transfer (SCT) & SEPA Direct Debit (SDD)

Next Generation SCT and SDD Rulebooks: Three-Month Public Consultation Starts on 19 May 2014All stakeholders are invited to provide feedback on possible modifications to the SCT and SDD Rulebooks

29.04.14 By Jean-Yves Jacquelin

The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes, as set out in the SCT and SDD Rulebooks, evolve based on a transparent change management process adhered to by the European Payments Council (EPC). This evolution reflects changes in market needs and updates of technical standards developed by international standards bodies, such as the International Organization for Standardization (ISO). The next generation rulebooks, (SCT Rulebook version 8.0, SDD Core Rulebook version 8.0 and SDD Business to Business Rulebook version 6.0), and associated implementation guidelines will be published in November 2014. These rulebook versions will then take effect in November 2015. The scheme change management process provides all stakeholders with the opportunity to participate; i.e. to introduce suggestions for changes to the schemes. As previously reported, the deadline to submit suggestions for possible modifications to the next generation rulebooks was 28 February 2014. All suggestions for changes to the rulebooks are evaluated by the EPC SEPA Payment Schemes Working Group and are consolidated into a single change request document per rulebook. As with previous scheme change cycles, all proposed changes to the schemes will be released with the change request documents for a three-month public consultation (this time between 19 May and 15 August 2014). In this article, Jean-Yves Jacquelin provides an overview of the suggestions for possible modifications to the SCT and SDD Rulebooks received and invites all stakeholders to participate in the public consultation.

Key Information in this Article SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Scheme change management cycle 2014/2015: The European Payments Council (EPC) encourages all stakeholders and interested parties to engage in the change management process governing the evolution of the SCT and SDD Schemes. 

  • The next generation rulebooks, (SCT Rulebook version 8.0, SDD Core Rulebook version 8.0 and SDD Business to Business (B2B) Rulebook version 6.0), and associated implementation guidelines will be published in November 2014 to take effect in November 2015.
  • All interested parties had been invited to submit suggestions for changes proposed to be incorporated into the next version of the SCT and SDD Rulebooks by 28 February 2014. By that date, the EPC had received 88 suggestions for changes from numerous  stakeholders representing both the supply and demand sides of the payments market.
  • Many of the suggestions for possible modifications to the SCT and SDD Rulebooks received by 28 February 2014 address one or several of the following topics:
    • SDD Core standard time cycle: make current option to use a shorter time cycle for the presentation of first, recurrent and one-off direct debit payments mandatory?
    • SDD: simplify sequence types?
    • SDD: introduce more flexibility regarding the use of electronic mandates?
    • SCT and SDD: introduce longer remittance information?
  • It remains the EPC’s objective to ensure that the SCT and SDD Rulebooks evolve in response to proven market needs, based on a predictable release schedule. The EPC must, however, clarify that moving forward, it may be required to adapt the rulebook release schedule at short notice to ensure compliance with technical requirements set out in the Annex to the Regulation (EU) No 260/2012, also known as the SEPA Regulation, as amended by the European Commission or with any other relevant EU legislation.
The links to the change requests with regard to the SCT, the SDD Core and the SDD B2B Rulebooks to be submitted to the 2014 public consultation will be added with the ‘related links’ included at the end of this article once published.

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SEPA for Mobile

EPC Comments on the Draft 'Recommendations for the Security of Mobile Payments' Developed by the European Forum on the Security of Retail PaymentsEPC provides feedback on new report that seeks to define common minimum requirements for mobile payment services which allow the initiation of payments through a mobile device

29.04.14 By Dag-Inge Flatraaker

On 15 November 2013, the Governing Council of the European Central Bank decided to launch a public consultation on ‘Recommendations for the security of mobile payments’. The draft recommendations were developed in the context of the work undertaken by the European Forum on the Security of Retail Payments (SecuRe Pay Forum). The Forum “was established in 2011 as a voluntary cooperative initiative between relevant authorities from the European Economic Area – supervisors of payment service providers and overseers in particular – formed with the objective of facilitating common knowledge and understanding of issues related to the security of electronic retail payment services and instruments and, where necessary, issuing recommendations. A report on the security of internet payments was issued for public consultation in April 2012, followed by a draft report on ‘payment account access’ services in January 2013. The current draft report on the security of mobile payments is the third of its kind” (European Central Bank press release of 20 November 2013). The purpose of these latest recommendations issued by the SecuRe Pay Forum is to define common minimum requirements for mobile payment services which allow the initiation of payments through a mobile device. The draft document released for public consultation focuses on payments such as credit transfers, direct debits, e-money transfers and card payments. In this article, Dag-Inge Flatraaker outlines the response of the European Payments Council (EPC) to the public consultation on the ‘Recommendations for the security of mobile payments’, which ended on 31 January 2014. The author explains that while the EPC welcomes the SecuRe Pay Forum’s initiative, it cautions on the risks of stifling emerging solutions and business models by imposing too detailed security requirements at this early stage. 

Key Information in this Article The draft report entitled ‘Recommendations for the security of mobile payments’, based on the work undertaken by the European Forum on the Security of Retail Payments (SecuRe Pay Forum) outlines 14 recommendations to promote the security of mobile payments, organised into three categories:

  1. General control and security environment of the platform supporting the mobile payment service.
  2. Specific control and security measures for mobile payments.
  3. Customer awareness, education and communication.
The European Payments Council (EPC) welcomes the SecuRe Pay Forum’s initiative, but cautions on the risks of stifling emerging solutions and business models by imposing too detailed security requirements at this early stage. Mobile payments are in their very early days and a good user experience is critical to consumer adoption. It is broadly recognised that the adequate balance between usability and security is critical for the success of any payment method. Security requirements are important for the protection of the consumer and for the integrity of the payment system, but recommendations should be restricted to technology independent security requirements. It has to be noted that the final version of the ‘Recommendations for the security of internet payments’ developed by the SecuRe Pay Forum, which was published in January 2013, also covers some types of mobile remote payments; namely those conducted over mobile internet using a standard web browser via a mobile device. The SecuRe Pay Forum considered security requirements applicable to those mobile remote payments to be similar to those conducted over the internet via a personal device such as a PC. The EPC has suggested that both sets of the SecuRe Pay recommendations relevant to mobile payments, i.e. those included with the recommendations for the security of internet payments and those included with the recommendations for the security of mobile payments, should be restructured into two (new) documents as follows:
  • One document covering the same recommendations for both remote e- and m-payments.
  • One document covering specifically (mobile and card) contactless payments.
The SecuRe Pay Forum suggests that the recommendations for the security of mobile payments should be implemented by mobile payment solution providers by 1 February 2017, two years after publication of the final report, although this date is still to be confirmed. National authorities may wish to define a shorter transition period where appropriate. Addressees of the final SecuRe Pay Forum report on the security of mobile payments will have to comply with both its recommendations and key considerations or be able to explain and justify any deviation from them upon the request of the relevant competent authority. This is known as the ‘comply or explain’ principle.

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Opinion and Editorial

From Theory to Practice and What Comes Next? Challenges and Opportunities After More than a Decade of SEPA in the MakingA commentary: “Like all major new economic initiatives, SEPA needs time to find its feet and achieve all it set out to accomplish.”

29.04.14 By Paul Thomalla

The EPC Newsletter regularly features contributions from leading experts in the field commenting on the factors that drive the further integration and innovation of the euro payments market. In this article, Paul Thomalla analyses the challenges and opportunities that materialised for stakeholders on both the demand and supply sides with the roll-out of the SEPA project since the European Union institutions introduced the concept of harmonised electronic euro payments in the late 1990s. “From the outset, SEPA has been and is a good idea,” he says. “Yet as with most things, a good idea on paper is easier to conceive than create. Because nothing like this has been done before, we have been venturing into the unknown to a certain extent, and the implementation of SEPA has turned into more of a science project with the methodology changing stage by stage.” With migration to SEPA in the euro area nearly complete, this author concludes: “It would be difficult for anyone to comprehensively predict what a post-SEPA migration world will look like. What we can be sure of is that after a sometimes exhausting process, there will be a more nimble and responsive payments industry.”

The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.

Key Information in this Article SEPA has been dominating the life of so many people for nearly 14 years, but come 1 August 2014, all those years of hard work will be realised when it comes into operation. Six months after originally planned, many will be looking on with keen eyes at the benefits and advantages it will bring. But it is impossible to second guess what a post-SEPA migration world will look like. What is sure is that it will need time to develop and settle organically. In a post-SEPA migration world the focus will need to be on reducing the layers and the friction that those layers cause.

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Legal and Regulatory Issues

Migrating Deadlines: Pushing Back the Migration Date for SEPA Credit Transfers and Direct Debits Will the Amending Regulation cause great confusion in the European payments market?

29.04.14 By Dermot Turing and Maria Troullinou

On 20 March 2014 ‘Regulation (EU) No 248/2014 of the European Parliament and of the Council [of the European Union (EU)] of 26 February 2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’ was published in the Official Journal of the EU (the Amending Regulation). The Amending Regulation gives the option to postpone to 1 August 2014 the end-date set under ‘Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in Euro and amending Regulation (EC) No 924/2009’ (the SEPA Regulation) in respect of the euro area migration of domestic and European credit transfers and direct debits. The Amending Regulation was the subject of an accelerated legislative timetable in view of the urgency of the matter. It mirrors the European Commission's proposal of 9 January 2014, which was aimed at promoting legal certainty and preventing discontinuity to the application of the SEPA Regulation, and which was endorsed by the European Parliament on 4 February 2014. The Amending Regulation entered into force on 21 March 2014 and applies with retroactive effect from 31 January 2014. In this article Dermot Turing and Maria Troullinou look at the Amending Regulation and discuss the key issues and some potential inadvertent consequences that arise from its implementation.

Key Information in this Article Articles 6(1) and 6(2) of ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the SEPA Regulation) mandate that credit transfers and direct debits shall be carried out in accordance with the relevant requirements set out in Article 5 and in the Annex to the SEPA Regulation by 1 February 2014, subject to certain limited exemptions mentioned therein. In non-euro countries, the deadline will be 31 October 2016. Effectively, this means that as of these dates, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfers and SEPA Direct Debits. The European Commission (the Commission) introduced, on 9 January 2014, a proposal for a new European Union (EU) Regulation amending the SEPA Regulation to “give an extra transition period of six months during which payments which differ from the SEPA format can still be accepted” in the euro area after 1 February 2014. In February 2014, the European Parliament and the Council of the EU, respectively, adopted the new ‘Regulation (EU) No 248/2014 of the European Parliament and of the Council of 26 February 2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’ (the Amending Regulation). The Amending Regulation states, among other things, that (italics added): “In Article 16 of Regulation (EU) No 260/2012, paragraph 1 is replaced by the following: (...) By way of derogation from Article 6(1) and (2), PSPs [payment service providers] may continue, until 1 August 2014, to process payment transactions in euro in formats that are different from those required for credit transfers and direct debits pursuant to this Regulation. [EU] Member States shall apply the rules on the penalties applicable to infringements of Article 6(1) and (2) (…) from 2 August 2014. The Commission is of the view that this procedure “does not change the formal deadline for migration of 1 February 2014.” Consequently, Articles 6(1) and 6(2) of the SEPA Regulation, which stipulate the above mentioned compliance date, remain unchanged. Despite the Commission's aim of promoting legal certainty, the Amending Regulation raises as many questions as it purports to answer, primarily due to its permissive language, which may result in different payment service providers and different EU Member States following a different approach.

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EPC Latest News

EPC Plenary Meeting UpdateMain decisions taken in March 2014

29.04.14 By Javier Santamaría

The Plenary is the decision-making body of the European Payments Council (EPC). The geographical scope of the SEPA Schemes currently consists of the 28 European Union (EU) Member States plus Iceland, Norway, Liechtenstein, Switzerland, Monaco and San Marino. The EPC has recognised the need to establish criteria and procedures for determining whether a community of banks or financial institutions which are equivalent to ‘payment service providers’ in the EU/European Economic Area (EEA) from a non-EEA country or territory which is not yet within the geographical scope of the SEPA Schemes should be considered eligible to participate in the SEPA Schemes. At its meeting in March 2014, the EPC Plenary approved the document, entitled ‘Criteria for Participation in the SEPA Schemes for Communities of Banks or Financial Institutions outside the European Economic Area (EEA)’. Javier Santamaría, Chair of the EPC, reports.

Key Information in this Article The SEPA Credit Transfer and SEPA Direct Debit Rulebooks set out the rights and obligations of all institutions bound by their terms, i.e. the scheme participants, (payment service providers (PSPs) that have formally adhered to the schemes), and the European Payments Council (EPC). The rulebooks bind each scheme participant “to comply with their obligations to the EPC and to all other scheme participants pursuant to the rules set out therein.” The document, entitled ‘Criteria for Participation in the SEPA Schemes for Communities of Banks or Financial Institutions outside the European Economic Area (EEA)’, approved by the EPC Plenary in March 2014, sets out the criteria and procedures for determining whether a community of banks or financial institutions which are equivalent to ‘PSPs’ in the European Union/EEA from a non-EEA country or territory which is not yet within the geographical scope of the SEPA Schemes should be considered eligible to participate in the SEPA Schemes. The link to the document is included in the ‘related links’ at the end of this article.

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SEPA Credit Transfer (SCT) & SEPA Direct Debit (SDD)

Join the Debate on the Further Evolution of the SCT and SDD Schemes: Less Flexibility, More Harmonisation?An overview of the options, variations, exceptions and exemptions possible in SEPA today

29.04.14 By Jean-Yves Jacquelin

European Union (EU) integration rarely follows the fastest possible trajectory, but relies on incremental progress over time. (More than 14 years of SEPA in the making, based on several EU legislative interventions aimed at promoting the harmonisation of the euro payments market, is a prime example in this context.) Up to this point it has been recognised that facilitating the transition of millions of market participants to harmonised SEPA payment schemes and technical standards requires allowing for a degree of flexibility. The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes, developed by the European Payments Council (EPC) in close dialogue with all stakeholders, also reflect this fact. Dialogue with stakeholders across SEPA frequently demonstrates that the requirements of bank customers, with regard to the SEPA payment schemes, differ widely across and within the various customer segments and SEPA countries. The SCT and SDD Schemes, therefore, today include mandatory elements to be observed by all adhering payment service providers (PSPs) as well as optional elements allowing PSPs to offer specific features in response to market demand. At the same time, the EU lawmaker has provided EU Member States with options to derogate, during a transitional period, from certain provisions included with the Regulation (EU) No 260/2012, which sets out SEPA compliance requirements applicable to euro credit transfers and direct debits. In this article, Jean-Yves Jacquelin provides an overview of optional features included with the SCT and SDD Schemes and other variations possible in SEPA. He also asks this question: with migration to SCT and SDD in the euro area nearly complete, is a majority of stakeholders willing to relinquish – at least in the mid-term – any (or even all) of the options, variations, exceptions and exemptions currently available in favour of further harmonisation?

Key Information in this Article Everybody supports European Union (EU) integration – in principle. In response to a broad range of requests for flexibility articulated by various parties, the following options, variations, exceptions and exemptions are possible in SEPA today: SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes: 

  • Include mandatory elements to be observed by all scheme participants, (i.e. payment service providers (PSPs) that have formally adhered to the schemes), as well as optional elements allowing PSPs to offer specific features in response to market demand.
  • Recognise that individual scheme participants and communities thereof will provide complementary services based on the schemes so as to meet further specific customer expectations. These are described as additional optional services.
Implementation guidelines with regard to the SCT and SDD Schemes, based on the global ISO 20022 message standards:
  • Market observers commented in a previous edition of the EPC Newsletter: “It is expected that there should be a common understanding on the use and interpretation of the ISO 20022 message standards, as specified in the EPC implementation guidelines (...). This is however, not the case. The market reality today is that multiple specifications based on the EPC implementation guidelines are in use, which has resulted in subtle (and sometimes not so subtle) differences in the application of the standard.”
Transitional arrangements permissible under Regulation (EU) No 260/2012 (the SEPA Regulation):
  • The EU co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States, adopted the SEPA Regulation in February 2012. It effectively mandates migration to SCT and SDD in the euro area by 1 February 2014.
  • At the same time, the EU co-legislators have introduced several exemptions regarding the use of the International Bank Account Number (IBAN), the Business Identifier Code (BIC) and the ISO 20022 XML message standards by the February 2014 deadline. EU Member States have discretion as to whether they will use any or all of the options to derogate from the 1 February 2014 deadline (until 1 February 2016) with regard to the use of the IBAN, the BIC and the ISO 20022 XML message standards by payment service users.
Way forward?
  • The experience of SEPA pioneers on the demand side who reported on their successfully concluded SEPA migration projects in the EPC Newsletter indicates that the benefits arising from the migration are proportionate to the level of harmonisation achieved.
  • However, as outlined above, it has to be emphasised that the degree of flexibility existing today reflects the requests articulated by a wide range of stakeholder groups in the past.
Have your say on the further evolution of the SCT and SDD Schemes:
  • The EPC encourages all stakeholders to engage in the scheme change management process. For more information, refer to the article, entitled ‘Next Generation SCT and SDD Rulebooks: Three-Month Public Consultation Starts on 19 May 2014’ in this edition of the EPC Newsletter. Incidentally, this article shows that several stakeholders have made suggestions aimed at achieving further harmonisation of the SCT and SDD Schemes.

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SEPA Case Studies

AkzoNobel: “We Have Already Seen a Return on Our Investment into SEPA Migration through the Benefits We Have Received”AkzoNobel began using IBAN in 2010 and fully launched its SEPA implementation programme in October 2012 in readiness of the February 2014 deadline

29.04.14 By Gerrit Willem Gramser and Gerwin Braam

In April 2011, the EPC Newsletter launched the series reporting on the SEPA migration experience of individual businesses, public administrations and government agencies, which have successfully completed migration to SEPA Credit Transfer and SEPA Direct Debit. Payment service users still working towards achieving compliance with the European Union (EU) 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' are invited to take advantage of the advice shared by their peers. (The links to these case studies and other sources are included with the link to the ‘EPC Migration Tool Kit’ at the end of this article.) AzkoNobel, the largest global paints and coatings company, is a SEPA pioneer having started using International Bank Account Numbers in 2010. It fully launched its SEPA implementation programme in October 2012. AkzoNobel was keen to ensure SEPA compliance across its company to drive forward the integration of its daily payment processes. The company processes over a million credit transfers and more than 100,000 direct debit transactions annually. AkzoNobel therefore created a team dedicated to managing a smooth transition. In this article, Gerrit Willem Gramser, Director Business Treasury and Gerwin Braam, Senior Bank Manager and its SEPA project manager point out that because of the benefits resulting from migration to the SEPA payment schemes and technical standards that it has generated so far, the investment is already seen as worthwhile. 

Key Information in this Article AkzoNobel processes more than a million credit transfers with a volume of over 12.5 billion euros and more than 100,000 direct debit transactions annually. AkzoNobel states that, as a company, it has already seen a return on its investment into SEPA migration through:

  • More transparent and harmonised work processes.
  • Centralised reporting.
  • No longer needing to use local banking tools.
These changes have led to lower IT costs, increased scale of automatic processing, reduced number of bank accounts and an increase in the number of business opportunities within the SEPA region. AkzoNobel identifies its biggest challenge to be the implementation of SEPA Direct Debit (SDD) as AkzoNobel started to collect SDDs ‘on behalf of’ its own legal entities that have direct relationships with the customers. This proved to be challenging, because related processes – for which there was no previous experience – had to be drafted from scratch together with AkzoNobel’s enterprise resource planning provider.

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Get Ready for SEPA

Don't Count on 1 August 2014: Different SEPA Migration Deadlines Apply Across the Euro Area During the “Additional Transition Period” Agreed by the European Commission, the European Parliament and EU Governments EPC recommends that organisations in the euro area still working towards achieving SEPA readiness complete the migration process as soon as possible

29.04.14 By Etienne Goosse

The European Commission (Commission) introduced, on 9 January 2014, a proposal for a new European Union (EU) Regulation amending ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the SEPA Regulation), to “give an extra transition period of six months during which payments which differ from the SEPA format can still be accepted” in the euro area after 1 February 2014. In February 2014, the European Parliament and the Council of the EU representing EU Member States, respectively, adopted the new ‘Regulation (EU) No 248/2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’. Regulation (EU) No 248/2014 states that (italics added) “PSPs [payment service providers] may continue, until 1 August 2014, to process payment transactions in euro in formats that are different from those” established with the SEPA Regulation. However, it does not make it mandatory. Different euro area countries have decided on different timelines during which they will make use of the option to continue processing non-SEPA formats (i.e. some countries do so during the full six months transition period agreed by the Commission, the European Parliament and the Council of the EU while others have opted for a shorter timeline). In this article, Etienne Goosse details the SEPA migration deadlines applicable in the euro area countries until 1 August 2014 and reports on the latest available data reflecting the rate of SEPA market uptake.

Key Information in this Article Data reflecting the progress of migration to SEPA cited in this article represents the latest figures available at the time of EPC Newsletter publication (29 April 2014). According to the quantitative SEPA indicators published by the European Central Bank (ECB), the share of SEPA Credit Transfer (SCT) transactions amounts to 95.7 percent as of March 2014 and the share of SEPA Direct Debit (SDD) transactions has reached 82.6 percent. The quantitative SEPA indicators measure the share of SCT and SDD transactions as a percentage of the total volume of credit transfers and direct debits generated by bank customers in the euro area. On 20 March 2014 ‘Regulation (EU) No 248/2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’ was published in the Official Journal of the European Union (EU). This legislative act formalises the proposal introduced by the European Commission on 9 January 2014 to “give an extra transition period of six months during which payments which differ from the SEPA format can still be accepted”. The ECB makes available country-specific SEPA information with ‘Fact Sheets on Regulation 260/2012’ which include information obtained from Eurosystem national central banks concerning migration timelines envisaged at national level in each euro area country during the additional transition period. (The Eurosystem comprises the ECB and the national central banks of the EU Member States whose currency is the euro.) This article includes a table detailing the migration timelines applicable in the euro area until 1 August 2014 based on the fact sheets published by the ECB. (The link to the ECB Website featuring these fact sheets is included in the ‘related links’ at the end of this article.)

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Legal and Regulatory Issues

PSD2: Analysis of Selected Aspects of Recent European Parliament Report Raises More Questions for ClarificationA review of the European Parliament´s Report on PSD2 with regard to the payer´s refund right in case of direct debits and some of the implications of the involvement of third party payment service providers

29.04.14 By Hartmut Seibel

The European Commission (the Commission) submitted a much debated legislative proposal for the European payment services sector in July 2013 when issuing its review of the 2007 European Union (EU) Payment Services Directive (PSD). Following the Commission’s so-called PSD2 proposal the European Parliament adopted a report from its Committee on Economic and Monetary Affairs (ECON) on 3 April 2014. While the PSD2 proposal triggered many debates on various important aspects that would have a deep impact on the future regulatory landscape around payment services in the EU, the ECON produced many amendments which illustrate that the Commission’s PSD2 proposal was far from mature. However, the report as adopted by the European Parliament also contains many important weaknesses. In this article, Hartmut Seibel raises some specific legal and regulatory aspects related to the weaknesses in the report from the European Parliament. His review focuses on the European Parliament’s amendments to the proposed new Article 67 regarding the details of the refund right for direct debits and on some of the essential aspects of the proposed new set of rules related to the activity of the so-called third party payment service providers (Articles 58, 65, 80 and 82). In his view, there are several important parliamentary amendments that contain contradictions with the PSD2 proposal and that are not ready for incorporation into the future legislation covering payment services in the EU. Hartmut Seibel is Legal Counsel to the European Payments Council (EPC). The views expressed in this article are solely those of the author and should not be attributed to the EPC.

Key Information in this Article On 24 July 2013 the European Commission (the Commission) published its proposal for the revised Payment Services Directive (PSD2). The proposed PSD2 remains subject to review and adoption by the European Union (EU) co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States. EU legislation proposed by the Commission related to payments was considered by the European Parliament Economic and Monetary Affairs Committee (ECON) prior to the European Parliament taking a vote on a proposal. The ECON agreed its proposed version of PSD2 including amendments to the Commission’s proposal on 20 February 2014. The members of the European Parliament (MEPs) approved the final ECON report on PSD2 at its plenary session on 3 April 2014. However, the European Parliament postponed the vote (in first reading) on the related draft legislative resolution until after the elections due to take place in May 2014. The European Central Bank (ECB) published its legal opinion on the proposed PSD2 in February 2014. This article analyses the ECON report approved by the European Parliament as well as the ECB legal opinion on the proposed PSD2 with regard to the following aspects: The payer’s refund rights in case of direct debits (Article 67 (1) PSD2) There seems to be common ground between the European Parliament and the ECB in that Article 67(1) last subparagraph requires substantial rewording to avoid that payment service providers (PSPs) would carry a new responsibility of having to assess whether the payee has already fulfilled the contractual obligations in accordance with the underlying commercial agreement (between the payer and the payee). However, in the view of this author it is vital for the operation of the SEPA Direct Debit (SDD) Core Scheme that the refund rights under the PSD are correctly structured and that no ‘no-refund direct debits’ can be processed via this important SEPA payment scheme. It should be recalled that the migration of all direct debits in euro in the euro-countries to the SDD Core Scheme is about to be completed in August 2014. New rules for use of third party payment service providers are problematic With the proposed PSD2, the Commission is introducing the notion of ‘third party payment service provider (TPP)’ in the European legislative framework. In the view of this author, proposed amendments to related provisions identified by the European Parliament and the ECB, respectively, would have to be further considered to ensure the security of bank customers’ funds and data. Specifically, the following aspects require clarification:

  • Allowing TPPs to have access to personalised security features of the payment service user is against recognised IT security principles.
  • Notification of the TPPs’ authorisation to the relevant AS PSP prior to any payment initiation is a must.
  • The account servicing PSP must not be held liable for errors or failures resulting from TPP involvement.
Jargon buster:
  • PSP – payment service provider
  • PSU – payment service user.
  • AS PSP – account servicing payment service provider.
  • TPP – third party payment service provider – also referred to in other documents as TPPSP.

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