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In your view, which of the following initiatives will have the greatest impact on the European payments market? This poll is closed.

 

EPC Newsletter
Issue 23 - July 2014

SEPA remains a work in progress. Learn more about next regulatory initiatives and new actors impacting the European payments market going forward.

The July 2014 edition of the EPC Newsletter offers in-depth information on regulatory action now in the pipeline intended to bring about ‘SEPA 2.0’. SEPA compliance requirements are determined by the European Union (EU) institutions. These are the European Commission, the European Parliament, the Council of the EU representing EU governments and the European Central Bank. Going forward, the institutional SEPA landscape will become even more complex: in future, the newly established Euro Retail Payments Board chaired by the European Central Bank and the European Banking Authority will also play a role in shaping SEPA.

To stay up-to-date with latest developments, visit the new EPC infographic ‘SEPA at a Glance’. It provides a timeline highlighting key milestones of SEPA roll-out and an overview of the actors involved at the European level and their interaction.

This edition of the EPC Newsletter also analyses the latest considerations of the EU lawmakers concerning the proposed revised Payment Services Directive (PSD2). The draft PSD2 text agreed by the European Parliament in April 2014 as well as the compromise texts issued in June and July 2014, respectively, by the Presidency of the Council of the EU introduce several changes to the proposal tabled by the European Commission in July 2013. In the view of the EPC, additional amendments will have to be agreed in the further dialogue between the EU co-legislators to ensure, in particular, the security of bank customers’ funds and data with payment account access services under the forthcoming PSD2.

We also take a closer look at the role of the European Commission and the European Central Bank, respectively, with regard to the evolution and the operation of the SEPA Credit Transfer and SEPA Direct Debit Schemes. It is important to keep in mind that the EPC carries out the scheme management function subject to legal and regulatory conditions defined by the EU authorities.

Last but not least: the extended period to achieve compliance in the euro area with Regulation (EU) No 260/2012 concludes on 1 August 2014. It is important that countries in- and outside of the euro area do not overlook the next SEPA deadlines established by EU law applicable in 2016. This EPC Newsletter shares best practices identified in the euro area during the migration process. The recommendation is to take these into consideration when preparing for SEPA 2016.

Please recommend the EPC Newsletter to your colleagues – a free subscription can be obtained by clicking here. The next issue will be published in October 2014.

Focus: On Integration and Innovation

SEPA 2.0: an Overview of Regulatory Action Now in the Pipeline Impacting the European Payments Market Going ForwardThe European authorities have clarified that migration to harmonised SEPA payment schemes and technical standards does not conclude this EU integration project

29.07.14 By Javier Santamaría

The European Payments Council (EPC) has frequently pointed out that SEPA compliance requirements that must be met by payment service users and providers are determined by the European Union (EU) institutions. These are the European Commission, the European Parliament, the Council of the EU representing EU governments and the European Central Bank. The European authorities driving the SEPA process have clarified that migration to harmonised SEPA payment schemes and technical standards, as mandated by EU law, does not conclude this EU integration project. In this article, EPC Chair Javier Santamaría addresses the main regulatory initiatives intended to bring about ‘SEPA 2.0’ now in the pipeline.

He also points out that, going forward, the institutional SEPA landscape will become even more complex: in future, the newly established Euro Retail Payments Board (ERPB) chaired by the European Central Bank and the European Banking Authority (EBA) will also play a role in shaping SEPA. Santamaría, therefore, reiterates: from the perspective of the EPC it would be welcomed if possible duplication of efforts by the ERPB, the Commission and other regulatory bodies are avoided. Whether or not SEPA will deliver on its potential also depends on the authorities adhering to and communicating a harmonised vision of who should do what to achieve ‘SEPA 2.0’

In the meantime, readers are invited to visit the new EPC infographic ‘SEPA at a Glance’. It provides a timeline highlighting key milestones of SEPA roll-out and an overview of the actors involved in the SEPA process at the European level and their interaction. Last but not least, the EPC encourages readers to participate in the latest EPC Poll: ‘In your view, which regulatory initiatives will have the greatest impact on the European payments market going forward?’ (See upper left hand corner of this page. Note: this poll was closed on 1 October 2014.)

Key Information in this Article

This article addresses the following regulatory initiatives impacting the European payments market:

European Commission ‘payments legislative package’, published in July 2013, includes the proposals for a revised Payment Services Directive (PSD2) and a new Regulation on interchange fees for card-based payment transactions. These legislative proposals remain under review by the European Union (EU) co-legislators, i.e. the European Parliament and the Council of the EU representing EU governments.

Work programme of the Euro Retail Payments Board (ERPB), chaired by the European Central Bank. Members of the ERPB include representatives from the demand and supply sides as well as representatives from the EU national central banks. The European Commission is invited to join as an observer. The ERPB’s work will consist mainly of identifying strategic issues and work priorities (including business practices, requirements and standards). (The EPC is a member of the ERPB.)

Recommendations developed by the European Forum on the Security of Retail Payments (SecuRe Pay Forum). The SecuRe Pay 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.

  • Following a public consultation in 2012, in January 2013 the European Central Bank released the final
    recommendations for the security of internet payments developed by the SecuRe Pay Forum.
  • The SecuRe Pay Forum draft recommendations for the security of mobile payments were issued for
    public consultation in November 2013.
  • In May 2014, the final text of the recommendations for the security of payment account access services
    – addressed to the European Banking Authority (EBA) following public consultation – was made
    publicly available.

Guidelines and technical standards issued by the European Banking Authority (EBA) pursuant to mandate provided by the proposed PSD2. “EBA shall, in close cooperation with the ECB [European Central Bank], develop guidelines with regard to the establishment, implementation and monitoring of the security measures, including certification processes when relevant” (Article 86 PSD2). “EBA shall, in close cooperation with the ECB, issue guidelines addressed to payment service providers (…) on state of the art customer authentication and any exemption to the use of strong customer authentication” (Article 87 PSD2).

European Banking Authority (EBA) opinion on virtual currencies (VCs). The EBA opinion, published in July 2014, states among other things: “Following three months of analysis, the EBA issued a public warning on 13 December 2013, making consumers aware that VCs are not regulated and that the risks are unmitigated as a result.” This EBA opinion sets out the result of the assessment whether VCs should or can be regulated. It is “addressed to EU legislators as well as national supervisory authorities in the 28 [EU] Member States.” It remains to be seen what specific EU regulatory action, if any, will result based on the EBA opinion.

(Please note: the European Payments Council (EPC), representing the European banking industry in relation to payments, is not an EU legislative body. More generally, the EPC is not part of the EU institutional framework. The EPC has, therefore, no role in the adoption of any EU laws or other regulatory initiatives establishing SEPA compliance requirements.)

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Get Ready for SEPA

1 August 2014 Does Not Mark the End of the Migration Process. Get Ready for SEPA 2016. Act NowSEPA migration in the euro area showed that preparation is everything and time is of the essence

29.07.14 By Etienne Goosse

In February 2012, the European co-legislators, i.e. the European Parliament and the Council of the European Union (EU) representing EU governments, adopted the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’, also known as the SEPA Regulation. This legislative act effectively mandates migration to SEPA Credit Transfer and SEPA Direct Debit in the euro area by 1 February 2014. To avoid difficulties for non-compliant market participants, in February 2014 the European Commission, the European Parliament and EU governments agreed amending the SEPA Regulation to give the option to continue processing non-SEPA formats in the euro area until 1 August 2014. However, 1 August 2014 does not mark the end of the migration process. Rather, meeting the next SEPA deadlines established by the EU lawmakers applicable in 2016 requires continued and coordinated efforts by the public authorities driving the SEPA process, the representatives of payment service users as well as banks and other service providers. The recommendation is to take advantage of the lessons learnt with the transition in the euro area when preparing for SEPA 2016. In this article, Etienne Goosse summarises best practices identified in the euro area during the migration process 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 July 2014). According to the quantitative SEPA indicators published by the European Central Bank, the share of SEPA Credit Transfer (SCT) transactions amounts to 97.6 percent as of June 2014 and the share of SEPA Direct Debit (SDD) transactions has reached 95.0 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. 1 August 2014 does not mark the end of the migration process. The following deadlines mandated with ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the SEPA Regulation) also apply: 1 February 2016:
  • Transitional arrangements in European Union (EU) Member States: the SEPA Regulation has introduced several possible 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.
  • Niche products, which have been granted an exemption: the SEPA Regulation, in particular, stipulates that credit transfer and direct debit transactions with a cumulative market share of less than 10 percent in an EU Member State must comply with the provisions set out in this legislative act only by 1 February 2016.
31 October 2016: non-euro countries will have to comply with the SEPA Regulation by 31 October 2016. It is important that, following 1 August 2014, countries in- and outside of the euro area do not overlook these other deadlines, but rather actively prepare to ensure that they are ready to meet them on time.

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

Evolution and Oversight of the SCT and SDD Schemes: the Role of the European Commission and of the European Central BankThe SEPA payment schemes in the legal and regulatory context

29.07.14 By Jean-Yves Jacquelin

To recap: with the introduction of the euro currency in 1999, the political drivers of the SEPA process – European Union (EU) governments, the European Parliament, the European Commission and the European Central Bank (ECB) – expected the banking industry to contribute the resources required to develop European instruments for electronic euro payments. In response to these expectations, the European banking sector created the European Payments Council (EPC) in 2002. In close dialogue with the stakeholder community, the EPC developed, among other things, the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes. It is important to keep in mind that the EPC carries out the scheme management function subject to legal and regulatory conditions defined by the EU authorities. In this article, Jean-Yves Jacquelin revisits the regulatory framework determining, specifically, the evolution and the operation of the schemes. The SCT and SDD Schemes must comply with the relevant requirements set out in Article 5 of and in the Annex to the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the SEPA Regulation). Article 13 of the SEPA Regulation empowers the European Commission to amend the technical requirements detailed in the Annex to the Regulation through delegated acts. This means, the Commission does not have to seek approval of such amendments from the EU co-legislators. These are the European Parliament and the Council of the EU representing EU governments. In 2010, the ECB issued the oversight frameworks for credit transfers and direct debits. The ECB applies these frameworks to SCT and SDD, i.e. exercises the oversight of the schemes.

Key Information in this Article The European Commission is empowered to make decisions regarding the features of the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes:
  • It will do this by means of ‘delegated acts’, which empower the Commission to amend the Annex to the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the SEPA Regulation).
  • ‘Delegated acts’ are a new addition to the European Union (EU) decision-making landscape. They were introduced by the Lisbon Treaty, which entered into force in December 2009 and more specifically, by Article 290 of the Treaty on the Functioning of the European Union (TFEU).
  • Whereas European legislation is adopted by the EU co-legislators, i.e. the European Parliament and the Council of the EU representing EU governments, Article 290 TFEU allows the European Parliament and the Council of the EU to delegate the power to adopt non-legislative acts to the European Commission (the executive body).
  • When adopting these acts, the European Commission has committed to consulting experts appointed by EU governments in its preparatory work.
  • The European Commission has reiterated that it has a lot of autonomy in relation to adopting delegated acts and “experts will have a consultative rather than an institutional role in the decision-making procedure”.
  • The European Payments Council (EPC) may be required to adapt the SCT and SDD Rulebook release schedule at short notice to ensure compliance with technical requirements set out in the Annex to the SEPA Regulation as amended by the Commission (or with any other relevant EU legislation).
European Central Bank (ECB) exercises the oversight of the SCT and SDD Schemes:
  • In October 2010, the Eurosystem, which comprises the ECB and the national central banks of the euro area, published the final versions of the ‘Oversight Framework for Credit Transfer Schemes’ and the ‘Oversight Framework for Direct Debit Schemes.’
  • The ECB stated that the “frameworks will help strengthen the soundness and efficiency of credit transfers and direct debits schemes by highlighting risks that could have an overall impact on the confidence of users of the instrument. In this way, they will ultimately contribute to maintaining confidence in the currency and promoting an efficient economy.”
  • The ECB applies these frameworks to the SCT and SDD Schemes.

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EPC Latest News

EPC Plenary Meeting UpdateMain decisions taken in June 2014

29.07.14 By Etienne Goosse

The Plenary is the decision-making body of the European Payments Council (EPC). In this article, EPC Secretary General Etienne Goosse summarises the main items agreed in the EPC Plenary meeting, which took place in June 2014. The Plenary appointed Javier Santamaría for a second term as Chair and elected Narinda You as Vice Chair. Ms You and Mr Santamaría commenced their two-year term on 18 June 2014. Ms You succeeds former Vice Chair Günther Gall who will be retiring following completion of his term in office. On behalf of the EPC, Javier Santamaría expressed his respect and gratitude for the invaluable contribution of Günther Gall during his tenure as EPC Vice Chair. His advice and support, reflecting forty-five years of experience in all aspects of payments, were instrumental at a time when market participants in the euro area were preparing to achieve SEPA compliance by the formal 1 February 2014 deadline mandated by European Union law. The Plenary agreed its position with regard to the report of the European Parliament’s Economic and Monetary Affairs Committee (ECON) on the European Commission’s proposal for a revised Payment Services Directive. The Plenary also approved publication of the document ‘EPC Overview on Mobile Payments Initiatives’.

Key Information in this Article Main items addressed by the European Payments Council (EPC) Plenary in June 2014:

  • EPC appoints Javier Santamaría for a second term as Chair and elects Narinda You as Vice Chair: “I very much look forward to supporting the EPC in this new role at this juncture in the SEPA process;” said EPC Vice Chair Narinda You. “With migration to SEPA in the euro area nearly complete it has to be kept in mind however, that this does not mark the end of the process. Meeting next SEPA deadlines established by the European Union (EU) lawmakers applicable in 2016 requires continued and coordinated efforts by the public authorities driving the SEPA process, the representatives of payment service users as well as banks and other service providers.”
  • The Plenary agreed its position with regard to the report of the European Parliament’s Economic and Monetary Affairs Committee on the European Commission’s proposal for a revised Payment Services Directive (PSD2): the Plenary noted that the draft PSD2 text agreed by the European Parliament introduces several changes to the Commission’s PSD2 proposal. In the view of the EPC, however, additional amendments will have to be agreed in the further dialogue between the EU co-legislators to ensure the security of bank customers’ funds and data with payment account access services under the forthcoming PSD2 as well as consumer’s continued unconditional refund right for direct debits included with the SEPA Direct Debit Core Scheme.
  • Approval of the document ‘EPC Overview on Mobile Payments Initiatives’: this document describes various existing and new initiatives on mobile payments and aims to create awareness on the latest developments. The collection of the initiatives is done on a best-effort basis and is not exhaustive. The inclusion of any initiative into the document does not imply that the EPC in any form endorses, supports, or recommends such initiative. The link to the document is included in the ‘related links’ at the end of this article.

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SEPA for Mobile

EPC Publishes Overview of Mobile Payments Initiatives in SEPA and BeyondNew report includes initiatives launched between November 2013 and May 2014

29.07.14 By Dag-Inge Flatraaker

Mobile phones have achieved full market penetration and rich service levels, making them an ideal channel for payment instruments. At the same time, the mobile payments ecosystem continues to grow and mature rapidly. For stakeholders in the payments industry, it is important to have a good insight into the latest trends within mobile payments and market developments. Therefore the European Payments Council (EPC) has decided to provide an overview on the new initiatives on mobile payments in SEPA and beyond, which is reflected in the paper ‘EPC Overview of Mobile Payments Initiatives’ published in June 2014. It contains sections highlighting underlying payment instruments, mobile wallet initiatives, and developments on mobile points of sale (mPOS), all of which have newly appeared on the market over the past year. Dag-Inge Flatraaker introduces the ‘EPC Overview of Mobile Payments Initiatives’.

Key Information in this Article On 26 June 2014, the European Payments Council (EPC) published the document ‘EPC Overview on Mobile Payments Initiatives’. This document describes various existing and new initiatives on mobile payments and aims to create awareness on the latest developments, based on the following sources:
  • Contributions by EPC members on community initiatives.
  • Initiatives reported in various newsfeeds.
This first version of the report includes initiatives launched between November 2013 and May 2014 within SEPA and outside. The collection of the initiatives is done on a best-effort basis and is not exhaustive. The inclusion of any initiative into the document does not imply that the EPC in any form endorses, supports, or recommends such initiative. The link to the ‘EPC Overview on Mobile Payments Initiatives’ in included in the ‘related links’ at the end of this article.

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SEPA Case Studies

Get Ready for 2016 and Get Inspired: the Belgian Experience Shows that Timely Migration to SEPA Is Manageable and FeasibleBest practice identified by the Belgian Steering Committee on the Future Means of Payment chaired by the National Bank of Belgium

29.07.14 By Jean Hilgers

SEPA migration is managed at country level by national SEPA Coordination Committees representing public authorities as well as representatives of the demand and supply sides of the payments market. The Belgian Steering Committee on the Future Means of Payment (the Steering Committee), the forum which coordinated the migration across all stakeholder groups, is chaired by the National Bank of Belgium (NBB). Belgium has been a front runner among euro area countries regarding migration to harmonised SEPA payment schemes and technical standards throughout the transition. In Belgium, the extended deadline to achieve compliance with Regulation (EU) No 260/2012, which effectively mandates migration to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD), was 1 April 2014. In that month, the share of SCT and SDD transactions in Belgium each amounted to 100 percent. In this article, Jean Hilgers, Director at the NBB, shares best practices identified throughout the process. The Belgian experience might also offer some valuable lessons learnt for non-euro area countries that will have to manage the transition by 31 October 2016 as stipulated with Regulation (EU) No 260/2012. This is the fourth article featured in the EPC Newsletter since October 2009 reporting on the approach adopted in Belgium to successfully achieve SEPA compliance at national level.

Key Information in this Article The Belgian SEPA migration model was based on the following principles: (1) engagement of and leadership by public authorities; (2) coordination among all impacted stakeholders cooperating in the Belgian Steering Committee on the Future Means of Payment (the Steering Committee); (3) timely action based on a step-by-step national implementation plan initially rolled out in 2008; (4) early, multi-targeted and multiple communication campaigns creating SEPA awareness and educating the general public on the new SEPA payment schemes and technical standards to ensure a positive reception. In addition, the Steering Committee regularly published reports on the progress of SEPA migration in Belgium. This allowed all parties involved in coordinating the process to identify, in particular, instances where roll-out lagged behind expectations and to design appropriate interventions. The Steering Committee implemented specific measures to engage, in particular, small and medium-sized enterprises in the migration process. In addition, the Steering Committee focused its efforts of raising awareness on the need to carefully plan implementation of the SEPA Direct Debit (SDD) Scheme. Adjusting processes and operations in line with the SDD Scheme was a particular challenge in Belgium – and some other SEPA countries – considering that it involved transitioning from a legacy ‘debtor-driven’ to the ‘creditor-driven’ mandate model underlying the SDD Scheme. As a result of this coordinated and targeted approach supported by the representatives of all stakeholder groups, Belgium was one of the first euro area countries to achieve 100 percent SEPA compliance.

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Legal and Regulatory Issues

PSD2: EPC Calls on EU Lawmakers to Maintain the Firewall Protecting Consumers Making Internet Payments. This Means: No Sharing of Any Personalised Security Credentials with Third PartiesUpdate on legislative process leading to the adoption of the revised Payment Services Directive

29.07.14 By Javier Santamaría

With publication of its proposal for a revised Payment Services Directive (PSD2) in July 2013, the European Commission stated that it aims, among other things, to “take account of new types of payment services (such as payment initiation services offered in the context of e-commerce)” and to ensure “a high level of consumer protection and of payments security”. It is the task of the European Union (EU) co-legislators, i.e. the European Parliament and the Council of the EU representing EU governments, to determine whether the new rules related to payment initiation or payment account information services proposed by the Commission indeed ensure a high level of consumer protection and payments security. In the view of the European Payments Council (EPC), this is not the case. Rather, at a time when everyone is discussing how to increase security and data protection in the digital world, the Commission effectively asks the EU co-legislators to tear down the ‘firewalls’ protecting consumers when making internet payments. Specifically, the Commission proposes abandoning the principle established with the PSD currently in effect that under no circumstances should a consumer share his or her personalised security credentials with third parties. Personalised security features include, for example, passwords and personal identification numbers (PINs) as well as mobile or indexed transaction authorisation numbers (TANs). Third parties are any party other than the account servicing payment service provider issuing such credentials to the account holder (the consumer). In this article, Javier Santamaría addresses considerations with regard to the sharing of “non-reusable” personalised security credentials now proposed by the Council of the EU following its review of the Commission’s PSD2 proposal. The EPC strongly recommends maintaining the principle that a consumer should never have to share his or her personal security credentials with third parties. This is a pre-condition to ensuring the continued security of consumers' funds and data in the online banking environment. This article also reiterates other key considerations of the EPC with regard to the proposed new set of rules related to payment initiation or payment account information services.

Key Information in this Article In April 2014 the European Parliament approved the final report of its Economic and Monetary Affairs Committee including amendments to the European Commission’s proposal for the revised Payment Services Directive (PSD2). The Greek Presidency of the Council of the EU representing EU governments published its compromise text on PSD2 in June 2014. The Italian Presidency, which took over the six-month rotating presidency of the Council on 1 July 2014, published a second compromise text in July 2014. In a next step, the Commission, the European Parliament and the Council of the EU will have to agree the final version of the forthcoming PSD2. Considerations of the European Payments Council (EPC) with regard to the provisions concerning the sharing of personalised security credentials now proposed by the Council of the EU in the context of payment initiation and payment account information services:
  • With the proposed PSD2, the Commission introduces the notion of ‘third party payment service provider (TPP)’. TPPs are described in PSD2 as payment service providers (PSPs) pursuing business activities which are based on access to payment accounts provided by a PSP who is not the ‘account servicing’ PSP, in the form of (a) payment initiation services and / or (b) account information services.
  • With its review of the Commission’s PSD2 proposal, the Council of the EU representing EU governments introduced the concept of “re-usable and non-reusable” security credentials and considers that consumers may disclose “non-reusable” credentials to third parties.
  • The EPC believes that it is not feasible to clearly define – and, for consumers, to distinguish between – “re-usable” and “non-reusable” credentials.
  • The EPC also stresses that “re-usable” and “non-reusable” personalised security credentials are both vulnerable to misuse if shared with third parties.
  • Consequently, the EPC emphasises that the principle to not disclose personalised security credentials should continue to apply with regard to any such credentials regardless of whether these are “re-usable” or not.
  • The EPC invites EU lawmakers to consider the comments of the European Central Bank on the proposed PSD2 with regard to consumer protection and open access to payment account services.
Additional key considerations of the EPC with regard to the proposed new set of rules related to the activity of TPPs offering payment initiation and / or payment account information services:
  • Authentication: the EPC stresses that it is of the utmost importance that TPPs would authenticate themselves in an unequivocal manner towards the account servicing PSP when accessing a payment service user’s account.
  • Liability: the EPC is of the opinion that under no circumstances should the account servicing PSP be held liable for the TPP’s mistakes, failures or for specific risks resulting from the TPPs’ sphere of activities.
  • Authorisation: the EPC recommends that all TPPs be subject to authorisation prior to commencing the provision of their services. Under no circumstances should the need for a comprehensive licensing or authorisation regime of TPPs be linked to the total amount of payment transactions, wherever the limits are set. The mere fact that a third party directly intervenes in the payment transaction chain shows that TPPs should be subject to the same licensing and prudential regime as other PSPs in the chain. Moreover, an interim solution would be required to address the current lack of legal framework regarding the licensing of TPPs.
Don’t throw the baby out with the bathwater. Lowering consumer protection standards risks resulting in the opposite of payment innovation The EPC invites the EU co-legislators to take the following into consideration during their further negotiations on the forthcoming PSD2: Convenience is a priority; security is indispensable. Promoting payment innovation to the benefit of both payers and payees requires combining the two. Anyone with an interest in incentivising payers and payees to embrace innovative payment solutions – regardless of whether these are offered by ‘banks’ or ‘non-banks’, existing or new players – should adhere to the principle of ‘safety first’.

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

EPC Publishes 'Guidance on Reason Codes for SEPA Direct Debit R-transactions'Scheme participants are reminded to apply the specific reason codes described in the rulebooks when reporting a failed collection

29.07.14 By Jean-Yves Jacquelin

One of the main benefits of the SEPA Direct Debit (SDD) Schemes is that the scheme rules streamline exception handling, both at the process level and the dataset level. This allows straight-through-processing and automated exception handling end-to-end. Possible exceptions to the normal execution of a direct debit collection include refunds, returns, rejects, refusals and reversals (commonly referenced as R-transactions). The SDD Core and SDD Business to Business (B2B) Rulebooks specify reasons which trigger an R-transaction, i.e. data elements required to convey information to the payee (biller) with regard to the R-transaction. The correct application of these reason codes by a debtor bank, (the bank of the payer), informing a creditor bank, (the bank of the biller), about a failed SDD collection is crucial to allow the biller to determine its reaction. Scheme participants, i.e. payment service providers that have formally adhered to the schemes, are therefore reminded to apply the specific SDD R-transaction reason codes described in the rulebooks when reporting a failed collection. In July 2014, the European Payments Council (EPC) published the document ‘Guidance on reason codes for SDD R-transactions’. In this article, Jean-Yves Jacquelin revisits the principles governing the handling of R-transactions in line with the SDD Core and SDD B2B Scheme rules and introduces the newly released guidance document.

Key Information in this Article Possible exceptions to the normal execution of a direct debit collection include refunds, returns, rejects, refusals and reversals (R-transactions). The SEPA Direct Debit (SDD) Rulebooks specify reason codes which provide information on the factors that triggered an R-transaction. The document ‘Guidance on reason codes for SDD R-transactions’, published by the European Payments Council (EPC) in July 2014, addresses, among others, the following scenarios: There are some restrictions in the use of SDD R-transaction reason codes due to national legislation, (e.g. data protection laws), in e.g. Austria, Belgium, Germany, Luxembourg, Netherlands, Slovakia and Slovenia. The debtor bank, (the bank of the payer), or communities of debtor banks could use different SDD R-transaction reason codes in specific situations:
  • An R-transaction having different basic reasons (e.g. insufficient funds, debtor (payer) account closed or no valid mandate existing).
  • The level of control related to the risk policies and the ‘know-your-customer’ (KYC) principles of the debtor bank. The debtor bank decides whether it makes a check on the sequence type or creditor identifier and whether an SDD collection should be rejected accordingly.
  • An R-transaction could be the result of a limitation for SDD collections to a certain amount and / or periodicity or check on creditors (billers), e.g. an ‘authorisation/stop payment’ feature, implemented as a consumer protection mechanism in line with Article 5 (3) (d) of ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’.
Section 4 of the paper provides guidance to SDD scheme participants about the reason codes to be used to report specific SDD collection issues. The link to the document is included in the ‘related links’ at the end of this article.

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The New European Commission is Expected to Take Office on 1 November 2014. A Recap of the Role of the European Commission in the Evolution of SEPA Credit Transfer and SEPA Direct Debit

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