January 2015 - Issue 25
The future of payments: scenario building in the digital age
This EPC Newsletter takes a closer look at latest developments expected to shape the future of European payments in 2015 and beyond.
Javier Santamaría reports on preliminary conclusions reached at the session ‘payments – improving users’ experience and looking into the future’ hosted by the European Commission at its conference on emerging challenges in retail finance and consumer policy which took place on 18 November 2014. Santamaría points out: “The speed at which developments evolve and their impact on society, at multiple levels, pose new challenges to building future scenarios that may claim to provide at least an approximation to new emerging realities.”
“The probability that a new solution – which could render mid to long-term predictions obsolete – is just around the corner, should be factored into the scenario building exercise,” he adds.
To illustrate the point: in December 2014, the European Banking Authority (EBA) published its finalised guidelines on the security of internet payments that payment service providers in the European Union will be expected to implement by 1 August 2015. The guidelines are based on recommendations first issued by the European Forum on the Security of Retail Payments (SecuRe Pay) in January 2013.
Examining the EBA guidelines, Etienne Goosse comments: “In the last two decades many security solutions were implemented, only to have been rendered obsolete as technology evolves.” For example, since the issuance of the Secure Pay recommendations on the security of internet payments in 2013, “tokenisation has been picked up as one of the prevalent security solutions in any future e-payments system but, understandably, at the time of publication, the recommendations did not take tokenisation into much consideration.”
The European Payments Council (EPC) therefore, suggested that new developments would be taken into account when finalising the EBA guidelines as otherwise “innovation in this area could be seriously hindered.”
With regard to scenario building in the digital age, Santamaría concludes: “Thinking outside the box is a valuable exercise. Keeping in mind established wisdom doesn’t hurt either. Regulation – now and in the future – should strive to achieve legal certainty, balance, technology neutrality and a level playing field amongst all players.”
Please recommend the EPC Newsletter to your colleagues – a free subscription can be obtained by clicking here. The next issue will be published in April 2015.
The Future of Payments: European Commission Invited Exchange of Views at its Conference on Emerging Challenges in Retail Finance and Consumer PolicyParticipants discussed latest developments, and ones to come, in terms of consumers' safety, accessibility and convenience
29.01.15 By Javier Santamaría
“Everything changes but change itself. You cannot step twice into the same river, for other waters and yet others go flowing ever on,” observed Heraclitus of Ephesus (circa 535 – 475 before common era). This certainty is the live bait that provokes analysts to release imagination and engage in scenario building to explain how, in their view, the future could look. In that spirit, the European Commission provided an opportunity to forge ahead of actual events at its ‘Conference on emerging challenges in retail finance and consumer policy’, held in Brussels on 18 November 2014. Topics discussed included ‘Payments: improving users’ experience and looking into the future’. The Commission called for “fresh thinking” on emerging payment methods as well as new players in the industry (and their impact on incumbents). Participants were invited to reflect about potential developments in the next 5 to 10 years and “what would need to happen in the market and among regulators to make sure the evolution is positive, for all parties”. In this article, Javier Santamaría, who participated in the conference panel on payments, offers for discussion a methodology of scenario building which allows designing adequate forward-looking strategies in a fast moving environment. He also reports on preliminary conclusions on the future of payments reached at the conference. The European Commission indicated that “these conclusions will be followed-up by further policy considerations” in the first part of 2015. On that note, Santamaría concludes: thinking outside the box is a valuable exercise. Keeping in mind established wisdom doesn’t hurt either. Regulation – now and in the future – should strive to achieve legal certainty, balance, technology neutrality and a level playing field amongst all players.
Policy, regulatory, and legal issues
Guidelines on the Security of Internet Payments Released by the European Banking Authority: a Two-Step Approach EPC response to the consultation on guidelines on the security of internet payments launched by the European Banking Authority
29.01.15 By Etienne Goosse
The European Banking Authority (EBA) was created in 2011 to ensure “effective and consistent prudential regulation and supervision across the European banking sector”. In October 2014, the EBA published a consultation paper on the implementation of its guidelines on the security of internet payments. The paper was based on the recommendations of the European Forum on the Security of Retail Payments (SecuRe Pay), a voluntary cooperative initiative between relevant authorities from the European Economic Area, which were released in January 2013 with an implementation deadline of 1 February 2015. The conversion of SecuRe Pay recommendations into EBA guidelines was intended to provide a solid legal basis in order to ensure consistent implementation across all European Union Member States and to reassure financial institutions that required investment and system changes have a consistent regulatory framework. Following the outcome of the public consultation, the EBA decided to issue its guidelines to come into force in August 2015. The guidelines cover three main categories; the general control and security environment, specific control and security measures for internet payments, and customer awareness, education and communication. In this article, Etienne Goosse examines the background to the consultation paper, the question it asked, the response of the European Payments Council (EPC) and the finalised guidelines.Read more
Opinion and Editorial
Virtual Currencies: a House of Cards or a Mass Market Trend? The Answer to that Question Remains PendingA commentary on the latest developments in the emerging virtual currencies landscape
29.01.15 By Edith Rigler
At present, virtual currencies (VCs) represent a miniscule amount of transactions globally. In its opinion on VCs published in July 2014, the European Banking Authority (EBA) points out that “using a generous interpretation, the number of global virtual currency transactions has never exceeded 100,000 per day across the globe, compared to approximately 295 million conventional payment and terminal transactions per day in Europe alone (i.e. credit transfers, direct debits, e-money transfers, cheques, etc.)”. This said, public authorities around the globe are assessing how to deal with the phenomenon. The EBA, for example, commented: “A regulatory approach (…) would need to comprise, amongst other elements, governance requirements for several market participants, the segregation of client accounts, capital requirements and, crucially, the creation of ‘scheme governing authorities’ that are accountable for the integrity of a VC scheme and its key components, including its protocol and transaction ledger.” In other regions, the authorities do not (yet) see a need to regulate or focus on a different set of questions such as, for example: are VCs legal currency? Are they an ‘asset’, a ‘property’, a ‘financial unit’? If they are an asset, is it taxable? If so, does capital gains tax apply? In this article, Edith Rigler takes a closer look at the latest developments in the VC landscape and the emerging regulatory response. The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.Read more
Next Steps Agreed by the ERPB with Regard to SCT and SDD Post-migration Issues, pan-European Electronic Mandate Solutions and Instant PaymentsThe ERPB, chaired by the European Central Bank, is a multi-stakeholder body that helps “fostering the development of an integrated, innovative and competitive market for retail payments in euro in the EU”
29.01.15 By Jean-Yves Jacquelin
As previously reported in this newsletter, SEPA is a European Union (EU) integration initiative pursued by the EU institutions. These are the European Commission, the European Parliament, the Council of the EU representing EU governments and the European Central Bank (ECB). Today, the EU authorities expect that non-competitive SEPA solutions are the result of multi-stakeholder endeavours involving, essentially, representatives of all impacted parties on the demand, supply and regulatory sides. The Euro Retail Payments Board (ERPB), created and chaired by the ECB, facilitates this approach. The ERPB’s work consists mainly of identifying strategic issues and work priorities (including business practices, requirements and standards) and ensuring they are addressed. Members of the ERPB represent the demand and supply sides of the payments market. The European Payments Council (EPC) is a member of the ERPB. EU national central banks also participate in the ERPB. The European Commission acts as an observer. In this article, Jean-Yves Jacquelin describes the interaction between the ERPB and other stakeholders including the EPC. He also reports on next steps agreed by the ERPB at its second meeting held on 1 December 2014 with regard to SEPA Credit Transfer and SEPA Direct Debit post-migration issues, pan-European electronic mandate solutions and instant payments in euro. (Information on these ERPB work items was previously published with the EPC Blog of 9 December 2014.)Read more
In January 2015 the EPC Published the SDD Core Rulebook Version 9.0 and SDD Business to Business (B2B) Rulebook Version 7.0 to Take Effect in November 2016The SDD Core Rulebook version 9.0 includes a shorter standard time cycle; both the SDD Core Rulebook version 9.0 and SDD B2B Rulebook version 7.0 feature simplified use of sequence types
29.01.15 By Jean-Yves Jacquelin
On 26 January 2015 the European Payments Council (EPC) published the SEPA Direct Debit (SDD) Core Rulebook version 9.0 and the SDD Business to Business (B2B) Rulebook version 7.0. The SDD Core Rulebook version 9.0, the SDD B2B Rulebook version 7.0 and associated implementation guidelines will take effect on 20 November 2016. The EPC has traditionally published updated versions of the rulebooks and associated implementation guidelines once annually in November to take effect in November of the next year. Exceptionally, the EPC resolved to publish the SDD Rulebook versions to take effect in November 2016 in January 2015. This decision was made to give payment service providers participating in the SEPA payment schemes an extended lead-time to implement principal changes incorporated in the SDD Core Rulebook version 9.0 and SDD B2B Rulebook version 7.0 prior to them taking effect. The SDD Core Rulebook version 9.0 introduces a shorter standard time cycle. Both the SDD Core Rulebook version 9.0 and SDD B2B Rulebook version 7.0 have been amended to simplify the use of sequence types. In this article, Jean-Yves Jacquelin describes again the main changes introduced into the SDD Core Rulebook version 9.0 and SDD B2B Rulebook version 7.0 (previously described in a dedicated article published in the October 2014 edition of the EPC Newsletter). He also recaps the rulebook release management process applicable until November 2017.Read more
Policy, regulatory, and legal issues
EU Payments Legislative Package: Strong Concerns of European BanksThe focus on innovation and competition issues should not be to the detriment of consumer protection
29.01.15 By Séverine Anciberro and Sébastien de Brouwer
On 24 July 2013 the European Commission published a ‘payments legislative package’ which includes its proposals for a revised Payment Services Directive (PSD2) and a new Regulation on interchange fees for card-based payment transactions (IFR). Both proposals have been reviewed, respectively, by the European Union (EU) co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States. In a next step, the so-called ‘trialogue’ process will be initiated, whereby the European Commission, the European Parliament and the Council of the EU will have to agree the final version of the forthcoming PSD2 and IFR. Provided that there are no delays, PSD2 could be adopted in the first half of 2015, and be implemented in national legislation some two years after its adoption. It is expected that the EU co-legislators will also adopt the IFR in the first half of 2015. In this article, Séverine Anciberro and Sébastien de Brouwer of the European Banking Federation (EBF) analyse the possible implications of these forthcoming legislative acts. The authors point out: “The current proposals for PSD2 and IFR do not guarantee that consumers will be better off. The EBF fully supports innovation and competition in payments but is keen to see that the upcoming trialogue talks in Brussels on the PSD2 address strong concerns over data protection, privacy, and account security and user convenience.”
The views expressed in this article are solely those of the authors and should not be attributed to the European Payments Council.Read more
Opinion and Editorial
A New Global Initiative Driven by the Financial Stability Board and the G20: the Legal Entity Identifier (LEI) Empowers Market Participants to Mitigate Risks and Increase Operational Efficiencies The LEI is based on the ISO 17442 standard and is available to any market participant free-of-charge
29.01.15 By Gerard Hartsink
Created in 2009, the Financial Stability Board (FSB) seeks to strengthen financial systems and increase the stability of international financial markets globally. In the wake of the 2008 financial crisis, the FSB as well as the finance ministers and central bank governors represented in the Group of Twenty (G20) advocated developing a universal legal entity identifier (LEI) applicable for public and private purposes to any legal entity that engages in financial transactions. Implementation of the LEI will increase the ability of authorities in any jurisdiction to evaluate risks, conduct market surveillance and take corrective steps. The LEI is currently required in the United States and the European Union for the execution of transactions with, and reporting of, counterparties to over-the-counter (OTC) derivative trades. Many other regulators around the world are implementing the LEI for financial market transactions or are considering doing so. Use of a LEI also generates tangible benefits for businesses including reduced counterparty risks and increased operational efficiencies. Following up on the recommendations of the FSB endorsed by the G20 in 2012, public authorities cooperating with private sector experts created the Global LEI System (GLEIS). In June 2014, the FSB established the Global LEI Foundation (GLEIF) as the operational arm of the GLEIS. In this article, Gerard Hartsink, Chairman of the GLEIF Board, outlines next steps to promote global LEI adoption and identifies, specifically, the added value of applying the LEI in the payments industry.
The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.Read more
Mobile and online payments
New ERPB Working Groups on Mobile Payments and Publication of the Second Edition of the EPC's ‘Overview of Mobile Payments Initiatives´New ERPB working groups address person-to-person mobile payments and mobile and card-based contactless proximity payments. Second edition of EPC report includes mobile payments initiatives launched between June and October 2014
29.01.15 By Dag-Inge Flatraaker
As reported previously in this newsletter, the European Union (EU) 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. SEPA is “more than just credit transfers and direct debits. It is also about card payments and might also cover internet and mobile payments”, former Vice-President of the European Commission Michel Barnier reiterated on 1 August 2014. Consequently, the Euro Retail Payments Board (ERPB), chaired by the European Central Bank, in December 2014 decided to set up a new working group focusing on person-to-person mobile payments as well as a new working group on mobile and card-based contactless proximity payments. The purpose of these working groups is to analyse existing solutions and identify any barriers to the development of solutions and the interoperability at pan-European level. In this article, Dag-Inge Flatraaker describes the mandate of the ERPB working groups on person-to-person mobile payments and mobile and card-based contactless proximity payments. (Information on these ERPB working groups was previously published with the EPC Blog of 9 December 2014.) In addition, he introduces the second and updated edition of the ‘EPC Overview of Mobile Payments Initiatives’ published in December 2014.Read more
EPC Plenary Meeting UpdateMain decisions taken in December 2014
29.01.15 By Javier Santamaría
The Plenary to date is the decision-making body of the European Payments Council (EPC). In this article, EPC Chair Javier Santamaría summarises the main items agreed by the EPC in December 2014. As previously reported, with the main phase of the migration to harmonised SEPA payment schemes in the euro area complete, the EPC resolved in October 2014 to adapt its current structure to further enhance governance and stakeholder involvement. In December 2014, the EPC approved its revised Charter which reflects the organisation’s new governance model. The revised Charter will be published and take effect in the first quarter of 2015 subject to procedures to be observed under Belgian law. The EPC approved the SEPA Direct Debit (SDD) Core Rulebook version 9.0 and SDD Business to Business Rulebook version 7.0 to take effect in November 2016; the second and updated edition of the ‘EPC Overview on Mobile Payments Initiatives’; and version 4.0 of the document ‘Guidelines on Algorithms Usage and Key Management’.Read more