Get Ready for SEPA
Facing the Facts in July 2010The EPC Newsletter tracks the progress of SEPA implementation
19.07.10 BY Herman Segers
To allow all parties concerned - including the business community, public administrations, banks and the political drivers of the SEPA initiative - to track the progress of SEPA roll-out, the EPC Newsletter provides the latest data available on the subject. Progress is monitored with regard to SEPA implementation by the banking industry as well as with regard to SEPA readiness in the public and business sectors. In addition, the EPC SEPA Market Uptake Report keeps an eye on the availability of measures put in place by public authorities to facilitate the transition for customers. Last but not least, the debate on setting an end date for migration to SEPA is followed. Herman Segers reports.***
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Percentage of banks in SEPA offering SEPA Credit Transfer services
As of July 2010, nearly 4500 banks in 32 countries offer SEPA Credit Transfer (SCT) services for euro payments. The payment services providers offering SCT services today represent more than 95 percent of payment volumes in Europe. Due to mergers and acquisitions, the absolute number of SCT scheme participants has slightly decreased compared to previous Single Euro Payments Area (SEPA) market uptake reports featured in this newsletter. The EPC SCT Participant Register listing scheme participants, e.g. payment services providers offering SCT services, is publicly available at http://epc.cbnet.info/content/adherence_database.
Percentage of SCT transactions compared to total volume generated by customers
According to the SCT Indicators compiled by the European Central Bank (ECB), the share of SEPA Credit Transfers (SCT) as a percentage of the total volume of credit transfers generated by bank customers amounts to 8.1 per cent as of May 2010.* The ECB SCT Indicators are publicly accessible at http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html.
A figure of 100 per cent would indicate that only SEPA services are used and have fully replaced the non-SEPA instruments. The SCT Indicators are based on aggregated data provided by clearing and settlement infrastructures in the euro area processing SEPA transactions. These data exclude SEPA transactions sent for example via links between infrastructures to avoid double-counting. The data also exclude "on-us" transactions (SEPA Credit Transfers between accounts at the same bank) as well as transactions cleared between banks bilaterally or via correspondent banking. The ECB SCT Indicators also show SCT market uptake by country.
Percentage of banks in SEPA offering SEPA Direct Debit services
The EPC launched the SEPA Core Direct Debit Scheme (SDD Core) and the SEPA Business to Business Direct Debit Scheme (SDD B2B) on 2 November 2009. As of this date, banks throughout SEPA are gradually starting to deliver SEPA Direct Debit services to their customers. All branches of banks in the euro area must be reachable for cross-border direct debits; e.g. SEPA Core Direct Debit, by 1 November 2010 as mandated by Regulation (EC) No 924/2009 (Article 8). In April 2010 the Commission services published a "Note on Application of Article 8 of Regulation (EC) No 924/2009 - Reachabillity for Direct Debit Transactions" (a link to this document is included below); this guidance note states that that the deadline for the application of the reachability obligation to branches of credit institutions is determined only by the location of the branch (inside or outside the euro area), regardless of the location of the parent company. Furthermore, no distinction should be made between the branches with head office located outside the EU and those with head offices inside the EU. Payment service providers seeking adherence to the SEPA Core Direct Debit Scheme in readiness of the 1 November 2010 deadline must submit their application to the EPC by 10 September 2010.
As of July 2010, 2831 banks representing about seventy per cent of SEPA payment volumes have signed up to the SEPA Core Direct Debit Scheme. Of those, 2552 banks have also adhered to the SEPA Business to Business Direct Debit Scheme. The EPC Participant Registers for the SDD Core and the SDD B2B Schemes listing Scheme Participants, e.g. payment services providers offering SDD Core and / or SDD B2B services, respectively, are publicly available at http://epc.cbnet.info/content/adherence_database.
Percentage of SDD transactions compared to total volume generated by customers
According to the SDD Indicators compiled by the ECB, the share of SEPA Core Direct Debits as a percentage of the total volume of direct debits generated by bank customers amounts to 0.06 per cent as of May 2010.* The ECB SDD Indicators are publicly accessible at http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html.
The figures are based on aggregated data from several clearing and settlement infrastructures/systems located in the euro area. As such, SDD transactions which are cleared bilaterally or processed within the same institution are excluded from this indicator.
SEPA for Cards: tracking EMV roll-out
As reported in the previous issues of the EPC Newsletter, good progress is being made in the realisation of a SEPA for Cards. The latter's aim is to enable a consistent customer experience when making or accepting payments with cards. The EPC's SEPA Cards Framework (SCF) outlines high level principles and rules that when implemented by banks and card schemes will deliver this consistent experience. The SCF recognises the EMV standard for SEPA-wide acceptance of payments with cards at very high levels of security. EMV is an industry standard to implement chip and PIN security for POS card transactions.
An important indicator on the progress in this area is the number of cards, POS (points of sale: terminals at retailers' check outs) and ATMs now in the market that require the use of PIN and CHIP for the authorisation of a card payment. More specifically, the percentage of so called EMV-compliant cards, POS and ATMs in SEPA is monitored.
According to our latest findings, as of end first quarter 2010; EMV compliance is 71,10 per cent for cards, 82,57 per cent for POS and 95,14 per cent for ATMS. The progress of EMV roll-out based on the EPC findings is also reflected by the ECB SEPA Card Indicators.
The Eurosystem has in addition developed a SEPA Card Indicator for migration to EMV at transaction level. An "EMV transaction" is understood to be a card payment transaction in which the following criteria are satisfied: an EMV-compliant card is used at an EMV-compliant terminal and EMV technology is used in the processing of the transaction. The indicator is calculated as the number of EMV transactions at POS terminals divided by the total number of transactions at POS terminals (irrespective of the country of issuance of the card). The indicator is affected slightly by transactions conducted using cards issued outside the SEPA area. According to the ECB SEPA Card Indicators, as of December 2009 some 52% of card payment transactions are EMV-compliant.
Last but not least, the ECB SEPA Card Indicators also track cardholders' actual use of their cards when travelling abroad. That use depends on three things: first, the technical capabilities of the card and the terminal; second, the merchant's acceptance of the card in question; and third, the extent to which people do indeed have a uniform "customer experience" across the SEPA area. This indicator is calculated as the number of POS transactions conducted using cards issued outside the country divided by the total number of POS transactions.
Cross-border transactions accounted for around 3.5% of POS transactions in the euro area at the beginning and end of 2008. However, the indicator also shows higher values during the period from July to September 2008. This might be a result of summer holidays, as more people travel during the summer months. In 2009, the indicator was around 1%-point higher compared to 2008, with a similar pattern occurring in summer. A move to a significantly higher level would indicate that SEPA had been successful in changing the card industry, the card acceptance practices of merchants and/or the payment behaviour of cardholders.
The information cited above as regards the ECB SEPA Card Indicators plus additional data provided by the ECB on this subject are available at http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html.
SEPA preparedness of the public sector
SEPA is a policy-maker-driven public harmonisation initiative launched by EU-governments, the European Commission and the European Central Bank, designed to complete the EU internal market and monetary union. As a matter of principle it may therefore be expected that the public sector will act as the launching customer of the new SEPA payment services.
No new and / or additional data on the state of SEPA readiness in the public sector have become available since reporting the following in the previous issue of the EPC Newsletter: The First Annual Progress Report on the State of SEPA Migration in 2008 (February 2009) issued by the European Commission concluded that "since its launch, the uptake of SCT in the public sector has been very limited." The Second Annual Progress Report on the state of SEPA migration in 2009 (November 2009) prepared by the Commission finds that high-volume payment users such as public administrations - even if strongly committed to SEPA - are slow in migrating to SEPA with only 1.5 per cent weighted SCT migration rate in September 20091 and therefore being significantly below the overall migration rate in euro area. There are however 3 Member States which beat the general average SCT migration trend by a large margin, namely Luxembourg, Slovenia and Belgium, with SCT rates of 100 per cent, 60 per cent and 18 per cent respectively. For public administrations in the remaining Member States, the SCT migration rate is either below the average national SCT rate or even zero.
A further update on the migration by public administrations is expected in the second half of 2010.
SEPA preparedness of the corporate sector
No new and / or additional data on the state of SEPA readiness in the corporate sector have become available since reporting the following in the previous issue of the EPC Newsletter: the SEPA Readiness Survey 2009 by Deloitte focusing on the corporate sector finds that SEPA readiness has significantly increased compared to 2008. The Survey shows that those corporates which have a dedicated SEPA team and strategy in place are already deriving significant benefits from implementation. At the same, the majority of companies now identify SEPA not only as a compliance issue, but also as a business opportunity. For detailed findings of the SEPA Readiness Survey 2009 refer to the article "SEPA Survey 2009: Corporate Readiness on the Rise. The findings confirm that early movers have everything to gain"; a link to this article is set out below.
Validity of existing mandates under the SEPA Direct Debit Scheme
No new and / or additional information on the continued legal validity of existing direct debit mandates has become available since reporting the following in the previous issue of the EPC Newsletter: in any direct debit scheme, a mandate is completed by the debtor (a customer purchasing goods or services) to authorise the creditor (the provider of goods or services) to collect payments via direct debit. At the same time, a mandate usually includes the authorisation of the debtor bank to pay these collections. To facilitate migration of customers to the SEPA Direct Debit Scheme, it is imperative that mandates existing today can be used under the SEPA scheme, even if these do not meet all the requirements of the SEPA mandate. Where necessary, EU Member States must devise legislative solutions to ensure the continued legal validity of existing mandates under the SEPA Direct Debit Scheme.
According to the Second Annual Progress Report on the state of SEPA migration in 2009 this issue has been addressed in all Member States "with the important exception of Germany". Direct debits are used twice as much in Germany as in the whole of the European Union2.
Setting a deadline for migration to SEPA
The EPC recognises the value of setting a deadline for migration to SEPA services. An end date for phasing out legacy euro payment instruments creates awareness, ensures planning security for all market participants and confirms the commitment to making SEPA a reality. The EPC proposes to set an end date for migration to the SEPA Schemes developed by the EPC in close dialogue with the customer community through EU Regulation. This option has the advantage of a concrete and tangible basis for migration as requested by the political drivers of the SEPA initiative and is in line with expectations expressed by several authorities including the European Commission since the start of the SEPA programme. As confirmed by the findings of a study requested by the European Commission already in 2007, the benefits for bank customers inherent to the SEPA harmonisation exercise are contingent upon swift migration to a single set of SEPA payment instruments by both the demand and the supply sides3.
The European Central Bank (ECB) observes that "corporations and public administrations (...) still take a cautious approach" towards SEPA implementation. To break that circle of "wait and see", states the ECB, a migration end date from which point onwards only the European payment instruments will exist is needed4. The European Parliament called on the European Commission to set a "clear, appropriate and binding end date, which date should not be later than 31 December 2012, for migrating to SEPA products"5. EU Commissioner Michel Barnier, head of the Directorate-General Internal Market and Services, reiterated in April 2010: "(...) we need to give SEPA (...) a renewed momentum. I believe that binding end-dates are important in this regard"6.
On 2 December 2009, the Economic and Financial Affairs Council (ECOFIN - comprising the Economics and Finance Ministers of the EU Member States) stated that "establishing definitive end-dates for SDD and SCT migration would provide the clarity and the incentive needed by the market, ensuring that the substantial benefits of SEPA are rapidly achieved and that the high costs of running both legacy and SEPA products in parallel can be eliminated." The ECOFIN therefore invited the Commission, in collaboration with the ECB and in close cooperation with all actors concerned, to carry out a thorough assessment of whether legislation is needed to set binding end dates for SDD and SCT and to come up with a legislative proposal should this assessment confirm this (see link below to the ECOFIN Conclusions on SEPA of December 2009).
At the meeting of the European Commission's Payment Systems Market Expert Group (PSMEG) on 23 March 2010, the European Commission tabled a Discussion Paper titled "SEPA Migration End-Date", which contemplates, amongst others, legislative measures to set a mandatory deadline for migration to SEPA. For a detailed EPC commentary on the European Commission's Discussion Paper of March 2010 refer to the article "On SEPA and US Health Care Reform" in the previous issue of this Newsletter (a link to this article is included below).
In June 2010, the Commission services published a Working Paper titled "SEPA Migration End-Date" outlining the provisions of a forthcoming Regulation which envisages setting end dates for euro credit transfer and euro direct debit schemes with so-called "essential requirements" and common standards (a link to the document is included below). In the view of the EPC, this Regulation as currently described in the Commission services' Working Paper of June 2010 fails to define definitive end dates for the phasing out of legacy euro payment schemes and could trigger a number of consequences which might severely impact the competitiveness of payment services in Europe to the detriment of bank customers. For a detailed EPC commentary on the Commission services' Working Paper of June 2010 refer to the article "On Payments and Light Bulbs. Commission ready to write off SEPA via Regulation?" in this Newsletter (a link is included below).
In his address to the EPC Plenary on 23 June 2010, Michel Barnier, EU Commissioner of the Directorate-General Internal Market and Services, stated that he plans to introduce a formal proposal for a Regulation on "SEPA Migration End-Date" in September 2010. It remains to be seen whether this proposal will actually live up to its name, i.e. whether the Commission is committed to phasing out legacy euro payment schemes on national level in favour of harmonised SEPA payment instruments.
Herman Segers is the Secretary General of the EPC.
*Please note: data, facts and figures cited in this article represent the latest data available as of the publication date of this issue of the EPC Newsletter (19 July 2010).
Related article in this issue:
Related articles in previous issues:
November 2010: Mandatory Reachability for cross-border Direct Debits . Commission services publish guidance note on application of Article 8 of Regulation (EC) No 924/2009 (EPC Newsletter, Issue 6, April 2010)
1This rate decreased from 2.3 % shown in the second Commission services' survey on public administrations preparedness and migration to SEPA (status March 2009) to 1.5 % due to a statistical effect, namely that France provided an updated survey reply representing all of its PA transactions. Given that France has a very large number of PA transactions (852 million) and has not started to use SCT yet, this drove down the euro area average considerably by increasing the statistical base compared to the previous survey. It is therefore important to note that this should not be perceived as an actual decline of SEPA transactions in the euro area compared to the survey results published in July 2009.
2SEPA2008: Uniform Payment Instruments for Europe. Association of German Banks. 2nd revised edition. September 2008.
3SEPA: Potential Benefits at Stake (Capgemini) available at http://www.europeanpaymentscouncil.eu/knowledge_bank_detail.cfm?documents_id=283
4The Quest for the Holy Grail? - European Financial Integration: Achievements and Hurdles. Speech by Getrude Tumpel-Gugerell, Member of the Executive Board of the ECB. Workshop on "Securing the Future Critical Financial ICT-Infrastructure (CFI)" organized by Parsifal. Frankfurt, 16 March 2009.
5European Parliament Resolutions on the Implementation of the Single Euro Payments Area:
http://www.europarl.europa.eu/sides/getDoc.do?type=TA&... (March 2009) and http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-/... (March 2010)
6Michel Barnier, EU Commissioner for Internal Market and Services - Forging A New Deal Between Finance And Society: Restoring Trust In The Financial Sector - European Financial Services Conference, Brussels, 26 April 2010
Other articles in this issue
19.07.10 Update EPC Plenary Meetings - Main decisions taken in June 2010 By Gerard Hartsink 19.07.10 SEPA Scheme Rulebooks: next Release - Public consultation ends in August 2010 By Javier Santamaría 19.07.10 EPC Card Fraud Prevention Forum - Agreement on new measures to fight card fraud By Cédric Sarazin 19.07.10 Standardisation is Key - Focus on security requirements and a European certification framework By Claude Brun 19.07.10 New Business Opportunities with Chip and PIN - How to create added value based on EMV technology By Nick Collin 19.07.10 New and Improved - EPC publishes updated guidelines on the use of audit trails in security systems By Björn Flismark 19.07.10 PSD: taking Action - Commission determined to ensure transposition and PSD Expert Group offers further guidance By Ruth Wandhöfer 19.07.10 SEPA in the Context of the Financial Crisis - Retail payments business proves to be resilient By Wiebe Ruttenberg and Monika Hempel 19.07.10 Gaining Momentum - A progress report on e-Invoicing By Charles Bryant 19.07.10 Missed Opportunity - European Commission recommendation on scope and effects of euro cash as legal tender By Leonor Machado 19.07.10 Continued Commitment to high Quality - EU Regulation on authentication of euro coins and handling of euro coins unfit for circulation By Leonor Machado 19.07.10 Why change? Why me? Why now? - The political mismanagement of the SEPA process reinforces resistance to change By Javier Santamaría 19.07.10 On Payments and Light Bulbs - Commission ready to write off SEPA via EU legislation? By Gerard Hartsink 19.07.10 Promoting the SEPA Vision - European Commission and ECB establish the SEPA Council By Gerard Hartsink
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