Arrested Development***

Arrested Development***

Inconsistencies between European Commission´s objectives threaten to hamper SEPA progress

23 July 12

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online payments

The following examples highlight the difficulties the European Payments Council ( ) is facing in view of diverging messages from the European Commission in the areas of market integration and payment innovation on the one hand and competition on the other. Links to regulators' policy documents cited in this article are set out below.

In response to the rapidly increasing volumes of e-commerce payment transactions in the Single Euro Payments Area ( ), the has committed to develop the e-Payment Framework. The framework facilitates online payments. It is designed to support interoperability between existing e-payment schemes as well as new e-payment schemes that reuse the Credit Transfer ( ) Scheme, which could migrate from a national payment landscape to a environment. The framework is not a code of conduct for web merchants on how they should deliver goods and services in time at the appropriate level of quality to consumers. The commercial relationship between buyers and sellers of goods and services are not a part of the framework.

In its December 2009 conclusions on , the European Union ( ) Finance Ministers represented in the Economic and Financial Affairs Council (ECOFIN) called on "industry to deliver solutions for online electronic payments (e-payments)". This request is also reflected in the European Commission Communication 'Completing : a Roadmap for 2009 - 2012' (September 2009) endorsed by the ECOFIN.

The Fourth Report on Financial Integration in Europe of the European Central Bank (ECB) / Eurosystem (April 2010) highlights the ongoing work aimed at the development of a pan-European online payment solution and states: "The Eurosystem will continue to monitor the progress in this area." The Seventh Progress Report on of the ECB / Eurosystem (October 2010) comments: "Based on the strong growth in e-commerce, the corresponding growth in online payments, and the rising concerns over the substantial increase of fraud figures for card payments on the internet, the Eurosystem sees a genuine need for secure and efficient online payment solutions to be offered throughout . Although the 's long-term goals for e-payments are in line with the expectations of the Eurosystem, the slow progress made by the in this domain is thus far disappointing. At the moment, the most promising initiative is the aim of the three prominent online banking-based e-payment solutions (eps, iDEAL, giropay) to run a 'proof of concept' exercise of interoperability, using the 's work on e-payments as the starting point. The Eurosystem supports this proof of concept exercise and the ambitions of the three schemes and expects that the three schemes will be open to requests of other communities / schemes if they would like to join. Furthermore, the Eurosystem strongly encourages the banking industry to engage in this area of activity by providing -wide online e-payment solutions."

The European Commission Communication 'A Digital Agenda for Europe' (May 2010) promoted by the DG Information Society, is one of the seven so-called flagship initiatives of the European Commission initiative 'Europe 2020 - A Strategy for Smart, Sustainable and Inclusive Growth' (March 2010). The Digital Agenda for Europe defines the key enabling role that the use of information and communication technologies (ICT) will have to play if Europe wants to succeed in its ambitions for 2020. Section 2.1.2 of the Digital Agenda for Europe specifically addresses the initiative: "European consumers are still not getting the gains of price and choice that the single market should offer because online transactions are too complicated. Fragmentation also limits demand for cross-border e-commerce transactions."

The explanatory statement tabled with the motion for a European Parliament Resolution on completing the internal market for e-commerce (September 2010) stresses that "e-commerce is a vital force of the internet and an important catalyst to achieving the aims of the 2020 strategy for the internal market."

In May 2011, the Council also recognised the "need for the emergence of -wide, secure online e-payment solutions (complementing secure 'card-not-present' services in e-commerce)." The Council brings together representatives of both the demand and supply sides of the payments market, including the , and was established by the European Commission and the ECB in June 2010. The Council promotes the realisation of an integrated euro retail payments market by ensuring proper stakeholder involvement at a high level and by fostering consensus on the next steps towards the full realisation of .

In 2010, DG Internal Market and Services, DG for Economic and Financial Affairs, DG Information Society, DG Industry and Entrepreneurship, DG Health and Consumer Affairs and DG Competition started an internal reflection process on how best to address remaining challenges in creating an integrated market in payment cards, mobile and internet payments (the SECIM initiative) and invited the to deliver an update on related activities. On this occasion - and at all other times - the provided full and transparent information available to all stakeholders on the 's activities in response to regulators' requests to facilitate online payments.

The is now subject to a Request for Information by DG Competition on the cooperation of banks and payment institutions for designing rules and standards for e-payment services that reuse the Scheme.


for cards

The aim of creating a for cards is to enable European customers (cardholders and merchants) to use general purpose cards to make and receive payments and withdraw cash in euros throughout the area with the same ease and convenience as they do in their home country. The has developed the Cards Framework (SCF). The aim of the SCF is to enable a consistent customer experience when making or accepting payments and cash withdrawals in euros with cards that have achieved very high levels of security. The SCF recognises the EMV standard for -wide acceptance of payments with cards at very high levels of security. EMV is an industry standard to implement chip and personal identification number (PIN) security for point of sale (POS) card transactions to combat fraud. In December 2010, the approved the resolution 'Preventing Card Fraud in a Mature EMV Environment'. This resolution seeks to limit the potential impact of an incomplete migration to EMV outside , based on the EMV chip-only option.

The objectives of a for cards will be achieved to the greatest extent possible through the use of open and free standards available to all parties within the card payment value chain. The carries out a card standardisation programme designed to achieve a consistent customer experience, high levels of security and optimum process efficiency throughout the cards market. In 2009, the promoted the creation of the Cards Stakeholders Group (CSG) together with representatives of five sectors also active in the cards domain including retailers, vendors - such as manufacturers of card payment devices and related IT systems -, processors, card schemes and banks. The CSG develops the Cards Standardisation Volume - Book of Requirements. The Cards Standardisation Volume defines the functional and security standards requirements needed to achieve interoperability based on open and free standards within the cards market.

Also in December 2009, the ECOFIN requested in its conclusions on that industry sets the conditions for further standardisation in the area of cards. The ECB / Eurosystem recommends in its Seventh Progress Report on that all new cards should, by default, be issued as chip-only cards from 2012 onwards.

The would welcome a communication on the status of the investigation launched by DG Competition against the in 2008, citing the fact that the SCF recognises the EMV standard for -wide acceptance of payment cards. DG Competition communicated to the already in 2008 that it would clarify its position as regards the EMV standard. In the view of the , clarification of the position of DG Competition as regards standardisation in the area of cards in general and the EMV standard in particular is required.


Migration to the Credit Transfer ( ) and Direct Debit ( ) Schemes developed by the at the request of European authorities

In December 2009, the ECOFIN further considered that establishing definitive end dates for migration to the and Schemes developed by the - at the request of European authorities - would ensure that the substantial benefits of are rapidly achieved. In March 2009 and March 2010, the European Parliament called on the European Commission "to set a clear, appropriate and binding end date, which should be no later than 31 December 2012, for migrating to instruments, after which all payments in euro must be made using the standards". At its inaugural meeting in June 2010, the Council endorsed a formal declaration stressing its "strong support for the establishment of end date(s) for migration to Credit Transfers and Direct Debits by means of legislation at level". The Seventh Progress Report on of the ECB / Eurosystem states that the "Eurosystem expects and to become the credit transfer and direct debit schemes used for euro payments in the . After the migration end date, they will have replaced national legacy credit transfer and direct debit schemes for euro payments."

In December 2010, the European Commission tabled the proposal for a Regulation establishing technical requirements for credit transfers and direct debits in euros. This legislative initiative is commonly referred to as the forthcoming Regulation.

The European Commission proposal for a Regulation foresees 'interoperability' between multiple euro credit transfer and direct debit schemes. This radically different vision was introduced by the European Commission in March 2010, when it stated that regulatory endorsement of the payment schemes, which were developed by the in close dialogue with customer representatives and at the request of authorities, would grant "a private monopoly to the ."1

The has clarified that a theoretical scenario of multiple 'interoperable' Union-wide payment schemes for euro credit transfers and direct debits however, puts at risk the fundamental requirement of full reachability of all payment service providers across , counters the objective of overcoming the fragmentation of the euro payments market and disregards the principles governing an optimally efficient payment environment. The detailed arguments of the on this subject are set out in the document 'Interoperability of Payment Schemes is not Feasible' (see 'related links' below).


The calls on the European Commission to ensure consistency of agendas with regard to market integration and to payment innovation on the one hand and competition on the other

The wholeheartedly subscribes to the view that its work should comply with competition law. The feels however that some more recent developments would need discussion between DG Internal Market and Services, DG Information Society and DG Competition as well as between the European Commission and the , in order for the to determine to what extent it can continue to pursue the fulfilment of some of the policy objectives for euro payments set by the . The invites DG Internal Market and Services, DG Information Society and DG Competition to ensure a shared understanding by December 2011 at the latest, when the next meeting of the Council will take place.

Gerard Hartsink is the Chair of the .

Related links:

Economic and Financial Affairs Council (ECOFIN) Conclusions on SEPA of December 2009

European Commission Communication 'Completing SEPA: a Roadmap for 2009 - 2012' (September 2009)

European Central Bank / Eurosystem Fourth Report on Financial Integration in Europe (April 2010)

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

European Commission Communication: A Digital Agenda for Europe (May 2010)

European Commission Communication: Europe 2020 - A Strategy for Smart, Sustainable and Inclusive Growth (March 2010)

European Parliament Resolution on Completing the Internal Market for e-Commerce (September 2010)

SEPA Council Statement (May 2011)

European Commission Proposal for a Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros (December 2010)

European Commission Discussion Paper 'SEPA Migration End Date' of March 2010

Document (EPC038-11): 'Interoperability of Payment Schemes Is Not Feasible'

This document (EPC038-11) provides background information relevant to the 's recommended amendments of Article 4 (2) of the European Commission proposal for a Regulation establishing technical requirements for credit transfers and direct debits in euros. The detailed response to the European Commission proposal is available here

European Parliament Resolution of 10 March 2010 on the Implementation of the Single Euro Payments Area (SEPA)

SEPA Council Statement on SEPA End Dates (June 2010)

Related articles in this issue:

A Closer Look at Innovation in Retail Payments. Central bank research in preparation: a report on first findings of working group established by the Committee on Payments and Settlement Systems

Light at the End of the (Harmonisation) Tunnel. 'Third Progress Report on the State of SEPA Migration' prepared by the European Commission Services confirms: mandatory end dates for migration to pan-European payment instruments are required

One Size Fits All. EPC launches an initiative to ensure the efficient management of the SEPA ATM infrastructure

Direct Debit: Killing it Softly. Reflections on the likely demise of one of the most popular payment instruments in Europe

Related articles in previous issue:

Innovacompegration (This is Not a Typo). Reflections on the best approach to innovation, integration and competition in payments ( Newsletter, Issue 10, April 2011)

Time to Prepare the Eulogy - 'Six Feet Under' for the Magnetic Stripe in SEPA. Eurosystem recommends migration to chip-only cards ( Newsletter, Issue 10, April 2011)

Dare to be Bold: Electronic Legal Tender is an Option. A SEPA legal tender model spanning both cash and electronic payments ( Newsletter, Issue 10, April 2011)


1European Commission Discussion Paper ' Migration End Date' (March 2010).

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