Building a Single Market for e-Commerce Payments***

Building a Single Market for e-Commerce Payments***

The SEPA e-Payment Framework - from design via proof of concept to market

05 July 12

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The vision: a single market for e-Commerce payments

The explanatory statement tabled with the motion for a European Parliament Resolution on completing the internal market for e-Commerce in September 2010 (see link below), stresses that "e-Commerce is a vital force of the internet and an important catalyst to achieving the aims of the EU 2020 strategy for the internal market". According to this statement, in 2009, one consumer out of three in Europe bought at least one item online, but only seven percent of European consumers have done so in another EU Member State. Covert research by the EU into e-Commerce practices showed that 60 percent of customer attempts to buy items across EU borders fail, with the transaction or shipping declined by the vendor, even though the buyer could have saved at least ten percent by e-shopping abroad (even including shipping costs) in half of the 11,000 cases investigated.

The Centre for Parliamentary Studies, which will hold a symposium titled 'Streamlining the Internal Market - Removing Barriers to Facilitate e-Commerce' in February 2011 (see link below), comments: "In the digital age the implementation of the single market has not expanded in line with the rapid growth of the online retailing sector. The €106bn e-Commerce market is one of the most dynamic aspects of the European economy and one which has huge potential for growth and can play a significant role in the recovery of the European internal market, safeguard consumer confidence and boost economic progress. E-Commerce has grown steadily in the last few years, expanding by an annual average rate of 10 percent in the UK, Western Europe and Scandinavia, with Southern and Eastern Europe following closely behind. In the UK alone e-Commerce will account for a third of all transactions in 2010, worth £56bn, with the 50 percent mark likely to be passed this decade and with a similar story across the Benelux region, Scandinavia and Germany."1. The Centre for Parliamentary Studies further states that "the existing regulatory framework does nothing to remove the many obstacles in the way of an effective single online market. Many retailers are put off by the 27 different consumer-protection laws and variances in rules, electronic waste regulations and postal systems. These restrictions are directly hindering the growth and competitiveness of SMEs, which represent 99 percent of firms."

The report 'Online Payments 2010' (see link below) confirms that great divides in e-Commerce maturity and IT development throughout the persist: "Generally speaking, the Nordic countries in addition to the Netherlands and the UK are most advanced while countries in South and Eastern Europe are less advanced. However, those currently lagging behind are making great strides in catching up. Access to broadband Internet has increased strongly in the new member states. For example, in Romania broadband access grew from 8 percent in 2007 to 23 percent in 2009. Also the proportion of consumers having purchased goods online has grown significantly. Eastern Europe is bound to catch up and may even leap ahead." To create a single market for e-Commerce, the authors point out, it is also necessary to overcome "the lack of international or interoperable payment methods".

In response to the rapidly increasing volumes of e-Commerce payment transactions and spearheading innovation in payments, the European Payments Council () committed to develop the e-Payment Framework which outlines the specific rules and standards allowing buyers in to purchase goods and services from web retailers.

The concept of the e-Payment Framework

The e-Payment Framework facilitates online payments with an e-Payment guarantee for web retailers followed by a Credit Transfer (). The e-Payment Framework is a framework which facilitates online payments. The e-Payment 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 relations between buyers and sellers of goods and services are not a part of the framework. The framework is also designed to support the e-Payment schemes existing in the market already today that could migrate from a national environment to a environment. E-Payment schemes make it possible for banks to deliver payments to their customers which allow online buyers to have euro payments debited from their own current account. The e-Payment schemes existing today, however, only work within national borders. An e-Payment scheme compliant with the e-Payment Framework would enable a buyer using the internet to visit the web shop of an online merchant regardless where he is located in , and to pay the merchant using both his own internet banking services and his current bank account2. The has defined minimum criteria, including legal and security aspects, which would have to be met by an e-Payment scheme in order to be '-compliant'.

To achieve interoperability between e-Payment schemes, it is necessary that these e-Payment schemes adopt the common business and compliance requirements as well as the technical and other aspects defined in the framework. Firstly, the e-Payment guarantee is considered to be an essential element of the framework. This binding commitment is handled by each e-Payment scheme owner, modifying the contract it has with its participating banks to bind the bank to honouring any guarantee that it issues.

Secondly, the must be able to uphold the reputation of the logo in the marketplace and the credibility of the e-Payment Framework overall. The ability to grant the use of the logo to an e-Payment scheme that makes use of an payment and the ability to remove its use imply that each e-Payment scheme must enter into a contractual relationship with the , via the e-Payment Framework. The will address the question of whether the grant of use of the logo could entail any liabilities for the in cases of non-compliance with the framework.

Thirdly, e-Payment schemes enrolling in the framework must be able to demonstrate and offer full (including commercial) interoperability. This implies that payers and payees who have access to different enrolling e-Payment schemes must be able to complete each e-Payment transaction.

Proof of concept and go-to-market

The and the three existing e-Payment schemes, i.e. EPS (Austria), Giropay (Germany) and iDEAL (Netherlands), agreed to launch a proof of concept exercise based on the draft e-Payment Framework Service Description developed by the . This proof of concept (PoC), to be carried out in 2011, provides the scheme owners with the opportunity to put the framework (version 0.9) to the test and to identify the possible need for adaptation. The next version of the e-Payment Framework (Release 1.0), which will form the basis for implementation, will benefit from comments received both during the PoC and earlier consultations.

It is currently expected that release 1.0 of the e-Payment Framework will be submitted to the Plenary for approval in June 2011. Once approved, e-Payment schemes using the will be able to enroll in the framework.

Meeting customer needs in the emerging single market for e-Commerce

The following scenario illustrates the convenience of making an e-Payment under the e-Payment Framework: you have a current account with a bank in the Netherlands. You are spending time in Austria. You want to buy a ticket for a concert in Vienna at 2 am from a German online merchant for the event at 8 pm the same day. In this instance, your Dutch-based bank will issue a payment guarantee to the German online merchant in real-time, so that the merchant can release your ticket for the concert immediately. The merchant will be sure that the money will arrive by on his account in due time.

This scenario is contingent upon the following: your Dutch-based bank must offer internet banking services and services. The merchant's German-based bank must be able to receive payments, i.e. it must adhere to the 's Scheme. At the same time, the German bank and the German merchant must be participants in the same e-Payment scheme. This e-Payment scheme must be compliant with the e-Payment Framework.

The e-Payment Framework therefore provides a convenient and secure means of making payments online. As such, the framework contributes to achieving a single market for e-Commerce - to the benefit of European consumers and web retailers.

John Holsberg is the Chair of the e-Payments Task Force and member of the Payment Schemes Working Group. Javier Santamaría is the Chair of the Payment Schemes Working Group.

Related links:

European Parliament Resolution on completing the internal market for e-Commerce, September 2010:

Online payments 2010 - Increasingly a global game (Report Innopay)

Symposium 'Streamlining the Internal Market - Removing Barriers to Facilitate e-Commerce', 22 February 2011: for details visit

Related articles in this issue:

Reaping the Benefits of Electronic Invoicing for Europe. A summary of the European Commission Communication issued in December 2010

1Centre for Parliamentary Studies: Symposium 'Streamlining the Internal Market - Removing Barriers to Facilitate e-Commerce', Abstract and Programme.

2To enable customers to make e-Payments across all countries it is also necessary to provide a payment vehicle that allows the exchange of funds between any accounts held in . Obviously, at this point the Credit Transfer () is the only payment instrument that can be used for domestic and cross-border electronic payments in Europe.

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