Join the Debate on the Further Evolution of the SEPA Credit Transfer a...

Join the Debate on the Further Evolution of the SEPA Credit Transfer and SEPA Direct Debit Schemes: Less Flexibility, More Harmonisation? An Overview of the Options, Variations, Exceptions and Exemptions Possible in SEPA Today

06 May 14

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This blog is a summary of the article with the same title published with the April 2014 edition of the Newsletter (see links below). Readers are invited to refer to this Newsletter article for more detailed information on the topic.

European Union (EU) integration rarely follows the fastest possible trajectory, but relies on incremental progress over time. More than 14 years of the Single Euro Payments Area () in the making, based on several EU legislative interventions aimed at promoting the harmonisation of the euro payments market, is a prime example in this context. Up to this point it has been recognised that facilitating the transition of millions of market participants to harmonised payment schemes and technical standards requires allowing for a degree of flexibility. This blog provides an overview of variations possible in today.

With migration to Credit Transfer () and Direct Debit (SDD) in the euro area nearly complete, the question is whether a majority of stakeholders is willing to relinquish – at least in the mid-term – any (or even all) of the options, exceptions, exemptions and variations currently available in favour of further harmonisation.

(Sources cited in this blog and other related information are included in the ‘related links’ below.)

Everybody supports integration – in principle. An overview of the options, variations, exceptions and exemptions possible in today

The and SDD Schemes include mandatory as well as optional elements

Dialogue with stakeholders across frequently demonstrates that the requirements of bank customers, with regard to the payment schemes, differ widely across and within the various customer segments and countries. As regards the latter, it has to also be kept in mind that 98 percent of all retail payments are made within national borders. Payment service users are not only divided into payers and payees (whose payment needs are different). Bank customers encompass a wide range of interest groups including consumers, public administrations, corporates and small and medium-sized enterprises (SMEs). Corporates and SMEs may be active domestically, regionally or globally. In a multi-country environment such as , even within a specific customer segment, there exist very different schools of thought as to which specific features should be included in a payment scheme or not.

Consequently – and not surprisingly – expectations with regard to payments among and within various customer segments and countries are often contrary or even mutually exclusive. The scheme change management process leading to the release of updated versions of the and SDD Rulebooks, which provides all stakeholders with the opportunity to propose suggestions for modifications, demonstrates the fact. The has often received very different suggestions for changes to the and SDD Rulebooks from specific interest groups representing a particular customer segment or customers of a particular community.

The has frequently commented that the process of scheme development can be compared to designing a car model: the basic model must meet key market requirements. At the same time, the model must be flexible enough to include options to add extras on demand. This concept provides maximum choice to customers while avoiding that a majority of customers has to buy features they do not need. The and SDD Schemes, developed by the in close dialogue with the entire payment community, to date are based on this concept and therefore:

  • Include mandatory elements to be observed by all scheme participants, (i.e. payment service providers () that have formally adhered to the schemes), as well as optional elements allowing to offer specific features in response to market demand.
  • Recognise that individual scheme participants and communities thereof will provide complementary services based on the schemes so as to meet further specific customer expectations. These are described as additional optional services (AOS).

Variations included with specifications of the implementation guidelines with regard to the and SDD Schemes, based on the global ISO 20022 message standards

The data formats as detailed in the implementation guidelines for the customer-to-bank and interbank space, respectively, released by the with regard to the and SDD Schemes, are based on the global ISO 20022 message standards developed by the International Organization for Standardization (ISO). In the ISO process, business requirements are defined for all markets across the globe. Different markets have different data needs. Thus, they may need to define their own version within the global standard, specific to their own situation. In this respect, the ISO messages have been adjusted to meet the requirements. The data formats as set out in the implementation guidelines are a subset of the global ISO 20022 standards. The role of the in defining the data formats therefore consists of identifying all necessary data elements for making payments as defined in the and SDD Rulebooks within the global standard.

Market observers commented in a previous edition of the Newsletter: “It is expected that there should be a common understanding on the use and interpretation of the ISO 20022 message standards, as specified in the implementation guidelines (...). This is however, not the case. The market reality today is that multiple specifications based on the implementation guidelines are in use, which has resulted in subtle (and sometimes not so subtle) differences in the application of the standard.”

Transitional arrangements permissible under Regulation () No 260/2012 (the Regulation)

compliance requirements are determined by the co-legislators, i.e. the European Parliament and the Council of the representing Member States. In February 2012, the European co-legislators adopted the ‘Regulation () No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the Regulation). The and SDD Schemes have to comply with the technical requirements detailed in Article 5 and in the Annex to the Regulation.

The Regulation effectively mandates migration to and SDD in the euro area by 1 February 2014. At the same time, the Regulation – in an attempt to respond to a broad range of requests for flexibility articulated by various parties throughout the legislative process – has introduced several 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.

The Regulation also stipulates that credit transfer and direct debit transactions with a cumulative market share of less than 10 percent in an Member State must comply with the provisions set out in this legislative act only by 1 February 2016.

Last but not least, in February 2014, the European Parliament and the Council of the EU, respectively, adopted the new ‘Regulation (EU) No 248/2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’. This new EU Regulation states, among other things (italics added): “ may continue, until 1 August 2014, to process payment transactions in euro in formats that are different from those required for credit transfers and direct debits pursuant to this Regulation.” Different euro area countries have decided on different timelines during which they will make use of the option to continue processing non- formats, i.e. some countries do so during the full six months transition period agreed by the European Commission, the European Parliament and the Council of the EU while others have opted for a shorter timeline.

(Please note: the , representing the European banking industry in relation to payments, is not an EU legislative body. More generally, the is not part of the EU institutional framework. The has therefore, no role in the adoption or modification of any EU laws.)

Have your say on the further evolution of the and SDD Schemes: less flexibility, more harmonisation?

It is arguable that flexibility breeds confusion and risks translating into a prolonged patchwork of national variations. Constantly adapting systems and operations to ensure the capabilities required to handle a multitude of options and variations, (which may differ from country to country across ), is a strain on resources of, in particular, payment service users and providers operating across borders. The experience of pioneers on the demand side who reported on their successfully concluded migration projects in the Newsletter also indicates that the benefits arising from the migration are proportionate to the level of harmonisation achieved.

However, as outlined above, it has to be emphasised that the degree of flexibility existing today reflects the requests articulated by a wide range of stakeholder groups in the past.

As mentioned above: with migration to and SDD in the euro area nearly complete, the question is whether a majority of stakeholders is willing to relinquish – at least in the mid-term – any (or even all) of the options, exceptions, exemptions and variations currently available in favour of further harmonisation. If this were the case, the and SDD Rulebooks could be adapted accordingly. To illustrate the point: elements in the rulebooks which are currently optional could be made mandatory. Based on market needs, commonly used AOS features could be incorporated into the scheme(s).

The next generation rulebooks, ( Rulebook version 8.0, Rulebook version 8.0 and SDD Business to Business Rulebook version 6.0), and associated implementation guidelines will be published in November 2014. These rulebook versions will then take effect in November 2015. The scheme change management process provides all stakeholders with the opportunity to participate; i.e. to introduce suggestions for changes to the schemes. As previously reported, the deadline to submit suggestions for possible modifications to the next generation rulebooks was 28 February 2014.

All gathered suggestions for changes to the rulebooks will be released for a three-month public consultation. Proposed changes to the schemes that find broad acceptance in the entire stakeholder community are taken forward. Proposed changes that lack such broad support are not – regardless of whether such a change is proposed by a payment service provider or by a user representative. This ensures that the and SDD Schemes evolve in line with the requirements of the majority of all market participants.

The encourages all stakeholders to engage in the scheme change management process. For more information, refer to the article, entitled ‘Next Generation and SDD Rulebooks: Three-Month Public Consultation Starts on 19 May 2014’ also published with the Newsletter April 2014 edition (see links below). Incidentally, this article shows that several stakeholders have made suggestions aimed at achieving further harmonisation of the and SDD Schemes.

Related links:

EPC Newsletter (April 2014): Join the Debate on the Further Evolution of the SCT and SDD Schemes: Less Flexibility, More Harmonisation? An overview of the options, variations, exceptions and exemptions possible in SEPA today 

EPC Newsletter (April 2014): Next Generation SCT and SDD Rulebooks: Three-Month Public Consultation Starts on 19 May 2014. All stakeholders are invited to provide feedback on possible modifications to the SCT and SDD Rulebooks 

EPC Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers (Series Started April 2011) 

EPC Website: What is a Payment Scheme? 

EPC Website: SCT / SDD Rulebook Release Management and Scheme Development 

EPC Website: SEPA Credit Transfer 

EPC Website: SEPA Direct Debit 

EPC Website: Use of SDD Core Options 

EPC Website: SCT Additional Optional Services (AOS) 

EPC Website: SDD Core Additional Optional Services (AOS) 

EPC Website: SDD B2B Additional Optional Services (AOS) 

EPC Website: ISO 20022 Message Standards 

EPC Newsletter (October 2011): ISO 20022 Message Standards: Too Many Flavours? Domestic specifications of the SEPA data formats risk preventing market harmonisation 

EPC Website: SEPA Legal and Regulatory Framework

Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro 

Regulation (EU) No 248/2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits 

EPC Blog (March 2013): The Long Road to Harmonisation: Transitional Arrangements in European Union Member States Permissible Under Regulation 260/2012 (the SEPA Regulation) 

European Commission Website: see PDF, entitled: 'Usage of Member States options' (Article 16) / items posted on 23.07.2013 

European Central Bank Website: Fact Sheets Providing Country-Specific Information Related to Regulation (EU) 260/2012 



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