Limited number of change requests demonstrates that Schemes are fit for purpose
The and Schemes evolve based on an open change management process set out in the Scheme Management Internal Rules (a link is included below) providing all stakeholders with the opportunity to participate; i.e.to introduce suggestions for changes to the Schemes. The is required to evaluate the feasibility of such suggestions based on a catalogue of objective criteria also set out in the Internal Rules. Any proposed changes to the schemes are subject to a three-month public consultation. Proposed changes to the schemes that find broad acceptance in the entire user community are taken forward. Change requests that lack such broad support are not - regardless of whether such a change is proposed by a payment service provider or a customer representative. As a result of this annual change cycle, the and Schemes incorporate numerous features introduced by end users.
The is mindful that the Schemes must meet the requirements of a broad range of stakeholders. Scheme rules, therefore, must allow for the development of competitive and custom-tailored payment products. At the same time, a majority of users, including consumers, should not have to bear the complexities and costs associated with the addition of specific features if such features are required exclusively by a particular customer segment or a minority of customers across . The therefore seeks to balance requests to include several highly specific features into the standard schemes on the one hand, and the resulting impact on the stakeholder community as a whole on the other. In consequence, the and Rulebooks include mandatory as well as optional elements. Optional features of the schemes, Additional Optional Services (AOS) offered by a community of banks1 and / or value added services offered by an individual bank allow payment service providers to tailor services and products in response to customer needs.
The limited number of requests for additional elements into the rulebooks released on 1 November 2010 demonstrates the maturity of the and Schemes and highlights that they are fit for purpose. Following approval by the Plenary at the end of September 2010, the published the following new versions of the rulebooks (links to these rulebooks and the accompanying 'Implementation Guidelines' are included below):
- the Credit Transfer Scheme Rulebook version 5.0;
- the Core Direct Debit Scheme Rulebook version 5.0;
- the Business to Business Direct Debit Scheme Rulebook version 3.0.
New elements introduced into the Direct Debit Scheme Rulebooks
The Scheme Rulebooks released in November 2010 include a new code to identify collections which are rejected or returned due to an incorrect "Creditor Identifier". In the event that a Direct Debit collection is returned (not paid) by the payer's bank, a return code provides the reason for the return to the biller's bank. Reasons for returning a direct debit are, for example, that there are not enough funds in the payee's account to honour the collection or that the biller gave a wrong account number for the account to be debited.
Prior to the new and updated rulebooks, the Schemes already identified each biller in based on so-called a "Creditor Identifier". This identifier, in connection with the mandate reference, allows the payer and the payer's bank to verify each direct debit collection and to process or reject the direct debit according to the payer's instructions. Billers using the Direct Debit to collect payments have to request the "Creditor Identifier" according to local practice. The additional code for rejects and returns of an collection included in the updated Rulebooks specifically states that the "Creditor Identifier" indicated with the collection is incorrect. This provision of more detailed information on rejects and returns will allow billers to better understand the reason for failed collections.
In addition, the Implementation Guidelines have been updated to make the "Unique Mandate Reference" case-insensitive. The "Unique Mandate Reference" identifies each Direct Debit mandate signed by a payer. A mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer's bank to pay those collections. As the name suggest, this reference must be unique for each mandate. The fact that the Implementation Guidelines have been updated to make the "Unique Mandate Reference" case-insensitive means that an collection will not be rejected just because the mandate reference carries a letter in lower case which might be capitalised in the original mandate (or vice versa), for example. Consequently it will be easier to manage and validate mandates. This update also avoids unnecessary rejects.
The Rulebooks now also include the "Advance Mandate Information" (AMI) - an optional feature designed to widen the mandate management options of payers' banks
In response to user requests, the new versions of the Rulebooks now include an optional element called "Advance Mandate Information (AMI)". This enables the payer's bank to widen its mandate management options allowing, for example, more time for the bank to validate whether a payer authorised a direct debit collection.
To understand the purpose of this optional feature, some further background is required
The Direct Debit Schemes are based on a "creditor-driven mandate flow" (the creditor is the biller). This means that the payer completes and signs a paper-based mandate and sends it directly to the biller2. The biller is responsible for storing the original mandate, together with any information regarding amendments relating to the mandate or its cancellation. In this scenario, the payer's bank does not receive any mandate-related information from its customer nor is the payer's bank responsible for checking the right of a biller to collect payment from a payer's account. The payer's bank receives the mandate-related information with the first collection. This model is used in a large number of Member States today - for example in Austria, Germany, the Netherlands and Spain. The latter four countries represent those Member States where direct debits are used much more often to make payments than in other countries3.
While the Direct Debit Schemes build on this national, pre- direct debit model implemented in a large number of Member States today (the creditor-driven mandate flow), it is recognised that some Member States use an alternate pre- direct debit model. This alternate model is based on a "debtor-driven mandate flow" (the debtor is the payer - a consumer, for example). This means that the biller informs the payer's bank that the payer has requested to make payments by direct debit. The payer's bank then informs the payer and issues the actual mandate. In this model, the mandate stays with the payer's bank. When a biller presents a direct debit collection to the payer's bank, the payer's bank might choose to check the authorisation of the biller to collect payment based on the mandate. This model is used, for example, in Belgium, Portugal, Italy4 and France5 today.
The main difference between these two alternate direct debit models is in the expectation of the consumer. A consumer used to the debtor-driven mandate flow assumes that his bank verifies whether he has authorised a direct debit collection prior to debiting his account. Those consumers who are used to the creditor-driven mandate flow, by contrast, do not require such verification. As mentioned above, the vast majority of consumers in the European Union who make a direct debit payment today rely on the creditor-driven mandate flow; which is the model governing the Direct Debit Scheme. In fact, the ratio of direct debits based on the creditor-driven mandate flow to those made on the debtor-driven mandate flow is 3:1 (see endnotes 3 and 5 below).
To help in meeting the preferences of consumers living in countries currently using the debtor-driven mandate flow, however, the Scheme already includes various options which allow banks to offer services such as the verification of mandates by the payer's bank. For details on these options, refer to chapter 3 of the new publication " Direct Debit for Consumers - a convenient and secure way to make payments" (a link is included below).
The optional "Advance Mandate Information (AMI)" feature included in the new and updated versions of the Rulebooks allows the payer's bank to perform in advance those checks it would otherwise carry out with a first Direct Debit collection. The AMI feature also allows the payer's bank to develop Additional Optional Services (AOS) designed to validate mandate-related information including whether the payer authorised a direct debit collection. The optional AMI functionality is described in the new Annex IX to the Rulebooks.
This feature will further increase consumer confidence in the Schemes, particularly among those who currently use the "debtor-driven mandate flow" model.
Schemes ensure complete consumer protection
Based on the information shared above, and armed with an understanding of the principles governing the Schemes, consumers can be confident that offers them complete protection:
- The Schemes provide a payer's bank with numerous options to validate the authorisation of a direct debit collection, including the newly added 'AMI' functionality.
- As each mandate is identifiable based on the "Unique Mandate Reference" and the "Creditor Identifier", each collection can be traced back - immediately and unmistakably - to the biller. As a result, any biller collecting Direct Debits can be rapidly and unequivocally identified. Any gains based on a fraudulent direct debit collection would therefore not be sustainable. For these reasons, it is highly improbable that fraudulent individuals or businesses would choose Direct Debit as a vehicle for fraudulent actions.
- The Core Direct Debit goes beyond the requirements of the Payment Services Directive (PSD), by granting consumers a "no-questions-asked" refund right during the eight weeks following the debiting of a consumer's account. This means that during this time any funds collected by will be credited back to the consumer's account upon request. In the event of unauthorised direct debit collections, the consumer's right to a refund extends to thirteen months as stipulated in the PSD.
- Last but not least, banks must ensure that only trustworthy billers are able to collect payments via Direct Debit. This is also in the interest of payment service providers as they would have to cover any losses resulting from fraudulent and / or erroneous direct debits.
As a consequence of points 2, 3 and 4 above the risk of any fraudulent or erroneous collections is actually born by the biller's bank - never by the payer. The actual mitigation of these risks is based on the intervention of the payer's bank. The European Commission and the European Central Bank confirmed that the Direct Debit Scheme is based "on proven national concepts, fully meets the respective legal requirements and - in some points - goes even further than required by the Payment Services Directive in order to better satisfy customer needs"6. Both institutions also encouraged the to give due consideration to the provision of additional features designed to further increase the trust in Direct Debit Services in particular by consumers used to the 'debtor-driven mandate flow'. The Schemes, as outlined above, include these optional features - such as the "Advance Mandate Information" (AMI) functionality.
With Direct Debit, the consumer is in complete control.
New elements introduced into the Credit Transfer Scheme Rulebook
The Scheme - already today - standardises 140 characters of remittance information that are delivered without alteration or omission from the payer to the payee7. These 140 characters can be unstructured (free text) or structured, as agreed between business partners. Version 5.0 of the Rulebook, however, additionally references a standard developed by the European Association of Corporate Treasurers (EACT), which allows companies to agree on a structure for remittance information facilitating reconciliation of incoming payments with outstanding invoices. For more information on this EACT standard, visit http://www.eact.eu/main.php?page=SEPA.
Version 5.0 of the Rulebook also includes the following two new mandatory elements:
Firstly, the attribute describing the purpose of the credit transfer has to be forwarded to the payee when it has been provided by the payer. While the Scheme already allows the identification of a payment through specific data fields which clearly indicate payment types (salaries or taxes, for example), from 19 November 2011, banks participating in the Scheme will be obliged to forward this information to the beneficiary, if available.
Secondly, a new value has been added to indicate whether the initiator of an transaction recall was the payer or the payer's bank. The Scheme already allows payment service providers to request a recall of duplicate or erroneous transactions; the Scheme Rulebook version 5.0 enables the payee's bank to decide whether the payee needs to be contacted to obtain authorisation to return the funds received erroneously. If the recall was initiated by the payer, then the payee's bank must obtain authorisation from the payee to debit their account in order to return the payment (subject to local regulation). This new mandatory element responds to legal requirements that exist in some communities.
The Rulebook versions released in November 2010 go live in November 2011
In accordance with best industry practice, banks and their service providers have sufficient time to address the rulebook updates ahead of 19 November 2011 - the date that these revised Scheme Rulebooks published in November 2010 will come into effect.
The Rulebook versions released in November 2009 go live in November 2010
The Rulebook versions released in November 2009 will become effective on 1 November 2010. These versions have been updated to include version 2.1 of the Scheme Management Internal Rules approved by the Plenary in September 2010. The amendment introduced into the Scheme Management Internal Rules has no operational impact whatsoever but is of a purely administrative nature8. The rulebook versions to go live on 1 November 2010 are the Rulebook version 4.1, the Rulebook version 4.1 and the Rulebook version 2.1.
Javier Santamaría is the Chair of the Payment Schemes Working Group.
The will publish the new and Rulebooks versions and accompanying Implementation Guidelines on 1 November 2010. The links included here will go live on that date.
Related articles in this issue:
So what's in a Name? Explaining payment schemes, instruments and systems. Clarity on payment terms is critical in the debate over the approach to setting end dates for migration to SEPA through EU RegulationThe Quantum Leap for SEPA Direct Debit. From 1 November 2010, all banks in the euro area are reachable for SEPA Core Direct Debit
Related article in previous issue:
New SEPA Scheme Rulebooks out now. EPC publishes new versions of the SCT and SDD Rulebooks on 1 November 2009 ( Newsletter, Issue 4, October 2009 - this article describes new and mandatory features included in the Rulebook versions published in November 2009 and taking effect on 1 November 2010)
1 The term "bank" is used in a non-discriminatory fashion and does not exclude payment service providers that are not a bank.
2 The technical terms used in the Scheme Rulebooks refer to the payer as 'debtor' and to the biller as 'creditor'.
3 Out of 17,656 million direct debits processed in the euro area in 2008 according to the ECB Blue Book, a total of 12,968 million direct debits or 73.45 percent were processed in Austria (841 million), Germany (8,424 million), the Netherlands (1,272 million) and Spain (2,431).
4 In Portugal and Italy both models - the creditor-driven mandate flow and the debtor-driven mandate flow - coexist.
5 Out of the total 17,656 direct debits processed in the euro area in 2008 according to the ECB Blue Book, a total of 4,322 million or 24.48 percent were processed in Belgium (260 million), Italy (576 million), Portugal (221 million) and France (3,265).
6 Joint letter of the European Commission and the European Central Bank to the in March 2010.
7 The technical terms used in the Scheme Rulebook refer to the payer as 'originator' and to the payee as 'beneficiary'.
8 The Scheme Management Internal Rules govern the functions of the 's Scheme Management Committee and the Schemes change management process. In September 2010, the Plenary approved an amendment of section 2.2.6 of these Internal Rules. This amendment is reflected in version 2.1 of the Internal Rules. The Scheme Management Internal Rules are available on the web site (www.europeanpaymentscouncil.eu / About / Scheme Management).
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