By the end of 2011, the European Union (EU) legislator is expected to agree the final text of the forthcoming Regulation establishing technical requirements for credit transfers and direct debits in euros. This regulatory act will stipulate, among other things, mandatory deadlines for migration to harmonised Single Euro Payments Area () payment schemes. As such, EU lawmakers will at long last provide the planning security that is urgently required by all stakeholders. One must always be grateful if a legislative initiative, once it has found its way through a complex negotiation process, actually manages to meet at least some of its original objectives - so, thank you very much.
As a matter of principle, a legislative process does not primarily aim at generating solutions which would actually meet market demand. Rather, it is designed to ensure that every political party and lobbying organisation involved - and in case of legislation, every Member State - can somehow claim victory. In the jargon of lawmakers, this is referred to as ‘balancing interests'. Fair enough, however taking the occasional glimpse beyond party lines, lobbying interests and national sensitivities to what people actually want, might not hurt either.
lawmakers are ready to abolish the direct debit model which is preferred by the vast majority of European citizens who make direct debit payments today. Specifically, lawmakers intend to pull the plug on the creditor-driven-mandate (CMF) flow (see link below for details). The Core Direct Debit () Scheme, developed by the , is based on the CMF model. Numerous public consultations throughout the entire payment user community confirmed that the market (demand and supply) supports this model, which is however facing its demise because of unsubstantiated allegations claiming a lack of consumer protection under the scheme.
As reported on previous occasions, the has practically begged lawmakers over the past year to ensure that a decision to introduce a host of mandate checking obligations, which are optional in the Scheme, is supported by valid market research, rather than perceptions, gut feelings or purely personal assessments. As no such evidence was ever presented however, we engaged in related research ourselves.
The therefore, recently conducted a survey (see link below) to identify mandate checking obligations in national direct debit schemes existing in the today. The findings confirm data provided by the European Central Bank (ECB), which demonstrates that almost 75 percent of consumers making direct debit payments today do not request such checks. The average number of direct debit payments per consumer / year is 68 in countries with a direct debit model not supporting compulsory mandate checks. In countries with more complex direct debit scheme models, this average is around 23. The findings are also in line with bank customer experiences whereby millions of direct debits are securely and correctly collected in Europe every day based on the CMF model - without mandate checks performed by law.
The low acceptance of direct debits in countries which today rely on complex mandate checking features implies that introducing such mandatory features into the Scheme will not affect demand for direct debit in these countries. The only likely effect would be to make this payment instrument more costly and complex for the majority of direct debit users in countries such as Germany, the Netherlands and Spain, for example, who today demonstrate strong demand for the CMF direct debit model. We clarify again that the compulsory mandate checks now contemplated by the legislator were introduced as optional features into the Scheme in response to earlier requests of the European Commission and the ECB. This allows payment service providers to offer these options in response to market demand.
On a more general note: a lot of the debate surrounding the forthcoming Regulation reflects the universal human desire to neatly divide the world into the good guys and the bad guys. We recognise that it is in the political interest of some to portray the as the bad guy in their version of the story. At the same time however, we maintain that anyone willing to actually familiarise themselves with the principles governing payment scheme development, soon finds out that the type casting does not work in this case. More importantly, we believe that it would be somewhat tragic if - by walking into the ‘good guy / bad guy' trap - lawmakers would effectively dismantle the direct debit model cherished by the majority of their electorate.
For details on the subject, please refer to the following links:
• EPC Survey on Mandate Checking Obligations in National Direct Debit Schemes.
• EPC Newsletter Article ‘Direct Debit: Killing it Softly'.
• The Creditor-Driven-Mandate Flow (CMF).
• SCT / SDD Rulebook Release Management and Scheme Development.
• EPC Response to European Commission Proposal for a SEPA Regulation.
• EPC Publication: SEPA Direct Debit for Consumers - a Convenient and Secure Way to Make Payments.
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