response to the Commission services' considerations for a binding Community instrument regarding compliance of euro payment schemes with so-called "essential requirements" and common standards
The Plenary debated a Working Paper introduced by the Commission services in June 2010 (see link below) which outlines a forthcoming legislative act envisaged to set end dates for compliance of euro credit transfer and euro direct debit schemes with so-called "essential requirements" and common standards. These requirements and standards are to be determined exclusively by the European Commission.
The Plenary observed that the binding Community instrument as currently envisaged by the Commission clearly deviates from expectations expressed by the European Parliament, the Economic and Financial Affairs Committee (EOFIN - comprising the Finance and Economic Ministers of EU Member States), the European Central Bank and the Council1 to set clear and binding end dates for migration to .
The Plenary further noted that related proposals by the European Commission, if endorsed by the EU legislator, would
- Fail to establish definitive deadlines for the phasing out of legacy euro payment schemes.
- Abandon, in consequence, the original vision aimed at creating one domestic euro payments market where there would be no differentiation between domestic and cross-border euro payment transactions anymore. Instead, the Commission now seems to be content with mandating cross-border reach for euro credit transfers and direct debits based on multiple (old and new), "interoperable" payment schemes (a "Mini " or less).
- Prohibit increased competition in the supply of payments services to the advantage of bank customer. Increased competition is contingent upon standardisation and market integration; i.e. the replacement of a multitude of existing euro payment schemes by one single set of Schemes as previously requested by the Commission, the Economic and Financial Affairs Council (ECOFIN), the European Parliament and the European Central Bank..
- Rule out cost savings resulting from the consolidation of cash management operations- again to the detriment of bank customers. Migration to a single set of Schemes is the precondition for consolidation to take place.
- Stifle innovation due to payments being subjected to central planning by the Commission which lacks any experience in the market place. The Commission is now seemingly determined to unilaterally decree "essential requirements" and common standards applicable to euro payment schemes; i.e. to take over the development of payment functionalities. Such procedure would directly prevent bank customers from accessing the most advanced payment services as innovation will be strangled by red tape.
- Punish early movers both on the demand and supply sides who - in response to previous calls by regulators including the Commission- have already invested in the renewal of their payment architecture to comply with the single set of Payment Schemes developed by the .
- Introduce additional systemic risks in the area of payments given the request of the Commission now for "multiple, competing" Schemes rather than one single set of Schemes to be established.
For a detailed analysis of the Commission services' Working Paper - misleadingly - titled " Migration End-Date" refer to the article "On Payments and Light Bulbs. Commission ready to write off SEPA via EU Legislation?" in this Newsletter. For a detailed analysis of the political failures destined to derail the entire project refer to the article "Why change? Why me? Why now? The political mismanagement of the SEPA process reinforces resistance to change" in this Newsletter.
The Plenary reiterated its support for setting an end date for migration to the Schemes developed by the in close dialogue with the customer community through Regulation.
Next steps regarding the development of the e-Payments Framework***
*** In June 2012, the EPC and its members decided to abandon the work on a draft SEPA e-Payment Framework
In response to the rapidly increasing volume of e-commerce the committed to provide a Framework outlining the specific rules and standards relating to e-payment schemes making use of the Credit Transfer. The first deliverable is envisaged to be the e-Payments Framework, which is based on principles facilitating online payments with a payment-guarantee for web-retailers followed by a Credit Transfer.
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 are payment instruments 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-Payments 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 will define minimum criteria, including legal and security aspects which would have to be met by the e-payment scheme in order to be "-compliant".
The long-term goal pursued with the e-Payments Framework is full reachability for consumers, where
- All e-payment schemes in , which fulfil the minimum criteria defined by , are enrolled to the Framework;
- Each bank in is a member of (at least) one e-payment scheme enrolled to the e-Payment Framework;
- Each account holder in can make e-payments;
- The use of a "" logo by enrolled e-payment schemes should provide a consistent user experience throughout .
The long-term goals associated with the Framework will be achieved by market forces, not by decisions. An e-payment scheme that elects to enrol to the e-Payment Framework is obliged to become technically and commercially interoperable with all other enrolled e-payment schemes, and only enrolled schemes will be able to make use of a e-Payment Framework branding. Enrolment to the Framework is voluntary for e-payment scheme owners and participation in any e-payment scheme is at the discretion of each bank. It is intended that implementation of the Framework in the short term will focus on interoperability between schemes, and on the inter-scheme transactions. In the longer term, it is expected that market forces will lead to adoption of the Framework for intra-scheme transactions as well.
Further dialogue with the three existing e-payment schemes (eps, Giropay, and iDEAL) will take place on a proof of concept. However, the launch of such a proof of concept will be contingent upon the commitment of these e-payment schemes to adopt the common business and compliance requirements as well as the technical and other aspects of the Framework. Recent discussions with the three existing e-payment schemes suggest that the following key requirements will have to be further clarified in order to ensure full inter-operability.
Firstly, the e-Payment guarantee is considered to be an essential element of the Framework. It must guarantee the funds for the payee and it must be legally enforceable. For this to be achieved, the payer's bank in one scheme must be legally bound to the payee's bank in another scheme. Furthermore, this legally binding commitment must not require participating banks and the to complete onerous legal documents to be signed, it is instead proposed that this is handled by each scheme owner, acting and signing an enrolment agreement, also as agent on behalf of its participating banks. In order for the e-Payment guarantee to be legally enforceable it is most likely necessary to foresee (as part of the overall guarantee concept) a guarantee from the payee's bank to the payee. A direct guarantee from the payer's bank only (in one scheme) to a payee (located in another country and linked to another scheme) would raise serious questions about the payee's actual ability to invoke his guarantee against a payer's bank located in a different country and being subject to different laws and a different judicial system.
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 and to participating banks and merchants, and the ability to remove its use imply that each e-payment scheme and participating banks 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-payments schemes must be able to complete each e-payment transaction.
Subject to the successful conclusion of the proof of concept exercise, the may amend the Framework, by the end of 2010.
security requirements for cards and terminals and the Certification Framework
In June 2010, the Plenary approved the single set of terminal security requirements as defined in chapter 5 of the Cards Standardisation Volume - Book of requirements. With a view to establishing a certification framework for cards and terminals, the agreed to support the market in creating a "European Certification Management Body". For further details on these security requirements as well as the envisaged certification framework refer to the article "Standardisation is Key. Focus on security requirements and a European certification framework" in this Newsletter.
Publication of White Paper on Mobile Payments
The Plenary approved publication of the EPC White Paper on Mobile Payments. The white paper highlights the 's initiatives for mobile payments designed to facilitate implementation and interoperability of user-friendly mobile payment solutions across the 32 countries. The white paper explores how mobile payment services can be delivered through cooperation between service providers active in the banking industry and the new players emerging in the mobile ecosystem.
The White Paper on Mobile Payments offers an informative read to any party interested in mobile payments, and aims to foster a common understanding between payment service providers and bank customers by using non-technical language. The document predominately focuses on mobile contactless card payments, where the mobile device needs to be in close proximity to a point-of-sale terminal, while also addressing some aspects of mobile remote payments, where two parties are able to send and receive funds irrespective of where they are located.
Given the proliferation of mobile phones and related service levels throughout the European Union (EU), the recognises that the mobile channel is an ideal launch pad for payment instruments. Many consumers are already using mobile phones for services beyond the traditional voice calls and short messaging services due to the introduction of packaged offers, including internet access provided by the mobile network operators. As a result, consumer expectations with regard to mobile phone functionality have increased dramatically, with many users eager to embrace new service solutions based on this delivery platform, such as payments. The availability of practical mobile payments, either account- or card-based, would provide a realistic alternative to cash and cheques. At the same time, merchants demand that new technology translates into cost savings, increased business volume and reduced exposure to security threats such as cash thefts or illicit payments, as well as enhanced marketing opportunities and brand recognition. Mobile phone initiated payments, in particular those using the contactless approach, are very well positioned to generate these benefits for merchants and other stakeholders who are directly providing services to consumers.
The White Paper on Mobile Payments responds to changing customer requirements in the payments market and demonstrates how mobile payments can increase efficiency, effectiveness and convenience. This paper creates awareness on how to best combine the benefits of state-of-the art payment instruments for credit transfers, direct debits and card payments handled through one of the most popular and versatile devices introduced in the past two decades - the mobile phone.
Updated guidelines on the use of audit trails in security systems
The approved an updated version of the document "The Use of Audit Trails in Security Systems: Guidelines for European Banks". These guidelines support payment service providers to comply with requirements established to ensure information security, i.e. protecting the confidentiality, integrity and availability of data underlying a payment transaction. Specifically, the revised guidelines now include recommendations as regards the maintenance of so-called audit trails (or audit logs) of payment systems. For details, refer to the article "New and Improved. EPC publishes updated guidelines on the use of audit trails in security systems" in this Newsletter.
Re-election of Chair and Vice Chair and election of Chairs of Working and Support Groups
The Plenary re-elected Gerard Hartsink as Chair and Claude Brun as the Vice Chair of the for a two-year term each. In line with a recent change of the Charter which stipulates that Office Holders such as the Chair and Vice Chair of the organisation and Chairs of the Working and Support Groups should not hold more than one office, Claude Brun is succeeded as Chair of the Cards Working Group by Ugo Bechis. Ruth Wandhöfer was elected Chair of the Information Security Standards Group replacing Björn Flismark who leaves the Plenary due to other commitments.
Gerard Hartsink is the Chair of the .
Related articles in this issue:
Related article in previous issue:
On SEPA and US Health Care Reform. The EC paper 'SEPA Migration End-Date': a commentary (EPC Newsletter, Issue 6, April 2010; this article analyses the European Commission's Discussion Paper "SEPA Migration End-Date" of March 2010 outlining alternative approaches, including regulatory intervention, aimed at ensuring migration to SEPA)
1The objective of the Council chaired by the European Central Bank and the European Commission is to promote 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 realisation of . The Council includes representatives of both the supply and the demand sides. For further details refer to the article "Promoting the Vision" in this Newsletter.
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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