What Happens Next? European Authorities to Communicate Their Vision fo...

What Happens Next? European Authorities to Communicate Their Vision for SEPA 2.0 by End 2012

EPC looks forward to learning more about the authorities´ views on the continued merit of creating harmonised payment schemes and frameworks in the cooperative space of payments

01 August 12

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starts on 1 February 2014

The year 2012 marks a very important turning point in the process aimed at making the Single Euro Payments Area () a reality: with adoption of the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfer and direct debit schemes in euro' (the Regulation), the European Union (EU) legislator at long last created the regulatory conditions required to bring to its successful conclusion. The Regulation defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by Credit Transfer () and Direct Debit (SDD). The 1 February 2014 deadline, which is often referenced as the ' migration end date', is really the start date of the integrated euro payments market.

Commenting on the adoption of the Regulation by the European Parliament (the Parliament), Sari Essayah, a member of the Parliament and rapporteur for this legislative act, said: " is a fundamental element of the internal market. The internal market cannot function well without . Moreover will provide the basis for other developments in the single market." Sharon Bowles, Chair of the Parliament's Economic and Monetary Affairs Committee, confirmed that the Regulation demonstrates that "even as we grapple with the crisis, the EU institutions continue to work diligently to deepen the internal market in financial services, with the euro at its core. This agreement is a vote of confidence in the euro, and I am convinced that it will be a good deal for consumers and businesses." (See press release of the Parliament under 'related links' below).

The European Commission is expected to announce its views on the future of by end 2012

It is expected that in the course of 2012, the European Commission (the Commission) will communicate its vision for the future of .

  • The Commission stated that by summer 2012 it will determine the need for action to address 'gaps' it perceives with regard to competition, choice and innovation in the area of card, mobile and internet payments.
  • The Regulation empowers the Commission to determine the technical requirements applicable to the and SDD Schemes. The Commission has not yet publicly communicated on the principles and timelines governing the further evolution of the Schemes.
  • The Regulation tasks the Commission to "review the governance arrangements of the whole project before the end of 2012." The Commission "should examine, inter alia, the composition of the , the interaction between the and an overarching governance structure, such as the Council1, and the role of this overarching structure."
  • The Commission will present its report on the implementation and impact of the Payment Services Directive, together with proposals for its revision by 1 November 20122.
"To remember where you come from is part of where you're going." (Anthony Burgess): Political expectations associated with and the banking industry's response to the authorities' call to action (1999 - 2001)

In the view of this author, this is an excellent moment in the process to take a walk down memory lane, to revisit the objectives originally defined by the authorities and their expectations regarding the deliverables to be contributed by the banking industry to meet these objectives. The assessment of results achieved to date will help to define a realistic starting point for the debate on the next phase of , and the role which the regulators now envision for the banking industry in the process of creating the future euro payments landscape. Clarification of the latter point, as this article will demonstrate, is urgently required.

The sources of all statements attributed to the European authorities in this article are included with the 'related links' below.

Following the introduction of euro notes and coins in 2002, the political drivers of the initiative - EU governments, the Commission and the European Central Bank (ECB) - focused on the integration of the euro payments market. Since then, the political drivers have called upon the banking industry to bolster the common currency, by developing a set of harmonised payment schemes and frameworks for electronic euro payments.

September 1999: The ECB / Eurosystem3 stated in a press release: "Citizens and businesses can only benefit fully from the fundamental principles of the free movement of goods, services, capital and people if they are also able to transfer money as rapidly, reliably and cheaply from one part of the European Union to another as is now the case within each Member State. (...) Despite the introduction of the euro, however, there is still a clear gap between the service levels of domestic and cross-border retail payment systems in terms of quality, efficiency and pricing. The substantial disparities between domestic and cross-border services ought now to be reduced, and should ultimately disappear. Indeed, the single currency environment argues strongly in favour of a single payment area."

March 2000: The overall goals of were defined by governments in the Lisbon Agenda (see 'related links' below), which envisages the internal market as the most competitive knowledge-based economy globally.

November 2000: In his speech titled 'Establishing a Single Payment Area', delivered at the 'Round Table on Retail Payments in the Internal Market' organised by the European Commission, Commissioner Frits Bolkestein, then in charge of the Internal Market and Taxation, commented: "There is a clear need for a change. (...) The Commission's political objective is exactly that: a modern Single Payment Area for the entire EU where there is no frontier effect for cross-border payments."

Commissioner Bolkestein added: "One of the characteristics of the 'New Economy' is that it is 'network-based' and brings about a considerable increase in productivity and reduction of cost. The payment industry, which is in the centre of the gathering today, has all the attributes needed to belong to the 'New Technology'. Payments in the modern world are predominantly 'network-based' since they are dematerialised and consist mainly of financial information to be channelled through the payment infrastructure. Its optimal configuration can result in a very efficient payment execution in terms of time, low cost for the payment provider and attractive prices for customers. Therefore the Commission promotes all efforts in this direction: once the payments industry has finalised its proposals, the Commission is prepared to inform widely the European citizen about the availability of a low-price Straight-Through Processing (STP) cross-border retail payment based on [International Bank Account Number] IBAN and [Business Identifier Code] BIC."

December 2001: The European legislator laid the foundations of its policy through Regulation (EC) No 2560/2001 of the European Parliament and of the Council of 19 December 2001 on cross-border payments in euro (see ' Legal and Regulatory Framework' under 'related links' below). The Regulation states that banks are not permitted to impose different charges for domestic and cross-border payments or automated teller machine (ATM) withdrawals within the EU4. This Regulation has also generally been understood as a turning point in the financial integration policy of the European legislator beyond its formal stipulations, as the Regulation was clearly intended to shock the banking sector into stepping up its efforts to achieve .

June 2002: Responding to the regulators' call to action, the European banking industry created the . The purpose of the reflects the mandate handed down to the banking industry by the EU authorities. The supports and promotes the creation of . Specifically, the , in close dialogue with the customer community, developed payment schemes and frameworks which help to realise . (For more information, see 'About ' under 'related links' below).

Praise by the European authorities for the payment schemes delivered by the (2006 - 2009)

The first design phase for the , involved the painstaking process of creating - from scratch - consensus on the countless technical and procedural details which make up harmonised payment schemes across 32 countries, different payment cultures and customer expectations. Once this phase was completed, the released mature versions of the and SDD Rulebooks, which served as a basis for implementation by the banking industry. Target dates were set to launch the schemes and for banks to start rolling out services to their customers.

May 2006: In a joint statement, the Commission and the ECB commented: " has become a reality (...) when consumers, businesses and governments are able to make cashless payments throughout the euro area from a single payment account anywhere in the euro area using a single set of payment instruments (...) The Commission and the ECB (...) stress their support for the objectives set by the : That EU citizens, enterprises and public administrations should have the possibility to use the Credit Transfer and the Direct Debit payment instruments defined by the ."

November 2006: Jean-Claude Trichet, then President of the ECB, stated at the ' Summit': "The has agreed on the common rulebooks for credit transfers and direct debits and a framework for card payments. This single set of rules will allow different entities to provide core services throughout the euro area. The ECB fully supports the 's work in this field." At that event, Charlie McCreevy, former EU Commissioner for Internal Market and Services, remarked: "The has already accomplished sterling work with the existing credit transfer and direct debit rulebooks necessary for the launch of products. Securing the agreement of 7,000 or so European banks is no mean achievement and one for which I should like to heartily congratulate the ."

January 2008: The launched the Scheme. On this occasion Commissioner McCreevy noted: "Today is a historic day for European payments (...). The project has moved from preparation to practice, from theory to reality. We should congratulate the on this tremendous achievement."

November 2009: The launched the and the SDD Business to Business (B2B) Schemes. Commissioner McCreevy pointed out: "I am pleased that banks and the have maintained their commitment to the project and are pushing ahead with the delivery of . (...) The SDD Scheme is (...) truly innovative." Gertrude Tumpel-Gugerell, then Member of the Executive Board of the ECB, concluded: "Celebrating the SDD launch today is indeed very reassuring for the whole process. (...) The advent of a European direct debit is a truly new payment service at a European level. The project has already delivered its first results. These will also form the basis for innovative new developments in payments, in particular a pan-European online payment solution, as well as in mobile payments and electronic invoicing. (...) more than 2,500 banks have already signed up for the SDD service, which is an outstanding achievement. The launch of the SDD marks a further step forward in the process of European integration towards a single payments area. I congratulate all those who contributed to this milestone."

The role of the in : shifting attitudes of the European authorities on the merit of cooperation and standardisation in the payments industry (2010 - 2012)

As pointed out above, the was established in response to the requests by the European authorities that the banking industry should develop the harmonised payment schemes required, among other things, to make a reality.

This has been the 's role to date: The harnesses banking knowledge for the benefit of European payment systems integration and we bring the knowledge and expertise necessary to deploy the most efficient payment systems. This knowledge from the payment professionals has been instrumental in creating , and it will still be needed in the future. The can help to define and design the market conditions for that could benefit all stakeholders. The task ahead remains comparable to what was done in the past decade: the blueprint of the 'to be' situation has yet to be created; taking into consideration that developing secure and efficient payment solutions applicable across 32 countries is a time-consuming and detail-oriented task. It also has to be kept in mind that the actual market evolution is always bumpier and more surprising than expected.

It is recognised that standardisation in network industries, such as the payments industry, generates scale and scope advantages for users. In order to obtain an overview of payments innovation globally, the Committee on Payments and Settlement Systems (CPSS)5 established the Working Group on Innovations in Retail Payments (the Working Group). The Working Group focused on fact-finding, in order to define the most relevant developments and to identify the major factors driving and hampering innovation. The CPSS recently published the report 'Innovations in Retail Payments' (see 'related links' below), which reflects the findings of the Working Group. A dedicated article in this edition of the Newsletter on the report states: "Cooperation has always been key to the payments industry, as innovations often entail high fixed investment costs. In view of the fact that the payments business is a network industry, cooperation helps to make innovative products or services available to a high number of potential customers. Cooperation is also the response to a higher degree of complexity in the value chain of innovative payment solutions, as evidenced by mobile payments. Consequently, more than half of the innovations reported in the findings involve some kind of cooperation between the different parties involved."

It also must be kept in mind that migration to the Schemes, as developed by the , does not imply migration to specific products and services offered by individual payment service providers or to a single payment system. The Schemes define rules and standards for the execution of payment transactions that have to be observed by all adhering payment service providers; this is identified as the cooperative environment of the payment service providers. This is the scope of the . The Schemes allow for flexibility and contain optional features enabling payment service providers to add features and services of their choice to the core services. payment products and services offered to the customer are developed by individual or groups of payment service providers operating in the competitive environment. This is outside the scope of the .

It also needs to be recalled that the ECB acts as an observer in all working and support groups and the Plenary. The 's work has been closely scrutinised by the Commission since the was founded in 2002.

This common understanding shared between the and the European authorities on the value of cooperation and standardisation in the payments industry to the benefit of payment service users has however, been called into question in the past two years. The model has recently been subject to increasing criticism by the same authorities who a decade ago insisted that the banking industry establish this body.

March 2010: The Commission Services published the working paper titled ' Migration End Dates' (see 'related links' below), which stated that the and SDD Schemes developed by the represented a "private monopoly". Oblivious to its earlier communications on the need to establish a single set of harmonised Schemes, the Commission at this point requested "new and competing credit transfer and direct debit schemes to emerge under the condition that they are compliant with the essential requirements" (to be established with the Regulation).

December 2011: Commissioner Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy, kindly took the time to speak to the members of the at the meeting of the Plenary (speech titled 'A Fair and Open System for Payments in the Single Market'). During this speech, Commissioner Almunia commented: "New actors are willing to do what the banks are slow to deliver; they are ready to provide innovative and more efficient payment solutions." Having delivered brand new payment schemes and frameworks, based on the most advanced technical standards available from international standards bodies and, therefore, having laid the foundations for innovation in the e-payments and mobile payments space, the members took note of this statement. As demonstrated above, European regulators - including the Commission - had claimed throughout the preceding decade that building would be the precondition to creating efficient and innovative euro payment services.

January 2012: The Commission published its Green Paper 'Towards an Integrated European Market for Card, Internet and Mobile Payments'. The paper identifies 'gaps' perceived by the Commission with regard to competition, choice, innovation and other 'market integration drivers' in the payments market. The does not support a number of related assumptions and suggestions put forth in the Green Paper. Consequently, the believes that many of those suggestions will not help achieve the stated objectives and may even undermine their realisation. The regrets that the Green Paper seems to overlook major market achievements to date to progress , including the integration of, and innovation in, the euro payments market. The detailed response of the to the 32 questions tabled by the Commission with the Green Paper is included under 'related links' below.

March 2012: Recital 5 of the Regulation, which was published in the Official Journal of the on 30 March 2012, states: "While the recent establishment of the Council represents a significant improvement to the governance of the project, fundamentally and formally governance still remains very much in the hands of the . The Commission should therefore review the governance arrangements of the whole project before the end of 2012 and where necessary make a proposal. This review should examine, inter alia, the composition of the , the interaction between the and an overarching governance structure, such as the Council, and the role of this overarching structure." The has clarified that Recital 5 misrepresents the role of the in the process. The frequently called on the European authorities to refrain from stating that would be a 'self-regulatory project run by the banking sector'. This claim was erroneous in the past and is untenable today. The has not been responsible for the overall management of the programme at any stage of the process. Moreover, with adoption of the Regulation, the Commission has formally assumed the power to determine the technical requirements applicable to payment schemes. Going forward, the and SDD Schemes will need to be adapted as mandated by the Commission.

Today, the has no choice but to recognise that the expertise of the banking industry with regard to the evolution of the payment schemes - the original scope of the - may come second to the requirements defined by the regulator. The open question today is how the regulators wish the banking industry to bring its expertise to the table going forward.

The remains committed to the vision

By revisiting the objectives originally defined by the European authorities, and their earlier statements on the contributions expected to be made available by the , we have demonstrated that the delivered exactly as the authorities requested: a single set of harmonised payment instruments which are the basis for further integration of, and innovation in, the euro payments market. Analysis of the more recent statements of the authorities cited above provides a clear indication that the Commission however, has altered its perspective on the merit of cooperation in the payments industry aimed at generating harmonised payment schemes and frameworks; i.e. the role of the .

To clarify: the is not whining about lost love or asking for more pads on the back for its contributions. This author reiterates that the remains committed to contributing to the creation of an efficient and secure payments landscape, which responds to market needs. He invites the authorities to share their thoughts on how the and the banking industry could help in this regard in the future. In particular, and with all due respect, the  asks the various regulatory bodies offering opinions on the matter to (re-)align their expectations as to what exactly the banking industry, acting in the cooperative space of payments, should contribute to the further evolution of . This is a precondition for the , as one stakeholder group among many involved in the process, to evaluate the appropriate steps to be taken going forward.

Concerning the next steps in the process, it should also be taken into account that early movers on the demand side, including corporates, public administrations and government agencies, confirm that migration to the Schemes and technical standards generates tangible benefits (see case studies under 'related articles' below). According to the Indicators compiled by the ECB (see 'related links' below), close to 30 percent of all credit transfers processed in the euro area in May 2012 were SCTs. is kicking in and it is working. In other words, the implementation of the and SDD Schemes will significantly contribute to achieving the policy goals defined by the EU authorities with the launch of the programme more than a decade ago. In the euro area, full migration to  will only be achieved by 1 February 2014. It is proposed that the EU authorities make this market reality the starting point for the debate on the next phase of . This author questions the argument that a ‘lack’ of integration and innovation in today’s euro payments market justifies further regulatory intervention.

The industry looks forward to continuing the dialogue with the political authorities and all stakeholders on how to best achieve an efficient and secure payments landscape. The shared objective remains to make the best possible payment experience for all market participants.

Javier Santamaría is the Chair of the .

Related links:

EPC Publication: Shortcut to Who Does What in SEPA

Regulation (EU) No 260/2012 Establishing Technical and Business Requirements for Credit Transfers and Direct Debits in Euro and Amending Regulation (EC) No 924/2009 (the SEPA Regulation)

Press Release: European Parliament's Economic and Monetary Affairs Committee: 'Cheaper, Faster and Safer Cross-border Payment Services' (20 December 2011)

Press Release: ECB / Eurosystem: 'Improving Cross-border Retail Payment Services in the Euro Area - the Eurosystem's View' (13 September 1999)

European Commission Website: i2010 in Context: ICT and Lisbon Strategy

Speech Frits Bolkestein, Member of the European Commission in Charge of the Internal Market and Taxation: 'Establishing a Single Payment Area' (9 November 2000)

EPC Website: SEPA Legal and Regulatory Framework

EPC Website: About EPC

Press Release: EPC: 'Single Euro Payments Area - Joint Statement from the European Commission and the European Central Bank' (4 May 2006)

Speech: Jean-Claude Trichet, President of the European Central Bank: 'Creating an Integrated Market for the Euro Area' (13 November 2006)

Speech: Charlie McCreevy, European Commissioner for Internal Market and Services: 'Time to Deliver on SEPA' (13 November 2006)

Speech: Charlie McCreevy, European Commissioner for Internal Market and Services: 'SEPA Goes Live' (28 January 2008)

Speech: Charlie McCreevy, European Commissioner for Internal Market and Services 'SEPA Direct Debit Launch' (13 October 2009)

Speech: Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB: 'Payments are Becoming European' (13 October 2009)

Committee on Payment and Settlement Systems. Innovations in Retail Payments. Report of the Working Group on Innovations in Retail Payments

Commission Services' Working Paper: 'SEPA Migration End Date' (June 2010)

Speech: Commissioner Joaquín Almunia: 'A Fair and Open System for Payments in the Single Market' (14 December 2011)

EPC Response to the European Commission Green Paper 'Towards an Integrated European Market for Card, Internet and Mobile Payments'

European Central Bank SEPA Indicators

European Commission Website: Web Page Dedicated to the SEPA Council

Related articles in this issue:

What Drives Innovation in Payments? The Market Perspective. The most important factors incentivising innovation in the market place are customer demand and a viable business model

Committee on Payment and Settlement Systems' Working Group Publishes Report 'Innovations in Retail Payments'. Central bank research identifies market trends and elements geared to assessing how an innovation-friendly environment should look like

'Towards an Integrated European Market for Card, Internet and Mobile Payments': Striking the Balance - Interoperability and the Access Dilemma. European Commission publishes feedback report on its Green Paper

Austrian Federal Ministry of Finance: 'We Were Determined to Lead SEPA Migration by Example.' This early mover in the public sector boasts an 81 percent SEPA Credit Transfer migration rate in May 2012

Related articles in previous issues:

EPC Response to the European Commission Green Paper 'Towards an Integrated European Market for Card, Internet and Mobile Payments'EPC identifies key policy considerations with regard to potential European Union initiatives impacting the euro payments market ( Newsletter, Issue 14, January 2012)

On Innovation: What the European Union Could Learn from Apple and Facebook. Reflections on the evolution of SEPA in the new regulatory reality governing the euro payments market ( Newsletter, Issue 14, April 2012)

Reflections on Recent Contributions from the European Commission Directorate General Competition to the Innovation in Payments Debate. Seeking common ground between policy-makers and technical experts ( Newsletter, Issue 13, January 2012)

The New European Decision-Making Landscape: How the European Commission Rules Through 'Delegated Acts'. SEPA Regulation empowers the European Commission to mandate technical requirements applicable to SEPA payment schemes ( Newsletter, Issue 13, January 2012)

The 2012 Payment Services Directive Review: Too Much too Soon? The European Commission must present its report on the application of the Payment Services Directive by 1 November 2012 ( Newsletter, Issue 13, January 2012)

SEPA Regulation: European Legislator Mandates Migration to SEPA by 1 February 2014 in the Euro Area and Transfers the Responsibility for SEPA Scheme Management to the European Commission ( Newsletter, Issue 13, January 2012) For references to Recital 5 of the Regulation, see the section headline 'Recital on governance introduced with the Regulation' in this article)

The Economy of Standards: the 'Pros' and 'Cons' of Standards CompetitionAn introduction to a comprehensive qualitative efficiency comparison using the example of payment cards ( Newsletter, Issue 12, October 2011)

Innovacompegration (This is Not a Typo). Reflections on the best approach to innovation, integration and competition in payments ( Newsletter, Issue 10, April 2011)

Newsletter articles published in the section 'SEPA Case Studies' highlighting successful migration projects of bank customers


1 The Council, which brings together representatives of both the demand and supply sides of the payments market including the , was established by the Commission and the European Central Bank (ECB) in June 2010.

2 Directive 2007/64/EC, of the European Parliament and of the Council (13 November 2007), regarding payment services in the internal market, is usually referred to as the Payment Services Directive (PSD). The PSD was implemented by most European Union (EU) Member States by 1 November 2009. The PSD aims to establish a modern and comprehensive set of rules applicable to a wide range of payment services in the EU. As such, the PSD is not restricted to transactions.

3 The Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. (http://www.ecb.int/ecb/orga/escb/html/index.en.html).

4 Regulation (EC) No 2560/2001 was superseded by Regulation (EC) No 924/2001.

5 The CPSS serves as a forum for central banks to monitor and analyse developments in domestic payment, settlement and clearing systems as well as in cross-border and multicurrency systems. The CPSS Committee also focuses on standard-setting activities. The CPSS consists of the Reserve Bank of Australia, National Bank of Belgium, Central Bank of Brazil, Bank of Canada, The People's Bank of China, European Central Bank, Bank of France, Deutsche Bundesbank, Hong Kong Monetary Authority, Reserve Bank of India, Bank of Italy, Bank of Japan, Bank of Korea, Bank of Mexico, Netherlands Bank, Monetary Authority of Singapore, Sveriges Riksbank, Swiss National Bank, Central Bank of the Russian Federation, Saudi Arabian Monetary Agency, South African Reserve Bank, Central Bank of the Republic of Turkey, Bank of England, Board of Governors of the Federal Reserve System, Federal Reserve Bank of New York.

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