Explanatory Memorandum to COM(2010)775 - Technical requirements for credit transfers and direct debits in euros - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2010)775 - Technical requirements for credit transfers and direct debits in euros. |
|---|---|
| source | COM(2010)775  |
| date | 16-12-2010 |
The present proposal has to be seen in the context of the creation of an Internal Market for payment services in euro (Single Euro Payments Area or SEPA) where there is effective competition and no difference of regime between cross-border and national payments, thereby providing significant savings and benefits to the wider European economy. SEPA will provide European citizens and businesses with competitively-priced, user-friendly and reliable payment services in euros, and will provide a platform for the development of payments-related innovation.
Although strongly supported by both the European Commission and the European Central Bank, SEPA was originally conceived as a primarily market-driven project. Union-wide schemes for credit transfers and direct debits were designed and implemented by the European Payments Council (EPC), a coordination and decision making body set up by the European banking sector to deliver SEPA. However, given the current slow rates of migration, there is increasing recognition by all categories of stakeholders that a legally binding end-date may be necessary to achieve successful project completion.
Full integration of the payment market will only be achieved once Union-wide payment instruments replace completely the national legacy instruments. In order to achieve this goal, migration end dates for credit transfers and direct debits in euro are set up through this Regulation.
On 28 January 2008, the SEPA Credit Transfer (SCT) was launched. Almost two years later, on 2 November 2009, the launch of the SEPA Direct Debit (SDD) marked the second crucial milestone on the way towards the realisation of SEPA through Union-wide schemes.
Secure and efficient payment systems are crucial to the conduct of economic transactions and to the proper functioning of the Internal Market. The euro as a common currency has facilitated cash payments between the Member States since 2002. However, electronic Union-wide payment instruments are still far from replacing national payments for a variety of reasons. The prevailing market uncertainty, the generally difficult economic climate, the disadvantages for first movers in a network business, the perceived lack of legal certainty on an appropriate long term business model for SDD complying fully with EU competition rules and the duplicate costs of operating both SEPA and legacy payment systems have led many market players, especially on the supply side to call for EU legislation setting an end-date for moving to SEPA. Two Resolutions of the European Parliament i have also stressed the need and advantages of a migration end date as have the ECOFIN Council conclusions i which invited the Commission in close collaboration with the ECB to carry out a thorough assessment. Under Article 127 of the Treaty on the Functioning of the European Union, the ECB (ESCB) has as a basic task to promote the smooth operation of payment systems. In this context, the ECB has played an important role in providing guidance to the market to develop SEPA.
Two years after the launch of the SEPA credit transfer, the number of SEPA credit transfers processed by clearing and settlement mechanisms located in the euro area has not yet reached the 10 % threshold. A linear extrapolation of the current SCT migration rate of 9.3 % (as of August 2010), suggests that it will take around 30 years to complete SEPA. Even in a more optimistic scenario, it seems very unlikely that SEPA migration will be completed in less than 15–20 years without additional legislative intervention. This inertia substantially delays SEPA migration and as a result could greatly reduce the direct and indirect potential benefits of SEPA for the wider European economy i. Although SEPA migration will require users, including citizens and small and medium sized companies, to changeover to a common Union-wide bank account numbering based on IBAN and BIC, the transition will be facilitated by industry through specific information efforts, the incorporation of IBAN and BIC on account statements and on payment cards as well as automatic conversion facilities.
This initiative will complement the existing legal framework for payment services within the EU.
On 1 November 2009, Regulation (EC) No 924/2009 of the European Parliament and of the Council of 16 September 2009 on cross-border payments in the Community replaced Regulation (EC) No 2560/2001 i. This Regulation had in effect reduced charges for cross-border payment transactions in euro up to EUR 50 000 to the level of national charges and encouraged the European payments industry to build the Union-wide payments infrastructure needed to create SEPA.
Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (the so called Payment Services Directive or PSD) i aims to establish standardised conditions and rights for payment services offered in the market for the benefit of consumers and companies across the Union and provides a harmonised legal basis for SEPA.
The objectives of the proposal are consistent with the policies and objectives pursued by the Union. First, they will improve the functioning of the internal market for payment services. Second, they broadly support other Union policies, in particular consumer policy (by facilitating secure, Union-wide payment systems), and competition policy (by establishing equal obligations, rights and opportunities for all market players and facilitating cross-border provision of payment services, thus increasing the level of competition). The impact assessment accompanying this proposal concluded that only a rapid and comprehensive migration to Union-wide credit transfers and direct debits would generate the full benefits of an integrated payments market. Market forces and self regulatory efforts have proven not to be sufficient to drive concerted migration to SEPA. By facilitating economic transactions within the Union, they also contribute to the attainment of the wider objectives of the EU 2020 strategy i.
Consultation of interested parties
Consultation methods, main sectors targeted and general profile of respondents
The Directorate-General Internal Market and Services held a public stakeholder consultation on whether and how deadlines should be set for the migration of existing national credit transfers and direct debits to the new SEPA payment instruments between June and August 2009 and published its results in September 2009. A summary of the consultation has been published on the DG’s website i.
Several consultations on SEPA have been made, on an annual basis, through the European Business Test Panel. The last consultation was held in the second half of 2009 and more than 400 enterprises responded. These were composed of 85 % SMEs and 15 % larger corporations. The 2009 consultation included questions on phasing out legacy payment instruments and setting a SEPA migration end-date.
Moreover, discussions with the banking industry on the SEPA Direct Debit business model have been ongoing for some time. These discussions focused on the issue of multilateral interchange fees (MIF) i and led to the adoption of transitional provisions on MIF in Regulation (EC) No 924/2009. Nonetheless, exchanges of opinions continued as the long term business model for SDD had not been determined by the industry. In order to provide guidance to the banks, the Commission and the ECB issued a joint statement in March 2009, followed by a Commission Working Document in November 2009 i. A public consultation on this document has been completed in December 2009.Furthermore, a questionnaire was sent to selected banks by the Commission services in December 2009–January 2010. It focused on the specific issue of duplicate costs incurred by individual payment service providers for running payment systems and processes (payment platforms) for existing national payments and new Union-wide SEPA payments in parallel. For this purpose, nine-teen of the largest banks or banking groups in Europe, representing a mix of commercial, savings, and cooperative banks from nine countries, were selected. A similar survey was sent out to payment processors and to payment service users (mostly businesses), but did not yield a sufficient response rate for analysis.
Discussions and exchanges of opinions were held between 2008 and 2010 with Member States, financial institutions, consumer organisations and other social and economic partners, notably through the existing consultative committees on retail payments: the Payment Systems Market Expert Group (PSMEG), the Payments Committee (PC) and the EU Forum of national SEPA Coordination Committees.
Discussions, responses and written contributions provided by the stakeholders served as a basis for the analysis presented in two Commission documents: the Impact Assessment accompanying this proposal and a working paper made available to the public on the Commission website for comments between 7 and 23 June 2010. This paper provided for a number of issues which would have to be covered when setting mandatory end-dates for both credit transfers and direct debits.
There was a broad support among all stakeholders for fixing deadlines for the full migration to SEPA by EU binding regulation: only legislation at the level of the Union can provide the impetus for widespread use of Union-wide credit transfers and direct debits. It was argued that SEPA instruments should not only complement but replace existing legacy instruments.
While the majority of the stakeholders supported the approach of fixing two separate deadlines for migration of credit transfers and direct debits, some of them favoured a single migration end-date for both payment services. Furthermore, the supply side and some of the users strongly advocated for longer migration periods in particular for direct debits.
In particular, in the light of the responses received to the consultation as well as other industry representations, a final public hearing was held by the Commission on 17 November to address two important issues. These were: first, whether the Regulation should mandate directly the payment schemes as developed by the payments industry instead of using an approach based on mandatory technical requirements; and second, whether in the interests of clarity, specific legal provisions should be included regarding an appropriate long-term business model for direct debits.
As a result of the intense consultation, it has been concluded that a mixed approach consisting of setting common standards and general technical requirements , is the most appropriate for defining Union-wide payment instruments. These technical requirements should apply to the whole payment service transaction chain, from payment user to payment user through their respective payment service providers. This ensures the reaping of all SEPA benefits which are generated on the demand (payment service user) side of the market. However, the supply side asked for the use of the existing SEPA schemes developed by the European banking industry.
A large number of stakeholders welcomed the proposal for Member States to exempt specific national payment products fulfilling certain conditions (e.g. domestic transactions, market share below a threshold) for a limited time after which all legacy products would have to be phased out. Others would have preferred a permanent exemption in order to continue using such specific products. Responses to the consultation also consistently confirmed that there is a strong need to clarify the validity of a long-term business model for direct debits which complies with EU competition rules.
A comprehensive study of the costs and benefits of SEPA migration was commissioned from Cap Gemini Consulting and its results published in January 2008.
Moreover, in August 2008, the Commission has published a study commissioned from Van Dijk Consultants, with a view to preparing the monitoring of the impact of SEPA on consumers.
The Commission carried out an impact assessment listed in the Work Programme. This impact assessment has been prepared in close cooperation with the ECB.
The impact assessment discusses the issue of slow migration to SEPA credit transfer (SCT) and SEPA direct debit (SDD), resulting in coexistence of national legacy instruments and SEPA payments. It identifies the root cause of slow migration progress: uncertainty about the completion of SEPA and co-related problem drivers, such as the lack of incentives to develop SEPA products fully meeting user needs, reluctance to invest because of the disadvantage of being a first mover and a fragmented demand side with a low level of SEPA awareness. It also lists the effects of slow migration. At the micro level, multiple payment platforms need to be maintained by the market players on the supply and demand side, which results in duplicate operational costs for maintaining those systems and negative returns on SEPA investments. At the macro level continuation of national fragmentation in the EU market leads to untapped economies of scale, restricts competition and hinders innovation.
The impact assessment considers three scenarios: no intervention, additional incentives for SEPA migration without setting an end-date and the impacts of setting a migration end-date. It concludes that the best scenario for the Union payments market, the European economy and the stakeholders is setting an end-date for migration by way of a Regulation.
Subsequently, the impact assessment considers the best ways of implementing the end-date at the technical level, by discussing policy sub-options for the end-date implementation in several areas.
Reference basis for adopting Union-wide credit transfers and direct debits. The recommended option is to establish an end-date on the basis of general technical requirements i.e. requirements, which need to be fulfilled by Union-wide credit transfers and direct debits. The technical requirements will include the existing international and European standards.
Transaction domain. It is recommended to follow an approach whereby the technical requirements defined by an end-date would apply throughout the whole payment transaction domain i.e. for the customer-to-payment service provider and payment service provider-to-customer domain on top of the payment service provider-to-payment service provider domain. An estimated EUR 84 billion of operational savings on the demand side depends entirely on payment market integration extending beyond the inter-bank space.
Product specification. It is recommended to apply an end-date for niche products too i.e. credit transfers and direct debits which represent low-volume payments and offer specific functionalities. However, in order to allow for the necessary adaptations in the SCT and SDD schemes, a transitional period in the range of 3–5 years will be provided for.
Member States scope. It is recommended to pursue the option with a common end-date for the euro area and a later common end-date for the non-euro area. As euro payment volume shares in non-euro area represent only an estimated 2 % of all euro payments, quick and full migration of non-euro Member States is not essential to the success of SEPA.
Deadline for migration. It is recommended to pursue the sub-option of separate end-dates: one year after entry into force of the Regulation at the latest for credit transfers and two years for direct debits. In practical terms, the adoption delay means that the stakeholders will have approximately 30 months to prepare for migration to SCT and 42 months to migrate to SDD from the date of adoption of the Commission proposal.
Clarity on the long term business model for pan-European direct debits. It is recommended to prohibit the general application to every direct debit transaction of multi-lateral interchange fees (MIFs) between payment service providers (and measures of equivalent object or effect). Nevertheless, MIFs would be allowed under certain conditions for direct debit transactions which cannot be properly executed or which are being reclaimed by a payment service provider.
Contents
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- Grounds for and objectives of the proposal
- General context
- Existing provisions in the area of the proposal
- Consistency with the other policies and objectives of the Union
- CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT
- Summary of responses and how they have been taken into account
- Collection and use of expertise
- Impact assessment
- Summary of the proposed action
- Legal basis
- Subsidiarity principle
- Proportionality principle
- Choice of instruments
- ADDITIONAL INFORMATION
- Repeal of existing legislation
- Review/revision/sunset clause
- European Economic Area
- Detailed explanation of the proposal
The proposal for setting technical requirements for credit transfers and direct debits is aimed at:
- setting up separate migration end-dates for credit transfers and direct debits respectively, by introducing a set of common standards and general technical requirements
- ensuring reachability of payment service providers for credit transfer transactions, along the lines of the reachability obligation for direct debit transactions under Article 8 i of Regulation (EC) No 924/2009 and interoperability of payment systems.
Article 114 i of the Treaty on the functioning of the EU.
The subsidiarity principle applies insofar as the proposal does not fall under the exclusive competence of the Union.
The objectives of the proposal cannot be sufficiently achieved by the Member States for the following reason(s):
At this stage, national migration plans to SEPA exist in almost all Member States. While all these plans support SEPA migration, only a few aim for systematic and full replacement of legacy payment instruments by a given deadline. The target dates set by stakeholders at national levels are at variance across Member States. In the absence of a common target date at Union level, the lack of coordination among Member States as well as among stakeholders will at best create difficulties in the transition to SEPA or at worst a deadlock preventing effective migration. Moreover, the target dates set are often contingent on other conditions. These plans therefore do not provide sufficient momentum for swift and comprehensive migration to SEPA, and are also not coordinated between Member States.
Action at the level of the Union will better achieve the objectives of the proposal for the following reason(s):
By its nature an integrated euro payments market requires a Union-wide approach as the underlying standards, rules and processes have to be consistent across all Member States. This supports the aim of Article 3 of the Treaty on the European Union which provides for an internal market and an economic and monetary union whose currency is the euro. Only a European approach, co-ordinated on the supply and demand side can unlock the full potential of the network benefits. The alternative to a Union-wide approach would be a system of multilateral or bilateral agreements whose complexity and costs would be prohibitive as compared to legislation at the level of the Union. Intervention at the level of the Union would therefore be consistent with the subsidiarity principle.
The proposal therefore complies with the subsidiarity principle.
The proposal complies with the proportionality principle for the following reason(s):
The proposal does not go beyond what is strictly necessary to achieve its objectives.
All of the proposed rules have been subject to a proportionality test and intensive consultation to ensure appropriate and proportionate regulation.
The proposal aims to minimise the impact of changes on all stakeholders. The technical requirements listed in the annex to the Regulation have been constructed in such a way that they allow for the application of the current existing Union-wide schemes without restricting flexibility and innovation.
Furthermore, the proposal allows Member States to decide on the appointment of the competent authorities so they can use the existing administrative structures and bodies, if they wish, to reduce their costs.
Proposed instruments: Regulation.
Other means would not be adequate for the following reason(s):
Setting an end-date for migration to Union-wide credit transfers and direct debits requires standardisation at technical level and the fullest possible harmonisation. This argues in favour of a Regulation rather than a Directive. Furthermore, due to the network character of the payment industry, most of the benefits of SEPA will only materialise once the domestic transition to Union-wide payment instruments is completed in all EU Member States. A Directive with potentially differing national implementations runs the risk of perpetuating the current payment market fragmentation. Finally, it would delay migration due to the time necessary for national transposition. It is therefore recommended to use the legal instrument of a Regulation for setting a SEPA migration end-date.
Leaving aside the normal administrative costs linked to ensuring the respect of EU legislation, there will be no budgetary impact since no new committees are created and no financial commitments are made. However, the Commission is also a significant user of payment services in its own right and therefore should benefit, along with other users, from enhanced competition generated by SEPA.
Simplification
The proposal seeks to simplify the legislation as Article 3 consolidates the reachability provision for direct debits as defined under Regulation 924/2009 and a similar reachability provision for credit transfers under a single provision. Simplifying payments handling will have beneficial effects for stakeholders, including public administrations, businesses and private individuals.
Since this Regulation will reduce fragmentation along national barriers and foster competition in the European payments market, it will contribute to the simplification of payment processes.
For example, public administrations as heavy users of payment instruments should benefit from SEPA because it simplifies their payment processes and allows more efficient straight-through processing of payments. Public tendering of payment services at Union level should become easier, since the number of potential Payment service providers would increase, their offers could be better compared and inefficiencies caused by national payment formats should disappear. The combination of e-invoicing solutions and SEPA as an underlying payment platform would also facilitate the automatic reconciliation of invoices and payments.
Similarly for consumers, who are becoming increasingly mobile in professional and private terms standardised cross-border payments would eliminate the need to maintain several payment accounts in different countries.
For payment service providers and payment processors, economies of scale and common standards achieved under SEPA would make payments across the Union much more efficient.
The adoption of the proposal entails the repeal of Article 8 of Regulation (EC) 924/2009 on reachability for direct debit transactions. For reasons of transparency and simplification, the substance of that article is consolidated in Article 3 of the present proposal.
The proposal includes a review clause.
The proposed act concerns an EEA matter and should therefore extend to the European Economic Area.
The following short summary aims to facilitate the decision making process by sketching the main substance of the Regulation.
Article 1 – subject matter and scope – states that the Regulation covers the execution of all credit transfer and direct debit transactions denominated in euros within the Union. It does not cover some types of payment transactions -such as payment card transactions, money remittance and payment transactions through means of any telecommunication, digital or IT device which do not result in a credit transfer or direct debit. To promote competition and efficiency, the Regulation should not foreclose from the market non-'traditional' payment schemes, in particular when they are based on combined schemes rules including a direct debit or credit transfer segment. Hence, the provisions of this Regulation only apply to the credit transfer or direct debit underlying the transaction.
Article 2 – definitions – aligned, as much as possible, with those used in Directive 2007/64/EC. However, given the Regulation’s limited scope in comparison with the Payment Services Directive, some of the definitions have been tailored to the needs of this proposal.
Article 3 – reachability of payment service providers for credit transfer transactions is integrated with the reachability obligation for direct debit transactions under Article 8 of Regulation (EC) No 924/2009.
Article 4 – technical interoperability – which is necessary for the smooth functioning of payment schemes and systems, so that they can interact with each other across the Union using the same standards, without technical obstacles to the processing of payments by the market players.
Article 5 and the Annex – technical requirements for credit transfer and direct debit transactions – introduce deadlines for migration to Union-wide instruments, by making certain important standards used by the payment industry mandatory and defining technical requirements applying to both payment service providers and customers.
Article 6 – interchange fees for direct debit transactions – clarifies that after 31 October 2012 multilateral interchange fees (MIFs) per transaction are not allowed for national and cross-border direct debits. It also defines general conditions for interchange fees (multilateral, bilateral and unilateral) for R-transactions, in line with the working document on the Applicability of Article 81 of the EC Treaty to multilateral interbank-payments in SDD published by the Commission on 3 November 2009.
Article 7 – waiver – applies to so-called legacy niche products which should also be phased out after an appropriate transitional period.
Article 8 – payment accessibility ensures that if a euro credit transfer or a euro direct debit is accepted domestically, it will also be used to and from a euro account on a cross-border basis.
Article 9 – competent authorities – empowers the competent authorities to take necessary measures to ensure compliance with the obligations laid down in this Regulation.
Article 10 – penalties – requires Member States to provide details of penalties to the Commission.
Article 11 – out-of-court complaints and redress procedures – obliges Member States to set up out-of-court redress bodies for the settlement of disputes arising under the Regulation. It also requires them to provide the Commission with information on these arrangements.
Article 12 to 15 – adoption of delegated acts – allows the technical requirements to be updated.
Article 16 – revision clause – provides for a reporting obligation accompanied, if need be, by a proposal for amendment.
Article 17 – transitional provisions – ensures that the end-dates apply to euro area Member States earlier, while non-euro area Member States are granted a transitional period, based on their limited euro payment transaction volumes.