New Legal Framework for Payments (NLF)
On 1 December 2005, the Commission published a proposal for a directive to create a single legal system for making electronic payments across borders (the directive will not apply to cash or cheque payments). The aim is to make payments faster, easier and cheaper by 2010, thus reducing costs for consumers and saving the 3% of the EU's GDP currently spent on payment costs. Main provisions:
the directive will apply to all the member states, not just the Eurozone;
market will be opened to competition - so not only banks can provide payment services;
rules will be standardised and transparent;
payments (not involving excurrency change) will have to be credited by end of the day after the payment is made;
consumer protection rules are included so that if payment is not made, or is defective, the payment provider is under a strict liability.
To date, each member state has had its own banking systems operating on their own rules and with their own technology. It is the view of the European Commission that the work of integrating infrastructures must be led by the industry itself and to this end European banks and credit associations formed the
European Payments Council
(EPC) in 2002. For progress of the EPC, see the European Payments Council website.
It should be noted that while the Commission's legal framework will apply to all the EU 25, the EPC's strategy concentrates on Euro payments - payments involving currency exchange are not at present included.
In February 2006, the Commission Published a SEPA Incentives Paper. It explored the obstacles to a single market for payments and the possibilities for overcoming these (including Commission-led action) such as:
• using software to convert existing technology;
• spreading investment over time by only replacing technologies at the end of their natural lifetime;
• reducing costs to the banking sector –e.g. by replacing expensive payment instruments (cash and cheques) by electronic payments.
A consultation on the paper was concluded on the 31 March 2006.
Financial Services Consumer Group
In order to increase the participation of consumers in the development of financial services regulation, the Commission inaugurated the Financial Services Consumer Group in June 2006. The group consists of representatives from consumer organisations from EU Member States as well as consumer organisations active at EU level and complements the existing experts group, FIN-USE. In addition, the Commission has launched a newsletter for consumers: Fin-focus.
Cash and cheque payments
Increasingly, payments are being made by an ever-widening variety of electronic means - card, bank transfer, internet and mobile phone. While foreseeably, cash will remain with us, the use of cheques is fast declining. This development is embraced by the SEPA policy and by the banks for whom cash is the most costly payments method. The Commission's new legal framework therefore, applies to electronic payments only.
Ways of paying are increasing. Many consumers already have internet banking and pay via credit card over the telephone or the internet. The next development is payment by mobile phone. This can either be done by entering a credit card number on the phone keyboard; adding items for payment to a mobile-phone bill (eg key into the phone a number displayed on a vending machine/ car-park ticket machine) or using a pre-payment system. Another possibility is entering a contract with a payment service provider to make payments through a mobile – thus using the mobile phone as a virtual credit card.
On 14 July 2005, the Commission launched a review of the E-Money directive to analyse whether it remained appropriate in the light of technological changes. A report on this review containing recommendations for revision of the Directive was sent to the Council in July 2006. The Commission also carried out a consultation on the rules relating to payments via mobile phone.