In the European single market there are still large differences between the national payment systems. The EU seeks to remove these obstacles and reduce the costs to cross-border payments for consumers by creating a Single Euro(pean) Payments Area (SEPA). The European Payments Council (EPC) was set up to develop a common infrastructure and standards. However, there is only little progress, since banks are reluctant to apply standards and fear competition being opened up to non-banks, which makes it difficult to reach the 2010 target. Therefore, the Commission has laid out a common legal framework in its 2005 proposal.
Background
General
The aim: a single economic area for payments across the European Union. The rationale: so that it is as easy, quick and cheap for an EU citizen in any member state to make a payment to an individual or business in another member state as it is to make a similar payment within the borders of his own country. The difficulties: differences in member-state law and regulation; incompatibility of national infrastructures and technology (much bank card operation and security has been purely national up until now); bank and other charges; dispute resolution and the transition from old payment methods (cash, cheques) to new electronic methods.
Steps towards a single payments area:
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July 2002: Cross-border Payments Regulation: charges for withdrawing cash from cash machines and making card payments in euros must be the same for cross-border as domestic transactions. There have since been concerns that banks have simply raised their tariffs for domestic transactions. There is also a growth in the number of institutions imposing charges for using cash machines.
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July 2003: Cross-border transfer in euros: as above, charges must be the same for cross-border and domestic transactions (but only those less than €12,500). Technology used is the IBAN (international bank account number) and BIC (bank identifier code), which must be shown on bank statements.
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Dec 2003: Consultation on Legal Framework for payments in the internal market: this document puts forward suggestions for completing SEPA for all forms of transaction. It looks at cross-border use of internet payments (e-payments) and payments made via mobile phones (m-payments) and cross-border direct debit. Contributions on the consultation were published in March 2004.
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October 2004: fraud prevention action plan: contains measures to combat fraud in non-cash payments such as single EU phone number to report lost/stolen cards; greater cooperation between enforcement authorities; clarification on data protection laws relating to fraud prevention; EU fraud prevention expert group (FPEG).
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December 2005: Proposal for directive on New Legal Framework for payment services (see Issues below).
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February 2006: SEPA Incentives Paper (see Infrastructure below).
Issues
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.
Infrastructure
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.
E-money
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.
Positions
The Commission is anxious to have the single payments area in place as soon as possible and has expressed concern that industry is dragging its heels. Internal Market Commissioner McCreevy recognises the extent of the work and investment needed but has emphasised the huge benefits that will be realised in the long-term. In March 2006 he said, “The Commission Impact Assessment on its proposal for a New Legal Framework estimated the lost benefits and costs of the non-single market in payments at 22 billion euro! …..The New Legal Framework will clear away the current legal barriers blocking SEPA. But industry must eliminate the remaining technical and commercial barriers.”
The European Banking Federation (FBE) welcomed the NLF proposal but underlined the importance of striking the right balance between consumer protection requirements and the costs to the industry.
The European Savings Banks Group (ESBG) expressed clear support for the legal framework proposals but criticised the notion of strict liability as imposing unnecessary costs. It also saw the imposition of obligations on providers of electronic payment services as encouraging the use of cash, when this payment method, by far the most costly, should be discouraged.
EuroCommerce is concerned that progress towards the single payments area is not progressing quickly enough. It commended the transparency and competition which would be created by the NLF directive but regretted that the issue of inter-bank agreements and interchange fees had not been tackled.
European consumers organisation BEUC also criticised the delay in implementing the single payments area. In the EU, it states, "there is a dire need to improve on payment efficiency, security and protection." However, BEUC Director Jim Murray called the NLF proposal, "a bold move in the right direction."
The European Parliamentary Financial Services Forum warns that the huge investment required from the banking sector to make SEPA work will only be forthcoming if there is a foreseeable return on that investment. To ensure this, SEPA needs the active support of businesses, large and small, and consumers throughout Europe.
In an open letter addressed to Ms. Tumpel-Gugerell, member of the executive board of the European Central Bank (ECB) and Internal Market Commissioner Charlie McCreevy, the European Payments Council (EPC) warned that "the delay to the original schedule in the adoption of the Payments Services Directive remains a source of risk, cost and uncertainty to the SEPA programme." The EPC further wrote: "We also remain concerned by the evident lack of commitment and support from public administrations as adopters of the new SEPA instruments."
A study by VicaLink showed that SEPA reach is still aproblem for banks. Martin Wilson, chief marketing officer at VocaLink said: "With SEPA compliance just around the corner, the thought that many European banks do not have a solution for reach is a cause for concern."
Timeline
- Cross-border transfer rules to apply to amounts up to €50 000 since 1 January 2006.
- The New Legal Framework for payment services was agreed by EU finance ministers on 27 March 2007.
- The Payment Services Directive (PSD) was agreed on 15 October 2007. The directive is expected to come into force by November 2009 (see our Links Dossier). To learn more about the differences between SEPA and PSD, see EURACTIV 24/07/08.
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EPC's SEPA payments instruments to be rolled out from 28 January 2008.
- The deadline for the replacement of current credit cards with SEPA-compliant cards is set at 31 December 2010
Further Reading
EU official documents
- European Central Bank:The Eurosystem’s View of a “SEPA for Cards”(20 November 2006)
- European Central Bank (ECB):The economic impact of the Single Euro Payments Area (SEPA)(August 2007)
- Eur-Lex:Proposal for a Directive on payment services in the internal market(COM(2005)603 (1 Dec 2005) [FR] [FR] [DE]
- RAPID:Single Payments Area: pay anywhere in the EU as you would do at home(1 Dec 2005) [FR] [FR] [DE]
- RAPID:Single Payments Area: Commission proposal for a 'New Legal Framework'(1 Dec 2005) [FR] [FR] [DE]
- Eur-Lex:Commission Communication concerning a New Legal Framework for Payments in the Internal Market(COM (2003)718)(2 Dec 2003) [FR] [FR] [DE] [FR] [DE] Press Release
- DG Internal Market:Contributions to the consultation on a New legal framework for payments in the internal market
- European Central Bank (ECB):Towards a Single European Payments Area
- European Central Bank (ECB):SEPA: from concept to reality (fifth progress report)(20 July 2007)
- DG Internal Market:Consultation on SEPA Incentives(13 February 2006)
- DG Internal Market:Payment services
- DG Internal Market:Financial Services Consumer Group:
- European Parliamentary Financial Services Forum:Payment systems, efficiency and fairness
- Eur-Lex:Directive on the taking up, pursuit of and prudential supervision of the business of electronic money institutions(2000/46/EC)(18 Sept 2000) [FR] [FR] [DE]
- DG Internal MarketNew Legal Framework [FR] [FR] [DE]
Business & Industry
- European Savings Banks Group:European Commission Consultative Paper on SEPA Incentives jeopardises timely delivery of pan-European payment instruments(15 Feb 2006)
- Visa Europe:SEPA and the Internal Market for Payments
- European Payments Council:EPC welcomes publication of payments directive(1 Dec 2005)
- European Banking Federation:FBE’s view on the publication of the payments directive(2 Dec 2005)
- Eurocommerce:The new legal framework for payments in the internal market(1 Dec 2005)
- European Savings Bank Group:Proposal for a Directive on payment services in the internal market: long awaited, needs improvement(2 Dec 2005)
- European Payments Council:The banking industry delivers the next milestone on the road to SEPA.(September 2005)
- VISA Europe:The Single Market for Payments
- European Savings Banks Group:Call for a genuinely balanced new legal framework, focused on the realisation of an EU-wide payments market(17 Jan 2005)
- EuroCommerce:New Legal Framework for Payments in the Internal Market(14 Jan 2005)
- Eurocommerce:Impact Assessment on the NLF for Payments in the Internal Market(March 2005)
- European Payments Council:Roadmap 2004-2010
- European Payments Council:Euroland: Our Single Payment Area! - White Paper(May 2002) Public letter from EPC concerning the progress of the SEPA Programme
- AmChamEU:Position Paper on Single Euro Payment Area (SEPA) incentive consultation(10 April 2006)
- Deutsche Bank:Deutsche Bank's SEPA strategy to offer immediate financial benefits to its corporate clients(18 September 2007)
NGOs and Think-Tanks
- BEUC: The European Consumers’ Organisation:Single Payment Area - New Commission proposal calls for more efficient and fair payment services(1 Dec 2005)
- Deutsche Bank Research:Payments in Europe: Getting it right(August 2005)
- UK Which?:Consumers at the heart of Europe: EU manifesto(May 2004)
- Office of Fair Trading:What type of plastic?
- Federal Trade Commission:How Not to Get Hooked by a ‘Phishing’ Scam
Other
- EURACTIV Slovenia:Skupni notranji trg za pla?ila(in Slovenian)
- EURACTIV Poland:Wspólny wewn?trzny rynek p?atno?ci(in Polish)
- EURACTIV Czech Republic:Jednotný vnit?ní trh plateb(in Czech)
- EURACTIV Hungary:Egységes fizetési térség(in Hungarian)
- EURACTIV Slovakia:Jednotná platobná oblas?(in Slovak)
- EURACTIV Romania:Spre o zona unica de plati(in Romanian)
Non-assigned links
- DG Internal Market:Evaluation of E-Money Directive: Final Report(February 2006)
- DG Internal Market:Application of the E-money Directive to mobile operators: Consultation paper
- DG Internal Market:Application of the E-money Directive to mobile operators: Summary of replies to Consultation
- DG Internal Market:E-Money:
- Eur-Lex:Regulation on cross-border payments in euro(2560/2001)(19 Dec 2001) [FR] [FR] [DE] [FR] [DE] New EU rules mean cheaper cash withdrawals and bank card payments abroad
- RAPID:EU Regulation aligns charges for cross-border transfers in euros(26 June 2003)
- DG Internal Market:Cross Border Payments in Euro:
- DG Internal Market:Credit Transfers
- DG Internal Market:Payment Cards
- Parliament Working Paper:Economic Affairs:Improving Cross-border Payments in the Euro Area(June 2004)
- Internal Market Commissioner Charlie McCreevy:Improving the competitiveness of European card-based payments(18 September 2007)
- Eur-Lex:Commission communication:A new EU Action Plan 2004-2007 to prevent fraud on non-cash means of payment(COM(2004)0679) (25 Oct 2004) [FR] [FR] [DE] [FR] [DE] Press Release
- DG Internal Market:Card Stop Europe