SEPA and the Payment Services Directive

Wiebe RuttenbergHead of Market Infrastructure Division

DG Payment Systems and Market InfrastructureEuropean Central Bank

Budapest, 17 November 2006

Overview

• Current status, payment market

• SEPA

• Proposed Directive on Payment Services

• Customer benefits

• Conclusions

Current status, payment market

A single currency, the euro, since 2002, but still:

• National payment schemes• Diverging standards and practices• Competition mainly on national

level

Current status, payment market

This fragmentation means : • Longer execution times for cross-

border credit transfers, • Only national direct debit schemes• National debit cards are usually

not accepted abroad, if not co-branded

SEPA

The Single Euro Payment Area (SEPA)is a project of the European banking industry, organised in the European Payments Council (EPC), strongly supported by the ECB and the EU CommissionThe project aims to develop common instruments, standards, procedures and infrastructures in order to foster substantial economies of scale

SEPA

Ultimate SEPA objective: • A euro area in which all payments are

domestic • Within the SEPA, customers will be able

to make payments throughout the whole euro area as efficiently and safely as in the national context today

• If they so wish, using a single payment account and a single card

Payment instruments

- Credit transfers

- Direct debits

- Cards

Horizontal issues

- Infrastructure (ACH’s)

- Standardisation

- Common regulatory aspects

The SEPA project:

SEPA

SEPA

SEPA framework• A set of inter bank rules, practices and

standards• The relationship between banks and their

customers is outside the SEPA framework• Single banks or banking communities are

free to provide additional optional services

SEPA

SEPA framework• Transactions between banks should be

in euro• Banks are free to provide SEPA

instruments also in non-euro countries• Transactions must be converted from

the national currency to euro before being processed

SEPA

SEPA Timetable:

• 1 January 2008, SEPA instruments should be available for users

• End of 2010, a critical mass of national payments should have migrated into the SEPA instruments

Proposed Directive on Payment Services

The aim of the Commission is to create a Single Payment Market by eliminating barriers between member states for the provision of payment services, and by creating conditions for competition, integration and rationalisation of national payment systems.

Proposed Directive on Payment Services

Payment institutions (Title II)

• A new concept of payment service providers is introduced

• Restricted activity to only provide payment services and payment related services

• Lighter supervisory requirements

• Single passport

Proposed Directive on Payment Services

Information and contractual requirements (Title III)

• Information requirements

• Framework contracts and changes of conditions

• Derogation for micro payments

Proposed Directive on Payment Services

Rights and obligations (Title IV)

• Authorisation and acceptance of payment transactions

• User liability max EUR 150 (except when acting fraudulently or being gross negligent)

• Refund of an authorised payment transaction

• Fees (each party should bear its own fees)

• Execution time

• Liability provisions for non-execution or defective execution

• Dispute settlement

Proposed Directive on Payment Services

SEPA

• euro payments

• an inter bank framework

Payment services directive

• all EU currencies and all Member States

• The relationship between payment service providers and users

ECB on the proposed Directive on Payment Services

A very welcome initiative as it establishes a comprehensive legal framework for payment services in the EU and assists the banking industry in its efforts to establish a SEPA.

Safeguarding requirements regarding payment institutions needed, however to be proportional to the scope of activities.

Proposed Directive on Payment Services

Current status

• The ECON Committee (Parliament) provided its proposal in September 2006

• Negotiations within the EU Council

• EU Parliament is expected to vote on its proposal in December 2006

Proposed Directive on Payment Services

If adopted during 2006

• Proposed transposition time, 18 months

• Transposed into national legislation by summer 2008

Proposed Directive on Payment Services

In case of a delayed adoption

• Implementation of SEPA credit transfers and cards framework seems not to be depending on the directive

• Banks claims that there will be problems implementing SEPA direct debit

• The ECB is currently investigating

User benefits

A harmonised legal framework:

• Information

• Contractual conditions

• Authorisation

• Execution times

• Liability

• Dispute settlement

User benefits

Enhanced competition

• Opening up payment markets for other actors

• Facilitates for PSP’s to provide services abroad

• Easier for users to use payment services provided by foreign PSP’s

Conclusions

SEPA – the necessary infrastructure and standards

PSD – a harmonised legal framework

Together they will contribute to establish the euro area as one single domestic payment market to the benefits of all its citizens.

Thank you very much for your

attention

www.ecb.int