EPC - Blog

1 February 2014 SEPA Migration Deadline – Council of the European Union (EU) Representing EU Member States Confirms: Provisions of Regulation (EU) 260/2012 “Have to Be Fully Respected by All Market Participants in Euro Area Member States”

Tue, 21 May 2013 10:01:01 GMT

The Council of the European Union (EU) represents the 27 EU Member States (see link below). The Council of the EU is a single body, but for reasons relating to the organisation of its work, it meets – according to the subject being discussed – in different ‘configurations’, which are attended by the ministers from the EU Member States and the European Commissioners responsible for the areas concerned. The Economic and Financial Affairs Council (ECOFIN), representing EU finance ministers, is one of the oldest configurations of the Council of the EU (see link below). At the ECOFIN meeting on 14 May 2013, the Council of the EU adopted its latest conclusions on the Single Euro Payments Area (SEPA) (see link below).

The Council of the EU “welcomes the successful entering into force” of Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro (the SEPA Regulation), which effectively mandates migration from national credit transfer and direct debit schemes to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) in the euro area by 1 February 2014. The Council of the EU confirms “that this is a significant step towards a truly integrated market for retail payments in euro.”

The vast majority of European laws are adopted jointly by the European Parliament and the Council of the EU. A ‘regulation’ adopted by the EU legislator is a binding legislative act. It must be applied in its entirety across the EU (see link to the EU Website below). The European Parliament adopted the SEPA Regulation on 14 February 2012. The Council of the EU adopted this legislative act on 28 February 2012. With its conclusions on SEPA reached on 14 May 2013, the Council of the EU underlines that the provisions of the SEPA Regulation “have to be fully respected by all market participants in euro area Member States,” and emphasises that “competent authorities should cooperate intensively, on a national and international level, to ensure effective and harmonised compliance with the Regulation.”

The Council of the EU stresses that all payment orders which are not submitted in the format requested by the SEPA Regulation after 1 February 2014 “may not be processed by all payment service providers in euro area Member States, which otherwise would be sanctioned,” and invites “merchants, corporates, [small and medium-sized enterprises] SMEs and public administrations to immediately take the necessary concrete internal steps for becoming ready for SEPA in adapting their information systems accordingly.”

Council of the EU “calls upon all Member States to significantly intensify communication measures primarily at national level to eliminate existing public awareness gaps”

The Council conclusions on SEPA recognise that “of all SEPA participants SMEs, small public administrations and local authorities are the least aware of SEPA migration and the least prepared for actual migration.” The Council of the EU also notes that “some stakeholders seem to be planning for a late SEPA migration and therefore may be exposed to undue operational risks impacting smooth handling of payments.” The Council of the EU therefore “calls upon all Member States to significantly intensify communication measures primarily at national level to eliminate existing public awareness gaps.” These communication measures, the Council of the EU states, should especially target “SMEs, small public administrations and local authorities.” Specifically, the Council of the EU proposes the following actions:

Euro area national central banks, ministries of finance and other competent authorities, national banking federations and individual banks should enhance communication activities on SEPA migration before summer 2013 through all relevant media channels, e.g. general press, professional press, billboard advertising, radio or TV, where these have not been successfully initiated already.
The European Commission and the European Central Bank (ECB) should provide assistance and advice to the best of their abilities to fully support the SEPA migration process.
SEPA Council members should step up communications to their constituencies about the importance of respecting the deadline for SEPA migration. (The SEPA Council, which brings together representatives of both the demand and supply sides of the payments market including the EPC, was established by the European Commission and the ECB in June 2010; for information, refer to the links below).

The EPC shares the view that the focus should now be on joining forces to assist, in particular, SMEs and local public administrations in the euro area that must meet the 1 February 2014 deadline. This requires coordinated efforts by national public authorities, and trade associations representing businesses and banks.

Get ready for SEPA by 1 February 2014: act now

As reported with the previous EPC Blog posts and in the April 2013 edition of the EPC Newsletter (see link below), the ECB clarified earlier that “there is no Plan B: migration to SCT and SDD is required by law, not only for payment service providers, but also for big billers, SMEs, public administrations and consumers.” With its SEPA conclusions of 14 May 2013, the Council of the EU also confirms that requests for an extension of the 1 February 2014 deadline articulated by some commentators will continue to fall on deaf ears with the EU lawmakers. The fact of the matter remains: all organisations making payments in the euro area must achieve compliance with the core provisions of the SEPA Regulation by 1 February 2014.

The EPC fully supports the recommendation of both the ECB and the Council of the EU that payment service users should aim to complete migration at the earliest stage possible, taking into consideration that the availability of external resources offered by banks and other service providers – including testing facilities – will be stretched to the limit towards the end of the year. The experience of SEPA pioneers on the demand side confirms that SEPA compliance is manageable and feasible, but with less than nine months to go until the 1 February 2014 deadline, it is critical that any late movers put processes in place to begin their migration immediately. Relevant information is also made available with ‘The EPC Migration Tool Kit’ (see link below). Act now.

Related links:

Council of the European Union: Council Conclusions on SEPA (14 May 2013)

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

EPC Podcast (April 2013): Learn to Love SEPA in 6 Minutes and Get Ready by 1.2.2014 in the Euro Area. Act Now!

EPC Newsletter article by Wiebe Ruttenberg (April 2013): ‘SEPA Migration - Don't Count on a Plan B. European Central Bank Publishes First SEPA Migration Report and Warns Against Risks of Late Migration’

EPC Newsletter article by Javier Santamaría (April 2013): ‘Learn to Love SEPA: the 1 February 2014 Migration Deadline Mandated by European Union Law Will Not Go Away’

EPC Newsletter article by Javier Santamaría (April 2013): ‘If You Have Not Migrated to SEPA Yet - Get Ready and Get Inspired: SEPA Pioneers on the Demand Side Share Best Practice’

The EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

Council of the European Union Website

Economic and Financial Affairs Council Website

European Union Website: Regulations, Directives and Other Acts

SEPA Council Page of the European Central Bank

If You Have not Migrated to SEPA Yet – Act Now!

Wed, 08 May 2013 10:01:01 GMT

The April 2013 edition of the quarterly EPC Newsletter again offers information to support market participants in the euro area in getting ready for the Single Euro Payments Area (SEPA) by February 2014 (see links below), as mandated by European Union (EU) law. Organisations that have not yet started migration should act immediately to ensure that they implement the required measures in order to be compliant before February next year. Whilst good progress has been achieved by the corporate sector preparing for the transition, the focus should now be on joining forces to assist, in particular, small and medium-sized enterprises (SMEs) and local public administrations in the euro area that must meet the 1 February 2014 deadline. This requires coordinated efforts by national public authorities and trade associations representing businesses and banks.

Don’t count on a Plan B

In the latest EPC Newsletter, Wiebe Ruttenberg of the European Central Bank (ECB) summarises the main findings of the first SEPA migration report, published by the Eurosystem in March 2013 (see link below). The Eurosystem comprises the ECB and the national central banks of the EU Member States whose currency is the euro. The first SEPA migration report describes the state of play of the migration process across countries in the euro area and provides guidance on the management of the transition process. With less than nine months left, migration to SEPA is entering its most critical stage.

The Eurosystem report stresses that late migration is highly undesirable in projects like SEPA, where many technical details need to be reflected in end-users’ back-office systems and internal processes. The Eurosystem therefore strongly advocates that all payment service providers (PSPs) have their customer servicing channels ready for SEPA transactions by the end of the second quarter of 2013 and that all other stakeholders, including ‘big billers’, public administrations and SMEs, migrate at the earliest stage possible, preferably by the third quarter of 2013 at the latest. This approach avoids risks which otherwise could impact the wider supply chain, and ensures timely SEPA migration. End-users, such as public administrations and businesses, big and small, have to get ready for the SEPA payment instruments, otherwise they risk refusal of payment transactions by PSPs from 1 February 2014. Wiebe Ruttenberg points out:

There is no Plan B: migration to SCT and SDD is required by law, not only for PSPs, but also for big billers, SMEs, public administrations and consumers.
Operating outside the law is not an option, neither in terms of reputation nor from the business perspective. The ability to initiate payments would come at a higher cost, and reconciliation would become more problematic.
PSPs will be obliged to refuse further processing of payments that are not delivered to them in the right technical format after the 1 February 2014 deadline applicable in the euro area.
Ignoring the risks of non-compliance, including the hope of a slow response on the part of the responsible authorities, would be a mistake.

As highlighted in the ECB press release of 21 March 2013 (see link below), the first SEPA migration report “shows that most corporations have already completed the planning phase and know what SEPA will mean for them in practical terms. However, when it comes to the actual implementation, a number of companies have adopted very late internal deadlines, even as far as to the end of 2013. This is a source of concern in particular when it comes to the migration to the SDD scheme. More worryingly, SMEs and local public administrations’ awareness of SEPA is still fragmented and the level of preparedness is rather poor.”

“Adapting to SEPA involves adjusting a lot of technical and business procedures over a limited period of time. Projects of this kind should not be left to the last moment,” said Benoît Cœuré, Member of the Executive Board of the ECB. “I hope that all stakeholders will take migration to SEPA payment instruments as a top priority.”

Learn to love SEPA: act now

The EPC fully supports the ECB’s recommendation that payment service users should aim to complete migration at the earliest stage possible, also taking into consideration that availability of external resources offered by banks and other service providers – including testing facilities – will be stretched to the limit towards the end of the year. Organisations now working towards achieving compliance with the SEPA Regulation are invited to take advantage of the support offered by the banking industry and other service providers to assist market participants during the transition. Relevant information is also made available with ‘The EPC Migration Tool Kit’ (see link below). The experience of SEPA pioneers on the demand side confirms that SEPA compliance is manageable and feasible, but with less than nine months to go until the 1 February 2014 deadline, it is critical that any late movers put processes in place to begin their migration immediately. There is only Plan A. Act now.

Related links:

What's Your View? EPC Launches Public Consultation: Improving the Efficiency of Cash Handling in SEPA

Mon, 15 Apr 2013 10:01:01 GMT

One important objective of the Single Euro Payments Area (SEPA) initiative should be to encourage a shift from cash to electronic payments. Despite the fact that cash accounts for a falling proportion of retail payments, it is in general still the predominant payment method in Europe and the demand for cash continues to grow. Studies over the years have shown that the social cost of cash remains considerable. The EPC believes that actions by all stakeholders within the euro area could contribute towards reducing the high cost of processing and handling of cash. In 2010, the EPC and the European Security Transport Association (ESTA) established a joint task force to identify best practice principles and, where possible, develop recommendations on how to further improve deploying and re-circulating cash. The considerations of this task force are reflected in the document 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models' (see link below), which was published on the EPC Website on 15 April 2013 for a three-month public consultation. For details on how to participate in the consultation, refer to the 'related links' included at the end of this blog. All stakeholders are invited to provide feedback by 14 July 2013.

Cash remains popular - and costly for society

Today, consumers continue to make significant use of cash - it is real, instantaneous and perceived to be free. In reality however, cash payments are costly for society. In October 2012, the European Central Bank (ECB) released the report 'The Social and Private Costs of Retail Payment Instruments' (see link below). The objective of this study is "to enhance the general understanding of the social and private costs of different retail payment instruments from a European perspective, with the aim of helping policy-makers, banks and retailers promote efficient payments." The ECB report analyses the social and private costs of making retail payments in 13 European countries and discovers that they are substantial, amounting to around 45 billion euros, or almost 1 percent of their combined gross domestic product. Due to the relatively high usage of cash, it accounts for nearly half of the total social costs.

EPC introduces the paper 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models'

The document 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models' aims to create awareness among participants in the commercial cash cycles established at national level across the SEPA countries of how to improve existing processes and reduce the overall cost of cash. The document addresses, among other things, the following aspects:

Balance sheet relief (BSR) mechanism: this mechanism describes an arrangement between a national central bank (NCB) and certain commercial cash cycle participants to hold currency at selected locations (usually secure centralised vaults), in the name of and to the value of the NCB. (Participants in the commercial cash cycle are parties other than NCBs and consumers taking part in the cash cycle: e.g. payment service providers, cash-in-transit companies and retailers). Implementation of the BSR mechanism supports wholesale cash re-circulation, reduces the operational involvement of the NCB and, consequently, decreases the cost of cash inventories in a cash cycle. The BSR mechanism may therefore prove to be a valuable component for commercial cash cycle participants to consider when evaluating their existing cycles.

Different models of cooperation between NCBs and commercial cash cycle participants: the different models currently in place can be distinguished based on the different levels of responsibility of the actors cooperating in the model; i.e. the relevant NCB and the commercial cash cycle participants. The document describes the various cooperation structures that can be formed by these participants and identifies potential improvements. A future model should be able to respond to a potential scenario where the NCB decides to reduce its branch network, services and operating hours. The paper does not recommend any specific model. It suggests however that the 'partial delegation' model, the 'total delegation' model and the 'partial transfer' model appear to offer a combination of the elements required to create the most efficient cash cycle model for the future. These three models provide logistical cost optimisation opportunities for the NCB as well as the commercial cash cycle participants and allow flexibility to develop customised cash services. In addition, they facilitate the direct exchange of excess cash among the different participants in the commercial cash cycle. Finally, these models also achieve BSR for the commercial cash cycle participants involved. The EPC stresses that irrespective of the cash model (or combination of models) chosen, security of cash remains a key consideration when reviewing existing cash cycles.

The aim of the public consultation is to ensure that the document correctly describes existing practices established between commercial cash cycle participants and NCBs and to enhance the content, where possible. Respondents to the consultation are invited to provide feedback on the document, in particular on the following topics:

Factors impacting the cash distribution landscape in SEPA (chapter 2): section 2.3 of chapter 2 describes regulatory action including ECB decisions and EU legislation impacting the cash cycle. These regulatory actions refer to the authentication of euro banknotes and coins, value date rules and cross border transport of euro cash by road. Respondents to the consultation are invited to indicate whether, in their view, there is any area where more consistency between decisions taken by the ECB on the one hand and the EU legislator, on the other, would be required to foster greater efficiency in the cash handling chain.

BSR mechanism (chapter 3): does the paper overlook any factor(s) relevant to the BSR mechanism? Respondents to the consultation are invited to elaborate on how the addition of one (or more) factor(s) would contribute towards the stated objective; i.e. stimulating wholesale cash re-circulation, reducing the operational involvement of the NCB and, consequently, decreasing the cost of cash inventories in a cash cycle.

Existing cash cycle models (chapter 4): are there any other existing models that should be included in the analysis? Respondents to the consultation, who are of the view that the paper should address an existing cash cycle model not currently included, are invited to describe such an additional model and substantiate why it should be taken into consideration.

Key considerations when selecting an efficient cash cycle model (chapter 5) and possible future cash cycle models (chapter 6): are there any other considerations relevant to selecting a cash cycle model and / or are there possible additional future models that should be included in the analysis? Respondents to the consultation, who are of this view, are invited to describe such additional considerations and future models and to substantiate why these should be taken into consideration.

The document 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models' will be updated based on the feedback received from stakeholders and a revised version will be published on the EPC Website later this year. The EPC looks forward to continuing the dialogue with all stakeholders on the best way forward to boost the efficiency and, consequently, reduce the high cost of processing and handling of cash in SEPA.

Related links:

EPC Document: 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models'

EPC Public Consultation: Improving the Efficiency of the Handling of Cash - Cash Cycle Models

European Central Bank: The Social and Private Costs of Retail Payment Instruments. A European Perspective

Late Movers: Learn to Love SEPA. There are Ten Months Left to Meet the 1 February 2014 Migration Deadline Mandated by European Union Law

Thu, 04 Apr 2013 10:01:01 GMT

In December 2011, the European Commission (the Commission) commented on the agreement by the European Union (EU) legislator on the 1 February 2014 deadline for migration to the Single Euro Payments Area (SEPA): "Today's agreement by the European Parliament and the Council [representing the 27 EU Member States] represents a significant step towards a truly integrated market for electronic retail payments in euro. (...) The reasonable transition periods applied will allow customers and banks to get used to the adjustments in domestic payment transactions, provide legal certainty, avoid the cost of operating dual payments systems and bring forward the substantial future benefits of SEPA." (See link to the Commission's press release of 20 December 2011 below). More than one year later, some commentators contributing to the SEPA debate continue to entertain the following - erroneous - ideas: (1) Meeting the February 2014 deadline established by the EU legislator would be a matter of choice or convenience for payment service users such as corporates, small and medium-sized enterprises and public administrations making payments in the euro area. (2) The request to postpone this deadline is directed at parties (including the EPC) not vested with any powers to adopt or amend EU law.

The fact of the matter is: the only party empowered to change the 1 February 2014 deadline is the EU legislator; i.e. the European Parliament and the Council of the EU representing EU Member States. The EU legislator has never indicated that it would consider such a motion. Consequently, there is only Plan A: get ready for SEPA in the euro area within the next ten months.

A brief recap on the principles governing the EU legislative process

The vast majority of European laws are adopted jointly by the European Parliament and the Council of the EU (made up of representatives of the 27 EU Member States) under the so-called ordinary legislative procedure. This legislative procedure gives the same weight to the European Parliament and the Council of the EU on a wide range of areas (see link to the European Parliament Website below). A 'regulation' adopted by the EU legislator is a binding legislative act. It must be applied in its entirety across the EU (see link to the EU Website below).

The European Parliament adopted the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation) on 14 February 2012. The Council of the EU representing EU Member States adopted this legislative act on 28 February 2012. The SEPA Regulation was published in the Official Journal of the EU on 30 March 2012 and came into force on 31 March 2012. Article 6 (1) and (2) of the SEPA Regulation mandates that credit transfers and direct debits shall be carried out in accordance with the relevant requirements set out in Article 5 and in the Annex to the Regulation by 1 February 2014, subject to certain limited exemptions mentioned in the Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes in the euro area will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). As mentioned above, there are no indications whatsoever that the EU legislator would consider changing Article 6 - the provision which defines the compliance date applicable in the euro area - of the SEPA Regulation. Postponement of the 1 February 2014 deadline would counteract the expectations articulated by the lawmakers that meeting that date will generate significant benefits for consumers and businesses and contribute to further strengthening the common currency (see the link to the EPC Blog of 23 August 2012 below for details).

Requests to change the 1 February 2014 deadline mandated by EU law are occasionally, albeit erroneously, directed at the EPC. To give just one example: in his article, entitled: 'SEPA 2014 unrealistic - opinion', published in Asiamoney Plus on 22 March 2013, Chien Mi Wong states that the EPC "should give corporates, banks and public administrations more time to comply with the upcoming SEPA Regulation as underlying complexities continue to hinder its adoption. (...) In order to promote a smoother transition to SEPA, the EPC needs to set proper guidelines and staggered deadlines to when public administrations across the region should standardise their processes. And once this is achieved, the EPC can move to setting a deadline for the financial institutions to adopt the system ahead of corporates."

It has to be noted that the EPC is an international non-profit association that serves as the coordination and decision-making body of the European payments industry. The EPC develops, among other things, the SCT and SDD Schemes which help to realise the integrated euro payments market (see the link to 'About EPC' below.) The EPC is not an EU legislative body. More generally, the EPC is not part of the EU institutional framework. The EPC is therefore not in a position to change the 1 February 2014 deadline mandated with EU law. It is the view of the EPC that the legally binding migration deadline provides planning security to all market participants and should not be postponed.

National authorities responsible for enforcing the 1 February 2014 deadline must step up their communication efforts

On 21 March 2013 the European Central Bank (ECB) published its first SEPA Migration Report (see link below). According to the related ECB press release, the report "shows that most corporations have already completed the planning phase and know what SEPA will mean for them in practical terms. However, when it comes to the actual implementation, a number of companies have adopted very late internal deadlines, even as far as to the end of 2013. (...) More worryingly, Small and Medium Enterprises' (SMEs) and local public administrations' awareness of SEPA is still fragmented and the level of preparedness is rather poor." Article 10 of the SEPA Regulation details how this legislative act is to be enforced. It clarifies that EU Member States must designate the competent authorities responsible to ensure compliance with this Regulation (see link to European Commission Website below to see the list of designated authorities). The EPC calls on public authorities in the euro area responsible for enforcing the SEPA Regulation to significantly step up their communication efforts, with particular regard to SMEs and public administrations on the legal obligation to meet the 1 February 2014 deadline. These communication efforts should indeed be supported by the political drivers of the SEPA programme - such as EU governments - promoting EU integration. As demonstrated with the ECB SEPA Migration Report, this is a matter of urgency.

Late movers: learn to love SEPA

Organisations now working towards achieving compliance with the SEPA Regulation are invited to take advantage of the numerous resources offered by the banking industry and other service providers to support market participants during the transition. Relevant information is also made available with 'The EPC Migration Tool Kit'. In addition, the EPC offers best practice identified by early movers on the demand side who successfully completed migration to SCT and SDD (see links below).

Related links:

European Commission Press Release of 20 December 2011: 'Commissioner Michel Barnier welcomes agreement by Council [representing EU Member States] and Parliament establishing SEPA migration end-dates'

European Parliament Website: Ordinary Legislative Procedure

European Union Website: Regulations, Directives and Other Acts

EPC Website (30 March 2012): SEPA Regulation published in Official Journal of the European Union. This Regulation Effectively Mandates Migration to SEPA by 1 February 2014 in the Euro Area

EPC Blog (23 August 2012): Friendly Reminder: EU Law Mandates Migration to SEPA by February 2014 in Euro Area. Recommendation is to Rely on EU Legislator (Not on Speculations Regarding the Impact of the Euro Debt Crisis on SEPA) when Planning Migration. The Time to Act is Now

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

European Commission Website: Competent Authorities Responsible for Ensuring Compliance with Regulation (EU) No 260/2012 (Article 10)

European Central Bank Publishes First SEPA Migration Report and Warns Against Risks of Late Migration

The EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

Get Inspired: Seven EPC Blogs Highlighting Best Practice Identified by Early Movers on Demand Side Who Successfully Concluded Migration to SEPA Credit Transfer and SEPA Direct Debit

EPC Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers

EPC Website: About EPC

Vote on Future EPC Newsletter Topics! Which European Union Regulatory Action Impacting Euro Payments is Most Important to You?

Thu, 21 Mar 2013 11:01:01 GMT

The EPC launched the quarterly online EPC Newsletter (see links below) in January 2009 offering information on Single Euro Payments Area (SEPA) developments and EPC activities. The EPC is keen to ensure that this newsletter always meets the information needs of its readers. At the end of 2010, we asked with the EPC Newsletter reader survey: 'What information would you like to see more of?' (see links below to learn about the detailed findings of this survey). In July 2012, we invited readers to participate in an EPC Poll designed to identify the SEPA and EPC related topics covered in the EPC Newsletter and on the EPC Blog which were most relevant to them. This poll was open until the end of September 2012. The feedback received confirms the preferences which readers articulated previously: they are particularly interested in information on the SEPA Credit Transfer and SEPA Direct Debit Schemes, followed by news on political, regulatory and legal developments impacting the SEPA process (see links below to learn about the detailed results of this 2012 EPC Poll). We will therefore continue to regularly report on these topics.

To identify areas of particular interest with regards to relevant regulatory and legal developments, we launched the EPC Poll 'Vote on future EPC Newsletter topics! Which European Union regulatory action impacting euro payments is most important to you?' in January 2013. This poll will be open until mid April 2013. Please let us know which item listed in the poll matters most to you:

Proposal for a Regulation on electronic identification and trusted services for electronic transactions in the internal market: the proposal was published by the European Commission (the Commission) in June 2012. The legislative process leading to the adoption of this Regulation will probably take between one and two years.

Revision of the Payment Services Directive (PSD): the PSD, which was implemented by most European Union (EU) Member States by November 2009, is being reviewed by the Commission. Article 87 of the PSD requires the Commission to present a report on the implementation and impact of the Directive, together with proposals for its revision by November 2012. To date the Commission presented neither the report nor the proposal. In the meantime it has been suggested that the 'PSD2' proposals will be published before the summer of 2013, although it should be noted that this has not been officially confirmed.

Revision of the EU legal framework on the protection of personal data: the Commission Communication 'Safeguarding Privacy in a Connected World - a European Data Protection Framework for the 21st Century', published in January 2012, envisages the introduction of a single set of rules on data protection for the whole EU. Related proposals for legislative action are currently being considered by the European Parliament and the Council representing EU Member States.

SEPA governance review: Recital 5 of the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation) states that the Commission should "review the governance arrangements of the whole SEPA project before the end of 2012 and where necessary make a proposal. This review should examine, inter alia, the composition of the European Payments Council (EPC), the interaction between the EPC and an overarching governance structure, such as the SEPA Council, and the role of this overarching structure." The SEPA Council, which brings together representatives of both the demand and supply sides of the payments market including the EPC, was established by the Commission and the European Central Bank (ECB) in June 2010 (for information, refer to the links below). The proposal for a revised SEPA governance structure remains outstanding. It is now expected that the Commission will table a related communication before the summer of 2013.

ECB recommendations for the security of internet payments (SecuRe Pay): in January 2013, the ECB released a comprehensive set of 'Recommendations for the security of internet payments', following a two-month public consultation carried out in 2012. The related press release issued by the ECB on 31 January 2013 (see link below), comments: "The Recommendations represent the first achievement of the European Forum on the Security of Retail Payments (SecuRe Pay), a voluntary cooperative initiative between relevant authorities from the European Economic Area (EEA) - supervisors of payment service providers and overseers in particular - formed with the objective of facilitating common knowledge and understanding of issues related to the security of electronic retail payment services and instruments and, where necessary, issuing recommendations. Comments from 17 EU countries were received during the public consultation. The resulting harmonised, minimum security recommendations constitute an important set of guidelines in the fight against payment fraud and aim to increase consumer trust in internet payment services. The core recommendation is that the initiation of internet payments as well as access to sensitive payment data should be protected by strong customer authentication to ensure that it is a rightful user, and not a fraudster, initiating a payment."

For more information on the items listed in the poll, refer to the EPC Newsletter articles 'SEPA is Just a Piece in the Puzzle: Additional European Union Regulatory Initiatives Now in the Pipeline Will Have a Profound Impact on the Payments Market' and 'The 2013 Euro Payments Outlook: Communication by the European Commission on its Vision for SEPA 2.0 Remains Pending' (see links below).

Subject, in particular, to the Commission making available information on relevant EU dossiers in the pipeline, the EPC Newsletter will deliver additional information in line with readers' preferences identified with this poll. The next edition of the EPC Newsletter goes live at the end of April 2013.

In case you did not vote yet, please take a minute and participate in this poll!

Related links:

EPC Newsletter (January 2013): The 2013 Euro Payments Outlook: Communication by the European Commission on its Vision for SEPA 2.0 Remains Pending

EPC Newsletter (October 2012): SEPA is Just a Piece in the Puzzle: Additional European Union Regulatory Initiatives Now in the Pipeline Will Have a Profound Impact on the Payments Market

SEPA Council Page of the European Central Bank

European Central Bank Press Release (31 January 2013): 'ECB Releases Final Recommendations for the Security of Internet Payments and Starts Public Consultation on Payment Account Access Services'

EPC Newsletter: Articles Published in the Section 'Legal and Regulatory Issues'

EPC Newsletter (October 2012): Results EPC Newsletter Poll - Readers Confirm Strong Interest in SEPA Schemes and Regulatory Aspects Impacting SEPA

EPC Newsletter (July 2011): Your Points of View - What Our Readers Think of the EPC Newsletter

EPC Newsletter: Subscription is Free

The Long Road to Harmonisation: Transitional Arrangements in European Union Member States Permissible Under Regulation 260/2012 (the SEPA Regulation)

Thu, 07 Mar 2013 11:01:01 GMT

The European Union (EU) 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro', commonly referenced as the Single Euro Payments Area (SEPA) Regulation (see link below), effectively mandates migration to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) in the euro area by 1 February 2014. The SEPA Regulation provides certainty as to the timing of migration, which is an essential precondition to successful completion of the SEPA harmonisation exercise. At the same time, the SEPA Regulation - in an attempt to respond to a broad range of requests for flexibility articulated by various parties throughout the legislative process - has introduced several exemptions regarding the use of the International Bank Account Number (IBAN), the Business Identifier Code (BIC) and the ISO 20022 XML message standards by the February 2014 deadline. EU Member States have discretion as to whether they will use any or all of the options to derogate from the 1 February 2014 deadline with regard to the use of the IBAN, the BIC and the ISO 20022 XML message standards.

To recap three essential provisions of the SEPA Regulation:

Article 5 details the technical and business requirements that should be observed when carrying out euro credit transfer and direct debit transactions. These requirements relate, among other things, to the use of the IBAN, the BIC and the ISO 20022 XML message standards.
Articles 6 (1) and (2) stipulate that credit transfers and direct debits shall be carried out in accordance with the relevant requirements set out in Article 5 and in the Annex to the Regulation by 1 February 2014. (Article 16 (2) clarifies that non-euro countries will have to make the transition to SEPA by 31 October 2016.)
Article 16 permits individual EU Member States to extend the deadline for compliance with some of the regulation's provisions; i.e. use of the IBAN, the BIC and the ISO 20022 message standards, to 1 February 2016.

As highlighted in an earlier EPC Newsletter article on the impact of the SEPA Regulation on PSUs by Dermot Turing and Maria Troullinou (see link below), it is arguable that this attempt at flexibility breeds confusion and risks translating into a prolonged patchwork of national variations. The experience of SEPA pioneers on the demand side that have already successfully concluded the SEPA migration exercise indicates that the benefits arising from the migration are proportionate to the level of harmonisation achieved (see link to 'SEPA Case Studies' below). This is in line with the findings of a study carried out at the request of the European Commission (the Commission) in 2007, which demonstrates that the potential benefits are dependent on swift migration to harmonised SEPA payment schemes and technical standards by the demand and supply sides (see link to Capgemini study below).

Article 16 (7) of the SEPA Regulation states that EU Member States must notify the Commission by 1 February 2013 of the derogations that they intend to use. Albeit some EU Member States have yet to deliver this information, there is now at least more clarity in the market on which exemptions regarding use of the IBAN, the BIC and the ISO 20022 XML message standards will apply where.

IBAN and BIC: possible derogations from the February 2014 deadline by EU Member States

In accordance with Article 5 (1) (c) of the SEPA Regulation, payment service providers (PSPs) must ensure that PSUs (i.e. payers and payees) "use the payment account identifier specified in point (1) (a) of the Annex", namely the IBAN. A payee accepting credit transfers must communicate its IBAN and the BIC of its PSP, "but only where necessary", to its payers (see Article 5 (4)). Similarly, a payer wishing to make a payment by direct debit must communicate its IBAN and the BIC of its PSP, "but only where necessary" (see Article 5 (5)). The SEPA Regulation stipulates the timelines for application of the so-called 'IBAN only' rule. Article 5 (7) of the SEPA Regulation states: "After 1 February 2014 for national payment transactions and after 1 February 2016 for cross-border payment transactions, PSPs shall not require PSUs to indicate the BIC of the PSP of a payer or of the PSP of a payee."

Article 16 (6) however, provides that EU Member States have the option to defer application of the 'IBAN only' rule for national transactions to 1 February 2016. Moreover, the SEPA Regulation allows EU Member States to derogate from Articles 6 (1) and (2) by allowing PSPs to provide consumers with conversion services for national payment transactions, enabling them to continue using the national account identifier (Basic Bank Account Number - BBAN) instead of the IBAN until 1 February 2016 (see Article 16 (1)).

ISO 20022 XML message standards: possible derogations from the February 2014 deadline by EU Member States

Article 2 (17) of the SEPA Regulation defines the ISO 20022 XML message standard as "a standard for the development of electronic financial messages as defined by the ISO, encompassing the physical representation of the payment transactions in XML syntax, in accordance with business rules and implementation guidelines of Union-wide schemes for payment transactions falling within the scope of this Regulation." The 'implementation guidelines of Union-wide schemes' referred to in this definition would include, for example, the implementation guidelines published by the EPC with regard to the SCT and SDD Schemes, which are available on the EPC Website (see links to 'SEPA Credit Transfer' and 'SEPA Direct Debit' included with the 'EPC Migration Tool Kit' below). Article 5 (1) (d) of the SEPA Regulation states that PSPs "must ensure that where a PSU that is not a consumer or a micro-enterprise, initiates or receives individual credit transfers or individual direct debits which are not transmitted individually, but are bundled together for transmission, the message formats specified in point (1) (b) of the Annex are used." Point (1) (b) of the Annex to the SEPA Regulation specifies that such message formats are the ISO 20022 XML message standards.

Article 16 (5) of the SEPA Regulation allows EU Member States to waive the requirement to use the ISO 20022 message formats for PSUs that initiate or receive individual credit transfers or direct debits that are bundled together for transmission until 1 February 2016, except in cases where a PSU requests such a service.

European Central Bank makes available fact sheets on national implementation of the SEPA Regulation

The Commission indicated its intention to publish a list of derogations applicable at national level once all EU Member States have notified the Commission. As some EU Member States are lagging behind the 1 February 2013 notification deadline set out in Article 16 (7) of the SEPA Regulation, this list has not yet been posted on the Commission Website. The European Central Bank (ECB) Website however provides country-specific fact sheets on the transitional arrangements chosen by individual EU Member States; i.e. use of the possible derogations detailed above, based on information currently available (see link below). The ECB Website states: "This overview of 'national facts' will be updated and completed when new information becomes available."

Related links:

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

European Central Bank Website: Fact Sheets Providing Country-Specific Information Related to Regulation (EU) 260/2012 (the SEPA Regulation)

Capgemini: SEPA (2007): Potential Benefits at Stake. Researching the Impact of SEPA on the Payments Market and its Stakeholders

EPC Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers (Series Started April 2011)

The EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

Get Ready for SEPA by 1 February 2014 and Get Inspired: Early Movers on the Demand Side Identify Best Practice – Part II (SEPA Direct Debit)

Tue, 19 Feb 2013 11:01:01 GMT

This two part EPC Blog series highlights best practice identified by early movers on the demand side handling major payment volumes and who reported on their successfully completed Single Euro Payments Area (SEPA) migration projects in the EPC Newsletter (see link to 'SEPA Case Studies' below). Payment service users (PSUs) now working towards achieving compliance with the European Union (EU) 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation), are invited to take advantage of the advice shared by their peers. The SEPA Regulation effectively mandates migration to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) in the euro area by 1 February 2014. This blog focuses on lessons learnt by PSUs who have pioneered SDD implementation.

Electrabel GDF Suez:

"We are delighted to offer our customers SDD services!"

In Belgium, the energy company Electrabel GDF Suez provides energy solutions to 3.3 million residential, professional and industrial customers. The company is the biggest creditor in Belgium; it generates some 18 million direct debit payments annually. Electrabel GDF Suez implemented SCT in a step-by-step process, which was concluded in 2012. It migrated to SDD Core in 2011. When Electrabel GDF Suez and other early movers started collecting SDDs in December 2011, the Belgian SDD migration rate spiked from 2.6 to 19 percent. This peak reflects the fact that a high number of payments due quarterly, bi-annually or annually are collected in that month. As of June 2012, the Belgian SDD migration rate amounted to 15 percent. Electrabel GDF Suez represented 12 percent of these total 15 percent (i.e. about 80 percent of all SDDs).

Luc Waterlot, Financial Systems and Interfaces Manager at Electrabel GDF Suez Market & Sales and responsible for SDD implementation, comments:

Upgrade the existing IT architecture and enterprise resource planning (ERP) systems: "We implemented a new IT application with the SDD pilot, which started in January 2011, to migrate direct debit payments of business customers. Mass migration of all payments processed with our retail customers to the SEPA payments schemes and technical standards required, in addition, updating the existing ERP system."

The SDD timelines: "We had to specifically program our systems to ensure that the timelines mandated with the SDD Core Scheme are respected; i.e. to avoid that a recurrent collection is executed prior to the first collection. Based on the SDD Core timelines, the payer's bank must receive the request for a first direct debit collection or for a one-off direct debit collection at least five business days prior to the due date. For subsequent direct debit collections, the payer's bank must receive such a request at least two business days prior to the due date." (For more information on the SDD timelines, refer to the links below.)

The mandate reference: "In the Belgian legacy direct debit system, we were able to assign the same mandate reference when collecting direct debit payments resulting from several contracts with the same payer. Following migration to SDD, we use the existing mandate reference for direct debit collections related to one underlying contract with a business partner. We had to create new and additional mandate references for direct debit collections from the same business partner resulting from separate contractual agreements."

Transitioning to the 'creditor-driven mandate flow' model underlying SDD: In Belgium - and some other European countries - migration to SDD involves transitioning from a legacy national direct debit model based on the 'debtor-driven mandate flow' (DMF) to the 'creditor-driven mandate flow' (CMF). A mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer's bank to pay those collections. In the CMF model, the biller is responsible for storing the original mandate, together with any information regarding amendments relating to the mandate or its cancellation. In the DMF model however, the payer used to send the mandate to its bank. (For detailed information on CMF, refer to the links below). Consequently, legacy mandates issued by Electrabel GDF Suez customers had to be transferred from customers' banks to Electrabel GDF Suez so that the company could create a mandate database in-house.

Luc Waterlot, comments: "The transfer of data took place via a central mandate migration database held at the National Bank of Belgium. Obtaining accurate information with regard to 'historical' mandates held by banks throughout 20 or more years of mergers and acquisitions in the Belgian banking landscape proved particularly complex. The fact that Electrabel GDF Suez was the first major Belgian creditor to manage this exercise also meant that we could not take advantage of any experience by others." He emphasises: "Having mastered the mandate migration, I really would like to share this advice with every organisation that currently collects direct debits based on the DMF model and which has yet to implement SDD: they must plan for the extra effort of transferring mandate data from customers' banks and storing these. Billers in SEPA migrating to SDD who have traditionally stored the mandates issued by their customers will be spared this effort."

Luc Waterlot, concludes: "The fact that we are now managing mandates ourselves allows us to implement collection of payments based on new mandates faster. We have also received a very positive response from our customers who reside in Belgium but hold bank accounts in their country of origin. These customers are often affiliated with the many international organisations including the EU institutions headquartered in Brussels. We specifically approached these customers to alert them of the opportunity now provided with SDD to have their payments debited from their 'home' accounts. Likewise, Belgians residing abroad for a great part of the year such as retirees, for example, are able to make payments in Belgium from the bank account they hold abroad. Many of these customers actually make use of this option. We are therefore delighted to offer them SDD services."

Billers migrating to SDD: mind the impact of the SEPA Regulation with regards to mandate management

The SEPA Regulation (Article 7) states that any "valid payee authorisation to collect recurring direct debits in a legacy scheme prior to 1 February 2014 shall continue to remain valid after that date and shall be considered as representing the consent to the payer's [payment service provider] PSP to execute the recurring direct debits collected by that payee in compliance with this Regulation in the absence of national law or customer agreements continuing the validity of direct debit mandates." This provision therefore ensures that existing mandates under the SDD Core Scheme continue to remain legally valid, thereby greatly contributing to facilitating the migration by bank customers to the SDD Scheme.

Article 5 (3) (d) of the SEPA Regulation empowers a payer to be able to instruct its PSP to take the following actions in respect of direct debit collections:

To limit a direct debit collection to a certain amount or periodicity or both.
To verify each direct debit transaction and to check whether the amount and periodicity of the submitted direct debit transaction is equal to the amount and periodicity agreed in the mandate (where the mandate under the relevant payment scheme does not provide for the right to a refund) before debiting their payment account, based on the mandate-related information.
To block any direct debits to the payer's payment account, or to block or authorise any direct debits initiated by one or more specified payees.

TUI Travel PLC:

"With SDD Business to Business in place, there are now plenty of opportunities for TUI Travel A&D to further enhance its treasury management."

UK based TUI Travel PLC is one of the world's leading leisure travel companies, employing approximately 53,000 people and operating in over 180 countries with more than 30 million customers. Its business is grouped into four sectors, Mainstream, Accommodation & Destinations, Specialist & Activity and Emerging Markets. As a part of TUI Travel, the Accommodation & Destinations (A&D) sector has a Finance Service Centre (FSC) providing back office services based in Mallorca, Spain. The FSC trades with over 24,000 customers and 25,000 suppliers in over 80 countries. The TUI Travel A&D's FSC wanted to rationalise its banking relationships globally and fully automate its treasury and ERP integration in order to standardise internal processes and improve working capital liquidity. Migration to the SCT and SDD Business to Business (B2B) Schemes was an important part of this project. The company completed migration to SCT in 2010 and migration to SDD B2B in February 2012.

TUI Travel A&D opted for the SDD B2B Scheme using a banking solution for File SAP iDOC with a collection account held in London. This went live in February 2012. The collections are made into the Spanish entity TUI Travel A&D's FSC's account held in London which is linked to the company's centralised liquidity structure. TUI Travel A&D chose the SDD B2B Scheme (see links below) because of its ability to manage customer disputes. The scheme states that payers can claim back funds collected up to 13 months if done without a mandate and that payers have no entitlement to a refund of an authorised transaction. TUI Travel A&D worked closely together with its banking partner to ensure that the technical requirements for SDDs were followed, legal aspects were covered and that there was a shared understanding of the technical and business imperatives.

The creditor identifier: During implementation, TUI Travel A&D was able to obtain its unique creditor identifier with a 48 hour turnaround. This provided a huge time saving for TUI Travel A&D. Billers collecting payments under the SDD Schemes are obliged to obtain a creditor identifier which relates to a legal entity, or an association that is not a legal entity, or a person assuming the role of the biller. The SDD Rulebooks refer to the biller as the 'creditor'. The creditor identifier, in connection with the mandate reference, allows the payer and the payer's bank to verify each SDD payment and to process or reject the direct debit according to the payer's instructions. Billers have to request this identifier according to local practice. Normally, billers receive their SEPA creditor identifier from their bank once the biller starts collecting payments under the SDD Scheme. (For more information on the creditor identifier, refer to the links below).

Jordan Castellarnau, Treasury Manager in the FSC within TUI Travel A&D, confirms: "With SDD B2B in place, there are now plenty of opportunities for TUI Travel A&D to further enhance its treasury management."

UNIQA Group Austria:

"SEPA is an excellent and necessary idea. It should be kept in mind however that the dimensions of the SEPA migration project are comparable to those associated with the transition to the euro currency a decade ago."

UNIQA Group Austria, which is one of the leading insurance groups in Central and Eastern Europe, services some 7.5 million customers in 21 regional markets. In Austria alone, the group processes approximately five million credit transfers with a volume of some 3,500 million euros and 20 million direct debits with a volume of some 4,200 million euros annually. The company started its SEPA migration project at the beginning of 2008. The project covered transition to both the SCT and the SDD Schemes. Thomas Weissmann, Project Manager with the group, comments: "There are two main benefits for UNIQA Group Austria associated with SEPA implementation: firstly, migrating to the harmonised SEPA payment schemes allows for more efficient account reconciliation; secondly, being able to collect direct debits throughout Europe using the harmonised SDD Schemes is also a principal advantage for us. In our opinion, SEPA implementation is an excellent and necessary idea to harmonise and simplify the extremely different payment systems existing throughout Europe today. The initiators of the SEPA process and the professionals involved in realising this initiative deserve our respect and our great compliments."

The UNIQA Group Austria SEPA migration experience also reflects the most important lesson learnt by all businesses, government agencies and public administrations who reported on their SEPA migration projects in the EPC Newsletter since April 2011: the scope of the changes is substantial. In the October 2011 edition of the EPC Newsletter, Thomas Weissmann pointed out: "From a project management perspective, the transition to SEPA is comparable to the introduction of the euro." Consequently, these SEPA pioneers unanimously recommended that organisations which still have to achieve SEPA compliance become active as soon as possible. Since October 2012, the EPC has alerted market participants that this is no longer a recommendation but an imperative; i.e. there is no time to procrastinate further. In the January 2013 edition of the EPC Newsletter, Luc Waterlot of Electrabel GDF Suez stated: "Migration to SCT and SDD is feasible, manageable and beneficial. Preparation, however, is everything and time is of the essence. Any organisation which still needs to adapt systems and operations in line with the SEPA payment schemes and standards must act now at the very latest or risks missing the 1 February 2014 deadline."

There is only Plan A: market participants in the euro area are under the legal obligation to achieve compliance with the SEPA Regulation by February 2014.

Related links:

EPC Blog (7 February 2013): Get Ready for SEPA by 1 February 2014 and Get Inspired: Early Movers on the Demand Side Identify Best Practice - Part I

EPC Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers (Series Started April 2011)

EPC Blog Series (Parts I-V) (February to May 2012): Get Ready for SEPA by February 2014. Early Movers on the Customer Side Share Lessons Learnt

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

EPC Newsletter (April 2011): SEPA Direct Debit for Billers: The SDD Mandate

EPC Newsletter (July 2011): SEPA Direct Debit for Billers: the Creditor Identifier (Go Get It!)

EPC Newsletter (October 2011): SEPA Direct Debit for Billers: the SDD Core Scheme Timelines

EPC Newsletter (January 2012): SEPA Direct Debit for Billers: the SDD Business To Business Scheme Timelines

EPC Newsletter (April 2012): SEPA Direct Debit for Billers: Exception Handling

EPC Website: The Creditor-Driven-Mandate Flow (CMF)

EPC Website: SEPA Direct Debit (SDD Core)

EPC Website: SEPA Direct Debit Business to Business (SDD B2B)

The EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

Get Ready for SEPA by 1 February 2014 and Get Inspired: Early Movers on the Demand Side Identify Best Practice – Part I

Thu, 07 Feb 2013 11:01:01 GMT

In April 2011, the EPC Newsletter launched the series reporting on the Single Euro Payments Area (SEPA) migration experience of individual businesses, public administrations and government agencies, which have successfully implemented SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) (see link to 'SEPA Case Studies' below). At the start of 2012 we published the first EPC Blog series summarising lessons learnt by these SEPA pioneers (see link below). Payment service users (PSUs) handling major payment volumes now working towards achieving compliance with the European Union (EU) 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation) are invited to take advantage of the advice shared by their peers. The SEPA Regulation effectively mandates migration to SCT and SDD in the euro area by 1 February 2014. This and the next EPC Blog deliver a 'best of best practice' identified by early SEPA movers on the demand side.

Late movers: act now at the very latest!

The January 2013 edition of the EPC Newsletter features a report on the SEPA migration experience of the Belgian energy company Electrabel GDF Suez. The company processes some 1.8 million credit transfers with an approximate volume of 360 million euros annually. Electrabel GDF Suez is also the biggest creditor in Belgium collecting some 18 million direct debits with a volume of approximately 2,600 million euros annually. This company implemented SCT in a step-by-step process, which was concluded in 2012. It migrated to SDD Core in 2011. Luc Waterlot, Financial Systems and Interfaces Manager at Electrabel GDF Suez Market & Sales and responsible for SDD implementation, comments: "Migration to SCT and SDD is feasible, manageable and beneficial. Preparation, however, is everything and time is of the essence. The scope of the changes is extensive. At this point, it also needs to be taken into consideration that the migration approach adopted by Electrabel GDF Suez, i.e. migration to SCT first followed by migration to SDD, is no longer an option." Organisations that use credit transfers and direct debits and that are only now launching the migration project, will have to manage migration to both SCT and SDD in parallel within the next twelve months. Luc Waterlot states: "Any organisation which still needs to achieve SEPA compliance should act now at the very latest or risks missing the 1 February 2014 deadline." Market participants in the euro area should note that failure to comply with the core provisions of the SEPA Regulation by this deadline risks infringing on EU law.

Appoint a dedicated SEPA implementation team

Anneli Seppälä, the Payment Processing Manager of Kela, the Social Insurance Institution of Finland, recalls: "In October 2007, we set up a dedicated work team of our payment experts to analyse which changes would be required within the organisation in order to migrate to SEPA. This research also identified the staff to be appointed to the Kela SEPA implementation team. Based on this analysis, we developed a very specific project plan which led to the start of the actual Kela SEPA project in May 2008." Kela disburses payments to the majority of the Finnish population. The institution manages more than one hundred different types of benefits and compensation schemes. The annual value of benefits and compensations amounted to approximately 12.2 billion euros in 2010. Kela makes some 33.3 million payments annually, which include 250,000 cross-border payments. The organisation sent its first SCT payments in May 2009. In 2010, Kela disbursed some 21.6 million SCTs and concluded its migration project at the end of this year. Anneli Seppälä stresses that to ensure efficient project management, "it proved very important to have a full time SEPA project coordinator."

Luc Waterlot of Electrabel GDF Suez adds: "We set up a dedicated SEPA implementation team including members of our business and IT as well as the marketing, sales, legal, and finance and treasury departments. It is really important to understand that SEPA implementation impacts an organisation at all these levels. Successful project management therefore requires appointing a team to coordinate the process. The Electrabel GDF Suez SEPA team included some thirty members. The project required one year of full time work by ten team members and part time contribution from an additional twenty team members subject to area of expertise."

Get ready for the International Bank Account Number (IBAN) and the Business Identifier Code (BIC)

The SEPA Regulation includes detailed provisions on the use of both IBAN and BIC by payers and payees. SEPA project managers unanimously stress the need for careful planning when preparing the transition to IBAN and BIC. They also highlight the importance of thorough testing prior to making the move in the live environment. To give an example: Deutsche Post Pension Service Business Division disburses 25 million pension payments per month on behalf of the public German retirement scheme, to retirees residing in Germany and abroad. The division started its SEPA migration project in early 2009 and essentially completed the process in June 2011. Stefan Scheidgen, Head of Cash Management and Accounting at Deutsche Post Pension Service Business Division, comments: "We managed the conversion of the account information in two steps: firstly, in the fall of 2009, all bank account related data was automatically converted and validated using tools developed by the German banking industry and recommended by Bundesbank [central bank of the Federal Republic of Germany], such as the 'IBAN-Service-Portal' and the 'SEPA Account Converter'. In a second step, we verified and tested the converted data with every bank and group of banks with whom we cooperate. In fact, prior to migration in the live environment, each future SCT payment was run through multiple test phases. Thanks to the great performance of our migration team and the support of cooperating banks, we were able to ensure a very high level of quality (about 99.99 percent) in the process of converting account data to IBAN and BIC."

Adapt to the usage of the ISO 20022 XML message standards

The SEPA Regulation states that payment service providers (PSPs) must ensure that where a PSU "that is not a consumer or a micro-enterprise, initiates or receives individual credit transfers or individual direct debits which are not transmitted individually, but are bundled together for transmission, the message formats specified in point (1)(b) of the Annex are used". Point (1)(b) of the Annex to the SEPA Regulation clarifies that the message formats referred to are the ISO 20022 XML message standards. Article 16 (5) of the SEPA Regulation, however, allows EU Member States to waive the requirement to use the ISO 20022 message formats for PSUs until 1 February 2016. PSUs will therefore have to make arrangements to adapt to the usage of ISO 20022 XML message standards in the customer-to-bank space in relation to files of payment transactions. Luc Waterlot of Electrabel GDF Suez points out: "Migration to SCT and SDD included aligning the tool used to communicate with our banking partner with the ISO 20022 XML file formats. This was done using software programs developed by our enterprise resource planning (ERP) software provider. These programs are based on the implementation guidelines related to the SCT and SDD Schemes made available by the EPC. In the testing phase, one must consider the inter-dependency of systems on both sides in the customer-to-bank communication."

Migration to SEPA pays off

Early movers on the customer side who reported on their migration experience in the EPC Newsletter concur that migration to SEPA pays off. To give an example: the ceramics manufacturing company Villeroy & Boch headquartered in Germany and represented in 125 countries around the world, decided in 2007 to implement SCT as the first step in the process. This project was concluded in 2008. The group implemented the SDD Core and the SDD Business to Business Schemes in the second stage. This project was launched in 2010 and was completed in 2011. Villeroy & Boch processes approximately 175,000 credit transfers with a volume of 310 million euros and 25,000 direct debits with a volume of 75 million euros annually. Dr Markus Warncke, Group Financial Controller at Villeroy & Boch, comments: "The SCT and SDD Schemes work very well for us. Our figures demonstrate that the benefits resulting from migration to the SEPA Schemes and standards exceeded the investment in the first year alone. In line with our expectations, we were able to streamline internal processes, lower IT costs, reduce costs based on bank charges and consolidate the number of bank accounts and cash management systems. In addition, we could further centralise our cash management. The fact that there is now one harmonised SDD Scheme, which allows collecting payments throughout Europe, is also a major advantage. We realised significant efficiency gains from the implementation of the ISO 20022 message standards. The reality is that the benefits of an integrated euro payments market outweigh the short-term efforts to get there."

The steps described above are the same with regards to the implementation of both the SCT and SDD Schemes. Some of the specific requirements to be observed with regard to SDD implementation relate to, for example, mandate management, the time cycle and exception handling. Best practice identified by early movers on the demand side who completed migration to SDD Core and SDD Business to Business will be highlighted in the next EPC Blog. Detailed information is already available with 'The EPC Migration Tool Kit' (see links below).

Related links:

EPC Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers (Series Started April 2011)

EPC Blog Series (Parts I-V) (February to May 2012): Get Ready for SEPA by February 2014. Early Movers on the Customer Side Share Lessons Learnt

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 EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

There is Only Plan A: Get Ready for SEPA in the Next Twelve Months in the Euro Area! Latest Data Shows Good Progress in the Corporate Sector Now Preparing for the 1.2.2014 Deadline

Wed, 23 Jan 2013 11:01:01 GMT

Are you excited yet? After more than a decade of the Single Euro Payments Area (SEPA) in the making, this most ambitious European Union (EU) integration project in the area of electronic euro payments will become a reality in the next twelve months. As reported on many previous occasions: the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation) effectively mandates migration to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) by 1 February 2014 in the euro area. Since the EU lawmaker adopted the SEPA Regulation in February 2012, the focus has been on alerting payment service users (PSUs), in particular those handling major payment volumes, on the need to achieve compliance with this legislative act. Latest available survey data indicates that good progress has been achieved by the corporate sector now preparing for the 1 February 2014 deadline.

In December 2012, Steria published the freely available report ‘SEPA: Will European Businesses be Ready for the Transformation?' (see links below), which was prepared in collaboration with Edgar, Dunn & Company. The report focuses on corporate SDD readiness. The findings are based on a phone survey of 300 businesses with 250 to 5,000 employees in France, Germany and the UK and more than 15 in-depth interviews among large corporates and payments experts in Europe. Businesses in the UK, a non euro country, will have to comply with the SEPA Regulation by 31 October 2016. Responses related to three specific aspects relevant to SEPA migration showed:

SEPA end date set to February 2014: almost 80 percent of the businesses surveyed knew that the migration to SEPA needs to be completed by 2014 in the euro area. While more than 75 percent of UK businesses did not know the deadline to migrate, more than 85 percent of French and German businesses were aware of the 2014 deadline.
New bank details with Business Identifier Code (BIC) and International Bank Account Number (IBAN): 70 percent of the businesses surveyed knew that they will need to use new bank identifiers for direct debits and credit transfers in the first stage of SEPA. When the ‘IBAN-only' rule (Article 5 (7) of the SEPA Regulation) comes into force, businesses will only need to take into account the IBAN.
New ISO20022 message format: almost half of businesses surveyed were aware of the need to implement a new message format for SEPA transactions.

The Steria report also found that at the time of the survey, 31 percent of businesses issuing direct debits had migrated or were in the process of migrating to SDD (42 percent in Germany, 35 percent in France, 3 percent in the UK). The SDD migration process was overall more advanced for larger businesses when including the assessment phase and the migration. Despite the fact that, at the time, 30 percent of French and German businesses had not initiated activity to migrate to SEPA, all French businesses issuing direct debits and a large majority of German businesses issuing direct debits (85 percent) stated that they will be SEPA compliant by 1 February 2014.

Also in December 2012, EuroFinance published the results of its survey, entitled: ‘Countdown to SEPA - How ready are corporates for the February 2014 compliance deadline?' (see links below). A total of 273 finance and treasury professionals responded to the five questions asked within the survey, which was sent out on 27 November 2012. With regard to the question ‘What is the current status of your company's SEPA project?', respondents based in SEPA indicated the following:

Not started: 12 percent.
Evaluating options / planning: 29 percent.
Planning, teams and budgets in place: 11 percent.
Project underway and behind schedule: 4 percent.
Project underway and on schedule: 18 percent.
Basic SEPA compliance achieved and no further action planned: 12 percent.
Basic SEPA compliance achieved and now seeking further efficiency: 15 percent.

This data indicates significant progress has been achieved to create awareness among corporates on the legal obligation to comply with the core provisions of the SEPA Regulation by 1 February 2014 in the euro area. It has to be recognised however that 21 percent of corporate direct debit users surveyed by Steria in France, Germany and UK in 2012 had never heard of SEPA; and 31 percent of respondents to the EuroFinance survey located in SEPA stated that they did not know exactly what will be required for their companies to be SEPA compliant. Efforts must therefore continue to engage late movers in the process and educate on how to adapt systems and operations in line with the SEPA Regulation.

There is only Plan A and this means that there is no time to procrastinate further: failure to comply with the core provisions of the SEPA Regulation by the February 2014 deadline risks infringing on EU law. The EPC makes available comprehensive information to help market participants manage the transition. These sources are included with the links at the end of this blog (refer to the ‘EPC Migration Tool Kit'). The next edition of the free online EPC Newsletter to be published end January 2013 provides more information on progress of SEPA roll out and best practice identified by early movers on the demand side who successfully completed migration to SCT and SDD.

Related links:

The 2013 Euro Payments Outlook: Reflections on the Merit of European Union Regulatory Action Aimed at Promoting Integration, Competition and Innovation

Wed, 09 Jan 2013 11:01:01 GMT

Robert C. Gallagher, former director of the U.S. football (not soccer) team Green Bay Packers, famously remarked: "Change is inevitable - except from vending machines". As far as payments are concerned, there is plenty of evidence supporting this statement. Sparing you the details of my frequent encounters with vending machines dispensing neither change nor coffee, I refer instead to the EPC Newsletter article, entitled: "SEPA is Just a Piece in the Puzzle: Additional European Union (EU) Regulatory Initiatives Now in the Pipeline Will Have a Profound Impact on the Payments Market" (see links below).

Principal EU regulatory initiatives impacting payments in progress

In this EPC Newsletter article, the authors Dermot Turing and Maria Troullinou argue that when taking a close look at the broader picture, it becomes clear that the European Commission (the Commission) is determined to drive forward its vision of an integrated, efficient and stable euro payments market through regulatory action. The reforms currently carried out at EU level will have a major impact on payment service providers. According to the authors, chances are that the measures outlined in this article are only the beginning of an era which will see further regulatory changes affecting the industry. For better or for worse, they state, the Commission does reveal a sense of direction in shaping the payments market through "a comprehensive approach based on a new mix of self-regulation, regulation and competition enforcement", as stated by Joaquín Almunia, Vice President of the Commission responsible for Competition Policy, in his speech, entitled: ‘A fair and open system for payments in the Single Market' (14 December 2011). The authors conclude: European payments regulation is a moving target. The principal dossiers currently being progressed by the Commission, which will have a significant impact on the euro payments market, include the following:

The Green Paper ‘Towards an integrated European market for card, internet and mobile payments' was published in January 2012. It is expected that the Commission will announce next steps in the coming months. To view the EPC response to the Green Paper, refer to the links below.

The 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 (see links below), that came into force on 30 March 2012 tasks the Commission to review the Single Euro Payments Area (SEPA) governance arrangements. It is expected that the Commission will table a related communication early 2013.

The Payment Services Directive (PSD) is being reviewed by the Commission. Article 87 of the PSD requires the Commission to present a report on the implementation and impact of the Directive, together with proposals for its revision. It has been suggested that the PSD2 proposals will be published in the spring of 2013, although it should be noted that this has not been officially confirmed.

The proposal for a Regulation on electronic identification and trusted services for electronic transactions in the internal market was published in June 2012. The legislative process leading to the adoption of this Regulation will probably take between one and two years.

The EPC Newsletter article cited covers a host of additional regulatory initiatives now in the pipeline which will impact the financial services sector.

Be aware of ‘innovacompegration' (this is not a typo)

According to the Commission, these initiatives are aimed at promoting market integration, improving efficiency, increasing security and transparency, as well as strengthening financial stability in the EU, while at the same time fostering innovation and increasing the competitiveness of the EU economy. These are noble aspirations which deserve everyone's full support. The question however, remains whether EU regulatory action is the adequate means to all these ends.

On market integration: the integration of the national euro payment markets into a single European one is a process that would have never occurred spontaneously. It requires the political will and mandate to achieve it. It is therefore the task of the European legislator to set the legal and regulatory conditions required to conclude this market integration exercise. The EU lawmaker met this objective with the adoption of Regulation (EU) No 260/2012, which effectively establishes mandatory deadlines for migration to SEPA Credit Transfer and SEPA Direct Debit. SEPA - or integration - is however not an end in itself. It is an interim stage that should not be judged on the direct outcomes, but on the situation it leaves for the market to reap further benefits. SEPA is a seed rather than a fruit.

On competition: cross-border competition in the European payments market will take time to materialise, even once migration to the single set of SEPA payment schemes is completed. The removal of national barriers in the payments market will bring value, but not as much as expected or as quickly as desired. It will take time to change ingrained payment habits on both the demand and supply sides. Payments continue to rely on proximity effects: merchants prefer to bank with a nearby institution they can contact easily; consumers still open accounts based on closeness to their home or work and where staff speak their language. Even large corporations make similar considerations when searching for solutions that best meet their needs. Consequently, they will regularly choose large banks with an overlapping footprint in the markets where both are present. The most ambitious EU integrator will not change the fact that payment habits and business models on both the demand and supply sides will only change gradually once SEPA is a reality.

On innovation: Günther Gall, EPC Vice Chair and a banker with more than forty years of experience in managing all aspects of payments, identified the main factors fostering innovation in the EPC Blog, entitled: ‘What Drives Innovation in Payments? EPC Invites European Authorities to Take the Market Perspective into Consideration' (see links below). These factors are, among others: (1) there must be market demand for the solution; (2) there must be a business case for providers to develop a new solution; (3) the solution must be convenient and easy to use for the customer, especially in payments. He commented: "Documents published by the EU regulators, addressing innovation in payments, do not reflect any of the items listed above; views articulated by the regulators on the subject may therefore risk overlooking the most important factors driving forward innovation in the marketplace. From the perspective of payment service providers active in the market, regulation risks stifling innovation and standardisation initiatives led by market participants. Regulation is also not suited to keeping pace with the fast evolution of technology, fraud and market developments. As a matter of principle, any regulatory action should be technology-neutral. Regulatory intervention should not undermine the innovative capacity of the European payment sector and its competitiveness in the global marketplace."

As observed on earlier occasions: EU regulatory action in the area of payments should be restricted to and focus on integration, not on ‘innovacompegration'. Experience demonstrates that the most successful innovations materialise if the market is simply allowed to generate forward-looking payment solutions in response to customer demand. It would be welcomed if the Commission would take this market reality into consideration when determining the need for further EU action in the area of payments.

Follow the EPC on Twitter in January 2013 to receive more information on EU regulatory action impacting payments and links to relevant sources.

Related links:

EPC Newsletter (October 2012): SEPA is Just a Piece in the Puzzle: Additional European Union Regulatory Initiatives Now in the Pipeline Will Have a Profound Impact on the Payments Market

EPC Newsletter: Articles Published in the Section ‘Focus: On Integration and Innovation'

EPC Blog (September 2012): What Drives Innovation in Payments? EPC Invites European Authorities to Take the Market Perspective into Consideration

EPC Blog (May 2012): More EU Action Impacting Payments in the Pipeline? EPC Responds to the European Commission Green Paper on Card, Internet and Mobile Payments

EPC Newsletter (April 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

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

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

EPC Website: SEPA Legal and Regulatory Framework

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

SEPA Credit Transfer and SEPA Direct Debit Rulebooks: Next Scheme Change Management Cycle Takes Place in 2014. Rulebooks to be Published in November 2014 Will Take Effect in November 2015

Tue, 18 Dec 2012 11:01:01 GMT

The Single Euro Payments Area (SEPA) payment schemes, as set out in the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Rulebooks, evolve based on a transparent change management process adhered to by the EPC. This evolution reflects changes in market needs and updates of technical standards developed by international standards bodies, such as the International Organization for Standardization (ISO). The principles governing the evolution of the SEPA Schemes are set out in section three of the SEPA Scheme Management Internal Rules (see links below). Based on the established scheme change management and rulebook release cycle, the EPC publishes updated versions of the rulebooks and associated implementation guidelines (IGs) once annually in November of each year. These updated versions normally take effect in the third week of November of the following year aligned with the SWIFT (Society for Worldwide Interbank Financial Telecommunication) release date. In accordance with industry best practice, payment service providers and their suppliers therefore have sufficient lead time to address rulebook updates prior to such changes taking effect.

SCT and SDD Rulebook versions published in November 2012 take effect on 1 February 2014

In November 2012, the EPC published the SCT Rulebook version 7.0, the SDD Core Rulebook version 7.0 and the SDD Business to Business (B2B) Rulebook version 5.0 (see previous EPC Blog post / links below). Based on the established release management cycle, the updated versions of the rulebooks published in November 2012, would normally take effect on 16 November 2013. SEPA stakeholders in the euro area however, are currently working towards achieving compliance with the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation), which 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 SCT and SDD. As a result, and as previously communicated, the EPC decided to postpone the effective date for the SCT Rulebook version 7.0, the SDD Core Rulebook version 7.0 and the SDD B2B Rulebook version 5.0 and associated IGs, from 16 November 2013 to 1 February 2014. This allows market participants sufficient time to adapt their systems and operations to comply with both the SEPA Regulation and the updated versions of the rulebooks. Organisations, which still have to adapt systems and operations to achieve compliance with the SEPA Regulation by 1 February 2014, should become active immediately. The relevant actions and resources should be identified now. The EPC makes available comprehensive information to help market participants manage the transition. These sources are included with the 'related links' below (refer to the 'EPC Migration Tool Kit').

The next scheme change management cycle takes place with the publication of new rulebook versions in November 2014. These rulebook versions will take effect in November 2015.

Based on the established scheme change management cycle, the EPC would normally publish the next version of the rulebooks, i.e. the SCT Rulebook version 8.0, the SDD Core Rulebook version 8.0 and the SDD B2B Rulebook version 6.0, in November 2013 to take effect in November 2014. This would however force stakeholders to update systems and operations twice within one year considering that the rulebook versions published in November 2012 will take effect on 1 February 2014.

To avoid duplication of costs and efforts within one year and to provide planning security to all stakeholders based on stable rulebook versions in the period following migration to SCT and SDD in the euro area, the EPC decided in December 2012 to postpone publication of the next generation rulebooks (SCT Rulebook version 8.0, SDD Core Rulebook version 8.0 and SDD B2B Rulebook version 6.0) and associated IGs to November 2014. These rulebook versions will then take effect in November 2015.

The process leading to publication of new rulebook versions will therefore roll out at the start of 2014.

SEPA Regulation empowers European Commission to amend the technical requirements applicable to SCT and SDD

The EPC is committed to adhering to a scheme change management and rulebook release management process, which provides all SEPA stakeholders with sufficient lead time to implement any changes to the rulebooks and IGs. It has to be kept in mind however, that the SCT and SDD Schemes have to comply with the technical requirements detailed in Article 5 and in the Annex to the SEPA Regulation. Article 13 of the SEPA Regulation empowers the European Commission (the Commission) to amend the technical requirements set out in the Annex to the Regulation through delegated acts (see also Article 14). For detailed information on this subject, refer to the EPC Newsletter article ‘The New European Decision-Making Landscape: How the European Commission Rules Through Delegated Acts' (see links below). It remains the EPC's objective to ensure that the SCT and SDD Rulebooks evolve in response to proven market needs, based on a predictable release schedule. The EPC must, however, clarify that moving forward; the EPC may be required to adapt the rulebook release schedule at short notice to ensure compliance with technical requirements set out in the Annex to the SEPA Regulation as amended by the Commission.

To date, the Commission has not indicated that it intends to amend the Annex to the SEPA Regulation prior to November 2015.

Related links:

SEPA Credit Transfer Rulebook Version 7.0, SEPA Direct Debit (SDD) Core Rulebook Version 7.0, SDD Business to Business Rulebook Version 5.0 and Associated Implementation Guidelines to Take Effect on 1 February 2014 Published

Fri, 30 Nov 2012 11:01:01 GMT

The EPC released updated versions of the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Rulebooks and associated implementation guidelines (IGs) to take effect in February 2014 (see links below). The IGs related to the SCT Rulebook version 7.0, the SDD Core Rulebook version 7.0 and the SDD Business to Business (B2B) Rulebook version 5.0 published in November 2012, are based on the 2009 version of ISO 20022.

The annual EPC scheme change management process is based on the following principles:

Any stakeholder may introduce suggestions for changes to the SCT and SDD Rulebooks.

All suggestions for changes to the rulebooks are evaluated by the EPC Single Euro Payments Area (SEPA) Payment Schemes Working Group (SPS WG) and are consolidated into a single change request per rulebook. This year, the change requests were released on 16 May 2012 for the annual three-month public consultation.

Proposed changes detailed in the change requests, which are broadly accepted by all stakeholders, are taken forward.

Together with the SCT Rulebook version 7.0, SDD Core Rulebook version 7.0 and SDD B2B Rulebook version 5.0, the EPC published the feedback received from stakeholders during the 2012 public consultation on the evolution of the schemes (see links below).

Rulebooks have been aligned with the SEPA Regulation which defines mandatory deadlines for migration to SEPA

The European Union (EU) ‘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), 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 SCT and SDD. The SCT and SDD Schemes have to comply with the technical requirements detailed in Article 5 and in the Annex to the SEPA Regulation (see links below). The wording of the SCT Rulebook version 7.0, the SDD Core Rulebook version 7.0 and the SDD B2B Rulebook version 5.0 has been aligned where necessary with the SEPA Regulation.

The SEPA Regulation stipulates the timelines for application of the so-called ‘International Bank Account Number (IBAN) only' rule. This provision is relevant for both payment service providers (PSPs) and payment service users (PSUs). Article 5 (7) of the SEPA Regulation, states: "After 1 February 2014 for national payment transactions and after 1 February 2016 for cross-border payment transactions, PSPs shall not require PSUs to indicate the BIC [Business Identifier Code] of the PSP of a payer or of the PSP of a payee." Article 16 (6) however, provides EU Member States with the option to defer application of the ‘IBAN only' rule for national transactions to 1 February 2016.

The updated versions of the SDD Rulebooks have been amended to make it optional to provide the BIC of the payer's bank with the mandate except if the mandate is issued in an EU Member State which opts to make use of the derogation permissible under Article 16 (6) with regard to national transactions. The updated version of the SCT Rulebook was also amended to specify that the BIC has to be provided in line with the provisions of the SEPA Regulation.

New elements introduced into the SCT Rulebook

To further improve straight-through-processing (STP) of SCT payments, the SCT Rulebook version 7.0 includes two additional reject reason codes which specify why a SCT payment was not accepted:

Originator bank not registered under this BIC with the clearing and settlement mechanism (CSM).

Beneficiary bank not registered under this BIC with the CSM.

New elements introduced into the SDD Rulebooks

The SDD Core Rulebook version 7.0 and the SDD B2B Rulebook version 5.0 have been amended to make the provision of the payer's address optional with a paper-based mandate, the dematerialised mandate as well as with e-mandates and with the optional Advance Mandate Information (AMI) procedure. The SDD Core Rulebook version 7.0 and the SDD B2B Rulebook version 5.0 have been updated to clarify that, subject to national legal regime, it is permissible to store mandates in digitised form and the use of electronic signatures is allowed under the SDD Schemes. As was done for the SCT Rulebook version 7.0 (see above), the updated versions of the SDD Core and SDD B2B Rulebooks have been enhanced to include these two additional reject reason codes:

Debtor bank not registered under this BIC with the CSM.

Creditor bank not registered under this BIC with the CSM.

In addition, the SDD Core Rulebook version 7.0 was amended to include a specific scheme rule in case of a card data generated mandate (CDGM) as per the SEPA Regulation's Article 5 in conjunction with its Annex paragraph 3 (a)(iv): "In case of a mandate generated using data from a payment card at the point of sale which results in a direct debit to and from a payment account, and where the name of the Debtor is not available, the attribute ‘name of Debtor' must be filled in with ‘CDGM', followed by the card number, the sequence number and the expiry date of the card or, if these data elements are not available, by any other data element(s) that would uniquely identify the Debtor to the Debtor Bank."

The rulebook versions and associated IGs published in November 2012 take effect on 1 February 2014

To ensure planning security for all market participants, publication of updated versions of the SCT and SDD Rulebooks, together with the associated IGs, follows an established change and release management cycle. The EPC publishes updated versions of the rulebooks once annually, in November of each year. These updated versions normally take effect in the third week of November of the following year. In accordance with industry best practice, PSPs and their suppliers therefore have sufficient lead time to address rulebook updates prior to such changes taking effect. Based on the established release management cycle, the updated versions of the rulebooks published in November 2012, would normally take effect on 16 November 2013.

SEPA stakeholders in the euro area however, are currently working towards achieving compliance with the SEPA Regulation by 1 February 2014. As a result, and as communicated in June 2012 (see links below), the EPC decided to postpone the effective date for the SCT Rulebook version 7.0, the SDD Core Rulebook version 7.0 and the SDD B2B Rulebook version 5.0 and associated IGs, from 16 November 2013 to 1 February 2014. This allows market participants sufficient time to adapt their systems and operations to comply with both the SEPA Regulation and the updated versions of the rulebooks.

The author again invites organisations, which still have to adapt systems and operations to achieve compliance with the SEPA Regulation by 1 February 2014, to become active immediately. The relevant actions and resources should be identified now. The EPC makes available comprehensive information to help market participants manage the transition. These sources are included with the ‘related links' below (refer to the 'EPC Migration Tool Kit').

Related links:

EPC Website: SCT 2014 Rulebook and Implementation Guidelines

EPC Website: SDD 2014 Rulebooks and Implementation Guidelines

EPC Website: Report on Public Consultation 2012 - SEPA Credit Transfer

EPC Website: Report on Public Consultation 2012 - SEPA Direct Debit Core

EPC Website: Report on Public Consultation 2012 - SEPA Direct Debit Business to Business

EPC Website: Report on Public Consultation 2012 - SEPA Scheme Management Internal Rules

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

EPC Blog (June 2012): Important Notice to All SEPA Stakeholders: Effective Date of Next Versions of SEPA Credit Transfer and SEPA Direct Debit Rulebooks will be 1 February 2014!

The EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

Is Your Local Corner Shop Ready for SEPA? Belgian Best Practice Shows How to Engage Small and Medium-Sized Enterprises in the Migration Process

Mon, 19 Nov 2012 11:01:01 GMT

My job entails frequent travel across the euro area, during which I make it a habit to engage in conversation on the Single Euro Payments Area (SEPA) with the owners of local shops when purchasing a newspaper or a pastry (my weakness, I admit). I also like to introduce the subject with fellow travellers who happen to manage small or medium-sized enterprises (SMEs) active exclusively within national borders. Quite frequently however, they are only vaguely familiar with the SEPA concept and occasionally, have never heard of it. Once I mention the legal obligation to comply with ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation), which effectively mandates migration to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) by 1 February 2014 in the euro area, the conversation becomes decidedly more animated. By the time I have detailed the impact of the SEPA Regulation on the operational models of payment service users (PSUs), I normally have my counterpart's full attention.

Admittedly, these isolated conversations do not count for valid market research as regards progress among SMEs towards achieving compliance with the SEPA Regulation. No representative data on the matter is available at European level. The open question therefore, is whether SMEs which, according to the European Commission's Directorate General Enterprise and Industry, represent 99 percent of firms in the European Union are well aware of the need to adapt their operations in line with the requirements and by the deadlines established with the SEPA Regulation. Considering the fact that the business activities of many SMEs are carried out within national borders or local communities, it seems unlikely that English language sources offering SEPA information specifically for PSUs, such as international trade media targeting treasurers of multi-national corporates, for example, will reach SMEs active locally. It therefore appears to be more effective to implement awareness building campaigns at national level supporting this important stakeholder group to get ready for SEPA.

The October 2012 edition of the EPC Newsletter features the article: ‘Belgium: A SEPA Success Story' (see links below), which reports on the Belgian approach to coordinate SEPA migration at national level. This model is based on the following principles:

Engagement of and leadership by public authorities.
Coordination among all impacted stakeholders cooperating in the Belgian Steering Committee on the Future Means of Payment (the Steering Committee).
Timely action based on a step-by-step national implementation plan initially rolled out in 2008.
Multi-targeted communication creating SEPA awareness and educating the general public on the new SEPA payment schemes and technical standards to ensure a positive reception.

In September 2012, the Steering Committee published the fourth progress report towards SEPA in Belgium (the progress report) (see links below). Chaired by the National Bank of Belgium (NBB), the Steering Committee brings together all stakeholders impacted by the SEPA process: public administrations and government agencies, businesses including SMEs, consumer associations and banks. This latest progress report showcases - again - impressive results. In July 2012, the share of SCTs in Belgium reached more than 58 percent of total credit transfers; the share of SDDs exceeded 15 percent. By comparison, according to the SEPA Indicators (see links below) compiled by the European Central Bank, in July 2012 the share of SCTs in the euro area was 29.6 percent; the share of SDDs remained marginal at 1 percent.

Following successful migration by most public authorities and ‘big billers', supporting SMEs in the migration process is now the priority of the coordinated efforts to achieve SEPA compliance in Belgium. At the end of 2011, the NBB together with Isabel, the main provider of e-banking services based in Belgium, carried out a survey among 231 SMEs to find out just how prepared they were to start using SCT and SDD. 42 percent of the companies surveyed stated that they were ready to introduce SCT, and 30 percent of the respondents had concluded the planning stage with regard to SCT migration. Only 14 percent of the Belgian SMEs surveyed at the end of 2011 were aware of SDD. The companies that were aware of SDD at that time were also aware that both an SDD Core Scheme and an SDD Business to Business (B2B) Scheme are available. Not surprisingly, at the end of 2011 only four percent of Belgian SMEs had started the process of migrating to SDD Core and three percent had entered the planning stage. These figures were slightly higher with regard to the SDD B2B Scheme: at the time, five percent of the companies surveyed had started migration to SDD B2B and four percent had entered the planning stage. This survey carried out at the end of 2011 also found that many SMEs did not yet have all the information about SEPA which they needed.

The survey confirmed the determination of the Steering Committee to focus its efforts to support the transition of SMEs. According to the progress report, the communication policy in Belgium targeting SMEs relies on the established "top-down approach: those steering the SEPA project inform the main users and user groups, who in turn pass on the information among SMEs. (...) Since Belgium has opted for a gradual approach for its migration towards SEPA, the communication activities have also evolved on a step-by-step basis, according to specific target groups. The communication strategy always revolves around a diversified approach per target group, each time with a different emphasis in terms of content."

The progress report states that many SMEs "have not yet begun or are only in the process of converting to the European credit transfer. Consequently, a very large proportion of transfers, especially those sent electronically in bulk to the issuing bank, are still in the domestic format. The main challenge at the moment consists of informing the thousands of SMEs and encouraging them to go ahead with the conversion. For a good many firms, the Isabel platform, very widely used in the market, is vital, because this is the channel enabling credit transfers and direct debits (as well as other financial information) to be transmitted to a number of banks." Migration of Belgian firms to the latest Isabel platform, which is SEPA compatible, should therefore drive forward SEPA readiness also of Belgian SMEs. The deadline for migration to the latest Isabel platform was end July 2012.

Taking into consideration that the requirement to focus efforts on supporting SMEs has been identified in Belgium more than two years prior to 1 February 2014, which is the point in time when market participants in the euro area must comply with the core provisions of the SEPA Regulation, the expectation is that migration to SCT and SDD by smaller Belgian businesses will be completed in due time.

I commit to continue raising SEPA awareness among local newspaper sellers, pastry makers and fellow travellers representing SMEs when I get a chance. The recommendation is to support these efforts with timely campaigns reaching all SMEs at national level. This task requires coordinated efforts by all relevant stakeholders; i.e. public authorities, trade associations representing businesses and banks. The Belgian approach to SEPA migration in general and the measures implemented to support SMEs in particular perhaps offer some valuable lessons to other euro area countries on how to achieve progress.

The time to act is now.

Related links:

EPC Newsletter (October 2012): ‘Belgium: A SEPA Success Story'

Fourth Progress Report on Migration towards SEPA in Belgium (September 2012)

European Central Bank SEPA Indicators

The EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

New Rulebook Versions and Associated Implementation Guidelines Take Effect on 17 November 2012

Tue, 06 Nov 2012 11:01:01 GMT

The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes, developed by the EPC in close dialogue with the payment service user community, evolve over time. The annual EPC scheme change management process is based on the following principles:

Any stakeholder may introduce suggestions for changes to the SCT and SDD Rulebooks.

All suggestions for changes to the rulebooks are evaluated by the EPC SEPA Payment Schemes Working Group (SPS WG) and are consolidated into a single change request per rulebook.

Proposed changes detailed in the change requests, which are broadly accepted by all stakeholders, are taken forward.

To ensure planning security for all market participants, publication of updated versions of the SCT and SDD Rulebooks, together with the associated implementation guidelines (IGs), follows an established change and release management cycle. The EPC publishes updated versions of the rulebooks once annually, in November of each year. In November 2011, the EPC published:

The SCT Rulebook version 6.0.

The SDD Core Rulebook version 6.0.

The SDD Business to Business (B2B) Rulebook version 4.0.

These rulebook versions have been updated to include version 4.0 of the SEPA Scheme Management Internal Rules (the Internal Rules) (see links below), which were approved by the EPC Plenary in September 2012 following the three month public consultation on possible modifications to be introduced into this document earlier this year. The Internal Rules contain descriptions of the internal organisation, structure, rules, and processes that make up the scheme management of the SCT and SDD Schemes. Such processes cover administration and compliance, and change management, including structured dialogue with stakeholders. Amendments to the Internal Rules are of a purely administrative nature and have no operational impact whatsoever.

The EPC is under the legal obligation to ensure compliance of the SCT and SDD Schemes with the ‘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). The SEPA Regulation (see links below) came into force on 31 March 2012. The SDD Core Rulebook and SDD B2B Rulebook to take effect on 17 November 2012 have been further updated to reflect the requirements of Articles 6(3) and 8 of the SEPA Regulation, which stipulate that as of 1 November 2012 cross-border multilateral interchange fees for direct debits per-transaction are no longer allowed and that R-transaction interchange fees can be applied under certain conditions. According to the SEPA Regulation, R-transaction "means a payment transaction which cannot be properly executed by a PSP [payment service provider] or which results in exception processing, inter alia, because of a lack of funds, revocation, a wrong amount or a wrong date, a lack of mandate or wrong or closed account" (Article 2 (25)).

The rulebook versions that take effect on 17 November 2012 are therefore the SCT Rulebook version 6.1, the SDD Core Rulebook version 6.1 and the SDD B2B Rulebook version 4.1. These rulebook versions can be downloaded from the EPC Website following the links below.

The IGs, which were published in November 2011, also take effect on 17 November 2012 (see links below).

Related links:

SCT Rulebook Version 6.1

SDD Core Rulebook Version 6.1

SDD B2B Rulebook Version 4.1

SEPA Scheme Management Internal Rules Version 4.0

SCT Scheme Inter-Bank Implementation Guidelines Version 6.0

SCT Scheme Customer-to-Bank Implementation Guidelines Version 6.0

SDD Core Scheme Inter-Bank Implementation Guidelines Version 6.0

SDD Core Scheme Customer-to-Bank Implementation Guidelines Version 6.0

SDD Core Scheme e-Mandate Service Implementation Guidelines Version 6.0

SDD Core Scheme Advance Mandate Information Service Implementation Guidelines Version 6.0

SDD B2B Scheme Inter-Bank Implementation Guidelines Version 4.0

SDD B2B Scheme Customer-to-Bank Implementation Guidelines Version 4.0

SDD B2B Scheme e-Mandate Service Implementation Guidelines Version 4.0

SDD B2B Scheme Advance Mandate Information Service Implementation Guidelines Version 4.0

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

To Anyone Who Has Not Yet Started the Process of Getting Ready for SEPA by 1.2.2014: Act Now!

Thu, 25 Oct 2012 10:01:01 GMT

On a general note: it has been clear for more than a decade that the European Union (EU) authorities expect national legacy euro credit transfer and direct debit schemes to be replaced by harmonised Single Euro Payments Area (SEPA) Schemes, with a view to promoting the further integration of the internal market and completing the monetary union. The legislative process leading to the adoption of a Regulation at EU level, which effectively establishes mandatory deadlines for migration to SEPA, started in December 2010 and has been extensively covered in the public debate. When the EU legislator, in February 2012, adopted the 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), this did not come as a surprise. The SEPA Regulation (see ‘The EPC Migration Tool Kit' under ‘related links' below), defines 1 February 2014 as the deadline in the euro area for compliance with its core provisions. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD).

Consequently, market participants in the euro area need to ensure compliance with the 1 February 2014 deadline for migration to harmonised SEPA payment schemes established with the SEPA Regulation. This legislative act affects not only payment service providers (PSPs), but also payment service users (PSUs) such as corporates, small and medium sized enterprises, public administrations and government agencies. Implementation of the SEPA Schemes and technical standards has its challenges, however these are comparable to the challenges inherent to the implementation of other major change programmes. The market - on both the demand and supply sides - has ample experience in managing such projects.

Early movers on the demand side confirm that migration to the SEPA Schemes and technical standards generates tangible benefits (see ‘SEPA Case Studies' included with the ‘EPC Migration Tool Kit' below). According to the SEPA Indicators compiled by the European Central Bank (see ‘related links' below), close to 30 percent of all credit transfers generated by bank customers in the euro area in August 2012 were SCTs.

The supply side of the euro area payments market rolled out SCT and SDD services early, not only as a result of political expectations, but as mandated with previous EU regulatory action. Since 1 November 2010, all payment service providers in the euro area reachable for national direct debits must be reachable for cross-border direct debits; e.g. the SDD Core Scheme, as mandated by Regulation (EC) No 924/2009 (Article 8). SEPA is kicking in and it is working.

Early movers on the demand side who reported on their SEPA migration experience in the EPC Newsletter confirm that implementation of the harmonised SEPA payment schemes and technical standards is beneficial, but requires careful planning. PSUs have to implement significant changes to their operational models. They have to invest in system upgrades, testing and staff training. The scope of the changes is extensive. On 29 February 2012, the EPC launched a five part blog series which highlights the lessons learnt by PSUs handling major payment volumes who have already successfully concluded migration to SCT and SDD (see ‘The EPC Migration Tool Kit' below). In February 2012, these SEPA pioneers - who started migration planning as early as 2007 or 2008 - unanimously recommended that organisations, which have yet to adapt systems and operations to the SEPA payment instruments, become active immediately. At the time of publication of this blog in October 2012, this is no longer a recommendation but an imperative: any organisation which has not yet initiated the migration process must act now; there is no time to procrastinate further.

Organisations now working towards achieving compliance with the SEPA Regulation by 1 February 2014 in the euro area are invited to take advantage of the numerous resources offered by the banking industry and other service providers to support market participants during the transition. Relevant information is also made available with the ‘EPC Migration Tool Kit' (see below), which can be downloaded from the EPC Website.

The next edition of the EPC Newsletter to be published end October 2012 again includes a series of articles which meet, in particular, the information needs of PSUs preparing for SEPA. Links to these articles will be added to the ‘EPC Migration Tool Kit' with go live of the October 2012 EPC Newsletter edition.

The time to act is now.

Related links:

The EPC Migration Tool Kit: Get Ready for SEPA by 1.2.2014. Act Now!

European Central Bank SEPA Indicators

EPC Newsletter, Issue 16 (October 2012)

What Drives Innovation in Payments? Conclusions of the Report ‘Innovations in Retail Payments' published by the Committee on Payment and Settlement Systems' Working Group

Wed, 10 Oct 2012 10:01:01 GMT

In order to obtain an overview of payments innovation globally, the Committee on Payment and Settlement Systems (CPSS), established the Working Group on Innovations in Retail Payments (the Working Group), which recently published the report ‘Innovations in Retail Payments' (see ‘related links' below). The report contains a number of elements geared to assessing what an innovation-friendly environment should look like. 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.

Technological developments necessary, but not sufficient

Technological developments are the basis for new or improved services in payments. Examples are the chip technology used in payment cards, the use of mobile phones - or more sophisticated smartphones - as a tool to access internet or mobile channels, and the proliferation of internet infrastructure. Currently, huge expectations have arisen with regard to contactless payments, utilising Near Field Communication (NFC) technology. One thing is clear however; technology is only an enabling factor for innovation and is of no help if there is no user demand. Payment users will only switch to a new service or a new product if it better serves their personal needs when compared to existing solutions. Convenience, cost, speed, security and availability are among the most important factors determining the consumer's choice of payment services.

Regulation - not just a European issue

From discussions in Europe, it might sometimes be concluded that regulation in the area of payments is very much a European peculiarity, or to put it more bluntly, a misadventure. The report clearly demonstrates however, that regulation has become an important topic of focus in a number of CPSS countries. Although concrete approaches differ depending on the regulatory frameworks in the various countries, some general trends can be discerned. Firstly, in a number of countries, the entry barriers to the payments market were lowered to spur competition and innovation. Secondly, in several countries regulation was adopted with a view to increasing the transparency of fees or intervening by redistributing costs and revenues between different stakeholders, i.e. through multilateral interchange fees. Thirdly, governments might also promote innovative payment services, for example, by setting an appropriate legal framework for supporting innovative solutions, or by relaxing requirements on certain low-cost payment accounts in order to promote financial inclusion. Irrespective of whether regulators take an ex ante or ex post approach towards regulation, the speed of innovation is a major challenge here as it renders the payments market a moving target.

Cooperation and standardisation - key factors for successful innovation

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. Cooperation between banks and non-banks is the most prominent model, with a strong focus on internet payments, mobile payments and Electronic Bill Presentment and Payment (EBPP) solutions. Not very surprisingly, cooperation between non-banks does not play a significant role. Roughly 40 percent of all innovations however, do not imply any form of cooperation. Recent discussions in Europe have shown that cooperation in the field of payments is an especially challenging task because it has to comply with the relevant competition-related legislation. It can be concluded from the CPSS report that an innovation-friendly environment requires a proper balance between competition and cooperation of market players. Thus, it is of utmost importance that legislators give clear guidance on how cooperation can be achieved without provoking fears of anti-trust investigations.

In the same manner, the report concludes that standardisation is an important factor behind innovation. It helps to achieve a critical mass and avoids any proliferation of incompatible, smaller-scale systems which lack the necessary acceptance. It can also create a solid foundation for new players wishing to enter a new market. Moreover, standardisation avoids the costs and risks attached to overcoming the absence of standards. At the same time, standardisation could hamper innovation, for example if the standard-setting process has the disadvantage of restricting participation to incumbent players, or if standards become obsolete but are still widely used. Different payment models and different standards have developed into incompatible solutions, often limited to market niches and hardly viable over the longer term. In this respect, widespread standardisation should ensure that innovation is not locked up in market niches. One remarkable development in the payments industry is the greater reliance on the International Organization for Standardization (ISO).

The report also analysed the impact of pricing structure and security considerations on innovation in payments. For details on these aspects, refer to the article by this author in the current edition of the EPC Newsletter (see ‘related links' below). The findings of the report are broadly consistent with the specific developments in Europe and with the outcome of the European Central Bank's e-SEPA survey. In many cases, there are also links with the issues taken up by the European Commission in its Green Paper ‘Towards an Integrated European Market for Card, Internet and Mobile Payments' (see ‘related links' below).

There is no indication that Europe is facing an efficiency gap or fall-back in terms of global competition. By contrast, in some areas - such as the decision to migrate to ISO 20022 - Europe is considered a role model. Even so, this does not mean that Europe is at the forefront of innovation.

Innovative card payments and internet payments play a more prominent role in Europe than at the global level. This is partly a reflection of its well-developed communication and payments infrastructure. For this reason, it is also less likely that new entrants will be able to succeed in setting up, for example, mobile payment schemes based on e-money.

The issue of integration is a very Europe-specific factor at present. Creating a conflict between integration and innovation however, is not a particularly compelling scenario. Instead, these two aims should complement one another.

There has been a lot of discussion at a global level concerning the definition of appropriate governance in order to foster innovation - not just in Europe. Recent developments in Australia and the UK show a trend towards setting strategic objectives through an appropriate public body and by broadening the membership of the respective industry bodies in order to better represent the interests of all stakeholders. Both approaches regard the industry as being best placed to implement the recommendations. Only if expectations are not met will further action be considered (e.g. in the form of regulation or, as in Australia, through the provision of services by the central bank itself).

The question remains: how will the payment landscape develop?

In Europe, it is likely that developments will be evolutionary rather than revolutionary: the infrastructure is already well developed; many innovations are, therefore, incremental improvements of well-established products and banks are still benefiting from the trust of customers. But that is by no means a certainty or eternal truth. Specifically, demographic changes or new non-bank competitors might lead to more profound changes. In such a situation, it is of utmost importance that European regulators set up a clear, transparent and reliable framework for future developments in the field of payments. Last but not least, it should guarantee a level playing field between all payment service providers, whether within or outside the banking area, and should strike a balance between competition and cooperation as well as between economic freedom and consumer protection.

Dirk Schrade is Deputy Head of the Department Payment and Settlements Systems at the Deutsche Bundesbank (German national central bank) and chaired the CPSS Working Group on Innovations in Retail Payments. The views expressed in this text are those of the author and do not necessarily reflect the views of the CPSS or the Deutsche Bundesbank.

Related links:

EPC Newsletter: Committee on Payment and Settlement Systems' Working Group Publishes Report ‘Innovations in Retail Payments'

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

EPC Blog: What Drives Innovation in Payments? EPC Invites European Authorities to Take the Market Perspective into Consideration

EPC Blog: More EU Action Impacting Payments in the Pipeline? EPC Responds to the European Commission Green Paper on Card, Internet and Mobile Payments

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

EPC Newsletter: ‘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

EPC Newsletter: The Economy of Standards: the ‘Pros' and ‘Cons' of Standards Competition. An introduction to a comprehensive qualitative efficiency comparison using the example of payment cards

European Commission Green Paper ‘Towards an Integrated European Market for Card, Internet and Mobile Payments'

What Drives Innovation in Payments? EPC Invites European Authorities to Take the Market Perspective into Consideration

Tue, 25 Sep 2012 10:01:01 GMT

In January 2012, the European Commission (the Commission) published its Green Paper ‘Towards an Integrated European Market for Card, Internet and Mobile Payments' (see ‘related links' below). The Green Paper, whose main authors are the Commission's Directorate Generals (DG) Internal Market and Services and Competition, claims to analyse "the obstacles which hinder European market integration in these promising payment technologies." Commissioner Michel Barnier, in charge of the DG Internal Market and Services, said: "Europe has an opportunity to be at the cutting edge of what ‘making a payment' could mean in the future. However, we will not be able to reach this goal with the current level of market fragmentation." According to Joaquín Almunia, Vice President of the Commission responsible for Competition Policy, today's "inefficient payment systems" within the European Union (EU) unduly "undermine the global competitiveness of the European economy and limit its potential for growth. Europe's consumers, merchants and companies deserve payment services in tune with the 21st century: transparent, with genuine value added and making the best use of our technologies." (See the Commission's press release under ‘related links' below). It is expected that the Commission will communicate shortly whether it sees the need for EU action to address ‘gaps' it perceives with regard to competition, choice and innovation in the area of card, mobile and internet payments.

The EPC does not support a number of related assumptions and suggestions put forth in the Green Paper. Consequently, the EPC believes that many of those suggestions will not help achieve the objectives stated in the Green Paper and may even undermine their realisation. For details, refer to the EPC Blog ‘More EU Action Impacting Payments in the Pipeline? EPC Responds to the European Commission Green Paper on Card, Internet and Mobile Payments' (see ‘related links' below). From the perspective of market participants both on the demand and the supply sides of the payments market, the Commission's analysis of the state of affairs in 2012 regarding integration of, and innovation within, the euro payments market is surprising. Latest developments have generated a host of innovative solutions taking advantage of rapid technological progress in the areas of card, internet and online payments. As a result, the market is witnessing a spectacular growth in card transactions and contributions to the development of an integrated mobile payment ecosystem. Contrary to assumptions put forward with the Green Paper, payments do not act as a main barrier to the development of e-commerce; otherwise e-commerce would not have experienced continuous fast growth as evidenced by several market studies. The Green Paper also seems to overlook major market achievements to date, to progress the Single Euro Payments Area (SEPA).

The generally recognised definition relied upon in the academic and market debate, states that "innovation is the multi-stage process whereby organisations transform ideas into improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace."*** This author maintains that innovation will disappear without the right incentives, due to the effort and resources required to transform a new idea into a product or solution. Innovation in payments is driven forward on a daily basis by tens of thousands of product managers and developers in the European payments industry seeking to design the most competitive offerings to consumers and corporate customers. In the past twelve years, i.e. since the launch of the SEPA programme, thousands of new products have gone to market to facilitate, for example, automatic currency conversion, faster payments, auto conversion of message standards and expedited opening of bank accounts abroad. Other major innovations in the recent past include the roll out of sophisticated and secure electronic banking applications and the introduction of contactless payments. Migration to EMV chip and personal identification number (PIN) for face-to-face card transactions in Europe is nearly completed. Following are the most important factors underlying innovation:

To generate the substantial resources within a company required to develop a new solution and bring it to market, developers must demonstrate that there is market demand for this solution.
Alternatively, the developer must demonstrate that the new solution is very likely to generate market demand in the future. This scenario is best illustrated with a quote from Steve Jobs, who said: "We are not going to wait for customers to tell us what they want. We are going to introduce what we think is in their best interest, and they will learn to love it." Identification of future market needs is an art form for which there is no recipe (otherwise there would be no brand and business failures). See also item four in this list.
The competitive advantage to be generated with a new solution must be clearly identified, through analysis of competitors' existing offerings or based on confirmation that indeed the market to date does not yet provide the new solution considered for development.
The solution must be convenient and easy to use for the customer, especially in payments.
Bringing innovative solutions to market in a network industry may require cooperation between providers. If such cooperation in the non-competitive space is restricted by regulators, it is impossible to bring such solutions to market.
There must be a business case for providers to develop a new solution. Payments are not a commodity but a commercial offering.

Innovation always implies the risk of failure. The pressure on developers is huge to minimise that risk and make the first prototype work. In the real world, times of crisis such as these may limit the willingness of companies to take risks in the areas of research and development. Last but not least, service providers have to create a positive buying experience for customers when bringing new products to the market. This is particularly difficult in the area of payments. No one likes to make a payment; services provided in this context are rarely met by customers eager to embrace new solutions, whereas people will line up and spend the night on the street to be among the first to buy the latest edition of the iPhone. This author - with more than forty years of experience in managing all aspects of payments - is not aware that customers ever made such efforts to greet the launch of a new payment product.

Documents published by the EU regulators, addressing innovation in payments, do not reflect any of the items listed above; views articulated by the regulators on the subject may therefore risk overlooking the most important factors driving forward innovation in the market place. From the perspective of payment service providers active in the market, regulation risks stifling innovation and standardisation initiatives led by market participants. Regulation is also not suited to keeping pace with the fast evolution of technology, fraud and market developments. As a matter of principle, any regulatory action should be technology-neutral. Regulatory intervention should not undermine the innovative capacity of the European payment sector and its competitiveness in the global marketplace.

Experience demonstrates that the most successful innovations materialise if the market is simply allowed to generate forward-looking payment solutions in response to customer demand. It would be welcomed if the Commission would take this market reality into consideration when determining the need for further EU action in the area of payments.

*** Baregheh A., Rowley J. and Sambrook S. (2009) Towards a multidisciplinary definition of innovation, Management decision, vol. 47, no. 8, pp. 1323-1339.

Related links:

EPC Blog: More EU Action Impacting Payments in the Pipeline? EPC Responds to the European Commission Green Paper on Card, Internet and Mobile Payments

EPC Newsletter: Committee on Payment and Settlement Systems' Working Group Publishes Report ‘Innovations in Retail Payments'

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

EPC Newsletter: ‘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

European Commission Green Paper ‘Towards an Integrated European Market for Card, Internet and Mobile Payments'

European Commission Press Release: 'Breaking Down Barriers to Secure and Innovative Card, Internet and Mobile Payments' (January 2012)

Let's Talk About SEPA Direct Debit: Migration is Manageable. The Time to Act is Now

Mon, 10 Sep 2012 10:01:01 GMT

According to the Single Euro Payments Area (SEPA) Indicators compiled by the European Central Bank (ECB) (see ‘related links' below), as of July 2012 the share of SEPA Direct Debit (SDD) Core transactions, as a percentage of the total volume of direct debits generated by bank customers, amounts to 1.0 percent in the euro area. By comparison, the share of SEPA Credit Transfer (SCT) transactions amounts to 29.6 percent in July 2012. Article 6 of the Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro (the SEPA 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 SCT and SDD.

In other words, 99 percent of direct debit volumes currently processed in the euro area have to be migrated to SDD in less than 17 months. We have noticed that some market observers seem to be alarmed by this fact: these same observers however, appear unalarmed by the fact that 70 percent of credit transfer volumes also need to be moved to SCT. We also witness a tendency in the SEPA debate, which implies that implementation of SDD is more complex than adapting processes and operations to SCT. Both notions contradict the experiences of SEPA project managers, representing payment service users such as corporates, public administrations and government agencies, all of which have reported on their lessons learnt in the EPC Newsletter (see SEPA case studies under ‘related links' below). Their experience demonstrates that implementation of SCT and SDD is equally feasible and manageable. Early movers on the demand side who successfully concluded migration to the SEPA Schemes, identified the following main challenges which are the same with regard to both the SCT and SDD Schemes:

Conversion of customer account data to the International Bank Account Number (IBAN) and the Business Identifier Code (BIC).

Adaptation to the usage of the ISO 20022 message standards.

SEPA practitioners among bank customers clarify that implementation of one SEPA Scheme is not more complex than the other, but each requires specific steps. Some of the specific requirements to be observed with regard to SDD implementation relate to, for example, mandate management, the time cycle and exception handling. The quarterly online EPC Newsletter features a series of articles supporting billers migrating to SDD, which detail related SDD requirements (see ‘related links' below).

Article 7 of the SEPA Regulation (see ‘related links' below), states that any "valid payee authorisation to collect recurring direct debits in a legacy scheme prior to 1 February 2014 shall continue to remain valid after that date and shall be considered as representing the consent to the payer's PSP [payment service provider] to execute the recurring direct debits collected by that payee in compliance with this Regulation in the absence of national law or customer agreements continuing the validity of direct debit mandates". This provision therefore, ensures that existing mandates under the SDD Core Scheme continue to remain legally valid, thereby greatly contributing to facilitating the migration by bank customers to the SDD Scheme.

Early movers on the customer side who reported on their migration experience in the EPC Newsletter, concur that migration to SEPA pays off. To give just two examples: The insurance company UNIQA Group Austria, which services approximately 7.5 million customers in 21 regional markets, already completed migration to SCT and SDD by 2011. As Thomas Weissmann, Project Manager with the group, clarified: "SEPA is an excellent and necessary idea." He added: "Firstly, migrating to the harmonised SEPA payment schemes allows for more efficient account reconciliation. Secondly, being able to collect direct debits throughout Europe using the harmonised SDD Schemes is also a principal advantage for us."

The ceramics manufacturing company Villeroy & Boch, headquartered in Germany and represented in 125 countries around the world, is a true SEPA pioneer, having embraced the SEPA vision early. In 2007, the group decided to implement SCT as the first step in the process. This project was concluded in 2008. The SDD Core and the SDD B2B Schemes were implemented in the second stage. This project was launched in 2010 and was completed in 2011. Villeroy & Boch processes approximately 175,000 credit transfers with a volume of 310 million euros and 25,000 direct debits with a volume of 75 million euros annually. Dr Markus Warncke, Group Financial Controller at Villeroy & Boch, comments: "Our figures demonstrate that the benefits resulting from migration to the SEPA Schemes and standards exceeded the investment in the first year alone. In line with our expectations, we were able to streamline internal processes, lower IT costs, reduce costs based on bank charges and consolidate the number of bank accounts and cash management systems. In addition, we could further centralise our cash management. The fact that there is now one harmonised SDD Scheme, which allows collecting payments throughout Europe, is also a major advantage. We realised significant efficiency gains from the implementation of the ISO 20022 message standards. The reality is that the benefits of an integrated euro payments market outweigh the short-term efforts to get there. The earlier you start the better."

Last but not least, the EPC wishes to stress again: Article 16 of the SEPA Regulation permits individual European Union (EU) Member States to extend the deadline for compliance with some of its provisions to 1 February 2016. It is however, strongly recommended that payment service users analyse the impact of the SEPA Regulation on their day-to-day operations now, even if EU Member States opt to make use of the derogations permissible under Article 16. As the experience of early movers on the demand side handling major payment volumes indicates, migration to SEPA Schemes and technical standards is beneficial, but requires careful planning. The relevant actions and resources should be identified as soon as possible. Banks and other service providers are making available the tools required to facilitate the transition.

Migration to SCT and SDD by 1 February 2014 in the euro area is manageable and feasible. The time to act however, is now.

Related links:

ECB SEPA Indicators

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

EPC Newsletter (follow this link to log your questions on the SEPA Regulation!): ‘Help is Here: Payments Regulatory Expert Group (PREG) Publishes Guidance Document on SEPA Regulation'

EPC Newsletter: The Time to Act is Now: Impact of the SEPA Regulation on Payment Service Users

EPC Blog Series (Parts I-V): Get Ready for SEPA by February 2014. Early Movers on the Customer Side Share Lessons Learnt

EPC Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers

EPC Video ‘SEPA for Billers. The Time to Act is Now': This Film is Available with Subtitles in the EU Languages

EPC Newsletter: SEPA Direct Debit for Billers: Exception Handling

EPC Newsletter: SEPA Direct Debit for Billers: the SDD Business To Business Scheme Timelines

EPC Newsletter: SEPA Direct Debit for Billers: the SDD Core Scheme Timelines

EPC Newsletter: SEPA Direct Debit for Billers: the Creditor Identifier (Go Get It!)

EPC Newsletter: SEPA Direct Debit for Billers: The SDD Mandate

EPC Website: SEPA Direct Debit

EPC Website: SEPA Credit Transfer

Friendly Reminder: EU Law Mandates Migration to SEPA by February 2014 in Euro Area. Recommendation is to Rely on EU Legislator (Not on Speculations Regarding the Impact of the Euro Debt Crisis on SEPA) when Planning Migration. The Time to Act is Now.

Thu, 23 Aug 2012 10:01:01 GMT

For the purposes of this blog it is necessary to repeat the obvious: the European Union (EU) Regulation No. 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation EC No. 924/2009 (the Single Euro Payments Area (SEPA) Regulation) stipulates the mandatory deadlines for compliance with its rules for credit transfer and direct debit transactions. Article 6 (1) and (2) of the SEPA Regulation mandate that credit transfers and direct debits shall be carried out in accordance with the relevant requirements set out in Article 5 and in the Annex to the Regulation by 1 February 2014, subject to certain limited exemptions mentioned in the Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer and SEPA Direct Debit. Article 16 (8) clarifies that non-euro countries will have to make the transition to SEPA by 31 October 2016.

Recent public debate regarding the SEPA project seems to increasingly entertain the idea that the deadlines for compliance with the SEPA Regulation (see ‘related links' below), might not apply due to the ongoing euro debt crisis. To give just one example of many: on 2 August 2012, journalist Michiel Willems blogged an interview with Dr Nathalie Moreno (see ‘related links' below) who stated: "It is hard to see the deadline of spring 2014 not being moved. The euro crisis is developing at such a rate in 2012 that nobody can predict what will happen, and the impacts of increased lending and bailouts to keep the euro afloat will surely affect the ability of these economies to make a certain decision on the future of SEPA. SEPA's focus is on payment harmonisation and modernisation but with all the turmoil of the Eurozone as a whole it is difficult to see how this can be kept a reality without the need for new and added thoughts on SEPA's development process which keep up with key market developments."

In light of such comments, it appears that some clarification is required. Firstly and most importantly, the legal obligation to comply with the 1 February 2014 deadline; i.e. Article 6 (1) and (2) of the SEPA Regulation, is not subject to the "ability" of individual "economies to make a certain decision on the future of SEPA." The decision on the future of SEPA was made by the EU legislator - that is the Council of the EU representing the 27 EU Member States and the European Parliament. The European Parliament adopted the SEPA Regulation on 14 February 2012; the Council of the EU adopted this legislative act on 28 February 2012. Under the ordinary legislative procedure (formerly known as co-decision), EU legislation is adopted by the Council of the EU and the European Parliament. The SEPA Regulation was published in the Official Journal of the EU on 30 March 2012 and came into force on 31 March 2012.

Consequently, the only party empowered to amend the SEPA Regulation is the EU legislator. The question is whether there are any indications that the EU legislator intends to change Article 6 (1) and (2) of the SEPA Regulation as a result of the euro debt crisis at this stage in the process. In asking this question, the following should be considered: the euro debt crisis has evolved since late 2009. The European Commission (the Commission) tabled a first discussion paper detailing, among other things, the option to establish mandatory deadlines for migration to harmonised SEPA payment instruments through EU regulation in March 2010. The Commission introduced its proposal for the SEPA Regulation in December 2010. This proposal was then considered by the Council of the EU and the European Parliament throughout 2011. As mentioned above, both EU legislative bodies adopted the SEPA Regulation in February 2012. In other words, the determination of EU lawmakers to establish a timely deadline for compliance with the SEPA Regulation was not deterred at any stage in the legislative process which evolved in parallel with the deepening of the euro debt crisis.

In a press release published on 28 February 2012 (see ‘related links' below), the Council of the EU reiterated that the SEPA Regulation establishes deadlines for compliance with "common standards and general technical requirements", aimed at the "simplification of payment processes. For consumers, standardised cross-border payments will remove the need to maintain accounts in different countries. For payment service providers and payment processors, economies of scale and common standards will make payments more efficient." Article 5 of the SEPA Regulation details the technical and business requirements that should be observed when carrying out credit transfer and direct debit transactions. These requirements relate to, among other things, the use of the International Bank Account Number (IBAN) and the ISO 20022 XML message standards. Article 5 also references the data elements detailed in the Annex to the Regulation that should be provided with a credit transfer and a direct debit payment. Last but not least, Article 5 sets out the rights of consumers with regard to direct debit collections, which are also relevant for payees (billers). Establishing these requirements serves the purpose of harmonising the way electronic payments are carried out in the EU. There does not appear to be any dependency between the euro debt crisis and the use of, for example, the IBAN by payment service providers and payment service users in accordance with the provisions - and deadlines - established with the SEPA Regulation.

The European authorities driving forward the SEPA programme frequently pointed out that the integration of the euro payments market strengthens the euro currency and the EU internal market. Commenting on the agreement of the 1 February 2014 deadline to be established with the SEPA Regulation, Member of the European Parliament Sari Essayah, rapporteur for this legislative act, said: "SEPA is a fundamental element of the internal market. The internal market cannot function well without SEPA. Moreover SEPA 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 agreement on this deadline 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 European Parliament of 20 December 2011 under ‘related links' below).

As communicated already in the EPC's online media briefing held in October 2011 (see ‘related links' below), the EPC shares the opinion that SEPA contributes towards a solution for the current euro crisis. In line with statements from other market participants, the EPC believes that the current situation reinforces the need for swift migration to harmonised SEPA payment schemes. It is therefore positive that the European legislator established clear deadlines for migration to SEPA. It is the view of the EPC that the 1 February 2014 deadline for migration in the euro area mandated with the SEPA Regulation should not be delayed.

Clearly, the euro crisis impacts the economic actors in the internal market. This is however no reason to procrastinate the actions required to achieving compliance with the SEPA Regulation. Unless the EU legislator would decide otherwise, payment service providers and payment service users such as business and public entities in the euro area must comply with the SEPA Regulation by 1 February 2014.

Consequently, the EPC maintains that payment service providers and payment service users need to evaluate the impact of the SEPA Regulation on their day-to-day operations. The EPC also reiterates that the experience of early movers handling major payment volumes indicates that migration to SEPA Schemes and technical standards is beneficial but requires careful planning. The relevant actions and resources should be identified as soon as possible.

The time to act is now.

Related links:

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

European Parliament Press Release of 20 December 2011: ‘Cheaper, Faster and Safer Cross-border Payment Services'

Council of the European Union Press Release of 28 February 2012: ‘SEPA: Council Adopts Regulation on Credit Transfers and Direct Debits'

EPC Newsletter (follow this link to log your questions on the SEPA Regulation!): ‘Help is Here: Payments Regulatory Expert Group (PREG) Publishes Guidance Document on SEPA Regulation'

EPC Newsletter: The Time to Act is Now: Impact of the SEPA Regulation on Payment Service Users

EPC Blog Series (Parts I-V): Get Ready for SEPA by February 2014. Early Movers on the Customer Side Share Lessons Learnt

EPC Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers

EPC Video ‘SEPA for Billers. The Time to Act is Now': This Film is Available with Subtitles in the EU Languages

Michiel Willems Blog: Q&A with Nathalie Moreno

EPC Webcast: EPC Media Briefing October 2011 (view and hear Q&A on euro debt crisis starting at minute 49 of the webcast)

Payments Regulatory Expert Group (PREG) Publishes Guidance Document on SEPA Regulation. Read this Blog to Learn How to Share Questions on this European Legislative Act with the PREG!

Tue, 07 Aug 2012 10:01:01 GMT

The European Union (EU) Regulation No. 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation EC No. 924/2009 (the Single Euro Payments Area (SEPA) Regulation), was published in the Official Journal of the EU on 30 March 2012. The SEPA Regulation stipulates the mandatory deadlines for compliance with its rules for euro credit transfer and direct debit transactions. In the euro area, this will be 1 February 2014, subject to certain limited exemptions mentioned in the SEPA Regulation. Consequently, payment service providers and payment service users need to evaluate its impact on their day-to-day operations. On 2 August 2012, the Payments Regulatory Expert Group (PREG), which comprises of industry experts, published its industry implementation guidance document (see ‘related links' below). The guidance document provides clarity to payment service providers and payment service users on a range of practical questions related to the SEPA Regulation.

Following the model applied to develop the Payment Services Directive guide, published by this expert group in 2009, the PREG's SEPA Regulation guidance document reflects in-depth dialogue with the industry as well as other key stakeholders and institutions. The structure of this most recent guidance document allows a step by step analysis of each article included within the SEPA Regulation. Where the SEPA Regulation offers limited insight into how certain situations should be dealt with, the guidance document provides an interpretation as to what is being intended with the respective provision.

‘Frequently Asked Questions and Answers' document with regard to the SEPA Regulation in preparation: go to the EPC Newsletter article ‘Help is Here: Payments Regulatory Expert Group (PREG) Publishes Guidance Document on SEPA Regulation' and post your questions using the comment function included in the EPC Newsletter!

In addition to this guidance document, the PREG is currently developing a ‘Frequently Asked Questions and Answers' (FAQ) document with regard to the SEPA Regulation. This will be a living document intended to support all market participants required to achieve compliance with the SEPA Regulation. These forthcoming FAQs will be regularly updated. Once finalised, the latest version of the FAQs will be available from the EPC Website. Follow the EPC on Twitter and join the EPC on LinkedIn to receive notification when this FAQ document is published.

Everyone is invited to share their questions with regard to the SEPA Regulation. To share your question, please go to the EPC Newsletter article ‘Help is Here: Payments Regulatory Expert Group (PREG) Publishes Guidance Document on SEPA Regulation' (see third ‘related link' below), and post your question using the comment function in this newsletter article. Please note that these questions will not be answered in the EPC Newsletter (or on this blog), but will be logged by the PREG to be addressed in the FAQ document now in preparation.

Less than 18 months remaining to achieve compliance with the SEPA Regulation in the euro area: the time to act is now

This author reiterates that the SEPA Regulation affects not only payment service providers, but also payment service users such as corporates, small and medium sized enterprises, public administrations and government agencies. Article 16 of the SEPA Regulation permits individual EU Member States to extend the deadline for compliance with some of its provisions to 1 February 2016. It is however, strongly recommended that payment service users analyse the impact of the SEPA Regulation on their operational models now, even if EU Member States opt to make use of the derogations permissible under Article 16. To date, the experience of early movers handling major payment volumes indicates that migration to SEPA Schemes and technical standards requires careful planning. The relevant actions and resources should be identified as soon as possible.

Ruth Wandhöfer chairs the PREG. She also chairs the EPC Information Security Support Group.

Related links:

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

Payments Regulatory Expert Group: Practical Guidance for the Implementation of 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

EPC Newsletter (follow this link to log your questions on the SEPA Regulation!): ‘Help is Here: Payments Regulatory Expert Group (PREG) Publishes Guidance Document on SEPA Regulation'

EPC Newsletter: The Time to Act is Now: Impact of the SEPA Regulation on Payment Service Users

EPC Blog Series (Parts I-V): Get Ready for SEPA by February 2014. Early Movers on the Customer Side Share Lessons Learnt

EPC Newsletter - SEPA Case Studies: Articles Highlighting Successful SEPA Migration Projects of Bank Customers

EPC Video ‘SEPA for Billers. The Time to Act is Now': This Film is Available with Subtitles in the EU Languages

E-invoicing – a Transition that Will Truly Complement SEPA

Wed, 18 Jul 2012 10:01:01 GMT

At the end of June 2012, the European Council, which includes the heads of state or government of the European Union (EU) Member States, stated:

"Swift progress is required to achieve a well-functioning Digital Single Market by 2015, which will provide new dynamism to the European economy. In particular, priority should be given to measures aimed at further developing cross-border online trade, including by facilitating the transition to e-invoicing and promoting the cross-border use of e-identification and other e-services." (See link to ‘Conclusions of the European Council' below).

It is interesting to note the specific focus on promoting the transition to e-invoicing. Invoices are typically produced by automated ERP systems and the like, printed, posted and then re-keyed or scanned back into electronic systems. What a waste of effort, not to mention the resulting errors! Much better to deliver process and store invoices entirely in electronic form throughout their life-cycle.

The European Commission and the EU Member States have been pushing several initiatives aimed at promoting the mass adoption of e-invoicing:

Simplifying the legal/VAT regulations by placing paper and electronic invoices on the same footing, in particular by providing a range of choices for taxpayers to demonstrate the authenticity and integrity of invoices and the underlying transactions - crucial for VAT refunds, compliance and fraud prevention. New regulations will go into force in January 2013.
Encouraging electronic public procurement and positioning the public sector as a role model for electronic trading including for cross-border. This objective is also supported by the Pan-European Public Procurement Online (PEPPOL) initiative (see link below).
Leading the ‘EU Multi-Stakeholder Forum on e-Invoicing' (see links below). To ensure engagement of relevant stakeholders domestically, most EU Member States have created national stakeholder forums.
Supporting initiatives to promote standardisation and interoperability in the area of e-invoicing, and development of actions to achieve mass adoption by reaching small and medium-sized enterprises (SMEs).

Market adoption of e-invoicing continues to progress. Industry experts estimate that about 18 percent of invoices in the EU are issued electronically. Large corporate buyers increasingly mandate e-invoicing for their supply chains and encourage their suppliers to submit e-invoices often using the services of a business to business (B2B) platform.

Aside from creating huge cost and efficiency benefits, the acceleration of the invoicing process and crucially the approval cycle for e-invoices is a ‘game-changer' for Supply Chain Finance. Supply Chain Finance is not new and takes many forms: trade finance, factoring, invoice discounting etc. What has emerged in recent years is so-called Reverse Factoring or Approved Payable Finance. In this model, large buyers are able to offer early discounted payments to their suppliers whilst preserving their original or extended terms. A financier acts as the funding instrument for such transactions, although some liquid companies may deploy their own liquidity. The e-invoice plays a key role as a transparent vehicle for such financing.

The benefit to the buyer lies in the ability to provide liquidity to suppliers and to stabilise their supply chains. Suppliers, often SMEs, may tap into new sources of funding in a constrained market for traditional borrowing.

In embracing the world of e-invoicing it is observable that banks are most engaged when they are able to mobilise the e-invoice for the type of financings discussed above, or when it is close to their payments franchise. The latter point is illustrated by the country-specific adoption by banks of services for e-billing - the presentment and payment of consumer invoices provided by large billers and processed through the Internet bank. Not all communities recognise this opportunity however especially those that are major direct debit users. On the other hand one or two communities see the combination of e-billing and a corresponding payment as a viable alternative to the direct debit.

For B2B, banks have a variable attitude, some monitoring developments, others ruling it out of scope, others looking for partnerships to originate supply chain finance, others seeing value in related e-services and others engaging in invoice processing itself. The latter is most likely to be deployed on the basis of partnerships with service providers or B2B platforms and ‘white-labelled'. Indeed this service provider community is coming of age and recently formed a trade association at European level (www.eespa.eu). Some banks have joined EESPA.

A final thought: banks are enterprises in their own right and are increasingly likely to enter e-invoicing for their corporate purchasing. There is a lot going on just ‘upstream' of the payment component.

Charles Bryant is a consultant active in the e-invoicing and payments area. He advises the Euro Banking Association, and OB10.com. He represents the UK in the EU Multi-Stakeholder Forum on e-Invoicing and is Vice-Chairman of the European E-Invoicing Service Providers Association (EESPA).

Additional note: E-invoicing is outside the scope of the EPC, however, it is recognised that there is a strong link between e-invoicing and the Single Euro Payments Area (SEPA) programme. The EU authorities have identified progress on e-invoicing as a principal policy goal. In May 2010, the European Commission (the Commission) published the communication ‘A Digital Agenda for Europe' (see link below), which defines the key enabling role that information and communication technologies (ICT) will have to play if Europe wants to meet the strategic objectives identified in the Commission's ‘Europe 2020' strategy. The ‘Digital Agenda for Europe', states that: "SEPA will also provide a launch platform for value added services linked to payments, such as the development of a European e-invoicing framework." The Commission set out specific measures aimed at promoting the development of a European e-invoicing framework in its communication ‘Reaping the Benefits of Electronic Invoicing for Europe' (see link below), which clarifies that the Commission sees e-invoicing becoming the predominant method of invoicing by 2020.

Related links:

Important Notice to All SEPA Stakeholders: Effective Date of Next Versions of SEPA Credit Transfer and SEPA Direct Debit Rulebooks will be 1 February 2014!

Tue, 26 Jun 2012 10:01:01 GMT

The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes evolve over time to reflect changes in market needs and updates of technical standards. To ensure planning security for all market participants, publication of updated versions of the SCT and SDD Rulebooks follows an established change and release management cycle.

The EPC publishes updated versions of the rulebooks once annually in November of each year. These updated versions normally take effect in the third week of November of the following year. In accordance with industry best practice, payment service providers and their suppliers therefore have sufficient lead time to address rulebook updates prior to such changes taking effect.

The next version of the SCT and SDD Rulebooks (SCT Rulebook version 7.0, SDD Core Rulebook version 7.0 and SDD Business to Business (B2B) Rulebook version 5.0), will be published in November 2012. Based on the established release management cycle, the updated versions should take effect on 16 November 2013.

Single Euro Payments Area (SEPA) stakeholders however are currently working towards achieving compliance with the 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), which defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation.

As a result, the EPC decided to postpone the effective date for the SCT Rulebook version 7.0, SDD Core Rulebook version 7.0 and SDD B2B Rulebook version 5.0, from 16 November 2013 to 1 February 2014. This allows market participants sufficient time to adapt their systems and operations to comply both with the SEPA Regulation and the updated version of the rulebooks.

The effective date of the rulebook versions published in November 2011 remains unchanged:

The SCT Rulebook version 6.0 will go live on 17 November 2012 (see link to ‘SCT 2012 Rulebook' below).
The SDD Core Rulebook version 6.0 and the SDD B2B Rulebook version 4.0 will go live on 17 November 2012 (see link to ‘SDD 2012 Rulebooks' below).

In May 2012, the EPC launched the annual public consultation on possible modifications to be introduced into the next version of the SCT and SDD Rulebooks. The EPC encourages all SEPA stakeholders to provide feedback by 13 August 2012. To participate in the public consultation, refer to the first link below. The annual EPC scheme change management cycle offers all market participants a unique opportunity to shape the future of euro payments - so do not miss it!

Related links:

Every Vote Counts! A Friendly Reminder to Participate in the EPC 2012 Public Consultation on the Evolution of the SEPA Schemes

Fri, 15 Jun 2012 10:01:01 GMT

In May 2012, the EPC launched the annual public consultation on possible modifications to the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Scheme Rulebooks. The EPC encourages all Single Euro Payments Area (SEPA) stakeholders to provide feedback by 13 August 2012. The SCT and SDD Schemes evolve over time based on a transparent change management process adhered to by the EPC. This evolution reflects changes in market needs and updates of technical standards. The annual EPC scheme change management cycle offers all market participants a unique opportunity to shape the future of euro payments - so do not miss it!

For details on the principles governing the annual EPC scheme change management cycle, refer to the SEPA Scheme Management Internal Rules (see below). The document contains a description of the internal organisation, structure, rules, and processes that make up the scheme management of the SCT and SDD Schemes. Such processes cover administration and compliance, and scheme change management, including structured dialogue with stakeholders. The SEPA Scheme Management Internal Rules are considered an integral part of the scheme rulebooks.

Any stakeholder may introduce suggestions for changes to the SCT and SDD Rulebooks. All suggestions for changes to the rulebooks are evaluated by the EPC SEPA Payment Schemes Working Group and are consolidated into a single change request per rulebook (the SCT Rulebook, the SDD Core Rulebook and the SDD Business to Business (B2B) Rulebook):

SCT Rulebook Change Request Consultation Document 2012 (see below): to share your feedback please complete the online questionnaire posted at http://www.smart-survey.co.uk/v.asp?i=52371yemfd.
SDD Core Rulebook Change Request Consultation Document 2012 (see below): to share your feedback please complete the online questionnaire posted at http://www.smart-survey.co.uk/v.asp?i=52410djgse.
SDD B2B Rulebook Change Request Consultation Document 2012 (see below): to share your feedback please complete the online questionnaire posted at http://www.smart-survey.co.uk/v.asp?i=52471iyxtm.

In addition, the EPC publishes a change request which details proposed changes to the SEPA Scheme Management Internal Rules:

SEPA Scheme Management Internal Rules Change Request Consultation Document 2012 (see below): to share your feedback please complete the online questionnaire posted at http://www.smart-survey.co.uk/v.asp?i=52472mdfbv.

Should you encounter any technical difficulties in accessing or completing the questionnaires, please contact the EPC Secretariat at secretariat@epc-cep.eu. Proposed changes detailed in the change requests, which are broadly accepted by all stakeholders, are taken forward.

In February 2012, the European legislator adopted the ‘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; see below). The SCT and SDD Schemes will have to comply with the technical requirements detailed in Article 5 and in the Annex to the SEPA Regulation. Some of the change suggestions submitted with this year's public consultation have been introduced by the EPC in order to ensure the schemes' compliance with the SEPA Regulation. For further details on the impact of the SEPA Regulation on the future evolution of the SEPA Schemes, refer also to the EPC Newsletter article ‘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' (see below).

The updated versions of the SCT and SDD Rulebooks will be published in November 2012. In accordance with industry best practice, payment service providers and their suppliers have a one-year lead time to address rulebook updates prior to such updates taking effect.

Related links:

More EU Action Impacting Payments in the Pipeline? EPC Responds to the European Commission Green Paper on Card, Internet and Mobile Payments

Tue, 29 May 2012 10:01:01 GMT

The European Commission (the Commission) stated that by summer 2012 it will determine the need for European Union (EU) action to address ‘gaps' it perceives with regard to competition, choice and innovation in the area of card, mobile and internet payments. The EPC does not support a number of related assumptions and suggestions put forth in the Commission's Green Paper ‘Towards an integrated European market for card, internet and mobile payments', published for consultation in January 2012. Consequently, the EPC believes that many of those suggestions will not help achieve the objectives stated in the Green Paper and may even undermine their realisation. The detailed response of the EPC to the 32 questions tabled by the Commission with the Green Paper is set out at the end of this blog.

A thorough factual analysis of the EU payment landscape is a prerequisite for any conclusion that further regulatory action may be required. This analysis should recognise the following market realities: Europe is not a fully integrated market in terms of economic development, cultural background, customer preferences or regulatory framework. Europe and its payment markets cannot be considered in isolation as they are part of an increasingly integrated global economy.

The EPC's response to the Green Paper outlines the following key policy considerations which, in the view of the EPC, should be observed when determining the need for EU action impacting card, mobile and internet payments:

The societal cost of cash and the societal benefit of migration to electronic payments are largely ignored by the Green Paper, whereas the active promotion of non-cash means of payment would significantly contribute to the achievement of the objectives pursued by the Green Paper.
Regulatory intervention should not undermine the innovative capacity of the European payment sector and its competitiveness in the global marketplace.
Regulation risks stifling innovation and market participant-led standardisation initiatives.
Regulation is not suited to keeping pace with the fast evolution of technology, fraud and market developments. As a matter of principle, any regulatory action should be technology-neutral.
Ensuring a level playing field for all players active in the European marketplace from a competitive, regulatory and supervisory perspective must be a public policy priority.
Payments should be run as a business in a market economy.
Legal clarity and certainty at EU level is a critical prerequisite for creating a stable and predictable Single Euro Payments Area (SEPA) wide environment for investments in new payment initiatives and innovation - e.g. interchange fees.
Integrity and customer trust are key in payments and should not be compromised.
End-user interests should be properly balanced with a particular focus on ensuring tangible benefits for consumers.
Any regulatory initiative should be supported by a thorough impact assessment and subject to a comprehensive public consultation and appropriate implementation schedules.

The EPC regrets that the Green Paper seems to overlook major market achievements to date to progress SEPA, e.g. development and launch of SEPA Credit Transfer and SEPA Direct Debit Schemes, publication of the SEPA Cards Framework and the SEPA Cards Standardisation Volume - Book of Requirements. Migration to EMV chip for face-to-face card transactions is nearly completed. More generally, the market is witnessing a spectacular growth in card transactions and contributions to the development of an integrated mobile payment ecosystem.

Contrary to the Commission's assumption propagated with the Green Paper, payments do not act as a main barrier to the development of e-commerce otherwise e-commerce would not have experienced continuous fast growth as evidenced by several market studies. This market is, and has been, growing with double digit growth rates continuously. This is not least because of the provision of many well accepted payment solutions by payment service providers in general (card payment on the internet, online banking based payment solutions, wallet solutions, etc.). The ‘Consumer market study on the functioning of e-commerce and internet marketing and selling techniques in the retail of goods', prepared on behalf of the Executive Agency for Health and Consumers (EAHC) (see link below), lists consumers' greatest concerns about buying products online from another EU country. The study finds that none of the top five concerns relate to payments. The EAHC performs the tasks and activities entrusted to it by the Commission, and it works closely with the Commission's Directorate General (DG) Health and Consumers. The report ‘European Cross-border E-commerce - The Challenge of Achieving Profitable Growth' (Accenture; see link below), reveals that fragmentation of payment systems does not rank within the top 15 issues having an impact on EU cross-border online trading.

The position paper on ‘Online Payments in Europe', published in June 2011 by the e-Payments Merchant Initiative (see link below), highlights the fast development of e-commerce in Europe. This position paper states: "In the past 15 years e-commerce has become a mature market and is still growing. This trend is expected to continue in the coming years due to the further proliferation of mobile devices (smartphones, tablets) and the customer need of ‘being always online'. Following this market success, e-commerce payments have become a major challenge in the past decade. The vibrancy and innovation of payments is resultant from imperfections in the European payments landscape. These imperfections bring opportunity to create new more efficient methods to consumers and merchants. Many positive developments have taken place to optimise payments for the web. Innovation has seen traditional payment methods come under pressure as consumers and merchants migrate to more convenient and efficient and secure payment methods." The e-Payment Merchant Initiative concludes: "Allowing free market forces, to drive the evolution in the European payments landscape is the best possible way of moving to a more perfect model."

The question now is whether the Commission will actually consider the feedback from market participants as well as valid research when determining whether there would be a need for further EU action in the area of card, internet and mobile payments.

Related links:

Part V: Get Ready for SEPA by February 2014 – Impact of the SEPA Regulation on Payment Service Users

Thu, 10 May 2012 10:01:01 GMT

This series of EPC Blogs highlights aspects relevant in particular for payment service users (PSUs) transitioning to the Single Euro Payments Area (SEPA). Part V clarifies that the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation, see link below) affects not only payment service providers (PSPs), but also PSUs. This blog focuses on PSUs which are not consumers, i.e. corporates, small and medium sized enterprises, public administrations and government agencies. The SEPA Regulation stipulates the mandatory deadlines for compliance with its rules for euro credit transfer and direct debit transactions. In the euro area, this will be 1 February 2014, subject to certain limited exemptions mentioned in the SEPA Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). To achieve compliance with the core provisions of the SEPA Regulation, PSUs have to implement significant changes to their operational models, including investing in system upgrades, testing and staff training.

The provisions of the SEPA Regulation that are of the greatest relevance for PSUs are set out in Articles 5, 7 and 16, as well as in the Annex to the Regulation.

Article 5 details the technical and business requirements that should be observed when carrying out euro credit transfer and direct debit transactions. It also references the data elements detailed in the Annex to the Regulation that should be provided with a credit transfer and a direct debit payment. Article 5 mandates PSUs to:

Provide the International Bank Account Number (IBAN) of the account that should be credited or debited and, where necessary, the Business Identifier Code (BIC) of the account-holding payment service provider. The SEPA Regulation stipulates the timelines for application of the so-called ‘IBAN only' rule. Article 5 (7) of the SEPA Regulation states that "after 1 February 2014 for national payment transactions and after 1 February 2016 for cross-border payment transactions, PSPs shall not require PSUs to indicate the BIC of the PSP of a payer or of the PSP of a payee." Article 16 (6) however, provides that European Union (EU) Member States have the option to defer application of the ‘IBAN only' rule for national transactions to 1 February 2016. Therefore, after 1 February 2016 at the latest, PSPs must be able to identify the appropriate BIC to use where a customer chooses to provide the IBAN only.
Make arrangements to adapt to the usage of ISO 20022 XML message standards in the customer-to-bank space in relation to files of payment transactions. Article 16 (5) of the SEPA Regulation allows EU Member States to waive the requirement to use the ISO 20022 message formats for PSUs that initiate or receive individual credit transfers or direct debits that are bundled together for transmission until 1 February 2016, except in cases where a PSU requests such a service.

In addition, Article 5 sets out the rights of consumers with regard to direct debit collections, which are also relevant for payees (billers). Article 5 (3) (d) empowers a payer to be able to instruct its PSP to take the following actions in respect of direct debit collections:

To limit a direct debit collection to a certain amount and / or periodicity.
To verify each direct debit transaction and to check whether the amount and periodicity of the submitted direct debit transaction is equal to the amount and periodicity agreed in the mandate (where the mandate under the relevant payment scheme does not provide for the right to a refund) before debiting their payment account, based on the mandate-related information.
To block any direct debits to the payer's payment account, or to block or authorise any direct debits initiated by one or more specified payees.

Although these mandate checking obligations do not apply where neither the payer nor the payee are consumers, they may nevertheless impact on PSUs. A consumer may instruct its PSP to block all direct debits to its account or to ‘black list' a specified biller by blocking direct debits initiated by it. Similarly, under Article 5 (3) (d) a payer may instruct its PSP to only allow collections from a biller identified in a ‘white list'. In the event that the biller is included on the ‘black list', or excluded from the ‘white list', the payment will fail. The SEPA Regulation does not stipulate or offer any guidance as to how billers are to obtain information at a stage preceding a failed collection and what redress, if any, they could obtain in the event of erroneous failed payments.

The SEPA Regulation ensures the continued legal validity of existing direct debit mandates under the SDD Scheme, provided that these fall within the provisions of Article 7. This facilitates the transition to SDD for both billers and their customers.

Article 16, in an attempt to respond to a broad range of requests for flexibility articulated by various parties throughout the legislative process, has introduced several exemptions. As highlighted above, it permits individual EU Member States to extend the deadline for compliance with some of the provisions of the SEPA Regulation to 1 February 2016. It is arguable that this attempt at flexibility breeds confusion and risks translating into a prolonged patchwork of national variations, leaving PSPs and PSUs uncertain as to what will apply, when, where and how. The market will have more clarity by 1 February 2013, by which time EU Member States must notify the European Commission of the derogations that they intend to use (see Article 16 (7)).

It is strongly recommended that PSUs analyse the impact of the SEPA Regulation on their operational models now, even if EU Member States opt to make use of the derogations permissible under Article 16. To date, the experience of early movers on the end user side handling major payment volumes indicates that migration to SEPA Schemes and technical standards requires careful planning. The relevant actions and resources should be identified as soon as possible. For further details, refer to the EPC Newsletter article ‘The Time to Act is Now. Impact of the SEPA Regulation on Payment Service Users' (see link below). For best practice identified by bank customers who have successfully completed migration to SEPA, refer to parts I through IV of this EPC Blog series and the SEPA case studies featured in the EPC Newsletter (see links below).

Related links:

Part IV: Get Ready for SEPA by February 2014 – Early Movers on the Customer Side Share Lessons Learnt. ISO 20022 is the New Language of Payments!

Wed, 18 Apr 2012 10:01:01 GMT

This series of EPC Blogs highlights best practice identified by bank customers who have successfully completed migration to the Single Euro Payments Area (SEPA). Part IV focuses on the implementation of the ISO 20022 message standards. The complete series reflects the experience of early movers on the demand side who have shared their lessons learnt in the EPC Newsletter and in the EPC Video ‘SEPA for Billers' (see links below).

The European Union (EU) ‘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, see link below), 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 SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). Article 5 (1)(d) of the SEPA Regulation states that payment service providers must ensure that where a payment service user "that is not a consumer or a micro-enterprise, initiates or receives individual credit transfers or individual direct debits which are not transmitted individually, but are bundled together for transmission, the message formats specified in point (1)(b) of the Annex are used". Point (1)(b) of the Annex to the SEPA Regulation clarifies that the message formats referred to in Article 5 are the ISO 20022 XML message standards. Article 16 (5) of the SEPA Regulation, however, allows EU Member States to waive the requirement to use the ISO 20022 message formats for payment service users until 1 February 2016.

ISO 20022 is not only a suite of message standards but a procedure proposed by the International Organization for Standardization (ISO) to develop message standards for all domains of the financial industry. ISO 20022 is a standard to develop standards, so to speak. The most innovative characteristic of ISO 20022 is its modeling methodology which decouples the business rules from the physical message formats. The models evolve with the business, while the formats evolve with the technology to benefit from the latest innovations. This results in the highest possible degree of automation, ease of implementation, openness and cost-efficiency. The ISO 20022 approach, therefore, offers a more efficient and faster way of developing and implementing message standards that serve as the basis for long term financial services solutions. For more information, visit the ISO 20022 Website (see link below). Make sure to watch the video posted on the ISO 20022 Homepage which nails the concept in less than two fun minutes!

The ceramics manufacturing company Villeroy & Boch, headquartered in Germany and represented in 125 countries around the world, is a true SEPA pioneer. Villeroy & Boch embraced the SEPA vision early and moved swiftly. Dr Warncke, Group Financial Controller at Villeroy & Boch, comments: "We were fully aware that early movers have the most to gain, and therefore wanted to realise the benefits resulting from the harmonisation of the euro payments market as soon as possible." The group completed migration to SCT in 2008 and migration to both SDD Core and SDD Business to Business in 2011. Villeroy & Boch processes some 175,000 credit transfers with a volume of 310 million euros and 25,000 direct debits with a volume of 75 million euros annually.

This player also anticipated the advantages of implementing the ISO 20022 message standards. Dr Warncke adds: "We executed our first ISO 20022 FileAct payments in August 2008. In the fall of 2008, 90 percent of our supplier payments were done through SWIFT using ISO 20022. The implementation of the ISO 20022 message standards reduces the complexities and application development times required to manage our payment architecture. Adapting to this global standard also allowed us to increase security and improve internal processes." To be specific, Dr Warncke outlines that the implementation of the ISO 20022 message standards has enabled Villeroy & Boch to achieve the following:

A wider set of structured and enhanced message information with the transaction, thereby raising the efficiency in end-to-end automation.
Reduced application development times.
Decreased number and complexity of interfaces.
Reduced support and maintenance costs, by avoiding customised or proprietary formats.
Increased security.
Improved internal processes.

He continues: "Consequently, we could cut down the costs associated with the maintenance of different national data formats and related IT standards." Last but not least, Dr Warncke points out; it is "also very important to keep in mind that the ISO 20022 message standards are a global standard. Taking into account that Villeroy & Boch is a globally active company, we certainly aim to further harmonise our payment business, based on the ISO 20022 message standards." He concludes: "The SCT and SDD Schemes work very well for us. I do however see room for improvement in the application of ISO 20022 message standards. ISO 20022 is the new language in payments. Nevertheless, we notice that there are quite a lot of different dialects of this language used across SEPA. Ideally, we would like to see fewer dialects and further harmonisation regarding the use of this standard. This would allow us to achieve even more efficiency gains with ISO 20022." (See also link to the EPC Newsletter article ‘ISO 20022 Message Standards: Too Many Flavours?' below).

Article 2 (17) of the SEPA Regulation specifies that the message standard referenced in Article 5 and in point 1(b) of the Annex to the Regulation refers to the ISO 20022 message standard, "in accordance with business rules and implementation guidelines of Union-wide schemes for payment transactions falling within the scope of this Regulation." Union-wide schemes are, for example, SCT and SDD. The guidelines referred to are, for example, the implementation guidelines published by the EPC with regard to the SCT and SDD Schemes. In the ISO process, business requirements are defined for all global markets. Different markets have different data needs. Thus, they may need to define their own version within the global standard, specific to its own situation. In this respect, the ISO messages have been adjusted to meet the SEPA requirements. The SEPA data formats as set out in the EPC implementation guidelines are a subset of the global ISO 20022 standards. The role of the EPC in defining the SEPA data formats therefore consists in identifying all necessary data elements for making SEPA payments as defined in the SCT and SDD Rulebooks within the global standard. These SCT and SDD implementation guidelines are available for download on the EPC Website (see links to ‘SEPA Credit Transfer' and ‘SEPA Direct Debit' below).

Dr Warncke of Villeroy & Boch confirms: "Our figures demonstrate that the benefits resulting from migration to the SEPA Schemes and standards exceeded the investment in the first year alone. In line with our expectations, we were able to streamline internal processes, lower IT costs, reduce costs based on bank charges and consolidate the number of bank accounts and cash management systems. In addition, we could further centralise our cash management. The fact that there is now one harmonised SDD Scheme which allows collecting payments throughout Europe is also a major advantage. As mentioned above, we realised significant efficiency gains from the implementation of the ISO 20022 message standards. The reality is that the benefits of an integrated euro payments market outweigh the short term efforts to get there. The earlier you start the better." The April 2012 edition of the EPC Newsletter features a detailed article on the Villeroy & Boch SEPA migration project (see 'EPC Newsletter Series: SEPA Case Studies' under links below).

Related links:

Part III: Get Ready for SEPA by February 2014 – Early Movers on the Customer Side Share Lessons Learnt. How to Choose the Right IT Strategy

Thu, 29 Mar 2012 10:01:01 GMT

This series of EPC Blogs highlights best practice identified by bank customers who have successfully completed migration to the Single Euro Payments Area (SEPA). Part III focuses on how to determine the appropriate strategy to ensure the compatibility of IT systems with SEPA payment schemes and technical standards. The complete series reflects the experience of early movers on the demand side who have shared their lessons learnt in the EPC Newsletter and in the EPC Video ‘SEPA for Billers' (see links below).

The European Union (EU) ‘Regulation establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation, see link below), 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 SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). Project managers, who have already concluded the migration exercise, unanimously recommend that organisations which still have to adapt systems and operations to the SEPA schemes and technical standards become active immediately.

With regard to the adaptation of IT systems, project managers should consider whether to:

Adapt the existing IT architecture using conversion services.
Build new systems.
Coordinate IT adaptation in house or outsource.
Look beyond SEPA requirements and consider, in addition, initiatives such as e-invoicing, e-signatures, authentication of bank infrastructures and third party services, e-procurement and mobile payment services, for example.

The experience of early movers on the demand side demonstrates that choosing the best approach is subject to the specific situation of individual business and public entities. An important factor in the decision-making process is the current technical state of systems. In addition, interdependencies with systems of business partners must be analysed to ensure continued compatibility.

Stefan Scheidgen, Head of Cash Management and Accounting at Deutsche Post Pension Service Business Division, points out: "IT changes are needed to get master data and payment data streams SEPA ready - that is what everybody plans for. Other IT changes are required due to the implementation of migration tools, temporary converter solutions, changes related to mandate management and pre-notifications under the SDD Schemes and changes of interfaces in processes. The scale of IT investment mainly depends on the existing systems landscape. The age of the systems and capabilities need to be considered. In our experience, even mainframe applications can be SEPA ready while occasionally applications with more up-to-date technology might need some shared converting support. Change requirements for business processes also vary by industry and degree of automation. If you need to synchronise several external service providers, the picture could be very different than in an environment where you do not outsource. This huge regulatory change could also be an option to rethink and consolidate some of the investment requirements fully driven by regulatory changes." Deutsche Post Pension Service Business Division disbursed the first SCT payments to German retirees in November 2009. The division processes 25 million credit transfers monthly; 90 percent of which were SCTs as of January 2012. The division is now in the process of migrating the remainder of its payment volume.

Mikko Grönman, Project Manager at the Finnish Government Shared Services Centre for Finance and Human Resources (HR), comments: "We handled SEPA implementation as a stand-alone project; however we did take into consideration other IT projects in the pipeline. We opted to implement conversion services wherever possible to achieve SEPA-compliance of existing systems. There is a specific reason why this approach was chosen: in the years 2011 through 2014, the Treasury's so-called ‘Kieku' IT programme is being introduced across all central government administrative entities. The objective of the Kieku IT system is to improve the efficiency and quality of operations with the help of uniform and streamlined processes, as well as to support the service centre model. This Kieku IT system was built taking into consideration SEPA requirements. We also had to take into account a further new IT programme being rolled out on the customer side to manage travel expenses. So, in essence, we focused on implementing solutions that allow us to continue using the systems currently in place." The conversion services used to achieve SEPA-compliance ensure that the SEPA functionalities introduced into the centre's existing IT architecture are compatible with other IT programmes rolled out in parallel. "Replacing existing systems by new systems would also have proven too costly," Mikko Grönman clarifies.

Created in 2010, the Finnish Government Shared Services Centre for Finance and HR merges the activities of four separate shared service centres that previously existed to support individual ministries of the central government and the judiciary. The centre integrated and concluded SEPA implementation projects, first launched in 2009, by these four separate administrative entities. The centre provides financial administration and HR support for approximately 110 central government agencies, departments and funds as well as approximately 80,000 private employees. The total volume of payments processed annually amounts to some 80 billion euros (2010). The organisation essentially concluded migration to SCT and the ISO 20022 message standards by the end of 2010.

Anneli Seppälä, the Payment Processing Manager of Kela, the Social Insurance Institution of Finland, opted for this strategy: "The Kela SEPA project relied on the following premises: firstly, we decided to manage the entire process in house. Due to the fact that we appointed in house staff to upgrade all relevant IT systems, rather than to rely on external providers, we were in control of the process at all times. Secondly, our goal was to create long-term SEPA-compliant solutions rather than to rely on conversion services used to ‘translate' legacy formats into ‘SEPA lookalikes'. We also opted to implement the required web services and public key infrastructure (PKI) instead of choosing an interim solution. As a result, all Kela systems are SEPA compliant. Lastly, it proved very important to have a full time SEPA project coordinator." Given that Kela does not collect direct debits, the project focused on the implementation of SCT and the ISO 20022 message standards. Kela sent its first SCT payments in May 2009. In 2010, the organisation disbursed some 21.6 million SCTs; the Kela SEPA project was concluded at the end of that year.

A phased approach regarding the decision whether to update existing systems based on conversion services or building new systems may also work very well. Stefan Scheidgen adds: "I have been lucky that the strategic IT planning of the Pension Service Business Division was wise enough to provide a flexible solution that proved to be an enabler for the project. For some legacy master data systems we - as part of the project deliverable - still operate using some converter functionality. Migration of those legacy master data systems is scheduled already. The last significant replacement is currently underway and will be delivered by the end of 2012."

Future entries in this EPC blog series will share additional lessons learnt by early movers on the end-user side as regards aspects relevant to ensure compliance with the SEPA Regulation by 1 February 2014 in the euro area.

Related links:

Part II: Get Ready for SEPA by February 2014 – Early Movers on the Customer Side Share Lessons Learnt. Why IBAN and BIC Remain Important for Bank Customers

Thu, 15 Mar 2012 11:01:01 GMT

This series of EPC Blogs highlights best practice identified by bank customers who have successfully completed migration to the Single Euro Payments Area (SEPA). Part II focuses on the transition to the International Bank Account Number (IBAN) and the Business Identifier Code (BIC). The complete series reflects the experience of early movers on the demand side who have shared their lessons learnt in the EPC Newsletter and in the EPC Video ‘SEPA for Billers' (see links below). The European Union (EU) 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA 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 SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). Project managers who have already concluded the migration exercise unanimously recommend that organisations which still have to adapt systems and operations to the SEPA schemes and technical standards become active immediately. These experts also identified the conversion of customer account data to IBAN and BIC as one of the main challenges.

It is important to note that the SEPA Regulation includes detailed provisions on the use of both IBAN and BIC by payers and payees. The Regulation also mandates that after a transitional period, payment service users will no longer have to indicate the BIC. It is recommended however that businesses and public administrations now preparing migration to the harmonised SEPA payment schemes continue to collect the BICs related to customer accounts for the reasons detailed below.

The SEPA Regulation (see 'related links' below), specifically, states that a payee accepting credit transfers must communicate the IBAN of the account to which the payment should be credited and the BIC of its payment service provider (PSP), "but only where necessary", to its business partners (see Article 5 (4) and point (1) (a) of the Annex to the Regulation). Likewise, a payer wishing to make a payment by direct debit must communicate the IBAN of the account which should be debited and the BIC of its PSP, "but only where necessary", to the payee (see Article 5 (5) and point (1) (a) of the Annex to the Regulation). Recital (8) of the Regulation states that "in the vast majority of payment transactions in the Union, it is possible to identify a unique payment account using only IBAN without additionally specifying BIC." It would be helpful if the European legislator could clarify how payers and payees are supposed to determine whether the IBAN alone is sufficient to identify the particular payment account which should be credited or debited.

The SEPA Regulation stipulates that payment service users will not have to provide the BIC for national transactions after February 2014 (see Article 5 (7)). The EU Member States however, have the option to extend this deadline to February 2016 (see Article 16 (6)). This ‘IBAN only' rule will apply for cross-border transactions after February 2016 (see Article 5 (7)). The SEPA Regulation also states that EU Member States may allow PSPs to provide consumers with conversion services for national payment transactions, enabling consumers to continue using the national account identifier (Basic Bank Account Number - BBAN) instead of the IBAN, until 1 February 2016 (see Article 16 (1) and point (1) (a) of the Annex to the Regulation).

The EU lawmaker introduced the ‘IBAN only' rule at the last stage of the legislative process leading to the adoption of the SEPA Regulation. The ‘IBAN only' rule effectively overwrites the SCT and SDD Schemes, which since their inception relied on the provision of both the IBAN and the BIC. Early movers on both the supply and demand sides already completed the transition to IBAN and BIC. As stated above, it is recommended that for the time being, businesses and public administrations continue to collect the BICs related to customer accounts taking into consideration the following:

The February 2014 deadline for application of the ‘IBAN only' rule for national transactions could be extended at the level of EU Member States to February 2016.
The BIC will be required for cross-border transactions until 2016, as specified in Article 5 of the SEPA Regulation.

SEPA project managers representing corporate and public entities, who have shared their migration experience in the EPC Newsletter, stress the need for careful planning when preparing the transition to IBAN and BIC. They also highlight the importance of thorough testing prior to making the move in the live environment. To give an example: Deutsche Post Pension Service Business Division disburses 25 million pension payments per month on behalf of the public German retirement scheme, to retirees residing in Germany and abroad. The division started its SEPA migration project in early 2009 and essentially completed the process in June 2011.

Stefan Scheidgen, Head of Cash Management and Accounting at Deutsche Post Pension Service Business Division, comments: "The division converted all customer account data to the BIC and the IBAN in 2009. Correct customer account data is the precondition for timely and reliable disbursement of pension payments every month. We had national bank account numbers and bank identifiers for some 24 million accounts on file, which we had to convert to IBAN and BIC. The transition of customer account data worried us most, given that mistakes would have resulted in the inability to execute a pension payment. Obviously, the recipients of these payments can not be expected to tolerate any mistakes. We therefore managed the conversion of the account information in two steps: firstly, in the fall of 2009, all bank account related data was automatically converted and validated using tools developed by the German banking industry and recommended by Bundesbank [central bank of the Federal Republic of Germany], such as the ‘IBAN-Service-Portal' and the ‘SEPA Account Converter'. In a second step, we verified and tested the converted data with every bank and group of banks with whom we cooperate. In fact, prior to migration in the live environment, each future SCT payment was run through multiple test phases. Thanks to the great performance of our migration team and the support of cooperating banks, we were able to ensure a very high level of quality (about 99.99 percent) in the process of converting account data to IBAN and BIC."

It is also recommended that businesses and public administrations preparing for the conversion of account data to IBAN and BIC, take the following steps:

Review invoicing and accounting procedures.
Identify and adapt all systems that operate on the basis of account numbers and bank codes.
Define standardised processes for cross-border payments to add missing IBAN and BIC codes.
Provide easily accessible information on IBAN and BIC to business partners and customers. This includes, for example, updating invoices, stationery and other documents used to communicate account information to others.

In addition, the EPC recommends that national banking communities provide centralised conversion services to their business customers. To obtain related information, businesses and public administrations should contact the appropriate bodies at national level. The European Central Bank (ECB) makes country-specific SEPA information, including SEPA-related contact links, available (see link to ‘ECB-SEPA-by-Country Hub' below).

Stefan Scheidgen of Deutsche Post Pension Service Business Division concludes: "In November 2009, the first pension payments were disbursed as SCTs. We made the decisive step in the transition to SEPA in April 2010, when approximately 1.6 million payments to retirees with an account at Postbank were executed for the first time as SEPA payments. This step served as our benchmark, which allowed the verification of all related concepts and processes. By June 2011, 20 million retirement payments were SEPA compliant and the migration project was essentially complete."

The next EPC Blog, highlighting key aspects relevant for bank customers migrating to SEPA, will focus on best practice identified by early movers when determining the appropriate IT strategy to achieve SEPA compliance.

Related links:

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

Part I: Get Ready for SEPA by February 2014 - Early Movers on the Customer Side Share Lessons Learnt. The Time to Act is Now

Wed, 29 Feb 2012 11:01:01 GMT

Preparation is everything and time is of the essence: this holds true for most things in life and is key for any business and public entity transitioning to the Single Euro Payments Area (SEPA) within less than two years. It may also be worthwhile considering lessons learnt by early movers on the customer side, which are highlighted in the EPC Newsletter and in the new EPC video ‘SEPA for Billers: The Time to Act is Now' (see links below).

In February 2012, the European Parliament adopted the ‘Regulation establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009' (the SEPA Regulation), which 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 SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). The experience of early movers handling major payment volumes indicates that it takes (at least) two years to complete migration to the SEPA payment schemes and standards.

Deutsche Post Pension Service Business Division started its SEPA migration project in early 2009 and essentially completed the process in June 2011. The division disburses 25 million pension payments per month on behalf of the public German retirement scheme, to retirees residing in Germany and abroad. In January 2012, 22.5 million of these payments were SCTs, the remainder of the volume will be migrated shortly. Stefan Scheidgen, Head of Cash Management and Accounting at Deutsche Post Pension Service Business Division, points out that launching the migration project now "probably means that availability of external resources will be restricted. It also needs to be kept in mind that the SEPA migration project does not only impact the accounting and treasury departments, but the entire organisation and administration." To ensure SEPA readiness by the deadline set with the SEPA Regulation, he advises: "If you are a small or medium-sized business: plan one or two weekends for your accounting staff to convert master data and ensure budget is available to manage amendments to the IT system. If you are a bigger company (more than 5,000 master data records and more than three IT systems): Run! This means you must act now."

UNIQA Group Austria, which services approximately 7.5 million customers in 21 regional markets, started the migration project at the beginning of 2008 and essentially concluded the transition in 2011. The project covered migration to both SCT and SDD. Thomas Weissmann, Project Manager with the group, clarifies: "SEPA is an excellent and necessary idea. It should be kept in mind however that the dimensions of the SEPA migration project are comparable to those associated with the transition to the euro currency a decade ago."

The Finnish public sector spearheads SEPA migration by public administrations in the European Union (EU). According to the European Commission Services' fifth survey on ‘Public Administrations' Preparedness and Migration to SEPA' (see link below), public administrations in Finland boasted an SCT migration rate of 90.9 percent in June 2011. By end 2011, Finland completed migration to SCT and the ISO20022 message standards. Anneli Seppälä, the Payment Processing Manager of Kela, the Social Insurance Institution of Finland, recalls: "In October 2007, we set up a dedicated work team of our payment experts to analyse which changes would be required within the organisation in order to migrate to SEPA. This research also identified the staff to be appointed to the Kela SEPA implementation team. Based on this analysis, we developed a very specific project plan which led to the start of the actual Kela SEPA project in May 2008." Kela disburses payments to the majority of the Finnish population. The institution manages more than one hundred different types of benefits and compensation schemes. The annual value of benefits and compensations amounted to approximately 12.2 billion euros in 2010. Kela makes some 33.3 million payments annually, which include 250,000 cross-border payments. The organisation sent its first SCT payments in May 2009. In 2010, Kela disbursed some 21.6 million SCTs and concluded its migration project at the end of this year.

SEPA project managers who shared their migration experience in the EPC Newsletter identified the following challenges:

Conversion of customer account data to the International Bank Account Number (IBAN) and the Business Identifier Code (BIC). (The SEPA Regulation stipulates that payment service users will not have to provide the BIC for national transactions after February 2014 however, EU Member States have the option to extend this deadline to February 2016. This ‘IBAN only' rule will apply for cross-border transactions after February 2016).
Implementation of the ISO 20022 message standards.
Adaptation to SDD mandate requirements.
Alignment of interfaces with customers and business partners to ensure seamless end-to-end payment processing.

These early movers however also confirm that migration to SEPA pays off. Stefan Scheidgen points out: "We have accomplished execution times of just one business day for SCTs, which allows our contracting partners to save liquidity. In the process of migrating to SEPA, we consolidated the previous four payment systems into one. We plan to further automate our banking processes, based on the implementation of SEPA schemes and standards, which will result in even more efficiency." Thomas Weissmann identifies these advantages: "Firstly, migrating to the harmonised SEPA payment schemes allows for more efficient account reconciliation. Secondly, being able to collect direct debits throughout Europe using the harmonised SDD Schemes is also a principal advantage for us." Anneli Seppälä comments: "Our experience confirms that our payment processes are more efficient following SEPA implementation." To get an overview of main aspects to consider when setting up a SEPA migration project, watch the new EPC video ‘SEPA for Billers: the Time to Act is Now'.

Related links:

SEPA 2.0: The New Regulatory Reality Governing the Integration of the Euro Payments Market

Wed, 08 Feb 2012 11:01:01 GMT

In February 2012, the European Parliament adopts the ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the SEPA Regulation, see link below), which will define 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 SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). The majority of market participants recognise the value of setting a deadline for migration to harmonised SEPA payment schemes through European Union (EU) Regulation. The EPC shares the view that an end date for phasing out legacy euro payment schemes for credit transfers and direct debits ensures planning security for all market participants.

The SEPA Regulation also sets the conditions to fully realise the benefits inherent to the harmonisation of the euro payments market. A study carried out on behalf of the European Commission already in 2007 (see link below), found that the replacement of existing national euro credit transfer and direct debit schemes by harmonised SEPA payment schemes holds a market potential of up to 123 billion euros in benefits cumulative over six years to the advantage of payment service users. As confirmed by the findings of this study, these benefits for bank customers are however contingent upon swift migration to a single set of SEPA payment instruments by both the demand and the supply sides.

The EPC has frequently pointed out that full migration to SEPA is subject to the appropriate legal and regulatory environment which must be established by the EU legislator. The substantial efforts of the banking industry to develop harmonised SEPA payment schemes, as requested by the EU authorities, did not - and, in light of EU antitrust law, could not - entail a responsibility of the industry to impose the replacement of existing national schemes by the new SEPA instruments. The fact that the mere existence of harmonised SEPA payment schemes did not trigger mass migration on the customer side did not come as a surprise. It must be highlighted as often as necessary that the SEPA process would never have occurred spontaneously; bank customers never asked for it. The integration of the euro payments market requires the political will and mandate to achieve it. By comparison: the EU monetary union did not materialise either by simply throwing euro notes and coins at people in the hopes they would enthusiastically abandon national currencies in the event. European integration is not a grassroots movement. The SEPA process confirms this rule. The SEPA Regulation is the fourth major regulatory intervention within a decade designed to achieve a harmonised euro payments market (see link ‘SEPA Legal and Regulatory Framework' below). With adoption of the SEPA Regulation, the EU lawmaker forcefully reiterates that SEPA is a policy-maker driven EU integration initiative.

This legislative act also redefines the process governing the evolution of the SCT and SDD Schemes. To-date, the EPC develops the SEPA payment schemes and frameworks, based on global technical standards developed by international standardisation bodies, in close dialogue with the customer community. Going forward, the SCT and SDD Schemes will need to be amended as mandated by the European Commission.

This means that the schemes will have to comply with the technical requirements detailed in Article 4a and in the Annex to the SEPA Regulation. The SEPA Regulation empowers the European Commission to amend the technical requirements set out in the Annex to the Regulation through ‘delegated acts'. ‘Delegated acts' are a new addition to the EU decision-making landscape. They were introduced by the Lisbon Treaty, which entered into force in December 2009 and more specifically, by Article 290 of the Treaty on the Functioning of the European Union (TFEU). Whereas European legislation is adopted by the EU legislators: the Council of Ministers (made up of representatives of the 27 EU Member States) and the European Parliament (made up of 754 directly elected members), Article 290 TFEU allows the Council and European Parliament to delegate the power to adopt non-legislative acts to the European Commission (the executive body).

When adopting these acts, the European Commission has committed to consulting experts appointed by EU governments in its preparatory work. It is uncertain to what extent the European Commission will consult SEPA stakeholders not appointed by EU governments. The European Commission has reiterated that it has a lot of autonomy in relation to adopting delegated acts and "experts will have a consultative rather than an institutional role in the decision-making procedure".

In light of this new regulatory reality, the EPC has no choice but to recognise that the expertise of payment experts employed by the banking industry may come second to the requirements defined by the EU legislator and the European Commission as regards the debate on the evolution of the SEPA payment schemes. The banking industry also calls again on the European authorities to refrain from stating that SEPA would be a "self-regulatory project run by the banking sector". As demonstrated above, this claim was erroneous in the past and is untenable today.

Related links:

EPC Publishes Version 6.0 of the SEPA Cards Standardisation Volume – Book of Requirements. SEPA Cards Standardisation Continues to Move Forward.

Wed, 25 Jan 2012 11:01:01 GMT

The objectives of a SEPA for cards will be achieved through the use of harmonised, interoperable and free standards, which are openly available to all parties within the card payment value chain. The work of the European Payments Council (EPC) and the Cards Stakeholders Group (CSG) continues to focus on a cards standardisation programme for a better, safer, more cost efficient and functionally richer card services environment, whatever the card product or scheme may be.

In 2009, the EPC promoted the creation of the CSG together with representatives from four other sectors (retailers, vendors, processors, card schemes). The creation of this body makes it possible to recognise the expectations of a broad range of stakeholders. This is realised, in particular by ensuring the strong co-management of the processes related to the identification of standards requirements and implementation best practices that will promote interoperability within the SEPA cards market. The initiative aims to remove technical obstacles to deliver a consistent customer payment card experience across SEPA. The work also encourages process efficiency throughout the card supply chain and the highest level of card payment security. The CSG manages the process of identifying standard requirements and implementation best practices that will promote interoperability in the SEPA cards market.

The need to standardise this market across SEPA was reinforced by the European Economic and Financial Affairs Council (ECOFIN) in December 2009, when it requested in its conclusion on SEPA that the industry should set the conditions for further standardisation in the area of cards. This request was echoed by the European Central Bank.

The CSG develops and maintains the SEPA Cards Standardisation Volume - Book of Requirements (Cards Standardisation Volume). This document defines a standard set of requirements to ensure a secure, interoperable and scalable card and terminal infrastructure across SEPA. In January 2012, the Cards Standardisation Volume version 6.0 was published on the EPC Website (see link below). The document, which underwent a period of public consultation in June 2011, incorporates various updates regarding functional requirements, security requirements, certification and labelling.

Changes to the Cards Standardisation Volume include:

• Chapter 2: plans for a labelling process to ensure a product's functional compatibility with the Cards Standardisation Volume.

• Chapter 4: functional requirement updates in relation to payment with cashback, dynamic currency conversion, aggregated payment amounts, surcharging and rebates.

• Chapter 5: security requirements and references to the latest industry international standards bodies' specifications, as well as the requirements of national authorities.

• Chapter 6: the certification process has also been further developed to establish a process to identify a product's security compliance with the Cards Standardisation Volume and SEPA requirements.

As with all previous versions of the Cards Standardisation Volume, the document is not final and should be viewed as an interim version. Future editions will be extended notably on security requirements - including card-not-present and innovative web payments, as well as certification.

As the Cards Standardisation Volume matures, however, there is a requirement within the marketplace to invest in accordance with its recommendations and update the document as and when needed, rather than adhere to an annual publication cycle. The EPC calls on stakeholders to continue to send suggestions and participate in the sub-groups established to ensure that the Cards Standardisation Volume can evolve in line with market needs. This open approach is key to the further development of the SEPA card market.

A dedicated article outlining in more detail the updates introduced into version 6.0 of the Cards Standardisation Volume will be published in issue 13 of the EPC Newsletter to go live on 30 January 2012. A link to this article will be added here once available.

EPC Newsletter Article (January 2012 Edition): Version 6.0 of the SEPA Cards Standardisation Volume - Book of Requirements Published.

EPC Scheme Management Committee: Call for Independent Candidates - Applications Invited Until 9 February 2012

Thu, 12 Jan 2012 11:01:01 GMT

The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes, as set out in the SCT and SDD Rulebooks, are key elements required to achieve the Single Euro Payments Area (SEPA). The ‘SEPA Scheme Management Internal Rules' (see link below) detail the principles governing the administration of the schemes, the process of ensuring compliance with the rules and the evolution of the schemes. These internal rules aim to ensure that the schemes are administered fairly and transparently at every stage in accordance with the SCT and SDD Rulebooks and general principles of applicable law. The administration and compliance function is performed by the EPC's Scheme Management Committee (SMC).

The SMC is composed of twelve members, three of which (including the SMC Chair), are independent members. The EPC is now seeking candidates to fill one independent seat on the SMC for the term in office commencing 1 April 2012.

A member of the SMC must display the highest standard of professional integrity and objectivity in relation to scheme management. An independent member should be a professional of good repute, with appropriate skills, who has a reasonable knowledge of the payments services sector. An independent member however, is not employed or otherwise affiliated with a scheme participant (a payment service provider (PSP) participating in the SCT and SDD Schemes) or its banking communities, service providers or a payment services user group or user association. A prospective independent member must possess appropriate academic and vocational qualifications for the position together with relevant work experience and a proven track record in a profession.

Specifically, the SMC performs the following tasks:

• Administration and approval of adherence applications relating to PSPs wishing to participate in the SCT and SDD Schemes.

• Investigation, evaluation and determination of complaints made against scheme participants in relation to alleged breaches of the rulebooks.

• The SMC may provide a voluntary conciliation service to scheme participants and to the EPC. Conciliation may only be used to determine unresolved issues that arise in respect of the rulebooks. This service is only available where the participant requesting this service can demonstrate that it has used reasonable endeavours to resolve disputes at a local level through national dispute resolution bodies.

• The SMC appeals function determines whether a decision, reached in complaints and adherence matters by the SMC in respect of an affected participant or a rejected applicant at first instance, was correct and, where appropriate, justifies the sanction imposed.

• The SMC oversees the activities of the EPC's Certification Authority Supervisory Board (CASB). The CASB handles applications from certification authorities who wish to become EPC approved in offering e-mandate services (for details on the CASB see the link ‘EPC Approval of Certification Authorities' below).

The SMC meets on a regular basis, and generally not less than four times per year, in Brussels. SMC members vested with the responsibility to review applications from PSPs seeking adherence to the SEPA Schemes meet on a monthly basis either in person or by telephone conference. Independent members of the SMC are entitled to claim a reasonable daily allowance, as well as travel and subsistence expenses.

The EPC invites candidates seeking appointment as an independent member of the SMC to send application letters, including an up-to-date resume, to: secretariat@epc-cep.eu by 9 February 2012.

Applications will be reviewed by the EPC's Nominating and Governance Committee (NGC). For more information on the NGC refer to the EPC Charter (see link below). The candidate to fill the vacant independent seat on the SMC as of 1 April 2012 will be elected by the EPC Plenary on 22 March 2012.

Related links:

SEPA Gaining Ground with Corporates

Thu, 05 Jan 2012 11:01:01 GMT

For the first time, the gtnews Payments Survey 2011 asked its global corporate readers to rank Single Euro Payments Area (SEPA) instruments among regularly used methods to make and receive payments. Although wire transfers* remain the most popular payment method across the board, just over a third of respondents said they regularly made payments via SEPA Credit Transfer (SCT), while 14 percent used SEPA Direct Debit (SDD). The results are almost identical for corporates receiving payments via SEPA instruments.

As expected, percentages were much higher in Western, Central and Eastern Europe (CEE) than in other regions. Interestingly, corporates operating in CEE reported the highest usage of SDDs, even greater than in Western Europe. Looking forward to plans within the next three years, the increase of SEPA instrument usage is expected to be substantial, with SDD usage increasing at a faster rate than that of SCT. Western Europe and CEE corporates are expected to see significant increase in usage, but even Middle East and African corporates estimate that SCT and SDD usage will increase by about 25 percent.

Almost 20 percent of corporate respondents already invested in SEPA compliance and more than 40 percent said that investment plans were already in the making, whether that is within a three-month timeline or just ‘at some point'. The majority of respondents cited ‘cost savings' as their reason for planning to or investing in SEPA, followed by ‘centralisation of payments' and ‘full SEPA adoption is inevitable, so I want to be prepared'. The reason least often cited was that ‘my bank encouraged me and helped me with the implementation of SEPA services'. Many asked for better communication about SEPA from their banking partners. SEPA is a great opportunity for banks to step up and help their corporate clients come to terms with how SEPA is going to affect their business. When asked which parties - bank, enterprise resource planning (ERP) supplier and consultancy firm - would the corporate ideally like to play a role in providing general information and services that facilitate the transition, banks come out on top. In Western Europe, 96 percent of corporates are looking to their banks to provide general information on the impact, how to prepare, what will change, etc. ERP suppliers, on the other hand, gain top spot when corporates are looking for software modules that allow SEPA transactions.

The 2011 Payments Survey results also show that some corporates are still hesitant to invest in SEPA services. When asked if their organisation planned to make that investment in the future, more than a third stated they had no plans; this translated into 20 percent of those corporates operating in Western Europe. On the plus side, these findings reflect a step forward in terms of SEPA uptake compared to the Payments Survey 2010, when almost 50 percent of corporates said that they were not planning a SEPA investment.

But what issues continue to hold corporates back? The top three reasons cited were:

• ‘SEPA is not applicable to my company'.
• ‘Need more insight on the impact of implementing SEPA in my company'.
• ‘Not convinced of the opportunities and benefits for me'.

‘Not applicable to my company' for not investing into SEPA compliance was the most cited reason regardless of geographical region. In my view, the most interesting result with regard to this question is that the reason least cited for not investing in SEPA was because ‘we are unwilling to commit without a firm end-date for existing domestic payments'. This is a conflicting result compared with a straw poll I conducted in September 2011 with European Treasurers Council members, which now numbers more than 150 members of senior level treasurers at the largest European corporates. When asked what could be done to increase the take up of SEPA, most responses mentioned the need for definite deadlines to make SEPA regulations mandatory. These findings demonstrate, in any case, that corporates must be educated - as a matter of urgency - on the fact that the forthcoming EU ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the SEPA Regulation) will define an end date for compliance of euro credit transfers and direct debits with this legislative act. Effectively, this means that existing national euro credit transfer and direct debit schemes will have to be replaced by the SCT and SDD Schemes by 1 February 2014.

Over 300 corporate respondents participated in the gtnews Payments Survey 2011, conducted in October 2011. The full 2011 Payments Survey report, with extra analysis from gtnews' payments experts, will be available on gtnews (http://www.gtnews.com/) in January 2012.

*In the SEPA context, wire transfers are referred to as credit transfers.

The 2012 Euro Payments Outlook

Tue, 13 Dec 2011 11:01:01 GMT

I suppose we can all agree on this: European integration is not for the faint hearted. It requires the ability to remain focused on the long-term objectives despite the lamentations intoned by the prophets of doom who habitually predict the end of the world any time the going gets tough. A look at 2012 initiatives scheduled by the European authorities impacting euro payments, confirms that entertaining end game scenarios may produce lurid headlines, however fails to correctly interpret the signs of the times. The order of the day is to stay engaged in the debate.

Deadlines for SEPA Migration
The process aimed at creating the Single Euro Payments Area (SEPA) is one such European Union (EU) integration initiative which has frequently challenged all involved to keep their cool while navigating troubled waters. In case anyone lost sight of the main prize after more than a decade of SEPA in the making: the harmonisation of the euro payments market will, among other things, contribute to bolster the common currency. Completion of the project is therefore becoming more relevant by the minute.

The good news is that the EU legislator will at long last create the regulatory conditions required to bring SEPA to its successful conclusion. With adoption of the ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the SEPA Regulation) now planned for January or February 2012, the EU legislator will set the conditions for mandatory migration to harmonised SEPA payment schemes. According to the latest information, it seems very likely that the SEPA Regulation will define one end date for compliance of euro credit transfers and direct debits with this legislative act (as opposed to two separate end dates). Effectively, this means that existing national euro credit transfer and direct debit schemes will have to be replaced in the euro countries by the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes most probably by February 2014. For non-euro countries, the date will most probably be 31 October 2016.

The SEPA Regulation will also set new rules governing the development of payment schemes (see EPC Blogs of 2 and 17 November 2011). The EPC looks forward to continuing the dialogue with the European Commission and all stakeholders on the most appropriate way forward to ensure the proper functioning of the euro payments market and broad consensus on the evolution of the SCT and SDD Schemes.

PSD Review
Also in 2012, the European Commission will review Directive 2007/64/EC of the European Parliament and of the Council on payment services in the internal market. This Directive is generally referred to as the Payment Services Directive (PSD) which was implemented by most EU Member States in November 2009. With adoption of the PSD the EU legislator aimed at establishing a modern and comprehensive set of rules applicable to all electronic payment services (not just SEPA services). The PSD is of particular relevance with respect to the roll-out of SDD services due to the fact that the PSD defines common rules for the authorisation and the revocation of direct debits. The review of this Directive provides the opportunity to identify possible improvements for consideration by the EU legislator.

European Commission Green Paper on Card, Internet and Mobile Payments
Last but not least, in 2012 the European Commission will consider measures supporting market integration at EU level for card, internet and mobile payments on the basis of a green paper consultation. It is expected that the European Commission will publish this green paper in January 2012.

These initiatives in the pipeline demonstrate that in 2012 the integration of the euro payments market will enter a new and decisive phase; i.e. if ever there was a time to engage it is now. As stated above, promoting EU integration is not for the faint hearted and requires focus on the long-term objectives. In the EPC Newsletter we recently featured the SEPA migration experience of an early mover on the customer side (see link below) who concludes: "SEPA implementation is an excellent and necessary idea to harmonise and simplify the extremely different payment systems existing throughout Europe today. The initiators of the SEPA process and the professionals involved in realising this initiative deserve our respect and our great compliments". Now that's the spirit.

On behalf of the EPC, I would like to wish you all a happy, healthy and prosperous new year!

For more information, refer to these links:

EU Legislator Confirms: Deadline for Migration to SEPA in Euro Countries is 1 February 2014

European Commission Green Paper ‘Towards an integrated European market for card, internet and mobile payments’

EPC Website: SEPA Legal and Regulatory Framework

EPC Website: SEPA Migration - Reports, Case Studies and Indicators

EPC Newsletter: UNIQA Group Austria: Business is Better with SEPA! Migration experience of this leading insurance company confirms: ‘SEPA is an excellent and necessary idea'

SEPA for All: What Customers Want. The EPC Shares Lessons Learnt with the European Commission on How to Align SEPA Payment Schemes with Proven Market Needs

Wed, 30 Nov 2011 11:01:01 GMT

As reported in my blog, 17 November 2011, the forthcoming European Union (EU) ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euro' (the SEPA Regulation), will confer the responsibility of managing the SEPA payment schemes upon the European Commission. Moving forward, it will therefore be the European Commission's task to reconcile distinct - and occasionally mutually exclusive - customer requirements articulated with regard to the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes. The EPC is happy to share lessons learnt with the European Commission on how to align the SEPA Schemes with proven market needs.

Each annual EPC scheme change management cycle demonstrates that the requirements of payment service users in the 32 SEPA countries differ widely across and within the various customer segments. Payment service users are not only divided into payers and payees (whose payment needs are different), but also encompass a wide range of interest groups including consumers, public administrations, corporates and small and medium-sized enterprises (SMEs). Corporates and SMEs may be active domestically, regionally or globally, which translates into diverse expectations with regard to the SCT and SDD Schemes. In a multi-country environment such as SEPA, even within a specific Europe-wide customer segment there are opposing or mutually exclusive schools of thought as to which specific features should be included in the SEPA Schemes or not. Consequently, it is virtually impossible to translate the expectations of each and every single interest group into mandatory elements of the SEPA Schemes.

To illustrate the point: corporate practices with regard to the timelines governing the SDD Core Scheme are just one example of different expectations within the same customer segment. Corporates in one SEPA country are used to an extended timeline for the execution of a direct debit collection, whereas corporates in another country demand that a direct debit can be initiated and collected on a same-day basis. The SDD Core Scheme must therefore strike a balance between these mutually exclusive expectations articulated around the same feature. According to the standard time cycle mandated with the scheme rules, the payer's bank must receive the request for a first direct debit collection, or for a one-off direct debit collection, at least five business days prior to the due date. For subsequent direct debit collections, the payer's bank must receive such a request at least two business days prior to the due date. The updated SDD Core Scheme Rulebook version 6.0, which will take effect in November 2012 however, will include the option to use a shorter time cycle for the presentation of both first and recurrent direct debit payments as outlined above.

It is a standard EPC exercise to bridge different customer expectations throughout the painstaking process of forging agreements on the countless technical and procedural details that make up a European payment scheme. To ensure broad market acceptance, EPC scheme design has adhered to the following principles: the basic scheme model must meet the proven requirements of the majority of payment service users. At the same time, the model must be flexible enough to include optional extras on demand. This concept provides maximum choice to customers while avoiding that a majority of customers have to buy features that they do not need.

The European Commission, which will assume SEPA Scheme management in the future, has yet to enlighten us on how it identifies the needs of SEPA stakeholders. The general criteria, if any, applied by the European Commission to either strike a compromise or rule in favour of one user group against another in case of mutually exclusive expectations around the same feature, also remain a mystery. We do, however, continue to be hopeful that the European Commission will share such details with the market at some point.

In the meantime, EPC members, who are engaged in daily dialogue with customers, will continue to consult the entire SEPA payment community (demand and supply sides) on the evolution of the SCT and SDD Schemes. The results will be shared with the European Commission for consideration.

For information on how to engage in the EPC scheme change management process refer to these links:

Important Notice to all SEPA Stakeholders: the European Commission Will Assume SEPA Scheme Management

Thu, 17 Nov 2011 11:01:01 GMT

The Single Euro Payments Area (SEPA) payment scheme rulebooks for SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD), developed by the EPC - at the request of European authorities - are key to making SEPA a reality.

The rulebooks can be regarded as instruction manuals, which provide a common understanding on how to move funds between bank accounts within SEPA. The annual EPC scheme change management process provides all stakeholders with the opportunity to introduce suggestions for changes to the schemes. Proposed amends are subject to a three-month public consultation. Change requests that find broad acceptance from the entire user community are then taken forward, while requests that lack support are not. The EPC published updated versions of the SCT and SDD Rulebooks on 17 November 2011, which will take effect in November 2012 (see links below). In accordance with industry best practice, all stakeholders and their suppliers have a one year lead time to address rulebook updates prior to such updates taking effect. The EPC scheme change management ensures participation of and planning security for all market participants.

It remains the EPC's objective to ensure that the SEPA Rulebooks evolve in response to proven market needs, based on a predictable release schedule. The EPC must, however, clarify that it can no longer be held accountable in this regard.

The European Union (EU) legislator will shortly adopt the ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the SEPA Regulation). The technical requirements set out in the annex to the SEPA Regulation will be applicable to Union-wide euro credit transfer and direct debit schemes; i.e. the SCT and SDD Schemes. The SEPA Regulation will also give power to the European Commission to amend the technical requirements at its sole discretion. Moving forward, the EPC will be under the legal obligation to align the SCT and SDD Rulebooks with the technical requirements as amended by the European Commission and according to the timelines mandated by the European Commission.

The European Commission is under no obligation to consider the requirements of payment service users as identified through public SEPA-wide consultations or as reflected in valid statistical data provided, for example, by the European Central Bank. The legislative process leading to the imminent adoption of the SEPA Regulation clearly demonstrates that the European Commission reserves the right to redefine the SEPA Schemes based on its own assessments. The EU legislator fully endorses this concept.

The European Commission and the EU legislator however, place great reliance on the advice of Brussels-based lobbying organisations, which speak on behalf of the demand side. The safest bet now for bank customers seeking to channel their requirements into the SEPA Schemes is therefore to lobby their European lobbying group.

All market participants obliged to adapt systems and operations with the technical requirements applicable to the SCT and SDD Schemes decreed by the European Commission, would greatly appreciate it if the regulators were able to make specific information on the principles and timelines governing the further evolution of the schemes available. To-date, both the legislator and the European Commission remain silent on the matter. Surely, some sort of plan is in place?

For more information, please refer to the following links:

EPC Newsletter: Brave New World: the European Commission Becomes the SEPA Scheme Manager

EPC Newsletter: SEPA Scheme Rulebooks: Next Edition Available in November 2011!

SCT Rulebook Version 6.0, SDD Core Rulebook Version 6.0, SDD B2B Rulebook Version 4.0 and Stakeholder Feedback on EPC 2011 Public Consultation on the Evolution of the SEPA Schemes

EPC SCT / SDD Rulebook Release Management and Scheme Development (Subject to Interventions by the European Commission)

PSPs which participate in the SCT and SDD Schemes are reminded that the rulebook versions and adjacent implementation guidelines which were published in November 2010 take effect on 19 November 2011!

SCT Rulebook Version 5.1

SDD Core Rulebook Version 5.1

SDD B2B Rulebook Version 3.1

SEPA Governance: Setting the Record Straight. SEPA is European integration in action. This process allows any party to engage. There is no 'SEPA governance issue'

Wed, 02 Nov 2011 11:01:01 GMT

Several Brussels-based lobbying organisations regularly claim that the Single Euro Payments Area (SEPA) process is ‘driven exclusively by the banking industry' and ‘leaves out all other stakeholders'. In the view of the EPC, this statement is inaccurate and misrepresents the role of the EPC in the SEPA process.

The EPC, as mandated by the relevant European authorities, develops the SEPA payment schemes and frameworks based on global technical standards. The schemes are key elements required to making SEPA a reality. The EPC however, is not responsible for the overall management of the SEPA process. This is the task of the relevant public authorities including the European Commission, the European Parliament, the Council representing European Union (EU) Member States, the European Central Bank (ECB) and EU governments. Payment service users are a very important partner in the process.

The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes are developed by the EPC in close dialogue with the entire European payment community (demand and supply sides), and have evolved based on an open and inclusive scheme change management process. This process provides all stakeholders with the opportunity to actively introduce suggestions for modifications to the schemes and to take part in the annual three-month public consultation on updates to be incorporated into the schemes. Detailed information on the EPC scheme change management process is featured prominently on the EPC Website with a view to alert all stakeholders on how to engage (see links below). The EPC has a proven track record of consulting stakeholders with regard to EPC deliverables.

It should be noted that some suggestions for changes to the schemes repeatedly brought forth by specific interest groups fail to find broad support on both the demand and supply sides of the entire SEPA payment market. The EPC however, is bound to respect majority views as identified during the annual public consultation on scheme development. As a result, the EPC cannot incorporate such requests into the SCT and or SDD Schemes which lack broad support. In the view of the EPC it is inappropriate to disqualify a process designed to identify majority views as ‘ignoring user requests'. This claim is however repeatedly made by some of the parties which also - erroneously - identify a ‘SEPA governance issue'.

SEPA is an EU integration initiative shaped in accordance with EU law and policies. Subject to applicable procedures, any interest group is free to engage in dialogue with the EU institutions. Available data indicates that there are up to 30,000 lobbyists active in Brussels. The legislative process leading to the adoption of the forthcoming ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the ‘SEPA Regulation') confirms that lobbying organisations representing specific interest groups have successfully channeled their views into this Regulation. One has to also keep in mind that in future the SEPA payment schemes will have to comply with the requirements mandated by the European Commission; i.e. the regulator will take over the role of the scheme manager.

As such, the SEPA process was never ‘driven exclusively by the banking industry'. Anyone who feels that the EU decision-making process is at fault is certainly free to challenge the EU institutions on the matter, however, should refrain from fabricating a ‘SEPA governance issue'.

The SEPA debate must now focus on how to orchestrate mass migration to the harmonised SEPA payment schemes. The EPC invites all parties to close ranks with a view to make SEPA happen in the real world.

For more information, please refer to the following links:

• EPC Newsletter article ‘SEPA Governance: Setting the Record Straight'

• EPC Website: SEPA Customers

• EPC Website: SCT / SDD Rulebook Release Management and Scheme Development

• EPC Publication: Shortcut to Who is Who in SEPA

• European Parliament Website: Lobbyists accredited to the European Parliament

• The Transparency Register for Organisations and Self-Employed Individuals Engaged in EU Policy-Making and Policy Implementation

• European Commission SEPA Website

• European Central Bank SEPA Website

SEPA - Are Corporates Ready to Make the Move?

Wed, 19 Oct 2011 10:01:01 GMT

Although the Single Euro Payments Area (SEPA) is still a long way from being ‘front-of-mind' for corporate treasurers, some progress has been made this year. Looking back at the gtnews Payments Survey 2010, conducted in October and November 2010 with 336 corporate-level respondents globally, the picture was still quite gloomy in terms of SEPA take-up by corporates. The survey found that in Western Europe, 60 percent of respondents had not yet implemented the SEPA instruments. Of the respondents who had not yet invested in SEPA products, 46 percent said that they did not plan to invest in SEPA products in the future. At the time, Western European respondents cited the following reasons for their reluctance to engage:

• ‘SEPA does not apply to my company' (67 percent).
• ‘Not convinced of the opportunities and benefits for me / my company' (33 percent).
• ‘Need more insight on the impact of implementing SEPA in my company' (19 percent).

The results clearly showed that at the end of 2010 most corporates did not understand how SEPA would impact their business and migration to SEPA products was far down their list of priorities when trying to improve core business processes.

In September 2011, I conducted a straw poll among the members of the gtnews European Treasurers Council in preparation for a Sibos 2011 session, organised by the EPC. The gtnews Corporate Treasurers Council has over 150 members at deputy treasurer level and above from the top European corporates. Although not statistically significant, because of the small pool of respondents, I believe that it gives an indication of developing trends - and also a slightly more positive outlook to the corporate adoption of SEPA. For example, 100 percent of the respondents had heard of SEPA, which is quite encouraging. The main findings of the straw poll included:

• Almost 80 percent believe that SEPA is relevant to their company.
• 71 percent are in the process of implementing SEPA.
• 83 percent say that they can see the business benefit of moving to SEPA instruments.

When asked what could be done to increase uptake of SEPA instruments, many corporates cited the need for European Union (EU) Regulation to set an end date(s) for the phasing out of domestic payment instruments. Many treasurers indicated that establishing deadlines for migration to SEPA instruments by law is an indispensable precondition to get board approval for the budget required to implement SEPA. One corporate treasurer responding to the straw poll emphasised that clarity on end dates is also required with a view to ensure that all banks offer SEPA services. This treasurer stated: "Today we have problems with SEPA Business to Business Direct Debit. Payments bounce due to banks not participating in the scheme".

Respondents who participated in the straw poll also identified the need for more information on the SEPA project and wanted payment service providers to provide them with this information. Only 63 percent said that their bank had talked to them about migrating to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD), which leaves a gap that the corporates are looking to their banks to fill.

The actions required to facilitate the transition of corporates to SEPA are therefore clear: the EU legislator should define mandatory deadlines for transition to SEPA payment instruments and banks should proactively seek dialogue with businesses on the SEPA change programme. It is essential that corporates take action now to prepare for migration to SEPA. The forthcoming SEPA Regulation expected to be adopted by the EU legislator in 2011 will establish deadline(s) for the replacement of national euro credit transfer and direct debit schemes by harmonised SEPA payment schemes. These deadlines could apply as early as 2013 for SCT and 2014 for SDD. SEPA impacts any business making euro payments.

For more information, please refer to the following links:

http://www.gtnews.com/sepa/default.cfm

EPC Newsletter: case studies highlighting successful SEPA migration by bank customers

EPC Website: SEPA Customers

Talking About SEPA Direct Debit: The EPC Invites European Lawmakers to Consider Results of EPC Survey on Direct Debit Models Existing in SEPA Today

Wed, 05 Oct 2011 10:01:01 GMT

By the end of 2011, the European Union (EU) legislator is expected to agree the final text of the forthcoming Regulation establishing technical requirements for credit transfers and direct debits in euros. This regulatory act will stipulate, among other things, mandatory deadlines for migration to harmonised Single Euro Payments Area (SEPA) payment schemes. As such, EU lawmakers will at long last provide the planning security that is urgently required by all SEPA stakeholders. One must always be grateful if a legislative initiative, once it has found its way through a complex negotiation process, actually manages to meet at least some of its original objectives - so, thank you very much.

As a matter of principle, a legislative process does not primarily aim at generating solutions which would actually meet market demand. Rather, it is designed to ensure that every political party and lobbying organisation involved - and in case of EU legislation, every Member State - can somehow claim victory. In the jargon of lawmakers, this is referred to as ‘balancing interests'. Fair enough, however taking the occasional glimpse beyond party lines, lobbying interests and national sensitivities to what people actually want, might not hurt either.

EU lawmakers are ready to abolish the direct debit model which is preferred by the vast majority of European citizens who make direct debit payments today. Specifically, EU lawmakers intend to pull the plug on the creditor-driven-mandate (CMF) flow (see link below for details). The SEPA Core Direct Debit (SDD Core) Scheme, developed by the EPC, is based on the CMF model. Numerous public consultations throughout the entire payment user community confirmed that the market (demand and supply) supports this model, which is however facing its demise because of unsubstantiated allegations claiming a lack of consumer protection under the scheme.

As reported on previous occasions, the EPC has practically begged EU lawmakers over the past year to ensure that a decision to introduce a host of mandate checking obligations, which are optional in the SDD Core Scheme, is supported by valid market research, rather than perceptions, gut feelings or purely personal assessments. As no such evidence was ever presented however, we engaged in related research ourselves.

The EPC therefore, recently conducted a survey (see link below) to identify mandate checking obligations in national direct debit schemes existing in the EU today. The findings confirm data provided by the European Central Bank (ECB), which demonstrates that almost 75 percent of consumers making direct debit payments today do not request such checks. The average number of direct debit payments per consumer / year is 68 in countries with a direct debit model not supporting compulsory mandate checks. In countries with more complex direct debit scheme models, this average is around 23. The findings are also in line with bank customer experiences whereby millions of direct debits are securely and correctly collected in Europe every day based on the CMF model - without mandate checks performed by law.

The low acceptance of direct debits in countries which today rely on complex mandate checking features implies that introducing such mandatory features into the SDD Core Scheme will not affect demand for direct debit in these countries. The only likely effect would be to make this payment instrument more costly and complex for the majority of direct debit users in countries such as Germany, the Netherlands and Spain, for example, who today demonstrate strong demand for the CMF direct debit model. We clarify again that the compulsory mandate checks now contemplated by the legislator were introduced as optional features into the SDD Core Scheme in response to earlier requests of the European Commission and the ECB. This allows payment service providers to offer these options in response to market demand.

On a more general note: a lot of the debate surrounding the forthcoming SEPA Regulation reflects the universal human desire to neatly divide the world into the good guys and the bad guys. We recognise that it is in the political interest of some to portray the EPC as the bad guy in their version of the SEPA story. At the same time however, we maintain that anyone willing to actually familiarise themselves with the principles governing SEPA payment scheme development, soon finds out that the type casting does not work in this case. More importantly, we believe that it would be somewhat tragic if - by walking into the ‘good guy / bad guy' trap - EU lawmakers would effectively dismantle the direct debit model cherished by the majority of their electorate.

For details on the subject, please refer to the following links:
• EPC Survey on Mandate Checking Obligations in National Direct Debit Schemes.
• EPC Newsletter Article ‘Direct Debit: Killing it Softly'.
• The Creditor-Driven-Mandate Flow (CMF).
• SCT / SDD Rulebook Release Management and Scheme Development.
• EPC Response to European Commission Proposal for a SEPA Regulation.
• EPC Publication: SEPA Direct Debit for Consumers - a Convenient and Secure Way to Make Payments.

One Size Fits All: EPC Initiative to Standardise ATM Infrastructure Increases Efficiency of Wholesale Cash Distribution

Wed, 21 Sep 2011 10:01:01 GMT

Expenditures in Europe related to wholesale cash distribution amount to 84 billion euros annually (Retail Banking Research: The Future of Cash and Payments, 2010). The long-term solution to this problem - and a main objective of the Single Euro Payments Area (SEPA) programme - is to incentivise a shift to electronic payment instruments. In the mid-term however, it is necessary to increase the efficiency of wholesale cash distribution based on harmonised processes. In line with this approach, the EPC launched an initiative to standardise the size of automatic teller machine (ATM) cash cassettes and to create interoperability among Intelligent Banknote Neutralisation Systems (IBNS's).

There are almost 400,000 ATMs installed across Europe. The single and multi denomination currency cassettes, which sit inside each ATM's cash dispenser, come in a wide variety of dimensions and sizes. Cash cassettes and ATMs are increasingly protected by IBNS's, which are activated in the event of a robbery or theft to stain the banknotes with ink. Today, IBNS's need to be customised for different cash cassette models and ATM types. This lack of standardisation in the ATM landscape is one of the factors contributing to the substantial cost of wholesale cash distribution in SEPA.

The provision of an open ATM cash cassette standard will decrease maintenance costs. The economies of scale resulting from the introduction of common standards in this area will lead to further cost reductions. Making standard size receptacles available will also allow empty cassettes to be replenished with deposits retrieved from a different ATM in the same locality. This standardisation initiative therefore responds to, and takes advantage of, the trend to deposit cash at ATMs. Last but not least is the environmental benefit; a 'one size fits all' approach allows cash-in-transit (CIT) companies to efficiently store cash cassettes in their trucks thereby reducing the number of cash transport journeys required. Interoperability among IBNS's will also increase the choices of providers active in the cash cycle. These providers will no longer be forced to rely on specific IBNS's compatible only with a limited number of cash cassette models, ATM types and / or ATM cassette delivery cases. Standardisation in this area ensures streamlined procedures when activating or deactivating these systems. As a result, less time and effort is required to familiarise staff with the wide variety of procedures existing today. There is potential for more cost reduction once the needs of different styles for the same system disappear. The funds and efforts dedicated today to manage the variety of models can be concentrated and oriented to new developments - such as enhanced security.

So, what's not to love?

Plenty, say some manufacturers who are getting nervous about development costs (and perhaps increased competition - an inevitable consequence of standardisation). The EPC however, is not calling for a big bang replacement of the current equipment, but a gradual evolution in line with equipment lifecycles. Adapting equipment to the latest standards, functionalities and technology is, after all, the ‘bread and butter' of the manufacturing industry.

As one expert market observer commented in a discussion about the EPC ATM cash cassette standardisation initiative on LinkedIn: "Cassette standardisation - together with workflow automation - is perhaps one of the boldest initiatives from the cash industry this year. Although there are many practical obstacles, as a vision it is compelling.... The issue, as usual in this industry, is on the business side: who would finance the transition and why."

Precisely. So let's get together and figure it out. For more information and related links, please view the article ‘One Size Fits All' in the EPC Newsletter.

Dare to be Bold - A SEPA Legal Tender Model Spanning Both Cash and Electronic Payments

Tue, 06 Sep 2011 10:01:01 GMT

The author serves as a member of various EPC bodies including the EPC Cash Working Group. The ESBG is a member of the EPC. The views expressed in this blog are those of the author and may not necessarily represent the views of all ESBG members.

Key strategic initiatives launched by European Union (EU) policy makers in the past decade - including the 2010 Lisbon Agenda, the Europe 2020 Strategy, the Digital Agenda for Europe and the Single Euro Payments Area (SEPA) programme - imply that migration to electronic payments is a key objective. If this is truly as important to policy makers as they state, then they should ensure that there is coherence across agendas. This is essential when it comes to the use of cash as a payment instrument.

The European Commission recommendation outlining ten guiding principles clarifying the scope and effects of the legal tender of euro cash is one example which illustrates prevailing inconsistencies in public policies. This recommendation, adopted in March 2010, forcefully asserts the position of physical cash (banknotes and coins) as legal tender. It also artificially inflates further the perceived value of cash as a payment instrument in scope, to the detriment of a broader use of those electronic instruments which will ensure Europe's competitiveness in the wider economy. The recommendation contradicts the strategic objective defined by EU policy makers to incentivise a shift to electronic payment instruments, which aims to reduce the societal costs resulting from the use of cash today.

Latest data predicts that over the coming decade Western Europe will see the slowest growth of non-cash payments volumes of any region globally. Contradictory EU policies will exacerbate the negative effects of this development on Europe's relevance in international standardisation bodies, its influence on providers of payment solutions and ability to transact more efficiently.

A forward looking solution could however be rather close. Europe's payment systems have proven that they are secure and reliable and they are certainly well overseen. The Payment Services Directive (PSD) adopted by most EU Member States in November 2009 has provided for much enhanced consumer protection for non-cash payment instruments. Both the PSD and the new e-Money Directive allow for quality competition. Bancarisation (the number of people holding a bank account) is almost complete (acknowledging that a very small percentage of the population would not hold an account under any circumstances). The two Directives referred to above provide solutions which cater to these exceptions, thus ensuring access to convenient and secure means of payment for all segments of society. These assets and developments pave the way for a SEPA legal tender model spanning both cash and electronic payments which would notably fully transpose the principle of ‘indifference' between payment instruments so often referred to by policymakers. In such a model, either discounting or surcharging for the use of any payment instrument would be allowed, in order to enable genuine competition in the marketplace. Merchants would no longer be compelled to accept high denomination banknotes, and the quality of legal tender would be awarded to any SEPA payment instrument.

A bold proposal? Not any bolder than the proposals which have brought the EU forward since the Treaty of Rome. What are we waiting for?

Join the discussion and share your comments. For more information and related links, please view the article ‘Dare to be Bold: Electronic Legal Tender is an Option' in the EPC Newsletter.

SEPA and EU Governments - A Love-Hate Thing? Efforts Must be Stepped Up to Communicate the SEPA Objectives at National Level

Wed, 24 Aug 2011 10:01:01 GMT

In December 2009, the Economic and Financial Affairs Council (ECOFIN), which comprises the Economics and Finance Ministers of the European Union (EU) Member States, emphasised that the full benefits of the Single Euro Payments Area (SEPA) "can only be obtained through the full migration of existing national euro payments transactions". The ECOFIN also called on public authorities in all EU Member States (i.e., themselves) to "significantly step up their migration efforts and lead SEPA migration by example".

The public sector is a prime economic actor responsible for as much as 50 percent of the gross domestic product in the euro area and accounts for up to 20 percent or more of electronic payments made in society. Early adoption of the SEPA payment schemes by public administrations would have provided EU governments with a golden opportunity to educate the general public at a national level on the SEPA objectives. SEPA is, after all, the brainchild of EU governments and other EU institutions. In most EU Member States however, the ECOFIN conclusions of December 2009 shared the fate of most New Year resolutions.

Since start 2009, the European Commission has regularly published data on SEPA migration in EU Member States. The ‘First Annual Progress Report on the State of SEPA Migration' released in February 2009 concluded that the uptake of SEPA Credit Transfer (SCT) in the public sector had been "very limited". The report also noted that "there seems to be no general sense of urgency [among public administrations] to move to SEPA". Subsequent reports and surveys largely confirmed these findings: with a few exceptions, the public sector under-performed compared to any other sector. The ‘Fourth Survey on Public Administrations´ Preparedness and Migration to SEPA' published in February 2011 seems to finally indicate a change of trend. The SCT migration rate for the replying public administrations in the euro area had increased to 14.5 percent in the reporting period. This improvement resulted primarily from above average progress achieved in individual EU Members States including Austria, Belgium, Finland, France and Spain. Migration to SEPA Direct Debit (SDD) remains marginal at 0.24 percent due to the fact that most public administrations generally do not use direct debits.

SEPA will hit home soon. The forthcoming SEPA Regulation expected to be adopted by the EU legislator in 2011 will establish deadline(s) for the replacement of national euro credit transfer and direct schemes by harmonised SEPA payment schemes. These deadlines could apply as early as 2013 for SCT and 2014 for SDD. Educating the general public on the SEPA objectives at national level must take place now. This is the prime responsibility of the political authorities - such as EU governments - driving EU integration.

Please share your views and experiences regarding SEPA communication practiced by public authorities. For more information on positive SEPA communication successfully implemented by some EU governments, please view the country reports on this EPC Webpage: ‘SEPA Migration - Reports, Case Studies and Indicators'.

Living with Basel III - The Impact on the Payments Market

Tue, 09 Aug 2011 10:01:01 GMT

In December 2010, the Basel Committee of Banking Supervision (BCBS) approved the revised prudential framework referred to as Basel III. The reforms establish new metrics for liquidity, leverage and stable funding. Basel III will affect banks that provide access to payment systems for their clients. Based on the new framework, banks will have to set aside liquid assets and prove stable funding to support settlement-related facilities. Uncommitted facilities will no longer be exempt from regulatory capital requirements. As a result of the new regulatory focus on intra-day liquidity, and the need to manage it as a scarce and costly resource, banks are increasingly likely to bear liquidity efficiency in mind when managing their payment services.

According to the recommendations of the BCBS; implementation of Basel III should be completed by 2018. The effects of these new measures will however, have an impact on the payments market long before this deadline. Some communities, notably the UK, have already begun to implement the liquidity regime element of Basel III. In the European Union (EU), the major provisions of Basel III will be implemented with the amended Capital Requirements Directive (CRD) referred to as CRD IV.

It is early days to fully predict how Basel III will affect the cost and systemic risk considerations underlying the provision of payment services. The one thing certain however, is this: Basel III marks only the beginning of increased regulatory scrutiny of the payment market with regard to potential systemic risks. In Europe, the new European Banking Authority is likely to play an important role in providing technical guidance around the implementation of CRD IV.

Another trend to keep an eye on is to what extent the tightened requirements introduced with Basel III will impact the expectations voiced in particular by the European Commission to open the euro payments landscape for new market participants. Based on this expectation, the Payment Services Directive (PSD) adopted by EU Member States in November 2009, introduced payment institutions (PIs) as a new category of non-bank payment service providers. Non-bank service providers active in payments are not subject to the stringent rules introduced with Basel III thus giving them a competitive advantage over banks.

It is also likely that Basel III will have a significant economic impact: the Institute for International Finance (IIF) and the European Banking Federation (EBF) estimate a negative economic impact of potentially one to two percent of GDP for the US economy and four to six percent of GDP for the European economy, with an estimated reduction of financial sector profits of two to four percent. And there is more to come: at its meeting in Seoul in November 2010, the G20 confirmed that additional measures would be imposed on systemically important financial institutions and globally important financial institutions which will trigger a change of their capital structure. Several of these institutions have already embarked on core capital-raising exercises to help secure their capital adequacy ratios.

What is your view? Join the discussion and share your predictions on the impact of Basel III on the payments market. For more information and related links, please view the article ‘Get Ready for More' in the EPC Newsletter, July 2011.

European Commission Proposes Separate Deadlines for Migration to SEPA Credit Transfer and SEPA Direct Debit - EPC Advocates Setting One End Date

Tue, 26 Jul 2011 10:01:01 GMT

The majority of market participants recognise the value of setting a deadline for migration to the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes developed by the European Payments Council (EPC) at the request of European authorities and in close dialogue with customer representatives. The EPC shares the view that an end date for phasing out legacy euro payment schemes for credit transfers and direct debits ensures planning security for all market participants.

In December 2010, the European Commission published a proposal for a Regulation establishing technical requirements for credit transfers and direct debits in euros and amending Regulation (EC) No 924/2009. This legislative initiative is commonly referred to as the forthcoming SEPA Regulation expected to also define mandatory deadlines for migration to harmonised European payment schemes. The European Commission proposes to set separate deadlines for migration to European credit transfer and direct debit schemes. It states in its SEPA Regulation proposal that credit transfers will have to comply with the technical requirements twelve months after the Regulation coming into force; direct debits will have to comply 24 months after entry into force. The EPC advocates setting one end date at European Union (EU) level for migration to SCT and SDD. This would spare bank customers such as businesses and public administrations the duplication of implementation efforts and required resources.

The European Commission proposal for a SEPA Regulation was reviewed by the Economic and Monetary Affairs Committee (ECON) of the European Parliament and the European Council representing EU Member States during the first half of 2011. The EPC welcomes that the members of the European Parliament represented in the ECON also suggest setting one end date. According to the ECON, both euro credit transfers and direct debits should comply with the forthcoming SEPA Regulation 24 months after this Regulation comes into force.

In a next step, the European Parliament together with the European Council representing EU Member States and the European Commission will engage in a trialogue on the forthcoming SEPA Regulation which is expected to be adopted in 2011. One open question these institutions must resolve is this: will the Regulation establish one or two separate end date(s) for migration to harmonised European credit transfer and direct debit schemes?

What is your view? Join the discussion and have your say: please share your opinion using the comment functionality below.

For more information and related links, please view the page 'SEPA Vision and Goals' on the EPC Website.

EPC Goes Social - We Want to Hear from You!

Tue, 12 Jul 2011 10:01:01 GMT

Welcome to this, the first post on the newly launched European Payments Council (EPC) Blog and Discussion Board.

The EPC has today launched this blog as a platform to encourage open and industry-wide discussion around developments in relation to the Single Euro Payments Area (SEPA) and associated issues in the payments and banking industry. Regular blog posts, from me and other EPC office holders, will aim to keep interested stakeholders updated on news and progress towards SEPA from the EPC's perspective. Equally, we hope that many of our blog readers will get involved in the SEPA debate and have their say. Please let us know your responses and reactions to blog posts and wider views, by using the comment functionality within the blog and linking external sources to content published here.

It is our ultimate goal to inspire debate and provide a platform with access to expert opinion, which is open to a diverse audience of banking, finance, payment professionals, consulting firms and vendors, corporations and public sector organisations and any other interested parties. Your comments and opinions are therefore important to us. Over the coming weeks, some of the discussion topics you will find here will include:

The European Union Regulation establishing technical requirements for credit transfers and direct debits in euro is in the pipeline. This forthcoming 'SEPA Regulation' is expected to define mandatory deadline(s) for migration to the SEPA payment schemes. The EPC advocates setting one end date for migration to SEPA Credit Transfer and SEPA Direct Debit (as opposed to two separate end dates).
As highlighted in issues 9 and 11 of the EPC Newsletter, the consolidated 'Basel III' text published by the Basel Committee on Banking Supervision in December 2010 contains important provisions affecting banks that provide access to payment systems for their clients or other settlement-related facilities. We will further discuss the impact of 'Basel III' on the payment sector.

To receive updates on new EPC Blog entries, please subscribe to our RSS feed. In addition to launching its blog today, the EPC has also gone live with Twitter (@EPC_SEPA) and LinkedIn profiles. This is part of a move by the EPC to make its news and views easier for anyone to find online. Please follow us on Twitter and LinkedIn to keep up to date with the latest EPC news and activity.

We hope that you find these new EPC communication platforms useful. We really look forward to engaging with our stakeholders through the EPC Blog and Discussion Board going forward! The next entry will be posted on 26 July 2011.

If there is a particular issue you would like us to address within a future blog post, please feel free to make a recommendation using the comment functionality below.