SEPA and the Payment Services Directive

1. SEPA and the Payment Services Directive Wiebe Ruttenberg Head of Market InfrastructureDivision DG Payment Systems and Market Infrastructure European Central Bank Budapest, 17 November 2006

2. Overview • Current status, payment market • SEPA • Proposed Directive on Payment Services • Customer benefits • Conclusions

3. Current status, payment market A single currency, the euro, since 2002, but still: • National payment schemes • Diverging standards and practices • Competition mainly on national level

4. Current status, payment market This fragmentation means : • Longer execution times for cross-border credit transfers, • Only national direct debit schemes • National debit cards are usually not accepted abroad, if not co-branded

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

6. SEPA Ultimate SEPA objective: • A euro area in which all payments are domestic • Within the SEPA, customers will be able to make payments throughout the whole euro area as efficiently and safely as in the national context today • If they so wish, using a single payment account and a single card

7. SEPA The SEPA project: • Payment instruments • Credit transfers • Direct debits • Cards • Horizontal issues • Infrastructure (ACH’s) • Standardisation • - Common regulatory aspects

8. SEPA SEPAframework • A set of inter bank rules, practices and standards • The relationship between banks and their customers is outside the SEPA framework • Single banks or banking communities are free to provide additional optional services

9. SEPA SEPAframework • Transactions between banks should be in euro • Banks are free to provide SEPA instruments also in non-euro countries • Transactions must be converted from the national currency to euro before being processed

10. SEPA • SEPA Timetable: • 1 January 2008, SEPA instruments should be available for users • End of 2010, a critical mass of national payments should have migrated into the SEPA instruments

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

12. Proposed Directive onPayment Services Payment institutions (Title II) • A new concept of payment service providers is introduced • Restricted activity to only provide payment services and payment related services • Lighter supervisory requirements • Single passport

13. Proposed Directive on Payment Services Information and contractual requirements (Title III) • Information requirements • Framework contracts and changes of conditions • Derogation for micro payments

14. Proposed Directive on Payment Services Rights and obligations (Title IV) • Authorisation and acceptance of payment transactions • User liability max EUR 150 (except when acting fraudulently or being gross negligent) • Refund of an authorised payment transaction • Fees (each party should bear its own fees) • Execution time • Liability provisions for non-execution or defective execution • Dispute settlement

15. Proposed Directive on Payment Services SEPA • euro payments • an inter bank framework Payment services directive • all EU currencies and all Member States • The relationship between payment service providers and users

16. ECB on the proposed Directive on Payment Services A very welcome initiative as it establishes a comprehensive legal framework for payment services in the EU and assists the banking industry in its efforts to establish a SEPA. Safeguarding requirements regarding payment institutions needed, however to be proportional to the scope of activities.

17. Proposed Directive on Payment Services Current status • The ECON Committee (Parliament) provided its proposal in September 2006 • Negotiations within the EU Council • EU Parliament is expected to vote on its proposal in December 2006

18. Proposed Directive on Payment Services If adopted during 2006 • Proposed transposition time, 18 months • Transposed into national legislation by summer 2008

19. Proposed Directive on Payment Services In case of a delayed adoption • Implementation of SEPA credit transfers and cards framework seems not to be depending on the directive • Banks claims that there will be problems implementing SEPA direct debit • The ECB is currently investigating

20. User benefits A harmonised legal framework: • Information • Contractual conditions • Authorisation • Execution times • Liability • Dispute settlement

21. User benefits Enhanced competition • Opening up payment markets for other actors • Facilitates for PSP’s to provide services abroad • Easier for users to use payment services provided by foreign PSP’s

22. Conclusions SEPA – the necessary infrastructure and standards PSD – a harmonised legal framework Together they will contribute to establish the euro area as one single domestic payment market to the benefits of all its citizens.

23. Thank you very much for your attention www.ecb.int