Building Payment Systems for the European Single Market in the 21 st Century

1. Building Payment Systemsfor the European Single Marketin the 21st Century Gertrude Tumpel-Gugerell Member of the Executive Board European Central Bank Brussels, 13 April 2011

2. A Single Euro Payments Area (SEPA) • An integrated payments market is the logical consequence of the single currency and a single market • The establishment of one Single Euro Payments Area will contribute to more efficient and competitive payments to the benefits of all EU citizens The European Parliament’s strong support for SEPA, as expressed in its resolutions from March 2009 and March 2010, is highly welcome and has contributed to raise awareness and bring SEPA forward

3. The current situation: One currency, but fragmented payments market One single currency, the euro, since January 2002 But still a fragmented payments market

4. Integration requires harmonisation An integrated payments area requires a common set of rules and standards • One format for payment account numbers (IBAN) • Standardised payment messaging (ISO20022 XML) • Rules for payments processing (EPC Rulebooks) • SEPA compliant infrastructures • A common legal framework (Payment Services Directive, Regulation 924/2009 on Cross-border Payments) All this is already at hand but migration is still slow

5. SEPA migration: Some good examples… • Migration to SEPA credit transfers • euro area Member States: LU (90%), CY (59%), SI (41%), BE (23%), ES (17%) • non-euro area Member States: UK (82%), DK (75%), SE (62%), LV (55%) • Migration to SEPA direct debit: GR (30%), AT (3,3%) • IBAN as only account identifier in Italy, Luxembourg and Slovenia

6. …Still overall slow migration to SEPA • In other Member States migration figures are less promising: • migration to SEPA credit transfers below 2% in 8 euro area Member States • Euro area figures show: • 15.7% of all credit transfers being SCT, 37 months after its introduction • 0.09% of all direct debits being SDDs, 16 months after its introduction

7. Delayed migration can be costly • High costs for market participants due to inefficiencies of parallel processing (the payments industry as well as users have to support both legacy and SEPA instruments) • The benefits of SEPA will only be visible when a core majority of users have migrated to SEPA schemes SEPA migration as a self-regulatory process has not achieved the required results. Legislation is therefore considered as necessary to ensure a successful migration to SEPA, as the project would otherwise face a serious risk of failure

8. Main issues of the envisaged legal proposal The Commission’s proposal for a regulation establishing technical requirements for credit transfers and direct debits in euro: • Harmonised technical requirements, e.g. IBAN as account identifier and ISO20022 XML as messaging standard • End dates for migration (12 months after the regulation has entered into force for credit transfers and 24 months for direct debit) • Ban on direct debit interchange fees • Cost-based fees for R-transactions (rejected, refused, returned or reversed) would however still be allowed • Delegation of powers to the Commission to amend the Annex (technical requirements)

9. Banking industry’s concerns The EPC’s main concerns regarding the proposed regulation: • The ban on direct debit interchange fees should be taken out (too far-reaching, might conflict with the TFEU) • No amendment rights for the Commission • Interoperability between payment schemes is not feasible and| should be taken out • Direct debit consumer protection measures in the annex should be deleted • Large Value Payment Systems should be fully excluded from the scope of the regulation Issues are addressed in ECB opinion

10. “Fear of chaos because of EU account identifiers”28 July 2010 “IBAN The terrible”13 August 2010 Consumers’ concerns – The IBAN • Longer than legacy account number • More complicated than legacy account identifiers • More insecure than legacy account numbers • A number of countries have already successfully migrated to IBAN (e.g. IT, LU, SI) • IBAN is more secure than most legacy identifiers (check digit, uniqueness)

11. The facts about IBAN Legacy account identifier Bank code50040000 Account number0600046777 DE55 5004 0000Bank code 0600046777Account number IBAN Check digit Country code

12. Consumers’ concerns – SEPA direct debit • The first pan-European direct debit scheme • Not all consumers are familiar with its set up However: • Based on a proven concept • Almost an exact copy of the current German and Dutch direct debit schemes • Balance between security and convenience, along the lines and beyond requirements in the Payments Services Directive

13. ECB opinion • The ECB welcomes and supports the Commission’s proposal for a regulation establishing technical requirements for credit transfers and direct debits in euros • ECB’s legal opinion was adopted by the Governing Council 7 April 2011, and is available on:http://www.ecb.europa.eu/ecb/legal/pdf/en_con_2011_32_f_sign.pdf

14. Short timeframes for migration Migration end dates: • End dates for migration to SEPA should be set within a rather short timeframe, i.e. end January 2013 for credit transfers and end January 2014 for direct debits Interchange fees for direct debit: • A long term solution for direct debit interchange fees is necessary, to avoid a legal vacuum hampering the migration to SEPA direct debits, since the interim provisions in Regulation 924/2009 will no longer apply after 1 November 2012

15. A smooth process for amending technical requirements Delegated powers to the Commission: • To allow the development of new and innovative payment instruments it is important that the technical requirements could be amended in a smooth and efficient way • Providing the Commission with delegated powers would contribute to facilitate the amendment process • When exercising its delegated powers, the Commission should cooperate with the Eurosystem and consult the payments industry and other stakeholders

16. Exclusion of LVPS Large Value Payment Systems (LVPS): • LVPS should be excluded from the proposed regulation, due to its complexity and the technical challenges such inclusion would put on the banking industry • The Eurosystem is currently considering the introduction of ISO20022 XML standards in TARGET2 as an issue of strategic importance

17. Conclusion • A single market for payments is the logical consequence of the single currency • Harmonised standards and rules for payments and pan-European payment schemes will increase competition among payment service providers • More efficient and better priced payment services are to the benefit of all EU citizens The proposal for a SEPA end date regulation is one important piece of the big EU integration puzzle

18. Complementary slides on ECB concerns regarding ECON’s draft report on EMIR

19. Draft ECON report on EMIR: Key issues (1) Adequate central bank involvement for CCPs and TRs Rationale and scope • Reflect statutory oversight responsibilities of central banks in standard setting, authorisation, on-going review • Incorporate unique insights and responsibilities of central banks of issue in liquidity conditions and settlement arrangements • Ensure full cooperation of overseers and supervisors in standard-setting for CCPs and TRs in line with international and EU practice • Acknowledge the fact that TRs act as key service providers to systemic infrastructures overseen by CBs

20. Draft ECON report on EMIR: Key issues (2) Cooperation and info-sharing among authorities Priorities in view of the lessons from financial crisis • CCP colleges have significant added value as bilateral approaches are not sufficient for monitoring of major cross-border arrangements • Information-sharing requirements must be commensurate with financial risks of CCPs across jurisdictions and for different types of authorities • Well-coordinated and timely action in crisis situations critically depends on appropriate arrangements for ongoing information-sharing and cooperation, also in good times