European Payments: A path towards Integration

Transcription

1 Treasury and Trade Solutions European Payments: A path towards Integration Ruth Wandhöfer Global Head Regulatory & Market Strategy October 2014

2 Agenda The building blocks of European Payments Law and Market Standards Legal environment pre-sepa The creation of PSD From SEPA standards to SEPA Regulation The next steps with PSD II and Card Interchange Fee Regulation Conclusions

3 Two Building Blocks for EU Payments Integration Standardisation of Payments Processes to create a borderless payments space for Euro transactions SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro, within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location (Source: EPC Roadmap December 2004). SEPA a self-regulatory inter-bank standardisation project and applies to 33 European countries: EU 28 Member States + Iceland, Norway, Liechtenstein (EEA), Switzerland and Monaco (and San Marino from 2015) Creation of harmonised legal basis for purposes of consumer protection and harmonised payments activity A path from Regulation > PSD I -> Revision of Regulation 2560/ Regulation 924/2009 -> SEPA Regulation -> PSD II -> Card Interchange Fee Regulation

4 Vision and Objectives Pre-2008 National / local solutions Different schemes, experiences, standards, consumer protection laws No interoperability of national schemes Fragmented industry Cross-border complexity and risk SEPA Local solutions for Europe Common core schemes and experiences, consistent standards, application of harmonised consumer protection laws Improved interoperability Reduced complexity

5 Timeline of Market and Regulatory Initiatives: xx? Cross-Border Payment Regulation 2560 EPC: Defining the SEPA schemes TRANSITION BIC & IBAN Mandatory for intra-eu/eea payments New EU Member States joining TARGET 2 SEPA Cards Framework SEPA Credit Transfers Euro Priority Payments Payment Services Directive New SEPA Schemes / Infrastructures New Same-Day Schemes / Infrastructures Legal Framework / Standards Other Harmonised CBR obligations? Payment Services Directive SEPA Direct Debits Phase Out of Legacy Products?

6 Agenda The building blocks of European Payments Law and Market Standards Legal environment pre-sepa The creation of PSD From SEPA standards to SEPA Regulation The next steps with PSD II and Card Interchange Fee Regulation Conclusions

7 Legal environment pre-sepa Following introduction of the Euro the first key payments legislation introduced in 2001 was EU Regulation 2560, which defined the principle of equal pricing for x- border Euro transfers at the level of a corresponding national payment The European Payments Council (EPC), designer of the SEPA schemes, commissioned external legal advice aimed at identifying legal barriers to SEPA. Three key harmonisation requirements had been identified out of this exercise and industry turned to the European Commission to provide legal intervention. Needs for SEPA: Harmonised rules on Right of Refund Primacy of Account Number (IBAN) over name to allow fully automated processing Harmonisation or removal of Balance of Payments reporting requirements

8 Objectives of the EU Commission in relation to payments At the time the European Commission had two key objectives: 1. compliance with FATF SR VI (inter-governmental body) requirements regarding alternative remittance 2. increased competition in the EU payments market To arrive at A building block for SEPA Opening up markets and ensuring a level playing field Increased market transparency Standardised rights and obligations of payment providers and users and a high level of consumer protection Support modernisation and efficiency of payment systems

9 Agenda The building blocks of European Payments Law and Market Standards Legal environment pre-sepa The creation of PSD Launching SEPA From standards to SEPA Regulation The next steps with PSD II and Card Interchange Fee Regulation Conclusions

10 Payment Services Directive: Overview Objectives & Scope Key Components New legal framework for payments within the EU Single Market, Directive 2007/64 European Directive that had to be transposed into national legislation by 1 st November 2009 Despite being a maximum harmonisation Directive, national Member State derogations are included. Provides a harmonised legal basis to allow for the roll-out of SEPA Direct Debits. End-to-end payer to payee relationship is covered Conduct of business rules for payment transactions in Euro and all other Member State currencies. Regulates banks, e-money institutions and payment institutions that offer services within the Single Market. Excludes payments relating to securities asset servicing, trade or liquidity management, cash and cheque payments. Creates a new type of payment service provider the Payments Institution Harmonises refund rules to benefit consumers Defines maximum payment cycle times Reduces opportunity float-taking & beneficiary deductions Central Bank Reporting not covered

11 SEPA versus PSD in 2009

12 Structure of PSD Outline of PSD structure, divided into Titles: Title I: scope, definitions Title II: Prudential regime for Payment Institutions Title III: Information Requirements/Transparency Rules Title IV: Operational, Rights and Obligations of Providers and Users Title V: Implementing Measures Title VI: Final Provisions

13 Payment transaction: the four corner model Payer Provision of goods and services Funds transfer Payee Framework contract Framework contract PE-ACH or CSM Payer's PSP Scheme rules Payee's PSP

14 Walk-through of the PSD requirements Payer Payee 1. Framework contract 2. Payer gives consent 3. PSP receives payment order 6. Charges shown separately 7. Debit value date no earlier than debit to Payer's account 10.Charges shown separately 9. Credit value date no later than credit to Payee's PSP's account 8. Amount at Payee's disposal immediately after credit to Payee's PSP's account Payer's PSP 4. Full amount transferred 5. Credited to Payee's PSP's account by D+3 (D+1 from 2012) Payee's PSP

15 Discussion of key principles (1) SHA(RE), not BEN or OUR Required where no currency conversion involved Payee free to request a charge or offer a reduction for different payment instruments 'Full amount' principle Obligation falls on Payer's PSP to ensure Payee receives the full amount transferred (with no deduction of charges, including by any intermediaries) Value dating Principle is that "non-transparent pricing methods should not be allowed" and specifically "the use of value dating to the disadvantage of the user should not be permitted" Parties not free to agree otherwise Mirror image approach: debit value date for Payer's payment account must be no earlier than the point in time at which the amount is debited to that account; and credit value date for Payee's payment account must be no later than the business day on which the amount is credited to the Payee's PSP's account

16 Discussion of key principles (2) Execution time Maximum execution times mandated for specified transactions all euro payment transactions, all national payments in national currency (e.g. Sterling within UK) and cross-border euro to national currency where conversion takes place outside euro-zone country which also apply to all other in-scope transactions unless user and PSP agree otherwise D+1, but until 2012, Payer and his PSP can agree on up to D+3 Additional business day permitted for paper-initiated payment transactions For purely national payment transactions, Member States can provide for shorter execution times Measured: from point in time of receipt of payment order by Payer's PSP to credit to Payee's PSP's account by reference to business days Liability Execution per specified unique identifier (e.g. IBAN) Payer's PSP liable for correct execution unless he can prove that the Payee's PSP received the amount involved and regardless of liability must make "immediate efforts" to trace the payment transaction and notify the payer of the outcome

17 Implementation approach: EU Level Commission activity: Commission/Member State Transposition Working Group Commission PSD Website / FAQ Industry Response: European Industry PSD Implementation Expert Group Identification and dissemination of Best Practices Publication of PSD Industry Guidance Document in 2009 including further Guidance Addendum in 2010

18 Agenda The building blocks of European Payments Law and Market Standards Legal environment pre-sepa The creation of PSD From SEPA standards to SEPA Regulation The next steps with PSD II and Card Interchange Fee Regulation Conclusions

19 Repeal of Reg. 2560/2001 and adoption of Reg. 924/2009 Broadening the Regulation 2560 principle of equal pricing for x-border Euro transfers at the level of a corresponding national payment, Regulation 924/2009 covers the following areas: Inclusion of x-border Euro direct debits under the same pricing principle in order to prepare for the arrival of SEPA Direct Debits Support for the banking industry to launch SEPA Direct Debits via reachability obligation for banks offering domestic Euro direct debits under the SEPA scheme from end 2010 Additional motion on SEPA issued by European Parliament ECON Committee Central Bank Reporting for Euro in the SEPA region still not removed; continues to constitute a technical and legal barrier to payments integration in Europe

20 SEPA Market Launch 2008: SEPA Credit Transfers A harmonised standard for processing euro credit transfers in the same way, irrespective of whether they are executed domestically or cross-border, has been launched in January :SEPA Direct Debits A harmonised standard for processing euro direct debits in the same way, irrespective of whether they are executed domestically or cross-border, has been launched in November Initial market uptake remained slow. Given this migration inertia, SEPA moved from a selfregulatory industry standardisation in 2012, the SEPA Regulation came into force in It creates the technical requirements basis to ensure SEPA migration, mandates a set of deadlines and amends Regulation 924/2009.

21 SEPA in 2013 The SEPA zone has close to USD 20 Trillion in total GDP and a population of +500 million, with +30 billion annual transactions in-scope 33 Countries / transactions within this geographical area only Euro currency only Single Legal Framework (PSD) Mandatory use of BIC & IBAN SEPA addresses non time-critical payments (D+1 from January 2012) Non-urgent payments - standardised Schemes on basis of informationrich ISO XML payment messages 17 Euro Zone members Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain 11 EU members (non-eur countries) Denmark, Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Croatia, Sweden and the United Kingdom 3 EEA members Iceland, Liechtenstein and Norway 2 Non-EU/EEA Countries Monaco and Switzerland 10 Treaty of Rome Territories Martinique, Guadeloupe, French Guiana, Reunion, Gibraltar, Azores, Madeira, Canary Islands, Ceuta and Melilla and Åland Islands Andorra, Kosovo, Montenegro, San Marino and Vatican City are not in SEPA zone even though they adopted EUR as domestic currency

22 SEPA End Date Regulatory Developments 2014 and Beyond Long sought certainty for market participants Single end date for both SEPA CT and SEPA DD in euro Member States. For non-euro Member States the corresponding end date is 31 October August 2014 Euro Member States initially expected to work towards Feb 2014 timeline; this had to be revised to August 2014; migration of SCT and SDD was broadly complete on time as reported by ECB statistics By the end date SEPA CTs and DDs will have to be executed in accordance with a set of prescribed technical requirements set out in the Regulation Annex (reflecting SEPA rulebook elements). 1. Reachability for SEPA credit transfers and SEPA DD in euro Member States 2. Cross-border SEPA CT and SEPA DD to be charged the same as domestic SEPA CT and SEPA DD 3. Payment Accessibility to apply 1. Migration end-date for SEPA CT and SEPA DD in non-euro Member States 2. Reachability for SEPA CR and SEPA DD in non-euro Member States Immediately 1 Aug Feb Oct Migration end-date for SEPA CT and SEPA DD in euro Member States 2. End-date for grandfathering existing DD mandates to SEPA DD Core 3. Use of ISO XML standard by PSPs when initiating and receiving SEPA transactions; corporate file initiation subject to XML usage Note: Member States have the option to defer to 1 Feb 2016 for corp. users. Conversion solutions are permissible. 1. Expire of transitional arrangements for so called niche products 2. Expiry of transitional arrangements for one-off direct debits used at merchants (e.g. Germany s ELV) 3. Removal of settlement-based national reporting for balance of payment statistics (such as Central Bank Reporting)

23 Useful references If you ever wanted to have a comprehensive view on the PSD, SEPA and what these mean for Euro payments integration, efficiency, transparency, cost/benefit etc. then this is: EU Payments Integration: The Tale of SEPA, PSD and Other Milestones Along the Road Ruth Wandhöfer Palgrave MacMillan ISBN

24 Agenda The building blocks of European Payments Law and Market Standards Legal environment pre-sepa The creation of PSD From SEPA standards to SEPA Regulation The next steps with PSD II and Card Interchange Fee Regulation Conclusions

25 Payments legislation in Europe is undergoing an update In July 2013 the European Commission presented the Payments Package The Payment Services Directive (PSD) constitutes the central legal regime for business of conduct in relation to all types of payments services (except cash/cheques) provided within the EU/EEA. This legislation, which has been in place since 2009, has been reviewed and a new proposal law issued in summer PSD II. In parallel, the European Commission issued a proposal for a Regulation on card services, where the reduction of card interchange fees is a key objective. Both legal proposals were issued as the Payments Package and were expected to be negotiated and adopted by summer However, the negotiations continue into the end of 2014 and potentially beyond.

26 Payment Services Directive II (1/3) Key elements of changes in PSD II Key areas of change include: Scope review: more provisions will have to apply to transactions covering all currencies and those where one leg of the payment is outside of the EU/EEA. The regime for payment institutions, a category of payment service providers (PSPs) introduced under PSD I, is being reviewed and new providers are being added. Introduction of Third Party Payment Service Providers (TPPs) that can offer: 1) Payment Initiation Services, 2) Account Information Services and 3) Third Party Payment Instrument Issuance. Further revisions of refund rules (current negotiations indicate a return to PSD 1) and expanded liabilities of account holding PSPs.

27 Payment Services Directive II (2/3) The new services in PSD II Payment Initiation Services : These services, are primarily merchant acquiring services provided by third parties to merchants where instead of cards, other instruments such as credit transfers or direct debits can be used by customers making internet purchases. Existing services operate for example as follows: To make a payment, the customer (online shopper) is required to provide all security details for his online bank account, including payment authorisation codes, to the third party provider. This provider then directly enters the account of the user in order to initiate a payment. The operation of this service, which currently exists in some EU Member States and is not yet regulated, creates significant questions around security and liability. In the case of a wrongly executed or fraudulent transaction, the customer will turn to his bank, which has the obligation to prove that the payment was not authorised by the customer. This is not possible if a third party has used the customer s security credentials and effectively impersonated him. Negotiations so far suggest concepts such as no-credential-sharing, continued credential sharing + TPP information to be provided to the account holding PSP, strong customer authentication combined with strong transaction authentication

28 Payment Services Directive II (3/3) The new services in PSD II Account Information Services : These services are also provided by third party providers and relate to aggregating information across a number of accounts or within a single account that a customer holds at either one or various institutions. For this purpose, the PSD II proposal also permits third parties to gain access to customer s online banking by obtaining personal security credentials to access the account information. This service, which has so far been debated very little during the negotiation, is equally problematic, as access credentials would need to be shared. Alternative models that are already operating in the market without requiring direct access to customers accounts should be considered to avoid unnecessary security risks. Third party payment instrument issuance services : These services are not directly defined in PSD II, but relate to card schemes where the card can be used to pay from an account that is not directly linked to the card, for example. Further clarity will be required here.

29 Card Interchange Regulation Caps on interchange fees for debit and credit cards are proposed The Regulation proposal suggest the following card interchange fee caps: For cross-border consumer debit cards IF cap at 0.2%, after two months of entry into force of Regulation For cross-border consumer credit cards IF cap at 0.3%, after two months of entry into force of Regulation For domestic card transactions the caps shall apply two years after entry into force of Regulation. Further more, the Regulation removes the Honour all Cards Rule for transactions where the interchange fee cap does not apply (e.g. premium cards or commercial cards). Additional rules to permit surcharging by merchants on instruments not governed by the IF caps are also included. Whilst the overall intention of the Commission is to steer customers to more efficient payment instruments, evidence of similar regulatory interventions shows that any benefits arising from these changes on the merchant side, are not systematically passed on to consumers. There is also a risk that cash usage could increase.

30 Card Interchange Regulation Latest updates The Italian Presidency, currently leading the Council WG on this file, aims to complete negotiations in the coming days. In terms of caps, the compromise appears to arrive at the following model: For cross-border consumer debit cards IF cap at 0.2%, after 6 months of entry into force of Regulation For domestic consumer debit cards IF cap at 0.3%, after 6 months of entry into force of Regulation; Member States may define a lower interchange fee cap. For cross-border consumer credit cards IF cap at 0.3%, after 6 months of entry into force of Regulation For domestic consumer credit cards IF cap at 0.3%, after 6 months of entry into force of Regulation; Member States may define a lower interchange fee cap. The proposed separation between scheme and processing has been more clearly defined to mean separation in terms of accounting; furthermore pricing for payment card scheme and processing activities should not be bundled nor cross-subsidized. Some discussions continue around three-party-scheme licensing operations also being excluded from the IF caps, in addition to classical three-party-scheme activity.

31 Agenda The building blocks of European Payments Law and Market Standards Legal environment pre-sepa The creation of PSD From SEPA standards to SEPA Regulation The next steps with PSD II and Card Interchange Fee Regulation Conclusions

32 Conclusion Payments Integration continues on its path In the last decade significant progress has been made to create a body of European legislation for payments. In parallel, the payments market in Europe has opened its doors to integration with the creation of SEPA payment solutions for Euro. However there are still gaps in harmonisation around SEPA. The SEPA Regulation provision of payment accessibility is not yet complied with by all Member States and the opportunity for customers to use one account for all SEPA transactions, whether domestic or cross-border, has not yet become a reality. With PSD 2 and Card Interchange Fee Regulations, the European legislative body for payments continues to grow. Future initiatives around mobile payment standardisation and regulation may be on the horizon next. At the same time the SEPA geography continues to expand, San Marino will join in 2015, whilst countries and providers outside of SEPA are watching the SEPA experiment with a view to adopting elements in their own regional integration projects (e.g. ASEAN or African regions).

33 Ruth Wandhöfer

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