The Payment Services Directive in the context of the Single €uro Payments Area

Payments Seminar Cape Town, 7-10 April 2009

Ceu Pereira*

*The views expressed are those of the author exclusively

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The PSD: an interesting case-study

Unprecedented scope and scale

“Start from scratch”

Momentum and support by the industry

Legislate for the future payment instruments

V. Payment Services Directive

OverviewI. WHAT? The concept of the Single Euro Payments Area

II. WHY ? Objectives and general benefits

III. HOW & WHO? PSD / COM / ECB / EPC

IV. WHEN ? SEPA Timelines

V. PSD Objectives and regulatory choices

VI. BENEFITS for consumers, businesses, banks, publicadministrations

VII. STATE OF PLAY Credit transfers, Cards, Direct Debits

VIII. CONCLUSIONS AND FOOD FOR THOUGHT

I. WHAT: EC / ECB SEPA VISIONJoint Statement by EC/ECB 4 May 2006:

integrated market for payment services

subject to effective competition with

continuous improvement of payment services offering

pan-European products and infrastructure providing

low-cost, efficient, modern and reliable payment services that

facilitate SEPA-wide payment related services (e-invoicing)

one account, one set of payment instruments, one terminal

II. WHY: Objectives and benefits Objectives and benefits: Political

1999 : Euro 2002 : Euro notes and coins 2009 : Still fragmented national payments markets, but SEPA on its way!

Economic Integration of national payment systems → Economies of scale → ↓ payment

processing costs Enhanced competition Greater functionality Improved efficiency

payments savings = EUR 123 billion (2007-2012)e-invoicing savings = EUR 238 billion (2007-2012)

EPC source: Making SEPA a reality

III. How and Who?

Regulator:

Payment Services Directive provides the legal foundation for SEPA

(5 December 2007) Banks’ supervisor:sets requirements,

timelines & monitors progress

Represents banking

community: coordinates the

realisation of SEPA

COM /ECB /EPC:

Three SEPA pillars

IV. WHEN: SEPA timelines

Implementation of SEPA schemes (SCT&SDD)

SEPA Frameworks (Cards, clearing&settlement infrastructures)

• January 2008 – SEPA starts with credit transfers

• November 2009 –transposition of PSD

• Migration to SEPA compliant products and infrastructures

• SEPA credit transfers, direct debits and cards to co-exist with national payment products

• Parallel processing (conversion of the national formats into the SEPA formats)

2005 2008 2010

• Irreversible part of domestic payments have migrated to SEPA products (critical mass?)

• Infrastructures must be able to reach all euro area banks and process euro payments made with three SEPA payment instruments

• Legacy products to be gradually phased out

Preparing for SEPA

SEPA transition

Consolidated euro market

End 2013?

SEPA timelines:

V. Payment Services DirectiveOBJECTIVES

Enhanced competition by opening up markets to new players Increased transparency through harmonised information

requirements Standardised rights and obligations for providers and users Note: applies to all MS currencies – not just euro

State of play

Published in 5 December 2007 L319 Effective in Member States : 1 November 2009 (at latest) Commission working with Member States and stakeholders to

achieve consistent, rapid and faithful implementation through workshops and interactive website

Authorization regime

Supervisory regime

Safeguarding measures for users

Granting fair access of PI to payment

systems

pricing

Applicable conditions

Rules for unauthorized payment

transactions

Rules on irrevocability

Rules on refunds

Rules on execution time

Rules on defective execution

Pillar I

Authorization and supervision regime for

PI

Pillar IITransparency requirements

applicable to all PSPs

Pillar IIIRights and obligations of PSUs and PSPs in a

payment transaction

Protection of usersCompetitive EU market

V. Payment Services Directive

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Main drivers:

Increase competitionIncrease transparencyReinforce consumer protectionPromote automation and STPPromote innovative and safe payment instruments

V. Payment Services Directive

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Regulatory choices:

Pillar I

Authorization and supervision regime for

PI

Authorization regime

Supervisory regime

Safeguarding measures for users

Granting fair access of PI to payment

systems

Qualitative/quantitative

More/less burdensome

Higher/lower barriers to entry

Scope of authorized activities

Maximum/minimum harmonization

Degree of interference with some payment systems’ rules

V. Payment Services Directive

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Regulatory choices:

Pillar II

Transparency

Charges

Other contractual terms

Value dates

Derogations for new payment methods

More/less information

free of charge or not

Make available/provide

Support: paper or other?

No hidden tariffs

Maximum/minimum harmonization

Which derogations can be justified

V. Payment Services Directive

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Regulatory choices:

Pillar III

Rights and obligations of the parties

unauthorized payment transactions

irrevocability

refunds

execution time

defective or non execution

Derogations for new payment methods

Degree of sharing of cost between users/PSPs

Level of service

More / less users' protection

Which derogations can be justified

V. Payment Services Directive

VI. Benefits for consumers

• Euro payments throughout the SEPA area can be made from a single bank account;

• Convenient credit transfers: same procedure, cost and execution time throughout SEPA;

• Faster payments: By 2012 at the latest, D+1 execution time• Immediate use of payments received: value dating to the

disadvantage of the user no longer permitted• Crediting of the full amount: the full amount specified in the

credit transfer shall be credited without any deduction to the beneficiary.

VI. Benefits for consumers

• Direct debits to and from anywhere in SEPA: possible to pay for regular bills in euros to a beneficiary in another SEPA country; fast and simple refund procedure

• Use payment cards (debit and credit) anywhere in SEPA: all cards should have the potential to be accepted everywhere throughout SEPA, both in POS and ATMs;

VI. Benefits for businesses

Need for a single bank account only:-simplification of payment and treasury management, as all financial transactions can be done centrally from one bank account using SEPA payment instruments.

Payments handling is rationalised as all incoming and outgoing payments can use the same format.

Cost and time savings by consolidating payment management. This will improve cash flow management, reduce banking and working capital costs and open up wider access to the single market.

SEPA can be used as launch pad for a development of value-added services such as e-invoicing and e-reconciliation, which will help businesses optimise their cash flow and accounting processes.

Although the primary focus of SEPA is on the euro-area, SEPA will also simplify the treasury and payment operations of businesses outside the euro-area who are trading across the euro-area countries.

VI. Benefits

BENEFITS FOR PUBLIC ADMINISTRATIONS

• As heavy users of payments, public administrations will ingeneral experience the same benefits as businesses – i.e.faster credit transfers throughout the SEPA and, fromNovember 2009, the new SEPA direct debits which can alsobe used for cross-border payments. SEPA can additionallyhelp drive e-Government and e-procurement, therebypromoting more efficient public services.

VI. Benefits for banks

operational savings through product standardisation and channel simplification.

The use of common standards by infrastructures will promote competition and thus allow banks to negotiate better services and better prices.

Expand the business and compete on a European level, as any bank can offer its services to anyone in SEPA. Banks will be able to extend their offering to customers through the provision of value-added services, such as e-billing and e-invoicing.

VI. Overall benefits

Commission study on costs and benefits of SEPA(published on 28 January 2008)

Conclusions of the study:

The potential benefit from SEPA to society is very large (EUR 123billion over a period of 6 years)

If SEPA used as a platform for automating business processes linked tothe business chain, such as e-invoicing, it can provide even largerbenefits to the European economy (EUR 238 billion over a period of 6years)

But rapid SEPA migration necessary to reduce transitional costs forthe supply side – during the migration banks must operate dual paymentsystems

VII. State of play Credit transfers: Successful SEPA launch

on 28 January 2008; % SEPA credit transfers steadily increasing (but still less than 2%)

Direct debits: SEPA scheme operational from November 2009

Cards: SEPA Card framework available and standards available

VII. Future challenges and open questions• How quickly will critical mass be reached in SEPA?• Will SEPA products meet user’s expectations?• Will additional optional services imply a risk of

fragmentation?• Will an end date be needed?• Will payment institutions change the payments

landscape?• Will new payment schemes emerge in the market? How

will interchange fees evolve? Will there be a need for additional regulatory action?

VIII. ConclusionsSEPA Necessary to complete monetary integration in euro-area Substantial benefits for customers New business opportunities for banks Infrastructure Consolidation > economies of scale realised > bring prices downPayments Services Directive Provides legal foundation for SEPA Increases competition and protects usersSEPA launch and migration New SEPA payment products launched from January 2008 – migration has

started for credit transfers and will start in November 2009 for direct debits Further steps are necessary: need for an end date? Major contribution to achievement of a more efficient Internal Market in the

European Union and a knowledge-based economy

Food for thought

Establish clear policy objectives Use appropriate legal concepts Dialogue with stakeholders Make solid impact assessment and balance

different, sometimes contradictory policy objectives

Be able to reconsider and correct mistakes Avoid dogmatism!

More information about the PSD?

http://ec.europa.eu/internal_market/payments/framework/index_en.htm