Building Payment Systemsfor the European Single

Marketin the 21st Century

Gertrude Tumpel-GugerellMember of the Executive Board

European Central Bank

Brussels, 13 April 2011

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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

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The current situation: One currency, but fragmented payments market

One single currency, the euro, since January 2002

But still a fragmented payments market

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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

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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

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…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

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Delayed migration can be costly

• High costs for market participants due to inefficiencies ofparallel processing (the payments industry as well as

usershave 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

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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 fordirect 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)

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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

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Consumers’ concerns – The IBAN

• 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)

“Fear of chaos because of EU account identifiers”28 July 2010

“IBAN The terrible”13 August 2010

• Longer than legacy account number

• More complicated than legacy account identifiers

• More insecure than legacy account numbers

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The facts about IBAN

Bank code50040000

Account number0600046777

DE555004 0000Bank code

0600 0467 77Account number

Country codeCheck digit

Legacy

acc

ount

identi

fier

IBA

N

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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

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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

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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

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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

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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

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Conclusion

• A single market for payments is thelogical consequence of the single

currency • Harmonised standards and rules for

payments and pan-European paymentschemes will increase competition

amongpayment service providers

• More efficient and better priced payment

services are to the benefit of all EUcitizens

The proposal for a SEPA end date regulation is one important piece of the big EU integration puzzle

Complementary slides on ECB concerns regarding

ECON’s draft report on EMIR

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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

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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