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MEMO/03/248

Brussels, 2nd December 2003

Commission consultation on creating a Single Payment Area in the EU - Frequently Asked Questions

(see also IP/03/1641)

Why this Communication?

The objective of this consultative Communication is to consult all interested parties on the general principles that should govern the modernisation and simplification of the regulatory framework applying to payment services in the Internal Market. The ultimate aim is to make the whole Internal Market an efficient domestic payment market. Possible legal and technical obstacles for a Single Payment Area need to be analysed and removed.

What is the main thrust of the Communication?

The Communication focuses on legal issues which may need to be harmonised at EU level either through EU measures or self-regulation by the market.

The following general principles are recommended as guidance for any future regulatory measures on payments:

  • improving efficiency as a permanent objective of the Internal Market

  • enhancing the legal and technical security of payment instruments and systems

  • boosting competition and easier access to the market

  • strong safeguards for consumers and

  • avoiding discrimination between payment instruments.

The Communication includes 21 Annexes on various specific subjects relevant to achieving the general objective of a Single Payment Area.

Why do we need a Single Payment Area?

Citizens and businesses should be able to make purchases and sales as easily anywhere in the EU as in the country where they live. Allowing them to do so is a core principle of the Internal Market.

Payments are basically the financial lubricant that allows the real economy to function. If citizens and businesses are to reap the full benefits of an enlarged Internal Market of about 450 million citizens they have to be able to trust in efficient, cheap and secure payments. Currently each EU citizen is making on average 138 non-cash payments per year.

In a Single Payment Area citizens and business should be able to pay as conveniently as they presently do at national level. They should not need to change payment habits just because they want to make or receive a payment across a national border.

Today consumers and small and medium sized enterprises do not have the same choice of payment services at EU level as they have at national level. This is for instance the case with direct debits, which cannot be used across borders, even though they represent a cheap, reliable and secure means of payment and their use reduces costs for businesses and their customers.

In an efficient Internal Market citizens and businesses should also enjoy the same level of protection and legal certainty independently of the origin of the payment instrument or service they use. This should be the case for all payment instruments, such as card payments, credit transfers, e-payments and direct debits etc.

A Single Payment Area would also make it less burdensome for existing and new payment service providers to compete and offer their services all over the Internal Market. Diverging rules in 25 different legal environments are a significant impediment to that.

Is there really a need for a New Legal Framework in order to have an efficient payment market?

We currently have a single currency, but not a common legal framework for non-cash payments in the EU. Much, but not enough, has recently been done to improve the situation. Regulation 2560/2001/EC on cross-border payments in euro (see IP/03/901, IP/02/941, MEMO/03/140, MEMO/02/154) has contributed to a considerable reduction in prices for cross-border payments in the Internal Market, and has provided an incentive for the payments industry to modernise their EU-wide payment infrastructures.

This Regulation is an important step towards a Single Payment Area for non-cash payments in the Internal Market, which does not exist in spite of the introduction of the euro. But it is only one step. Further progress needs to be made, as the existing legal framework for payments is to a large extent based on national rules. That makes it difficult for payment services providers to deploy EU-wide infrastructures.

Today, national rules inhibit, for example, the provision of direct debit services across the EU. Clear information requirements, protection against misuse of a payment instrument, revocability of a payment order, and the right to get the money back if something goes wrong are examples of issues on which national rules may need to be harmonised in order to develop an efficient payment market for Europe.

In addition, existing Community legislation needs to be reviewed, modernised and consolidated in order to take account of recent market developments, such as the growing use in payment services of the internet and of other communication networks, including mobile phones.

Why are different rules between different Member States a problem?

Payment services cannot work efficiently without legal certainty. Payment services are built on the trust of the users. An integral part of this trust is a clear legal environment. Presently national rules diverge or are conflicting on many crucial aspects relating to payments, such as licensing requirements, revocability, liability of non-execution or defective execution etc.

Will the Commission propose legal measures on all issues raised in the Communication?

No. The Communication is a consultative document. The 21 annexes of the Communication deal with many different issues. Some of these issues may already be and others may become obstacles for a Single Payment Area. If they are obstacles, action on EU level may be necessary, either by self-regulation by the market or by EU legislation. Any measure taken has naturally to be proportionate to the problem it is intended to solve.

What are the existing legal texts at EU level for payment services?

The present EU legal provisions on payments are contained in different types of EU legal instruments:

  • a Regulation (2560/2001/EC) introducing equality of charges between cross-border payments and corresponding national payments in euro, which is directly legally binding without transposition into national law

  • a Directive (97/5/EC) facilitating cross-border credit transfers by establishing some customer protection requirements, which had to be written into national law to become applicable

  • a Recommendation (97/489/EC) providing for the protection of customers using electronic payment instruments, such as payment cards, which although not a legally binding instrument was supposed to be fully implemented and applied in the EU.

Both the Directive and the Recommendation need to be reviewed, as they have become partly outdated, because of market developments and the introduction of the Regulation. In addition the rules need to be simplified as some of the provisions are overlapping or even conflicting. In addition a recent Commission Report to the European Parliament and the Council (COM (2002) 663 final) on the Directive demonstrated shortcomings. A study on Recommendation 97/489/EC revealed insufficient application in national legislation - the Recommendation already announced the intention of the Commission to propose binding legislation, if that turned out to the case. In conclusion, a "recasting" of the existing legal framework for payments appears necessary.

The European consumer association recently criticised banks for not applying the Regulation correctly? Do you agree with their view?

Yes and no. Their sample was rather small and may have given the impression that the situation is worse than it is. In the Commission's view, the vast majority of cross-border credit transfers are being carried out in accordance with the Regulation. However, the Commission is also aware from complaints that it has received, that some banks are unfortunately not applying the Regulation properly. For example, there are cases where the customer requests his bank to do a cross-border credit transfer, and although he provides the bank with the IBAN and BIC numbers he is nevertheless asked by the bank whether he wants to pay all expenses himself or if he prefers that the expenses are shared. Often the customer is not aware of his rights and answers that he wishes to pay all expenses himself. The bank then takes the view that the customer requires a specific payment service that often does not exist for domestic payments within that Member State.

Accordingly, the bank pretends that it cannot apply the "corresponding" national charges and feels free to set a high price for the cross-border payment. The Commission considers that this practice is not in accordance with the Regulation.

Any discussion on the sharing of expenses is likely to mislead the consumer. According to the Commission's information, it is only in Ireland that fees are taken from the beneficiary for the receipt of national credit transfers. The amount is generally less than 20 cents. In all other Member States of the euro area, the receipt of a national credit transfer does not give rise to fees for the beneficiary. In conclusion, if a bank invites a customer to pay the totality of charges for a cross-border transfer in euros without informing him that he is entitled to make the transfer for the same price as a domestic transfer, the bank is acting against the spirit and the letter of the Regulation. Clarification of this pricing policy is one of the issues that is raised in the Communication.

How does the New Legal Framework relate to the work done by the payments industry to establish a Single Euro Payment Area (SEPA)?

The Communication emphasises that work by European regulators should as far as possible be done in conjunction with the work done by the industry. This is especially the case as regards work done under the umbrella of the European Payment Council (EPC) to establish SEPA.

The Commission is working in close co-operation with market participants and other parties on many issues, such as direct debits. However, the New Legal Framework would not in principle be limited to euro payments.

Is there an Internal Market for undertakings providing payment services to the public?

Member States have introduced national requirements for undertakings providing payment services to the public. These rules are not identical and have therefore given rise to obstacles for certain payment services in the Internal Market. This has been exacerbated by recent market developments and the introduction of new means of payments, such as credit transfers in centralised account systems (e.g. virtual internet accounts and telephone accounts), and money remittance services. Different national treatment of payment instruments and services may not be in line with the objective of a Single Payment Area and legal certainty in the Internal Market.

Does the Commission want to regulate national payment habits?

No. Payment habits vary between Member States and that will continue. In some countries card payments are the most used non-cash payment instrument. In other countries direct debits or e-banking are more common (see annexed table on non-cash payment instruments in 2001). The aim of the new legal framework is not to change these payment habits, but to establish a legal environment that would enable citizens to keep their national habits and use them across the EU.

Does the Commission have a preference for some payment instruments over others?

No. The New Legal Framework should not "favour" one instrument over another. The Commission has emphasised in the Communication that any forthcoming legal measure should be technically neutral with regard to different payment instruments and should avoid unnecessary harmonisation of payment products in order not to inhibit innovation for example in the case of electronic payments (internet banking, mobile phone payments etc). Competitive advantages should be based on investments in trust and new technology not a result of legal provisions.

Will the New Legal Framework be open to innovative and new payment methods?

The New Legal Framework will not inhibit innovation, technical development or discriminate between payment instruments. The rules should be comprehensive enough in order to cover, in principle, all payment services to the public and flexible enough to avoid inhibiting technical and innovative developments in the market. Any new legal measure should encourage the introduction of new payment instruments by providing legal certainty for this activity across the Single Payment Area.

Will the New Legal Framework deal only with payments executed in euro?

No. The forthcoming New Legal Framework for Payments should in principle cover all national currencies used in the EU.

Why is it currently impossible to set up a cross-border direct debit? What exactly are the legal barriers involved?

Today there is no pan-European direct debit system. Direct debit systems are very efficient ways to handle recurring payments and their market share is rapidly increasing in some national markets. The industry is building the necessary infrastructure to supply these services across borders and the New Legal Framework should remove all legal barriers. For example, conflicting rules on revocation of a payment order may need to be removed. The Commission has recently published a Study on the working of direct debit schemes in the Member States (see

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

Why has the Commission taken the view that it is not feasible to make bank account numbers portable?

The Commission has analysed the question of "portable" account numbers, which would allow customers to keep their account number if they change their bank. The Commission concluded that this is unlikely to be practicable in the short term, as it would technically be very costly to establish. Similar decisions have been taken at national level in the United Kingdom and the Netherlands.

The Commission has, however, received many complaints from citizens over high fees for closing a payment account. Therefore, the Commission will look at other measures to increase customer mobility, such as ensuring clear information to customers, when they open an account, on any charges applicable for closing it.

Why does the consultation document not deal with cheques?

The Communication does not address cheques because they are not regarded as future payment instruments in the Single Payment Area. Cheques have disappeared in several Member States and the remaining systems are strictly national in nature.

What protection will EU citizens have if their payment instrument is lost, stolen or misused?

The Communication includes preliminary reflections on how the protection of payment service users may be harmonised, where they are faced with a problem of non-execution, defective execution or if the payment instrument has been misused by a third party. For example, the Communication suggests a card holder would bear a loss up to €150 until he or she has made a notification of the loss or theft of the instrument. After notification, the customer would have no liability. These rules are envisaged as being applicable to both card payments and internet banking.

Does the Communication address the question of technical security of payment instruments and systems?

Yes. It raises many issues directly or indirectly related to the security of payment instruments and systems. It raises issues relating to possible breakdowns of payment networks, evaluation of the security of payment instruments and components, the security of payment networks against hacking etc. In addition, it seeks views on how EU legislation can be implemented or improved as regards digital signatures used in payment services.

Does the Communication cover the issue of increased customer protection in payment services used in e-commerce?

Yes. The Communication covers many aspects of increasing customer protection in e-commerce or other business models where goods or services are ordered at a distance. It deals, for example, with issues of protection related to misuse of the payment instrument or personal data communicated in the payment process to a third party. It also raises issues related to the technical security of payment networks.

It includes also some general considerations on the role of the payment service provider, if the customer does not get the goods or services he or she has paid for in advance. The Communication asks all interest parties for comments and suggestions for solutions, which would respect the following guiding principles: they must be easily understandable and convenient for the customer, neutral between payment instruments used in distance commerce and proportionate, without imposing unreasonable costs on the payment service.

Does the Communication deal with issues relating to payment fraud, money laundering and terrorist financing?

Yes. The Communication addresses some such issues, which are of special relevance for payment services. Preliminary considerations are given on how to implement at EU level Special Recommendation VI and VII of the Financial Action Task Force on Money Laundering (the international body which functions under the auspices of the Organisation for Economic Co-operation and Development).

These texts are related to the identification of the payment service provider and the traceability of a payment. It also includes some thoughts on data-protection and effective co-ordination between relevant bodies in combating payment fraud. These issues have to be implemented in a way which is compatible with the Single Payment Area approach.

How many non-cash transactions take place every day in Europe and to what value? What are the differences between Member States?

On average, in 2001 each EU citizen made 138 non-cash payments during the course of the year. The total value of these payments was €52 billion. See attached table on non-cash payments in 2001 for more details.

ANNEX: Statistics on non-cash payments in EU 2001

Relative importance of cashless payment instruments

(Percentage of total number of transactions)

Credit transfers (%)

Credit and debit card payments (%)Direct debits (%)Cheques (%)Card based e-money (%)Total
Belgium47.833.311.23.83.8100
Denmark24.153.715.85.50.9100
Germany49.811.336.42.30.2100
Greece8.577.810.23.4Nap100
Spain15.626.350.77.30.05100
France17.830.016.835.40.02100
Ireland13.039.717.130.1Nap100
Italy34.724.620.420.3Neg100
Luxembourg27.561.58.20.12.7100
Netherlands38.232.428.20.21.0100
Austria55.514.628.41.00.5100
Portugal4.456.411.827.10.3100
Finland53.141.75.10.10.1100
Sweden58.233.48.20.10.1100
United Kingdom17.739.019.723.5Nav100
EU30.428.825.515.10.4100

Source: European Central Bank, Blue Book, September 2003

Use of cashless payment instruments

(Number of transactions per inhabitant)

Credit transfers

Credit & debit card payments Direct debitsChequesCard based e-moneyTotal
Belgium73511765.9153
Denmark39872691.5163
Germany85196240.4170
Greece0,550.60.2Nap6
Spain9152940.0357
France366034710.05201
Ireland10301323Nap76
Italy18131110Neg52
Luxembourg286380.12.8103
Netherlands7462540.31.9193
Austria66173410.6118
Portugal45512270.398
Finland977690.20.1183
Sweden1145780.20.2135
United Kingdom32713643Nav182
EU423835220.58138

Source: European Central Bank, Blue Book, September 2003

Non-cash payments in EU 2001

(Transactions in million euro)

Credit transfers

Credit and debit card payments Direct debitsChequesCard based e-moneyTotal
EU16,43614,53812,8478,48611352,419

Source: European Central Bank, Blue Book, September 2003

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