19 June 2014
Join the Debate on the Further Evolution of the SEPA Credit Transfer and SEPA Direct Debit Schemes: Less Flexibility, More Harmonisation?
This is a guest blog post from Javier Santamaría, Chair of the European Payments Council (EPC)
European Union (EU) integration rarely follows the fastest possible trajectory, but relies on incremental progress over time. More than 14 years of the Single Euro Payments Area (SEPA) in the making, based on several EU legislative interventions aimed at promoting the harmonisation of the euro payments market, is a prime example in this context. Up to this point it has been recognised that facilitating the transition of millions of market participants to harmonised SEPA payment schemes and technical standards requires allowing for a degree of flexibility. This blog provides an overview of variations possible in SEPA today.
With migration to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) in the euro area nearly complete, the question is whether a majority of stakeholders is willing to relinquish – at least in the mid-term – any (or even all) of the options, exceptions, exemptions and variations currently available in favour of further harmonisation.
Everybody supports EU integration – in principle. An overview of the options, variations, exceptions and exemptions possible in SEPA today
The SCT and SDD Schemes include mandatory as well as optional elements
Dialogue with stakeholders across SEPA frequently demonstrates that the requirements of bank customers, with regard to the SEPA payment schemes, differ widely across and within the various customer segments and SEPA countries. As regards the latter, it has to also be kept in mind that 98 percent of all retail payments are made within national borders. Payment service users are not only divided into payers and payees (whose payment needs are different). Payment service provider (PSP) customers encompass a wide range of interest groups including consumers, public administrations, corporates and small and medium-sized enterprises (SMEs). Corporates and SMEs may be active domestically, regionally or globally. In a multi-country environment such as SEPA, even within a specific customer segment, there exist very different schools of thought as to which specific features should be included in a payment scheme or not.
Consequently – and not surprisingly – expectations with regard to payments among and within various customer segments and SEPA countries are often contrary or even mutually exclusive. The scheme change management process leading to the release of updated versions of the SCT and SDD Rulebooks, which provides all stakeholders with the opportunity to propose suggestions for modifications, demonstrates the fact. The European Payments Council (EPC) has often received very different suggestions for changes to the SCT and SDD Rulebooks from specific interest groups representing a particular customer segment or customers of a particular SEPA community.
The EPC has frequently commented that the process of SEPA scheme development can be compared to designing a car model: the basic model must meet key market requirements. At the same time, the model must be flexible enough to include options to add extras on demand. This concept provides maximum choice to customers while avoiding that a majority of customers has to buy features they do not need. The SCT and SDD Schemes, developed by the EPC in close dialogue with the entire payment community, to date are based on this concept and therefore:
1. Include mandatory elements to be observed by all scheme participants, (i.e. PSPs that have formally adhered to the schemes), as well as optional elements allowing PSPs to offer specific features in response to market demand.
2. Recognise that individual scheme participants and communities thereof will provide complementary services based on the schemes so as to meet further specific customer expectations. These are described as additional optional services (AOS).
Variations included with specifications of the implementation guidelines with regard to the SCT and SDD Schemes, based on the global ISO 20022 message standards
The SEPA data formats as detailed in the implementation guidelines for the customer-to-bank and interbank space, respectively, released by the EPC with regard to the SCT and SDD Schemes, are based on the global ISO 20022 message standards developed by the International Organization for Standardization (ISO). In the ISO process, business requirements are defined for all markets across the globe. Different markets have different data needs. Thus, they may need to define their own version within the global standard, specific to their own situation. In this respect, the ISO messages have been adjusted to meet the SEPA requirements. The SEPA data formats as set out in the EPC implementation guidelines are a subset of the global ISO 20022 standards. The role of the EPC in defining the SEPA data formats therefore, consists of identifying all necessary data elements for making SEPA payments as defined in the SCT and SDD Rulebooks within the global standard.
Market observers commented in a previous edition of the EPC Newsletter: “It is expected that there should be a common understanding on the use and interpretation of the ISO 20022 message standards, as specified in the EPC implementation guidelines (…). This is however, not the case. The market reality today is that multiple specifications based on the EPC implementation guidelines are in use, which has resulted in subtle (and sometimes not so subtle) differences in the application of the standard.”
Transitional arrangements permissible under Regulation (EU) No 260/2012 (the SEPA Regulation)
SEPA compliance requirements are determined by the EU co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States. In February 2012, the European co-legislators adopted the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the SEPA Regulation). The SCT and SDD Schemes have to comply with the technical requirements detailed in Article 5 and in the Annex to the SEPA Regulation.
The SEPA Regulation effectively mandates migration to SCT and SDD in the euro area by 1 February 2014. At the same time, the SEPA Regulation – in an attempt to respond to a broad range of requests for flexibility articulated by various parties throughout the legislative process – has introduced several exemptions regarding the use of the International Bank Account Number (IBAN), the Business Identifier Code (BIC) and the ISO 20022 XML message standards by the February 2014 deadline. EU Member States have discretion as to whether they will use any or all of the options to derogate from the 1 February 2014 deadline (until 1 February 2016) with regard to the use of the IBAN, the BIC and the ISO 20022 XML message standards by payment service users.
The SEPA Regulation also stipulates that credit transfer and direct debit transactions with a cumulative market share of less than 10 percent in an EU Member State that were granted a waiver must comply with the provisions set out in this legislative act only by 1 February 2016.
Last but not least, in February 2014, the European Parliament and the Council of the EU, respectively, adopted the new ‘Regulation (EU) No 248/2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’. This new EU Regulation states, among other things (italics added): “PSPs may continue, until 1 August 2014, to process payment transactions in euro in formats that are different from those required for credit transfers and direct debits pursuant to this Regulation.” Different euro area countries have decided on different timelines during which they will make use of the option to continue processing non-SEPA formats, i.e. some countries do so during the full six months transition period agreed by the European Commission, the European Parliament and the Council of the EU while others have opted for a shorter timeline.
(Please note: the EPC, representing the European banking industry in relation to payments, is not an EU legislative body. More generally, the EPC is not part of the EU institutional framework. The EPC has therefore, no role in the adoption or modification of any EU laws.)
Have your say on the further evolution of the SCT and SDD Schemes: less flexibility, more harmonisation?
It is arguable that flexibility breeds confusion and risks translating into a prolonged patchwork of national variations. Constantly adapting systems and operations to ensure the capabilities required to handle a multitude of options and variations, (which may differ from country to country across SEPA), is a strain on resources of, in particular, payment service users and providers operating across borders. The experience of SEPA pioneers on the demand side who reported on their successfully concluded SEPA migration projects in the EPC Newsletter also indicates that the benefits arising from the migration are proportionate to the level of harmonisation achieved.
However, as outlined above, it has to be emphasised that the degree of flexibility existing today reflects the requests articulated by a wide range of stakeholder groups in the past.
As mentioned above: with migration to SCT and SDD in the euro area nearly complete, the question is whether a majority of stakeholders is willing to relinquish – at least in the mid-term – any (or even all) of the options, exceptions, exemptions and variations currently available in favour of further harmonisation. If this were the case, the SCT and SDD Rulebooks could be adapted accordingly. To illustrate the point: elements in the rulebooks which are currently optional could be made mandatory. Based on market needs, commonly used AOS features could be incorporated into the scheme(s).
Three-month public consultation on the evolution of the SCT and SDD Schemes is going on now. All stakeholders are invited to provide feedback by 15 August 2014
On 19 May 2014 the EPC launched a three-month public consultation on possible modifications to the SCT and SDD Rulebooks. The EPC encourages all SEPA stakeholders to provide feedback by 15 August 2014. The next generation rulebooks, (SCT Rulebook version 8.0, SDD Core Rulebook version 8.0 and SDD Business to Business (B2B) Rulebook version 6.0), and associated implementation guidelines will be published in November 2014 to take effect in November 2015. In accordance with industry best practice, PSPs and their suppliers have a one-year lead time to address rulebook updates prior to such updates taking effect.
All interested parties had been invited to submit suggestions for changes proposed to be incorporated into the next version of the SCT and SDD Rulebooks by 28 February 2014. All suggestions for changes to the rulebooks that were received by that date have been consolidated into a single change request document per rulebook (the SCT Rulebook, the SDD Core Rulebook and the SDD B2B Rulebook). As with previous scheme change cycles, all proposed changes to the schemes are released with the change request documents for a three-month public consultation.
Proposed changes to the schemes that find broad acceptance in the entire stakeholder community and are technically and legally feasible are taken forward. Proposed changes that lack such broad support are not – regardless of whether such a change is proposed by a PSP or by a user representative. This ensures that the SCT and SDD Schemes evolve in line with the requirements of the majority of all market participants.
The documentation pertaining to the 2014 public consultation on possible modifications to the next generation SCT and SDD Rulebooks is available on the EPC Website.