ECBs 7th SEPA Progress Report: Major milestones have been achieved, SEPA migration still slower than expected

In its 7th Progress Report on the Single Euro Payments Area (SEPA) made public on 22 October 2010, the European Central Bank (ECB) calls on European legislators to step up their game and take further actions in order to ensure that SEPA be completed successfully. Significantly entitled “Beyond theory into practice”, the report outlines the main areas where SEPA continues to face major adoption challenges

The ECB report, which comes two years after the last similar progress report published in November 2008, acknowledges the progress has been achieved in key areas, such as the development the SEPA credit transfer (SCT) and SEPA direct debit (SDD) schemes under the auspices of the European Payments Council (EPC).

The launch of the SEPA direct debit in November 2009 is highlighted as a major achievement; however, the slower than expected SEPA migration is regarded as a sign that SCT and SDD awareness among all user groups should be increased, with the ultimate goal of ensuring that when the SEPA migration end date is reached, the SCT and SDD will have replaced national legacy credit transfer and direct debit schemes for Euro payments.

In addition, the governance structure of SEPA has been improved by the creation of the SEPA Council, which enables a more formalised involvement of high-level representatives of consumers, retailers, corporates, SMEs and public administrations in the SEPA dialogue.

Major challenges still abound

The ECB Progress report points out that SEPA migration as a self-regulatory process has not yet achieved the results that were initially expected. Case in point: the banking industry’s self-imposed deadline of December 2010 for SEPA credit transfers and direct debits to be in general usage will not be met. By August 2010 only 9.3 percent of all credit transfers processed in the euro area were SEPA credit transfers. Since its launch in November 2009, SEPA direct debits have remained at a share well below 1 percent of all direct debit transactions processed in the Euro area.

Also, the ECB indicates that progress in the creation of an additional European card scheme has been considerably slower than hoped for. Therefore, the Eurosystem strongly supports the work of European legislators to create the necessary momentum to bring the SEPA project to completion. The envisaged regulation establishing a SEPA migration end date(s), in which the usage of national payments instruments will be discontinued, will be a key element for the timely and smooth adoption of SEPA. The Eurosystem is also confident that concerns raised by market participants on the envisaged regulation on SEPA migration end date(s) will be properly addressed by the European authorities.

“The Eurosystem expects that a mandatory timeline for migration to SEPA instruments will significantly accelerate the pace of transition, enabling SEPA to be completed, preferably, by the end of 2012 for credit transfers and by the end of 2013 for direct debits.”

ECB outlines key actions, directions of development for successful SEPA migration:

• Attractive service offerings based on the SCT and SDD schemes should be made available to the users of payment services, taking into account actual consumer and business needs.
• There is a strong need for the direct and coordinated involvement of the European payments industry, ideally represented by the EPC, in global card standardisation bodies.
• Based on the strong growth in e-commerce, the Eurosystem sees a genuine need for secure and efficient online payment solutions to be offered throughout SEPA. The Eurosystem strongly encourages the banking industry to engage in this area of activity by delivering SEPA-wide online e-payment solutions.
• The Eurosystem encourages market participants to implement state-of-the-art measures for improving information security and preventing payment fraud.
• The Eurosystem considers that, to ensure a gradual migration, from 2012 onwards, all newly issued SEPA cards should be issued, by default, as “chip-only” cards.
• Interoperability between infrastructures needs to be further improved, and the remaining obstacles need to be removed. The Eurosystem expects SEPA compliance of infrastructures to be achieved by end-2012 at the latest.
• To ensure the materialisation of SEPA benefits, a migration end date by regulation for SCT and SDD is required and should be set by the EU legislator. Therefore, the Eurosystem welcomes the European Commission’s initiative to impose an end date for migration by means of an EU regulation.