Communication from the Commission to the European Parliament, the Council, the European Monetary Institute and the Economic and Social Committee - Boosting customers' confidence in electronic means of payment in the Single Market
Date: 1997-07-09
Institutions: European Commission
Subjects: EC recommendation, European Monetary Institute, electronic money, single market, trade policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

*** 
* 
* 
* 
-t.· 
* 
* 
*** 

Brussels, 09.07.1997 
COM(97) 353 final 

COMMUNICATION FROM THE COMMISSION 

to the European Parliament, the Council, 
the European Monetary Institute and the Economic and Social Committee 

BOOSTING CUSTOMERS' CONFIDENCE IN ELECTRONIC MEANS OF 
PAYMENT IN THE SINGLE MARKET 

INTRODUCTION 

Ten  years  after  the  Commission's  first  Communication 1  on  payment 
instruments  of 
January  1987,  the use of payment  cards is  well  advanced.  They  account  for  a  sizeable  por1ion 
of the  market  of payment  instruments.  The  use  of cashless  payment  instruments2  has  soared. 
For  instance,  the  number  of payments  by  card  per  inhabitant  has  increased  from  7  in  1990 
(in the  12-EC Member  States) to  14  in  1995,  while  their share  as  against  the total  number  of 
payment transactions has grown from 9% in  1990 (EC-12) to  13.5% in  1995. 

Since the  1987  Communication,  there  has  been  a  progressive introduction of new  innovative 
payment methods: 

•  "hank-account-access" products:  instruments  that  provide  for  remote  access  to  accounts 
held  at  financial  institutions,  typically  banks.  This  category  includes  home-banking  and 
phone-banking applications, as well as payment cards~ 

•  "electronic-money" products:  instruments on  which  electronic  value  is  stored,  whether  as 
magnetic  stripe  or  micro-circuit  cards  or  computer  memories  (e-money  or  cyber-money 
products). 

By  the  end  of the  next  decade,  a  significant  share  of retail  commerce  is  expected  on  the 
Internet.  The  more  that  goods  and  services  are  offered  by  electronic  means  or at  a  distance, 
the more that  competitive  pressure will  mount  on  providers to  offer  means  of payment  in  an 
increasingly easy,  safe and efficient way. 

SCOPE AND CONTENT 

The  link  between  electronic  commerce  and  new  payment  instruments  is  highlighted  in  the 
Communication  on  "A  European  Initiative  in  Electronic  Commerce"3.  Electronic  commerce 
will  not develop without sound, user-friendly,  efficient,  and secure electronic payment systems 
to  the  benefit  of commercial  service  providers.  The  Communication  also  recognises  that 
transparent  and  secure  electronic  payment  mechanisms  will  facilitate  the  changeover  to  a 
single currency, in particular throughout the transitional period. 

2 

--Europe  could  play  an  ace:  the  new  payment  cards":  Communication  to  the  Council.  COM(86)  75..J  of 
12  January  1987. 
Payment  Systems  in  EC  Member  States,  Committee  of  Governors  of  the  Central  Ban.ks  of  the 
Member States of the European  Economic  Community,  September  1992.  Blue Book  on Payment  systems 
in the European Union.  European Monetary Institute,  April  1996.  Addendum to the Blue Book for  l.995. 
Communication  to  the  European  Parliament  the  Council,  the  Economic  and  Social  Committee  and  the 
Committee of the Regions.  COM(97)  157 of 15  April  1997. 

2 

The  Communication  identifies  four  main  areas  where  a  substantial  contribution  by  public 
authorities is called for as regards electronic payments: 

(i) 

They must define  the  supervisory framework appropriate .ftJr the  issuance <?f electronic 
money so as to ensure the stability and soundness of issuers; 

Given that  electronic  money has the  potential  of being used for  a  wide  range  of goods 
and services, the Commission, the EMI and the Member States are currently considering 
the appropriate supervisory framework for the issuance of electronic money,  with a view 
to  ensuring the  stability  and  soundness  of issuers  and,  thereby  ultimately  safeguarding 
customers' interests.  In the light of this discussion, the Commission intends to present by 
the  end  of  1997  (i.e.  the  target  date  for  completion  of the  work)  a  proposal  for  a 
directive setting out requirements to apply to issuers of e-money products. 

(ii)  They  must  provide  guidance  for  isl11ers  and  users,  on  transparency,  liability  and 

redress procedures,  in order to ensure the.full confidence qf users; 

To boost confidence in  electronic payment  instruments,  customers need to rely  on clear 
information,  a  fair  apportionment_  of responsibilities  and  access  to  simple  and  effective 
means of redress.  These aspects are the subject  of the present Communication;  they are 
dealt with more extensively in the following sections. 

(iii)  They must clarify the application of the Community's competition rules so as to achieve 
an appropriate  balance  between interoperability and sound and vigorous  competition 
in these markets; 

As is necessary to establish a true Single Market, electronic payment instruments call  for 
"interoperability", i.e.  payment instruments issued/accepted by a given institution (or in  a 
given  Member  State)  would  gain  in  customer  convenience  and  in  market  efficiency  if 
they  were  usable  as  widely  as  possible.  Compatibility  between  electronic  payment 
systems,  which  is  in  the  interest  of both  users  and  business,  will  mainly  rely  on 
agreements  among  operators. ,  Such  agreements  must  be  in  conformity  with  the 
Community's competition rules.  To  provide guidance to all  interested  parties  (financial 
institutions,  retailers and customers),  the Commission will  in  the course of 1998  issue  a 
competition  notice  which  will  clarify  the  application  of competition  rules  to  electronic 
payment instruments. 

(iv)  And they  must  tackle  the  risks  of.fraudulent  use  and  counterfeiting,  by  improving 

security. 

Payment instruments must afford the necessary guarantees that they may  not be used for 
or in  association with  illicit  activities.  As regards security from  a technical  viewpoint,  it 
is important to reach solutions making electronic payment systems as safe as possible~  in 
particular,  in  developing  appropriate  encryption  processes,  electronic  signatures  and 
similar  techniques,  a  task  primarily  falling  on  service  providers.  However,  there  is 
another  facet  to  security,  i.e.  the  possibi)ity  of  increasing  it  by  appropriate  legal 
instruments,  notably  those  pertaining  to  the  area  of  criminal  law.  Recognising  the 
relevance  of these  concerns,  the  European  Council  in  Amsterdam  adopted  an  Action 
Plan  against  Organised  Crime,  in  which  it  calls  on the  Council  and  the  Commission  to 

3 

examine and  address,  by  the  end  of I 998,  the  issue  of fraud  and  counterfeiting  relating 
to  all  payment  instruments,  including  electronic  payment  instruments.  To  honour  this 
request,  the Commission will  assess the need for any initiative in this area. 

Finally,  as  a  complement  to  the  areas  identified  above,  the  Commission  also  intends  to 
consider the possibility of modernising and  up-dating the earlier  1987  Recommendation'\  with 
a view to establishing a  clear framework  for  the relationship  between acquirers  and  acceptors 
in respect of electronic payment instruments. 

The  present  Communication  is  therefore the first  step  in  the  context  of a  broader,  integrated 
approach,  the  ultimate  objective  of which  is  to  develop  sound,  user-friendly,  efficient,  and 
secure electronic payment systems to the benefit of all parties concerned. 

PROVIDING GUIDANCE FOR ISSUERS AND USERS 

The  success of new  payment  instruments  depends  on  customer  acceptance  and  confidence. 
While  confidence  depends,  first  and  foremost,  on  transparent  conditions  for  the  use  of such 
instruments,  obligations of issuers and users also need to be clearly and fairly apportioned 5 . 

The  Commission  Recommendation6  of  1988  laid  down  minimum  standards  which  should 
govern the relationship between the issuer and  the holder of a payment  card or other payment 
device.  A review of the  1988 Recommendation is now timely for 2 reasons. 

First,  concerns have been expressed by interested parties about  : 

• 

• 

the extent of the  parties'  respective  liabilities  in  the event  of loss or theft  of the  payment 
instrument, and the question of burden of proof in case of disputes; 

the need for  more effective coverage of home (phone and  computer) banking  applications 
and pre-paid instruments~ and 

•  more  generally,  the  availability  of comprehensive  customer  information  on  all  payment 

instruments and on effective redress procedures. 

Secondly,  a completely new generation of products (i.e.  electronic money  products)  has  been 
developed  since the  1988 Recommendation was  adopted.  Given  that  electronic  money  is  still 
at  a relatively early  stage of development,  it  is  important  to avoid  burdensome  administrative 
requirements  being  imposed  lest  they stifle  its  early  growth.  To this  end,  coverage  under the 
up-dated  Recommendation  is  extended  only  to  instruments  of the  reloadable  type  which, 
because  of their  features  namely  the  possible  link  to  the  customer's  account,  are  those  for 
which the need for customer protection is strongest. 

4 

5 

6 

Commission Recommendation 87 /598/EEC of 8  December  1987 on  a  European Code of Conduct relating 
to  electronic  payment  (relations  between  financial  institutions.  traders  and  service  establishments.  and 
consumers). OJ No L 365 of 24  December  I 987. page 72. 
Commission Communication "Financial services:  enhancing consumer confidence".  COM(97) 109 final  of 
26  June  1997  on  the  follow-up  to  the  Green  Paper  of  May  1996  on  "Financial  services:  meetrng 
consumers' expectations··. 
Commission  Recommendation  88/590/EEC  of  l 7  November  l 988  concerning  payment  systems.  and  ;n 
particular  the  relationship  bi.::&.wecn  card-holder  and  card  issuer.  OJ  No  L  3 I 7  of 24  November  19v,:-.;_ 
page 55. 

4 

-------------------

The  Commission  has  also  decided  that  e-money  products  would  be  subject  only  to  those 
provisions  of most  direct  relevance  (notably  ex-ante  transparency  requirements,  a  limited 
number  of requirements  on  liability,  and  provisions  regarding  redress  procedures).  However, 
issuers of e-money products can  voluntarily  decide  to  apply  the  provisions  for  remote  access 
products, thus achieving an  even greater level of customer protection. 

THE WAY FORWARD 

An updated version of the original  1988  Recommendation  has  been  prepared in  order to  take 
into account the views expressed by the Commission's advisory committees and of the opinion 
of the European Monetary Institute. 

The  new  Recommendation,  which  is  attached  to  the  present  Communication,  modifies  and 
completes the former Recommendation: 

• 

• 

• 

it  contains  comprehensive  requirements  for  transparency,  i.e.  minimum  information  that 
needs to be provided to users in advance (contracts) and a-posteriori (statements); 

it  clarifies the parties' respective obligations and  liabilities,  which are intended to support 
the objective of greater transparency; and 

it  calls  for  the  redress  procedures,  to  address  customer  complaints  related  to  the 
service/product concerned. 

With a deadline of 31  December 1998, the Commission calls on 

• 

• 

issuers  of electronic  payment  instruments  to  act  in  accordance  with  the  provisions  set 
out in the new Recommendation~ and 

Member States to ensure that there are adequate and  effective means for setting disputes 
between a issuer and users,  in accordance with the recommendation. 

The Commission will  monitor progress between its  adoption  and  the end  of 1998.  It will  also 
undertake a study of its implementation at the end of 1998.  If the new Recommendation is not 
implemented satisfactorily, the Commission will  propose a Directive in this domain. 

5 

ANNEX 

COMMISSION RECOMMENDATION 

concerning transactions by electronic payment instruments 
and in  particular the relationship between issuer and holder 

6 

COMMISSION RECOMMENDATION 

concerning transactions by electronic payment instruments 
and in particular the relationship between issuer and holder 

THE COMMISSION OF THE EUROPEAN COMMUNITIES, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  m  particular 
Article 155, second indent, thereof, 

(1)  Whereas one of the main objectives of the Community is to ensure the full  functioning 
of  the  internal  market  of  which  payment  systems  are  essential  parts;  whereas 
transactions  made  by  electronic  payment  instruments  account  for  an  increasing 
proportion  of the  volume  and  the  value  of domestic  and  cross-border  payments; 
whereas,  given  the  current  context  of rapid  innovation  and  technological  progress, 
this  trend  is  expected  to  accelerate  notably  as  a  consequence  of  the  wide  array 
of  innovative  businesses,  markets  and 
trading  communities  engendered  by 
Electronic Commerce; 

(2)  Whereas  it  is  important  for  individuals  and  businesses  to  be  able  to  use  electronic 
payment  instruments  throughout  the  Community;  whereas  this  Recommendation 
seeks  to  follow  up  progress  made  towards  the  completion  of the  internal  market, 
notably in the light of the liberalization of capital movements, and will also contribute 
to the implementation of Economic and Monetary Union; 

(3)  Whereas  this  Recommendation  covers  transactions  effected  by  electronic  payment 
instruments;  whereas,  for  the  purposes  of  this  Recommendation,  these  include 
instruments  allowing  for  (remote)  access  to  a  customer's  account,  notably  payment 
cards and phone- and home-banking applications; whereas transactions by  means of a 
payment  card  shall  cover  electronic  and  non-electronic  payment  by  means  of  a 
payment card,  including processes  for  which a signature  is  required  and  a voucher  is 
produced;  whereas,  for  the  purposes  of this  Recommendation,  means  of payment 
instruments  also  include  reloadable  electronic  money  instruments  in  the  form  of 
stored-value  cards  and  electronic  tokens  stored  on  network  computer  memory; 
whereas  reloadable  electronic  money  instruments,  because  of  their  features, 
in 
particular the  possible  link  to  the  holder's  account,  are  those  for  which  the  need  for 
customer protection  is  strongest;  whereas,  as  far  as  electronic  money  instruments  are 
concerned, coverage under this Recommendation is therefore limited to instruments of 
the reloadable type; 

( 4)  Whereas  this  Recommendation  is  intended  to  contribute  to  the  advent  of  the 
Information  Society  and,  in  particular,  Electronic  Commerce  by  promoting  customer 
confidence  in  and  retailer  acceptance  of these  instruments;  whereas,  to  this  end,  the 
Commission  will  also  consider  the  possibility  of  modernizing  and  up-dating  its 
Recommendation 87/598/EEC 1,  with a view to  establishing a clear framework  for  the 

OJ No  L 365, 24.12.1987, p.  72. 

relationship  between  acquirers  and  acceptors  in  respect  of  electronic  payment 
instruments;  whereas,  in  line  with  those  objectives,  this  Recommendation  sets  out 
minimum  information  requirements  which  should  be  contained  in  the  terms  and 
conditions applied to  transactions  made  by  electronic payment  instruments.  as  Wl'II  as 
the  minimum obligations and  liabilities of the  parties concerned;  whereas  such  terms 
and conditions should be set out in writing,  including where appropriate by  electronic 
means,  and  maintain  a  fair  balance  between  the  interests  of the  parties  concerned; 
whereas,  in  compliance with  Council  Directive 93/13/EEC  of 5 April  1993  on  unfair 
terms in consumer contracts2,  such terms and conditions should  in  particular  be  in  an 
understandable and comprehensible form; 

Whereas,  with  a  view  to  ensuring  transparency,  this  Recommendatio  sets  out  the 
minimum  requirements  needed  to  ensure  an  adequate  level  of customer  information 
upon conclusion of a contract as  well  as subsequent to transactions effected  by means 
of a payment instrument, including information on charges, exchange rate and  inte~est 
rates; whereas, for the purpose of informing the holder of the manner of calculation of 
the  interest  rate,  reference  is  to  be  made  to  Council  Directive  87 /l 02/EEC  of 
22 December  1986  for  the approximation of the  laws,  regulations and  administrative 
provisions  of  the  Member States  concerning  consumer  credit3,  as  amended  by 
Directive 90/88/EEC4; 

Whereas  this  Recommendation  sets  out  mm1mum  requirements  concerning  the 
obligations  and  liabilities  of the  parties  concerned;  whereas  information  to  a  holder 
should include a clear statement of the extent of the customer's obligation as  holder of 
an  electronic  payment  instrument  enabling  him/her  to  make  payments  in  favour  of 
third persons, as well as to perform certain financial transactions for himselttherself; 

Whereas,  to  improve  customers'  access  to  redress,  this  Recommendation  calls  on 
Member States to ensure that there are adequate and effective means for the settlement 
of disputes  between  a  holder  and  an  issuer;  whereas  the  Commission  published  on 
14 February  1996 a plan of action on consumer access to justice and the  settlement of 
consumer disputes in the internal market; whereas that plan of action includes specific 
initiatives  to  promote  out-of-court  procedures;  whereas  objective  criteria  (Annex  II) 
are  suggested to  ensure  the  reliability  of those  procedures  and  provision  is  made  for 
the use of standardized claims forms (Annex III)~ 

Whereas this Recommendation seeks to  ensure a high level  of consumer protection  in 
the field of electronic payment instruments; 

Whereas  it  is  essential  that  transactions  effected  by  means  of electronic  payment 
instruments  should  be  the  subject  of records  in  order that  transactions  can  be  traced 
and errors can be rectified; whereas the burden of proof to  show that a transaction was 
accurately  recorded  and  entered  into  the  accounts  and  was  not  affected  by  technical 
breakdown or other deficiency should lie upon the issuer; 

(5) 

(6) 

(7) 

(8) 

(9) 

2 
3 

4 

OJ No L 95, 21.4.1993, p.  29. 
OJ No  L 42,  12.2.1987, p.  48. 
OJ No  L 61,  10.3.1990, p.  14. 

(10)  Whereas,  without  prejudice  to  any  rights  of a  holder  under  national  law,  payment 
instructions  given  by  a  holder  in  respect  of transactions  effected  by  means  of an 
electronic  payment  instrument  should  be  irrevocable,  except  if the  amount  was  not 
determined when the order was given; 

( 11)  Whereas  rules need  to  be  specified concerning the  issuer's  liability for  non-execution 
or  for  defective  execution  of a  holder's  payment  instructions  and  for  transactions 
which  have  not  been  authorized  by  him/her,  subject  always  to  the  holder's  own 
obligations in the case of lost or stolen electronic payment instruments; 

( 12)  Whereas  the  Commission  will  monitor  the  implementation  of this  Recommendation 
and,  if it finds  the implementation unsatisfactory,  it intends to  propose the appropriate 
binding legislation covering the issues dealt with in this Recommendation, 

HEREBY RECOMMENDS: 

SECTION I - Scope and definitions 

Article 1 - Scope 

1. 

This Recommendation applies to the following transactions: 

(a) 

(b) 

transfers  of  funds,  other  than  those  ordered  and  executed  by  financial 
institutions, effected by means of an electronic payment instrument; 

cash withdrawals by means of an electronic payment instrument and the loading 
( and unloading)  of an  electronic  money  instrument,  at  devices  such  as  cash 
dispensing machines  and  automated  teller machines  and  at  the  premises  of the 
issuer or an institution who is under contract to accept the payment instrument. 

2. 

By  way  of  derogation  from  paragraph  1,  Article  4(1),  Article  5(b),  second  and 
third indents, Article 6, Article 7(2)( c ),  ( d) and ( e ), first  indent, Article 8(1 ),  (2) and (3) 
and Article 9(2) do  not apply to transactions effected by means of an electronic money 
instrument.  However,  where  the  electronic  money  instrument  is  used  to  load  ( and 
unload)  value through  remote  access  to  the  holder's  account,  this  Recommendation  is 
applicable in its entirety. 

3. 

This Recommendation does not apply to: 

(a) 

payments by cheques; 

(b) 

the guarantee function of certain cards in relation to payments by cheques. 

q 

For the purpose of this Recommendation, the following definitions apply: 

Article 2 - Definitions 

(a) 

(b) 

(c) 

( d) 

( e) 

(f) 

'Electronic  payment  instrument'  means  an  instrument  enabling  its  holder  to  effect 
transact1ons  of the  kind  specified  in  Article  1 (l ).  This  covers  both  remote  acces·s 
payment instruments and electronic money instruments; 

'Remote access payment instrument'  means an instrument enabling a  holder to access 
funds  held  on  his/her  account  at  an  institution,  whereby  payment  is  allowed  to  be 
made to  a  payee and usually requiring  a personal  identification code and/or any otht::r 
similar  proof of identity.  This  includes  in  particular  payment  cards  (whether  credit, 
debit deferred debit or charge cards) and phone- and home-banking applications; 

'Electronic  money  instrument'  means  a  reloadable  payment  instrument  other  than  a 
remote  access  payment  instrument,  whether  a  stored-value  card  or  a  computer 
memory,  on  which  value  units  are  stored  electronically,  enabling  its  holder to  effect 
transactions of the kind specified in Article  1 (1 ); 

'Financial 
Council Regulation (EC) No 3604/935; 

institution'  means  an 

institution  as  defined 

in  Article  4(1)  of 

'Issuer' means a person who, in the course of his business, makes available to  a:.i'lother 
person a payment instrument pursuant to a contract concluded with him/her; 

'Holder'  means  a  person who,  pursuant to  a  contract concluded between him/her and 
an issuer, holds a payment instrument. 

· 

· 

SECTION II - Transparency of conditions for transactions 

Article 3 - Minimum information contained in the terms and conditions 
governing the issuing and use of an electronic payment instrument 

Upon  signature  of the  contract  or  in  any  event  in  good  time  prior  to  delivering  an 
electronic  payment instrument, the  issuer communicates to  the  holder the  contractual 
terms  and  conditions  (hereinafter referred  to  as  "the  tem1s")  governing  the  issue  and 
use  of that  electronic  payment  instrument.  The  terms  indicate the  law  applicable  to 
the contract. 

2. 

The terms are  set out in  writing,, including  where  appropriate by electronic means,  in 
easily  understandable  words  and in  a  readily comprehensible form,  and  are  available 
at  least  in  the  official  language  or  languages  of the  Member  State  in  which  the 
electronic payment instrument is offered. 

5 

OJ No L 332, 31.12.1993, p.  4. 

lO 

3. 

The terms include at least: 

(a) 

(b) 

( c) 

including  where 
a  description  of  the  electronic  payment 
the  holder's 
to 
requirements  with 
technical 
appropriate 
communication equipment authorized for  use,  and the way  in which it can be 
used5  including the finan~ial limits applied, if any; 

instrument, 
respect 

the 

a  description of the  holder's  and  issuer's  respective  obligations  and  liabilities; 
they  include  a description of the reasonable  steps that the holder must take to 
keep safe the electronic payment instrument and the means (such as a personal 
identification number or other code) which enable it to be used; 

' 

where applicable, the normal period vvithin which the holder's accom1t  'Will  be 
debited  or  credited,  including  the  value  date,  or,  where  the  holder  has  no 
account  with  the  issuer,  the  normal  period  within  which  he/she  will  be 
invoiced; 

(d) 

the  nature  of any  charges  payable  by  the  holder.  In particular,  this  includes, 
where applicable, details of the following charges: 

the amount of any initial and annual fees, 

any commission fees and charges payable by the holder to the issuer for 
particular types of transactions, 

any  interest  rate,  including  the  manner  of its  calculation,  which  may 
be applied; 

•  ( e) 

the  period  of time  during  which  a  given  transaction  can be  cont~sted  by the 
holder and an indication of the redress and complaints procedures  available to 
the holder and the method of gaining access to them. 

4. 

If the  electronic  payment  instrument  is  usable  for  transactions  abroad  (outside  the 
country  of issuing/affiliation),  the  following  information  is  also  communicated  to 
the holder: 

(a) 

(b) 

an indication of the amount of any fees and charges levied for foreign currency 
transactions, including where appropriate the rates, 

· 

the  reference exchange rate used for converting foreign  currency transactions, 
including the relevant date for determining such a rate. 

Article 4 - Information subsequent to  a transaction 

1. 

The issuer supplies the holder with information relating to the transactions effected by 
means  of  a  . electronic  payment  instrument.  This  information,  set  out  in  writing, 
including  where  appropriate  by  electronic  means,  and  in  a  readily  comprehensible 
form~  includes at least: 

/( 

(a) 

a  reference  enabling  the  holder  to  identify  the  transaction,  including,  where 
appropriate,  the  information  relating  to  the  acceptor  at/with  which  the 
transaction took place; 

(b) 

the  amount  of the  transaction  debited  to  the  holder  in  billing  currency  and, 
where applicable, the amount in foreign currency; 

( c) 

the amount of any fees and charges applied for particular types of transactions. 

The issuer also provides the holder with the exchange rate used for converting foreign 
currency transactions. 

2. 

The issuer of an electronic  money  instrument provides the holder with the  possibility 
of verifying the last five transactions executed with the instrument and the outstanding 
value stored thereon. 

SECTION III - Obligations and liabilities of the parties to a contract 

Article 5 - Obligations of the holder 

The holder: 

(a) 

uses  the  electronic  payment  instrument  in  accordance  with  the  terms  governing  the 
issuing and  use of a payment instrument;  in particular, the holder takes all  reasonable 
steps to keep safe the electronic payment instrument and the means (such as a personal 
identification number or other code) which enable it to be used; 

(b) 

notifies the  issuer ( or the  entity  specified by  the  latter)  without delay  after becoming 
aware of: 

the  loss  or theft of the  electronic  payment  instrument  or of the  means  which 
enable it to be used, 

the recording on his/her account of any unauthorized transaction, 

any error or other irregularity in the maintaining of that account by the issuer; 

(c) 

( d) 

does  not  record  his  personal  identification  number  or  other  code  in  any  easily 
recognizable  form,  in  particular on  the  electronic  payment  instrument or on  any  item 
which he/she keeps or carries with the electronic payment instrument; 

does not countermand an order which he/she has given by means of his/her electronic 
payment  instrument,  except  if  the  amount  was  not  determined  when  the  order 
was given. 

/L 

I. 

2. 

3. 

1. 

Article 6 - Liabilities of the holder 

Up  to  the  time  of notification,  the  holder  bears  the  loss  sustained  in  nmscqtK·ncc  tl!" 
the  loss  or  theft  of the  electronic  payment  instrument  up  to  a  limit,  which  may  not 
in 
exceed  ECU  150,  except  where  he/she  acted  with  extreme  negligence, 
contravention of relevant provisions  under  Article  5(a),  (b)  or (c),  or fraudulently,  in 
which case such a limit does not apply. 

As  soon as  the  holder has  notified  the  issuer (or the  entity  specified  by  the  latter)  as 
required  by  Article  5(b ),  except  where  he/she  acted  fraudulently,  he/she  is  not 
thereafter  liable  for  the  loss  arising  in  consequence  of the  loss  or  theft  of his/her 
electronic payment instrument. 

By  derogation  from  paragraphs  1  and  2,  the  holder  is  not  liable  if the  payment 
instrument  has  been  used,  without  physical  presentation  or  electronic  identification 
( of the instrument itself).  The  use of a confidential code or any  other similar proof of 
identity is not, by  itself, sufficient to entail the holder's liability. 

Article 7 - Obligations of the issuer 

The  issuer may  alter the  terms,  provided that sufficient notice  of the  change  is  given 
individually to the holder to enable him/her to  withdraw if he/she so chooses. A period 
of not less  than one month is  specified after which time the holder is deemed to  have 
accepted the terms if he/she has not withdrawn. 

However,  any  significant  change  to  the  actual  interest  rate  is  not  subject  to  the 
provisions of the  first  subparagraph and comes  into  effect upon the  date  specified  in 
the  publication of such a change.  In this  event,  and  without prejudice  to  the  right  of 
the  holder  to  withdraw  from  the  contract,  the  issuer  informs  the  holder  individually 
thereof as soon as possible. 

2. 

The issuer: 

(a) 

(b) 

( c) 

( d) 

does  not  disclose' the  holder's  personal  identification  number  or  other  code, 
except to the holder; 

does  not dispatch an  unsolicited electronic payment  instrument,  except  where 
it  is  a  replacement  for  an  electronic  payment  instrument  already  held  by  the 
holder; 

keeps for a suffic~ent period of time, internal records to enable the transactions 
referred to  in Article  1 (I) to  be traced and errors to  be rectified; 

ensures that  appropriate  means  are  available to  enable  the  holder  to  make  the 
notification  required  under  Article  5(b ).  Where  notification  is  made  by 
telephone,  the  issuer  ( or the  entity  specified  by  the  latter)  provides the  holder 
with the means of proof that he/she has made such a notification; 

/3 

(e) 

proves,  in  any  dispute  with  the  holder  concerning  a  transaction  referred  to  in 
Article  I (I),  and  without  prejudice  to  any  proof to  the  contrary  that  may  be 
produced by the holder, that the transaction: 

was accurately recorded and entered into accounts, 

was not affected by technical breakdown or other deficiency. 

Article 8 - Liabilities of the issuer 

I.  The issuer is liable, subject to Article 5, Article 6 and Article 7(2)(a) and (e): 

(a) 

for  the  non-execution  or  defective  execution  of  the  holder's  transactions 
referred to  in  Article  I (I), even if a transaction is  initiated at devices/terminals 
or  through  equipment  which  are  not  under  the  issuer's  direct  or  exclusive 
control,  provided  that  the  transaction  is  not  initiated  at  devices/terminals  or 
through equipment unauthorized for use by the issuer; 

(b) 

for  transactions  not  authorized  by  the  holder,  as  well  as  for  any  error  or 
irregularity attributable to the issuer in the maintaining of the holder's account. 

2. 

Without prejudice to  paragraph 3,  the  amount of the  liability  indicated  in  paragraph  I 
consists of: 

(a) 

(b) 

the  amount of the  unexecuted  or defectively  executed  transaction  and,  if any, 
interest thereon; 

the  sum required to  restore the holder to  the position he/she was  in  before  the 
unauthorized transaction took place. 

3. 

4. 

Any  further financial  consequences, and,  in particular, those concerning the  extent of 
the  damage  for  which  compensation  is  to  be  paid,  are  borne  by  the  issuer  in 
accordance  with the  law applicable to  the  contract concluded  between the  issuer and 
the holder. 

The issuer is liable to the holder of an electronic money instrument for the lost amount 
of value  stored  on  the  instrument  and  for  the  defective  execution  of the  holder's 
transactions,  where  the  loss  or defective  execution is  attributable to  a malfunction  of 
the  instrument,  of the  device/terminal  or  any  other  equipment  authorized  for  use, 
provided that the malfunction was not caused by the holder knowingly or in  breach of 
Article 3(3)(a). 

SECTION IV - Notification, settlement of disputes and final provision 

Article 9 - Notification 

1. 

The  issuer ( or the  entity  specified  by  him)  provides  means  whereby  a holder  may  at 
any  time  of  day  or  night  notify  the  loss  or  theft  of  his/her  electronic  payment 
instrument. 

2. 

The  issuer  (or  the  entity  specified  by  him),  upon  receipt  of notification,  is  under 
the  obligation,  even  if the  holder  acted  with  extreme  negligence  or  fraudulently,  to 
take  all  reasonable  action  open  to  him  to  stop  any  further  use  of  the  electronic 
payment instrument. 

Article 10 - Settlement of disputes 

Member  States  are  invited  to  ensure  that  there  are  adequate  and  effective  means  for  the 
settlement of disputes between a holder and an issuer. 

Article 11  - Final provision 

Member  States  are  invited  to  take  the  measures  necessary  to  ensure  that  the  issuers  of 
electronic payment instruments conduct their activities in accordance with Articles  1 to  9 by 
not later than 31  December 1998. 

Done at Brussels, 

For the Commission 

Mario MONTI 
Member of the Commission 

BUSINESS IMPACT ASSESSMENT 

Commission  Recommendation  concerning  transactions  effected  by  electronic  payment 
instruments (in particular the relationship between the issuer and holder) 

l.a. Taking account of the principle of subsidiarity, why  is  Community action  necessary 

and what are its main aims? 

In order to reap the full  benefits of the single market and Economic and  Monetary Union 
and  to  encourage  the  development  of  Electronic  Commerce,  it  is  of  paramount 
importance for individuals and businesses to be able to make payments as  rapidly,  reliably 
and  cheaply  within  the  Community.  The  present  Recommendation  modernises  and 
updates the former Recommendation of 1988 12 .  Its purpose is first  of all  to lay  down the 
minimum  requirements  needed  to  ensure  an  adequate  level  of customer  information. 
Firstly,  this  covers  information  on  the  contractual  terms  and  conditions  for  making 
transactions  by  means  of an  electronic  payment  instrument,  which  will  enable  them  to 
make  a  better informed  choice  and  ultimately  contribute  to  increase  competition  in  this 
domain.  Information also needs to be given in respect of transactions after they have been 
made.  Secondly,  to  support  the  objective  of transparency,  a  clear  apportionment  of the 
parties'  respective  obligations  and  liabilities  is  called  for.  Therefore, 
the  present 
Recommendation  also  sets  out  such  minimum  standards  in  this  respect,  as  are  deemed 
necessary in  view  of the above-mentioned  fundamental  objective.  Finally,  with a  view  to 
facilitating customers'  access to simplified means of redress, the Recommendation calls on 
Member States to ensure that there are adequate and effective means for the settlement of 
disputes between issuer and customer. 

l.b. Are  there 

likely  to  be  any  wider  benefits  and  disadvantages 

from 

the 

Recommendation? 

The  process  of implementing  these  transparency,  responsibility  and  redress  standards  is 
expected to require issuers to review·their systems for effecting transactions and therefore 
to bring about greater efficiencies.  These factors  are likely to contribute to a  progressive 
and  significant  improvement  in  the  quality  of services  offered  as  well  as  a  reduction  in 
their  cost,  thus  contributing  to  the  development  of trade,  particularly  with  respect  to 
lower-value and lower-margin intra-EU economic activity. 

The likely increase in the use of electronic means of payment may  have  an impact  on the 
structure and  operations  of the  labour  market  both  within  the  payment  systems  industry 
and  the  segment  of SMEs,  although further  analysis will  be  needed  to fully  assess  these 
changes.  Already at this stage, it would seem apparent that new employment potential will 
principally be in information-based,  high-value services.  Training  and education for  these 
new skills will be needed. 

12  Commission  Recommendation  88/590/EEC  of  17  November  1988  concerning  payment  systems  and  in 

particular the relationship between card holder and card issuer, OJ No L ::  · r  ?4.; ·  ~ 988. 

15  • ,  o,s 

2.  Who will be affected  by the Recommendation? 

Which  sector  of  business?  What  are  the  size  classes  and  what  is  the  total 
employment? 

The Recommendation will  be applicable to banks and any other institutions which  supply 
electronic  payment  means  to the  public  by  way  of business.  In  practice,  the  majority  of 
these  will  be  banks  and  near-banks,  although  other  service  providers  including  retailers 
may participate.  Very few  such institutions are in the lower size-classes. 

· 

Are there any significant features of the business sector, e.g. dominance by a limited 
number of large firms? 

The  sector may  still  gain  from  further  technical  interoperability,  which  will  encourage  a 
further integration of payment systems at European level. 

Are  there  implications  for  very  small  businesses,  the  craft  sector  or  the  self 
employed? 

Very  small  businesses  are  very  unlikely to be offering,  on a  generalised  basis,  electronic 
payment services to the public.  However,  as beneficiaries of the-Recommendation,  i.e.  as 
users of such services,  they will  benefit from  the Recommendation.  These  remarks  apply 
equally to the craft sector and the self-employed. 

Are there  particular geographical areas  in  the  Community  where  these  businesses 
are located? 

No. 

3.  What will businesses have to do to comply with the Recommendation? 

What will be the compliance costs? 

Compliance  costs will  mainly  relate  to  the  production,  or up-grading  as  appropriate,  of 
information  material  describing  the  conditions  applicable  to  transactions  by  means  of 
electronic payment instruments ( description of the service offered and of the parties'  main 
obligations and liabilities,  indication of the cost elements,  specific warnings with regard to 
certain means of payment,  reference to redress procedures available to users).  Issuers will 
also  need  to review  the  quality  of the  systems  to  ensure  that  the  quality  of the  services 
they publicise is effectively matched by the actual quality of service. 

The cost of this will  probably be partially or even wholly offset by  the  marketing  benefits 
likely  to  result,  as  institutions  learn  to  build  a  competitive  advantage  on  the  qualitative 
standards  of the  services  they  provide,  as  a  way  of  attracting  new  or  specialised 
customers. 

Are there other administrative procedures or forms to complete? 

No. 

Are licenses or marketing authorisations required? 

No. 

16 

Will fees be charged? 

No. 

4.  What economic effects, costs and benefits is the Recommendation likely to have? 

On employment? 

The Recommendation  as  such  is  not  likely  to have  a  significant  impact  on employment. 
The likely increase in the use of electronic means  of payment may  have an impact on the 
structure and  operations  of the labour market  both within  the payment  systems  industry 
and  the  segment  of SMEs,  although further  analysis  will be  needed  to fully  assess these 
changes. Already at this stage, it would seem apparent that new employment potential will 
principally be in information-based,  high-value services.  Training and  education for  these 
new skills will be needed. 

On investment and the creation or start up of new businesses? 

The investment  effect will  no  doubt  be  positive,  as  institutions may  be  expected to take 
the opportunity to upgrade their services. 

On  the  competitive  position  of  businesses,  both 
third countries' markets? 

in  the  Community  and 

The  efficiency  gains  and  reductions  in  costs  for  business  within  the  Community  will be 
extremely  positive.  There  will  be  no  direct  effect  on  third  country  business,  although 
positive spill-over effects may be anticipated. 

On public authorities for implementation? 

Beyond the purely regulatory/administrative costs of ensuring compliance, implementation 
costs  may  be  negligible  depending  on  the  present  situation  in  the  Member  State 
concerned. 

Are there other indirect effects? 

Not other than already stated in paras.  I and 2. 

What are the costs and benefits of the Recommendation? 

• 

costs:  the cost of compliance for  issuers is  expected to  have no  exorbitant effect  on 
the  publicity  budget,  since  compliance  will  mainly  involve  the  production,  or  up 
grading  as  appropriate,  of contractual  material.  As  to  the  necessary  review  of 
systems,  the  scope for  cost elimination is expected to outweigh the investment costs 
that such a review might determine to be necessary. 

17 

• 

benefits:  Taking  account  of the  most  important  present  and  prospective  elements 
(gradual  completion  of the  Internal  Market  programme,  move  towards  full  EMU, 
advent of the Information  Society and  development  of Electronic Commerce),  gross 
benefits in terms of enhanced customer confidence, wider choice and lower costs for 
electronic transactions are estimated to be significant. 

• 

balance: overwhelmingly positive on the benefit side. 

5. 

Impact  on  SMEs.  Does  the  Recommendation  contain  measures  to  take  account  of 
the specific effect on  SMEs - if not, why not? Are reduced or different requirements 
appropriate? 

Yes.  In general,  the Recommendation has been elaborated with a view to developing the 
use of modem electronic payment instruments, as a further incentive to trade to the direct 
advantage of SMEs. 

Consultation 

6. ·  Indicate  at  what  stage  the  consultations  were  undertaken  and  the  date  of 
publication of the prior notification of an intent to introduce (up-date) legislation? 

The Commission has,  over many years,  promoted the fullest  consultation of all  interested 
parties and earliest disclosure of its line of policy in this area.  This has materialised in the 
following steps: 

Green Paper13  ( consultation paper) of ~eptember 1990, calling for comments from all 
interested  parties;  annexed  to  the  Green  Paper  was  a  decision  to  set  up  two 
consultative groups;· 

setting up of two pennanent consultative groups on payment systems in March  1991, 
with  intensive  frequency  of meetings  throughout  1991  and  early  1992,  leading  to 
reports to the Commission (in February 1992) published in March 1992; 

Commission  working  document  of March  199214,  based  on the  detailed  reports  of 
these  consultative  groups,  announcing  the  Commission's  proposed  policy,  including 
intent to introduce legislation if voluntary compliance was not forth-coming; 

Communication15  to the European Parliament,  the  Council  of the European  Union, 
the  European  Monetary  Institute  and  the  Economic  and  Social  Committee  of 
November  1994,  laying  down a  further  programme of work in the area of payment 
systems; 

13  Discussion paper on "Making payments in the Internal Market", COM(90) 447. 
14  "Transparency and performance of cross-border payments"; SEC(93) 1968 of 14 December 1993. 
15  COM(94) 436 final of 18 November 1994: "EU funds transfers, transparency, performance and stability", 
18 

recogrusmg  the  relevance  of  "customer  relations" 
the 
Green Paper of May  199616,  as well  as the subsequent communication17  on a follow 
up  action  plan  announcing  the  Commission's  intentions  to  promote  confidence  in 
electronic payments~ 

the  widest  sense, 

in 

Commission  Communication18  to  the  European  Parliament,  the  Council  of  the 
European  Union,  the  Economic  and  Social  Committee  and  the  Committee  of the 
Regions of April  1997,  announcing measures to favour  sound,  user-friendly,  efficient 
and  secure  electronic  payment  systems,  as  a  condition  for  encouraging  the 
development of electronic commerce. 

List of organisations which have been consulted about the Recommendation and set 
out in  detail  their main  views,  including  their  concerns  and  objections  to  the  final 
proposal. Why is it not possible or desirable to accede their concerns? 

European  credit  sector  associations  :  they  generally  welcome  the  work  that  has 
intervened  in  clarifying  and  modernising  the  1988  Recommendation  (many  of  their 
detailed technical  commentaries have  been  acceded  to and  are taken  into  account  in  the 
current Recommendation), while lamenting the crowding of initiatives in the run-up to the 
. third stage of EMU. 

Government experts : Preliminary drafts of the Recommendation have been significantly 
amended to take account to the fullest extent possible of the views of the EMI. 

SMEs  :  strongly  in  favour  of the  principles,  preferring  self-regulation  provided  that  its 
effects could have been measured in the short term. 

Consumer  organisations  :  support  to  Commission's  initiative,  although  would  have 
preferred a binding legislative instrument. 

Were the SME Business Organisations consulted? Ifnot, why not? 

Yes, see immediately above. 

Monitoring and Review 

7.  Explain  how  the  effects  and  compliance  costs  of  the  Recommendation  will  be 

monitored and reviewed. How will complaints be dealt with? 

With a deadline of 31  December 1998, the Commission calls on 

• 

• 

issuers  of electronic  payment  instruments to act  in  accordance with the  provisions 
set out in the new Recommendation; and 

Member  States  to  ensure  that  there  are  adequate  and  effective  means  for  setting 
disputes between a issuer and users, in accordance with the recommendation. 

16  COM(96) 209 final of 22 May 1996: "Financial services:  meeting consumers' expectations". 
17  COM(97) 309 final of 26 June  1997: .. Financial services: enhancing consumer confidence ... 
18  COM(97) 157 final of 15 April  1997: "A European Initiative in Electronic Commerce". 

19 

The Commission will  monitor progress between its  adoption and the end  of 1998.  It will  also 
undertake a study of its implementation at the end of 1998.  If the new Recommendation is  not 
implemented satisfactorily, the Commission will propose a Directive in this domain. 

20 

ISSN 0254-14 7 5 

COM(97) 353  final 

D·OCUMENTS 

EN 

06  09  10 

Catalogue  number  CB-C0-97-358-EN-C 

ISBN  92-78-22686-6 

Office for Official Publications of the European Communities 

L-2985  Luxembourg 

21