Commission staff working document - Accompanying document to the proposal for a Regulation of the European Parliament and of the Council on cross-border payments in the Community EXECUTIVE - Summary of the impact assessment {COM(2008) 640} {SEC(2008) 2598}
Date: 2008-10-13
Institutions: European Commission
Subjects: bank charges, consumer information, credit transfer, euro, euro area, frontier region

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 13.10.2008 
SEC(2008) 2599  

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to 

the proposal for a Regulation of the European Parliament and of the Council 
on cross-border payments in the Community 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

{COM(2008) 640} 
{SEC(2008) 2598} 

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1. 

INTRODUCTION 

The  smooth  and  efficient  functioning  of  payment  systems  is  indispensable  for  the  internal 
market. Efficient payment systems are of systemic importance for Europe's competitiveness, 
the facilitation of economic transactions and the conduct of monetary policy. The integration 
of payments markets in the EU was identified in 2000 as one of the key measures to achieving 
the goals of the Lisbon Agenda. 

With the launch of the Economic and Monetary Union (EMU) it became evident that there is 
a  need  for  a  modern,  stable  and  efficient  payment  infrastructure  to  assist  cross-border 
electronic payments within the EU. In the absence of initiatives by the payments industry to 
develop  the  necessary  pan-European  processing  infrastructures  and  lower  the  charges  for 
cross-border payments, the Commission decided to act.  

Regulation (EC)  No 2560/2001  of  the  European  Parliament  and  of  the  Council  on  cross-
border  payments  in  euro  ('Regulation 2560')  entered  into  force  on  31 December 2001.  The 
Regulation applies  to  credit  transfers,  ATM  cash  withdrawals  and  card  payments  made  in 
euro  up  to  the  amount  of  EUR 50 000.  It  guarantees  that,  when  a  consumer  makes  a  cross-
border electronic payment in euro, it costs him the same as making a corresponding payment 
in euro within his own Member State. Regulation 2560 can be considered as a kick-off for the 
establishment of an integrated market for euro payments. 

This impact assessment builds on the extensive preparatory work and consultations that have 
been carried out by the Commission and follows the conclusions of the February 2008 report 
to  the  European  Parliament  and  to  the  Council  on  the  application  of  Regulation 
(EC) No 2560/2001  on  cross-border  payments  in  euro.  The  report  identified  three  main 
problems as concerns the Regulation, which are discussed in detail in the impact assessment. 
These are: 

–  risk of high charges, market fragmentation and inconsistent legal regime for cross-border 

direct debits;  

–  low  efficiency  of  cross-border  payments,  an  unlevel  playing  field  and  higher  costs  of 

payments resulting from the settlement-based statistical reporting obligations; 

–  a lack of national competent authorities in charge of applying the Regulation and absence 

of out-of-court redress bodies for disputes related to it. 

In  addition,  this  Impact  Assessment  takes  into  account  recent  developments  in  the  retail 
financial  markets,  including  the  gradual  emergence  of  the  Single  Euro  Payments  Area 
(SEPA),  and  the  Commission's  commitment  to  align  the  text  of  the  Regulation  with  the 
Payment  Services  Directive  (Directive  2007/64/EC  of  the  European  Parliament  and  of  the 
Council on payment services in the internal market – PSD). 

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2. 

PROBLEM DEFINITION 

2.1. 

Risk  of  high  charges,  market  fragmentation  and  inconsistent  legal  regime  for 
cross-border direct debits 

When Regulation 2560 was adopted, cross-border direct debits did not exist. Therefore, they 
were  not  covered  by  its  scope.  However,  the  PSD  provides  the  necessary  legal  framework 
making  it  possible  to  set  up  cross-border  direct  debits.  If  direct  debits  were  left  outside  the 
scope of the revised Regulation, there would be a serious inconsistency in the internal market, 
since an important electronic payment instrument would be allowed to have different prices 
for cross-border and national transactions, whereas other instruments would not. 

Direct  debits  constitute  around  25 %  of  all  non-cash  payments  transactions  in  the  EU. 
According  to  the  Commission  estimates  the  value  of  cross-border  direct  debits  could 
relatively quickly reach some EUR 250 billion annually. 

The  fact  that  direct  debits,  unlike  other  electronic  means  of  payment,  are  currently  not 
covered by Regulation 2560 presents a clear risk of having different pricing for national and 
cross-border direct debits. Individual financial institutions are, in the SEPA and PSD context, 
free  to  differentiate  prices  on  a  cross-border  basis.  The  increased  profit  opportunities  may 
well lead them to apply such a strategy. The price difference could distort the functioning of 
an important part of the EU market in payments, perpetuating its current fragmentation along 
national lines. If the prices of cross-border and national direct debits were not equalised, there 
would  be  no  incentive  for  the  payment  service  providers  to  quickly  migrate  to  modern  and 
cost-effective SEPA infrastructures, as any costs could be recovered from the consumers and 
businesses. 

2.2. 

Low efficiency of cross-border payments, unlevel playing field and higher costs 
of payments resulting from the settlement-based statistical reporting obligations 

Community  legislation  and  European  Central  Bank  acts  require  Member States  to  collect 
statistics  on  the  balance  of  payments  (BoP).  However,  the  methodology  adopted  by 
Member States varies. The methods used can be classified in two broad categories: 

–  systems  based  on  direct  reporting  and  surveys,  which  collect  the  information  directly 

from resident enterprises and households involved in the economic activities; 

–  systems  based  on  settlements  (payments),  which  collect  the  information  through 

intermediaries, i.e. the banks executing the payment orders. 

Regulation 2560  introduced  an  exemption  from  BoP  statistical  reporting  based  on  bank 
settlements up to a threshold of EUR 12 500. This speeded up the change to systems based on 
direct reporting, as no threshold applies when this method is used. 

At the beginning of 2008, 14 Member States  were using direct reporting/surveys  to compile 
their balance of payments statistics, while 13 Member States relied on settlement-based BoP 
reporting. Six countries of the latter group decided to raise the threshold to EUR 50 000 on a 
voluntary  basis,  while  the  remaining  seven  continued  to  apply  the  EUR 12 500  threshold. 
Seven out of the 13 countries applying settlement-based reporting are currently in the process 
of  migrating  or  designing  the  changeover  towards  the  direct  reporting/survey  collection 
method.  

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Statistical reporting arrangements differ across those 13 Member States. This seriously affects 
the  efficiency  of  EU  payment  systems,  since  it  means  that,  in  many  cases,  fully  automated, 
straight-through-processing of cross-border payments above the exemption threshold may not 
be possible. According to estimates made by the national banking associations, around 50 % 
of  the  payments  subject  to  reporting  require  manual  intervention,  which  significantly 
increases the costs and time needed for processing. 

Consequently,  the  settlement-based  BoP  reporting  has  a  clear  EU  policy  dimension,  as  this 
collection method constitutes a barrier to the creation of the internal market in payments and 
perpetuates  the  administratively  imposed  distinction  between  national  and  cross-border 
payments. From a competition perspective, a distinction between payments made within and 
between  Member States  creates  an  unlevel  playing  field  for  payment  services  providers 
located in different Member States. It further limits competition by creating barriers to entry, 
which could be too high for some categories of the payment service providers. 

The  burden  of  reporting  and  of  maintaining  the  reporting  infrastructure  has  a  significant 
impact on the costs of credit transfers. For example, according to the assessment of the Italian 
Banking  Association,  the  direct  cost  of  BoP  reporting  is  around  EUR 3.40  for  every  single 
cross-border  credit  transfer.  Calculations  made  by  the  Spanish  banking  industry  indicate 
similar values (around EUR 3 per credit transfer). 

Moreover,  the  usefulness  and  accuracy  of  reporting  based  on  settlements  may  gradually 
decline.  When  the  SEPA  project  is  fully  implemented,  payments  data  will  often  no  longer 
reflect the underlying economic transactions, as economic agents will be able to make all their 
payments through one account, not necessarily situated in the Member State where they are 
physically located. This may in turn  have an  impact on the  reliability of BoP data provided 
through settlement-based reporting and used for various purposes at the EU level, for example 
when preparing trade negotiations or initiating excessive deficit procedures. 

2.3. 

Lack  of  explicit  reference  to  the  national  competent  authorities  in  charge  of 
applying the Regulation and to the out-of-court redress bodies for Regulation-
related disputes  

Out-of-court redress bodies for consumer complaints exist in all Member States. Nevertheless, 
in some Member States, they refuse to handle complaints related to Regulation 2560, giving 
as their reason that they have not been empowered to do so in their national legal system. As a 
result,  in  some  countries  the  complainant  still  has  to  go  to  court  to  seek  redress.  For  a 
customer  domiciled  in  another  state,  this  causes  difficulties  and  is  questionable  in  terms  of 
cost/benefit.  

As  regards  the  competent  authorities,  the  majority  of  Member States  have  informally 
communicated  to  the  Commission  the  identity  of  the  competent  authority  in  charge. 
Nevertheless,  in  some  situations,  where  a  general  problem  of  incorrect  application  of  the 
Regulation  has  been  identified,  some  Member States  have  refused  to  address  the  problem, 
arguing that they had no legal obligation to do so.  

3. 

OBJECTIVES 

The  general  objective  of  the  review  of  the  Regulation  is  to  achieve  an  Internal  Market  for 
payment  services  in  euro,  subject  to  effective  competition  and  where  there  is  no  distinction 
between  cross-border  and  national  payments,  thereby  providing  significant  savings  and 
benefits  to  the  wider  European  economy.  In  order  to  achieve  this  general  objective,  three 

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operational  objectives  have  been  identified:  (1) eliminate  the  administrative  obstacles 
hampering the efficient functioning of the internal payments market (2) extend the guarantee 
of equal prices for national and cross-border payments to include direct debits and (3) ensure 
the consistency of European payments legislation and its applicability in the Member States. 
This would lead in the medium term to the achievement of the specific objectives which seek 
to encourage and facilitate the use of cross-border electronic payment services by consumers 
and  businesses,  secure  a  level  playing  field  from  a  competition  perspective,  enhance  legal 
certainty as regards cashless payments in euro and reduce the costs of payments for European 
consumers, businesses and payment service providers. 

4. 

THE IMPACTS 

4.1. 

Impacts related to the extension of the scope to direct debits 

The  options  in  terms  of  extending  the  scope  of  the  Regulation  to  include  direct  debits  are: 
(1) not  to  extend  the  scope  of  the  Regulation  to  direct  debits  (2) encourage  industry  self-
regulation and/or recommend regulatory action by Member States and (3) extend the scope of 
the Regulation, by means of legislation, to cover direct debit payments. 

In Option 1, payment service providers have the possibility to set different prices for national 
and  cross-border  direct  debit  payments.  Many  are  likely  to  do  so.  As  a  result,  direct  debit 
would  most  probably  not  achieve  its  full  cross-border  potential  (other,  regulated  payment 
instruments would be used) and the social benefits of the Internal Market in payments (low 
payment prices) would be reduced. 

In Option 2, the payments industry is encouraged to adopt, through self-regulation, the same 
prices for national and cross-border direct debit transactions. As an alternative, or in parallel, 
the  Commission  would  issue  a  Recommendation  to  the  Member States,  inviting  them  to 
equalise the charges. The equalisation of charges would extend most probably only to some 
Member States and/or  banks,  with the result that  fragmentation  of  the  EU  payments  market 
would persist. The social benefits of the internal market would still be lower than they could 
be. 

Under Option 3, the prices charged for a national direct debit and a cross-border direct debit 
are  the  same  within  each  Member State.  Consumers  would  be  protected  from  the  possible 
discriminatory pricing of cross-border direct debits. European enterprises would benefit even 
more, since businesses act also in a payee capacity. As a result of the equalisation of prices, 
payment  transaction  costs  for  businesses  would  be  the  same,  irrespective  of  the  payer's 
location.  

4.2. 

Impacts related to BoP reporting 

The  options  related  to  BoP  reporting  are  (1) maintain  the  existing  exemption  threshold  of 
EUR 12 500,  (2) create  a  voluntary  additional  Optional  Service  (AOS)  Community  within 
SEPA  that  would  enable  the  collection  of  statistical  data  from  settlements  to  continue, 
(3) encourage voluntary adjustments by the Member States and (4) address the BoP reporting 
problems  through  legislation,  with  three  sub-options:  (4a) raise  the  exemption  threshold  to 
EUR 50 000;  (4b) abolish  the  BoP  reporting  obligations  imposed  on  payment  service 
providers; and (4c) raise the exemption threshold to EUR 50 000 and, in a second phase, by 
January 2012, abolish BoP reporting based on settlements. 

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Under Option 1 the unlevel playing field for competition between payment service providers 
continues  to  exist  and  the  efficiency  of  the  internal  market  in  payments  is  hampered  by  the 
reporting  on  cross-border  payments.  Consumers  and  businesses  in  the  13  Member States 
where reporting is maintained continue to face higher charges (either directly, through pricing 
of  payment  services  or  indirectly,  through  higher  account  service  fees  and/or  other  related 
charges). 

Option 2 would make it possible to continue the statistical reporting based on payments in the 
SEPA  environment  and  enable  automated  payment  processing.  It  would  reduce  costs  of 
settlement-based  reporting  and  raise  the  exemption  threshold  to  EUR 50 000  for  the 
voluntarily  participating  Member  States.  However,  the  fixed  costs  of  maintaining  the 
reporting infrastructure would still constitute an important financial burden for banks, and the 
different  treatment  of  national  and  cross-border  payments  would  be  maintained.  Data  on 
payments  incoming  from  non  participating  Member  States  (a  majority  of  Member  States 
would not join the AOS, as it is not necessary for them) would also be unavailable.  

Under  Option 3  the  negative  developments  described  in  Option 1  would  be  somewhat 
mitigated, although the degree to which they disappear would depend on the reaction of the 
Member States.  

If  the  exemption  threshold  is  raised  to  EUR 50 000  (Option 4a),  a  greater  homogeneity 
between  the  EU  members  would  be  achieved,  as  the  distortions  of  competition  -at  least  for 
retail  payments  -  are  reduced.  However,  maintained  reporting  would  still  constitute  an 
important barrier for cross-border payments. 

In  Option 4b  the  costs  of  payments  would  be  reduced  to  the  maximum  possible  extent,  no 
administrative  distinction  would  be  made  between  national  and  cross-border  payments,  and 
the level playing field for payment service providers would be achieved from a competition 
perspective.  The  use  of  cross-border  payment  services,  especially  for  businesses,  would  be 
facilitated.  

Option 4c  would  present  the  same  benefits  as  Option 4b,  the  only  difference  being  that  the 
BoP  requirements  would  be  phased  out,  after  an  initial  phase  during  which  the  reporting 
threshold  would  be  raised.  This  would  allow  the  BoP  compilers  to  gradually  adapt  their 
collection methods to the necessary changes, thus minimising the impact on the quality of the 
BoP statistics. 

4.3. 

Impacts related to the competent authorities and out-of-court redress 

The options related to the competent authorities and out-of-court redress bodies are (1) do not 
appoint  competent  authorities  and  out-of-court  redress  bodies  and  (2) appoint  competent 
authorities and out-of-court redress bodies to deal with the Regulation issues. 

Under Option 1 the unavailability of a clear way of ensuring quick and cost-efficient redress 
would  be  detrimental  to  the  consumer  and  to  the  efficiency  of  the  internal  market  in 
payments.  It  would  create  a  legal  inconsistency  between  the  PSD  and  the  Regulation  and 
cause  confusion  in  cases  of  payments  falling  under  both  payment  laws.  As  regards  the 
competent  authorities,  the  lack  of  a  clearly  appointed  administrative  body  supervising  the 
application of the Regulation would make it much more time consuming and difficult for the 
Commission to address any misinterpretation or market failure concerning the application of 
the Regulation. 

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In  Option 2,  Member States  would  be  requested  to  indicate  which  competent  authorities 
would  be  responsible  for  the  correct  application  of  the  Regulation  at  national  level. 
Consumers  and  businesses  would  have  the  possibility  to  limit  the  legal  costs  of  judicial 
intervention  and  to  accelerate  the  resolution  of  payment  disputes  through  arbitration  and 
mediation.  

5. 

CONCLUSIONS 

The  following  are  the  preferred  options  from  the  Community  policy  point  of  view: 
(1) extension of the scope of Regulation 2560 to include direct debits; (2) phasing-out of the 
payments-based  reporting  obligations  by  January 2012;  and  (3) appointment  of  competent 
authorities and out-of-court redress bodies. 

The  proposed  amended  Regulation  would  be  aligned  with  the  wording  and  the  definitions 
used in the PSD, so as to ensure legal consistency and clarity between both payment laws.  

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