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27 december 2007

The Pan-European payments system to be launched in 2008

The Single Euro Payments Area (SEPA) was up and running in January 2008, with the arrival of the fi rst SEPA credit transfers in 31 countries(1). Preparing for this major event kept European bankers busy throughout 2007. This was also the case for French banks and such payment and processing systems as STET.


France adjusts its SEPA migration plan

The National SEPA Committee, which is co-chaired by Banque de France and the FBF, brings together the major market participants and coordinates the implementation of European payment instruments in France. In October 2007, the Committee updated France's SEPA migration plan to accommodate the new Payment Services Directive. As a result, the second version of the National SEPA Migration Plan issued on 11 October 2007 stipulates that :

  • SEPA credit transfers are available as of 28 January 2008 in most banks.

  • SEPA direct debits are to be available in January 2010, once the Payment Services Directive has been transposed into national law throughout SEPA.

  • All payments cards will gradually be brought into compliance with the SEPA card framework between 2008 and end-2010.

However, remote settlement, TIP interbank payment orders and trade instruments are still used in France, since there are no equivalent SEPA instruments. SEPA does not apply to cheques and e-money

A new legal framework for pan-European payments

After two years of discussions, the Payment Services Directive was adopted on 24 April 2007. Long-awaited by the banking industry, the directive provides the common legal foundation that is essential to pan-European payments.

During these two years the FBF emphasised the importance of ensuring suffi cient security for customers and a level playing fi eld for market participants. The final draft of the directive brought with it the following improvements :

  • The directive applies only to payments made in euros or in another EU currency, and only between two payment services providers within the EU.

  • Payment institutions are subject to a stricter prudential framework, although requirements are not as severe as those that apply to banks. A minimum initial capital is now required in accordance with the nature of the payment provider's activity, in addition to specific equity requirements.

The directive must be transposed into the national law of each SEPA country by 1st November 2009. Given the directive's impact on the legal framework for payment instruments in general, and the scope each country is allowed in transposing the directive, French bankers will work with French and European authorities and with other European banks to ensure that the directive is transposed as uniformly as possible in all countries.

SEPA credit transfers available as of 28 January 2008

SEPA credit transfers became available to bank customers in France and Europe on 28 January 2008. SEPA transfers enable euro-denominated funds to be transferred electronically both within France and between all SEPA countries. They will gradually replace current domestic credit transfers and crossborder

transfers between the SEPA countries.

The SEPA transfer technical specifications were fi nalised by the EPC in June 2007. In the second half of the year banks developed the necessary software, tested it internally and performed largescale testing with payments clearing platforms.

What is most different about SEPA credit transfers is the IBAN and BIC codes used for the recipient's banking details. Furthermore, SEPA transfers use 140 characters, compared to only 31 for domestic transfers in France.

Authorities must specify rules for SEPA cards

The implementation of a pan-European cards payment system, starting in January 2008, will enable businesses, consumers and merchants to use their bank cards to make payments and withdraw cash in euros throughout SEPA as if they were making a domestic payment. Although French cardholders can already do this, this is not the case in all SEPA countries. Moreover, the SEPA EMV chip and secret code comply with the highest security standards.

However, French banks ask that the rules laid down by European authorities be suffi ciently clear to justify the large investments they will have to make and ensure the effi ciency that SEPA must enable to stimulate competitive initiatives. This is why the FBF was quick to react to the European Commission's

ruling last December against cross-border interchange fees in international card payment systems. Because interchange fees are at the very core of bank card systems, this ruling upsets the market's equilibrium and can eliminate the incentive to invest.

Another new development is the co-branding of payment cards. Co-branding, which has been available in several European countries and on various card networks, was authorized in France by the Groupement des Cartes Bancaires on 1st October 2007. Co-branding allows a retail merchant to put its logo on a payment card next to the bank's logo and, in addition to access to the CB, Visa or Mastercard payment systems, entitles the co-branded cardholder to the merchant's special payment facilities and services.

Target2 – Europe’s new large payments system

In preparation for the introduction of the euro the Eurosystem developed a new payment and settlement system named Target. The objective was to improve the security and effi ciency of large crossborder payments within the euro area and assist the ECB in implementing its monetary policy.

The new Target2 system was developed to meet user needs more effectively and adapt to the European Union's enlargement. Target2 operates on a single platform that is shared by the participating central banks.

In November 2007, the Target2 project entered its operational deployment phase. To minimise risk, the various banking communities will migrate to Target2 in three phases, from November 2007 to May 2008. In February 2008, Target2 will replace the system currently used in France by Paris financial institutions.

(1) The 27 countries of the European Union, Norway, Iceland, Liechtenstein and Switzerland.

The SEPA France website

The SEPA France website (www.sepafrance.fr) was launched on 11 October 2007. Developed by the National SEPA Committee, it is the main public source of information on the SEPA project.

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