Cross-border payments made easy
Cross-border payments within the EU whether effected by credit card, debit card, electronic bank transfer, direct debit or any other means are set to become as easy, cheap and secure as domestic payments. All this thanks to a new EU law which has recently received the backing of EU finance ministers.
This proposed law also known as the New Legal Framework will apply to payments made in any currency, not only those made in euro or in another national currency used in the EU.
This law has a dual objective: that of guaranteeing fair and open access to payments markets and that of increasing consumer protection. Currently, each member state has its own rules on payments. In practice, this means that service providers are impeded from competing and offering their services throughout the EU.
The proposed law aims to establish a harmonised legal framework for an integrated payments market in the EU. As a result of this harmonisation, legal compliance costs for payment service providers will be greatly reduced while at the same time competition between them is enhanced since there will be greater choice for consumers. Effectively, there will be no difference between national and cross-border payment systems.
For example, when adopted, this law will allow for the use of direct debit services on a cross-border basis. This is a facility which is not as yet available within the EU.
Currently, consumers seeking to effect cross-border payments have to fork out hefty banking costs. Prices for the same service vary considerably from one member state to the other. For example, a credit transfer can be free of charge in one country and cost more that €10 in another. The proposed law will now lay down a common set of rules which will enable consumers to shop around on the basis of an informed choice.
Another major benefit for consumers is that this proposed law will ensure that electronic payments are completed in a maximum of one day after the payment order is given.
The proposed law also permits non-banking institutions to enter the payment markets and harmonises market-access requirements for such service providers.
Allowing non-bank providers into the payments market would, for example, let consumers make payments with their mobile phones or pay their electricity bill in supermarkets. However, this has proved to be a major bone of contention with some member states favouring rigorous regulation of these service-providers and others favouring a more liberal approach.
The compromise formula that member states have agreed on allows non-banking institutions to be able to offer credit but only within a limited 12-month period.
Another objective of this new law is to set the ground for the creation of a Single European Payments Area (SEPA) by 2010. SEPA is visualised as an integrated market for payment services which is subject to effective competition and where there is no distinction between cross-border and national payments within the euro area.
Common standards and services will be applicable for all euro payments.
This means that a buyer within the EU would be able to effect payment for goods and services anywhere in the EU as he would be able to do in his own country.
Obviously, the removal of all technical, legal and commercial barriers between the current national payment markets is an indispensable pre-requisite for the creation of such an area.
The effectiveness of this new law, when adopted, will depend on the way that it is implemented into national legislation by the different member states. Being in the form of a Directive rather than in the form of a Regulation which is directly applicable in all member states, much discretion is left in the hands of member states in order to ensure the success of this law through correct transposition into their national legal system.
Dr Vella Cardona M'Jur, is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.
This law has a dual objective: that of guaranteeing fair and open access to payments markets and that of increasing consumer protection. Currently, each member state has its own rules on payments. In practice, this means that service providers are impeded from competing and offering their services throughout the EU.
The proposed law aims to establish a harmonised legal framework for an integrated payments market in the EU. As a result of this harmonisation, legal compliance costs for payment service providers will be greatly reduced while at the same time competition between them is enhanced since there will be greater choice for consumers. Effectively, there will be no difference between national and cross-border payment systems.
For example, when adopted, this law will allow for the use of direct debit services on a cross-border basis. This is a facility which is not as yet available within the EU.
Currently, consumers seeking to effect cross-border payments have to fork out hefty banking costs. Prices for the same service vary considerably from one member state to the other. For example, a credit transfer can be free of charge in one country and cost more that €10 in another. The proposed law will now lay down a common set of rules which will enable consumers to shop around on the basis of an informed choice.
Another major benefit for consumers is that this proposed law will ensure that electronic payments are completed in a maximum of one day after the payment order is given.
The proposed law also permits non-banking institutions to enter the payment markets and harmonises market-access requirements for such service providers.
Allowing non-bank providers into the payments market would, for example, let consumers make payments with their mobile phones or pay their electricity bill in supermarkets. However, this has proved to be a major bone of contention with some member states favouring rigorous regulation of these service-providers and others favouring a more liberal approach.
The compromise formula that member states have agreed on allows non-banking institutions to be able to offer credit but only within a limited 12-month period.
Another objective of this new law is to set the ground for the creation of a Single European Payments Area (SEPA) by 2010. SEPA is visualised as an integrated market for payment services which is subject to effective competition and where there is no distinction between cross-border and national payments within the euro area.
Common standards and services will be applicable for all euro payments.
This means that a buyer within the EU would be able to effect payment for goods and services anywhere in the EU as he would be able to do in his own country.
Obviously, the removal of all technical, legal and commercial barriers between the current national payment markets is an indispensable pre-requisite for the creation of such an area.
The effectiveness of this new law, when adopted, will depend on the way that it is implemented into national legislation by the different member states. Being in the form of a Directive rather than in the form of a Regulation which is directly applicable in all member states, much discretion is left in the hands of member states in order to ensure the success of this law through correct transposition into their national legal system.
Dr Vella Cardona M'Jur, is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.