Improving cross-border retail payment services in the euro area - the Eurosystem's view

13 September 1999

Efficient cross-border retail payment services are essential for the smooth functioning of the Single Market. Citizens and businesses can only benefit fully from the fundamental principles of the free movement of goods, services, capital and people if they are also able to transfer money as rapidly, reliably and cheaply from one part of the European Union to another as is now the case within each Member State.

The introduction of the euro is an important contribution to the completion of the Single Market. It facilitates cross-border trade and should make it possible for producers and consumers to reap the benefits associated therewith. Despite the introduction of the euro, however, there is still a clear gap between the service levels of domestic and cross-border retail payment systems in terms of quality, efficiency and pricing. The substantial disparities between domestic and cross-border services ought now to be reduced, and should ultimately disappear. Indeed, the single currency environment argues strongly in favour of a single payment area.

In this respect, important improvements in the practices of banks should result from the implementation, in August 1999, of the European Parliament and Council Directive No. 97/5/EC of 27 January 1997 on cross-border credit transfers, which establishes rules in the area of the transparency and performance of cross-border payments.

Since the Directive applies to the whole of the European Union, its scope is limited to addressing certain specific aspects of cross-border credit transfers within a multi-currency environment. Therefore, the implementation of the Directive may not be sufficient to respond to all the requirements of an efficient Single Market for payment systems and to the needs and expectations of users with regard to payments within the single currency area.

In order to encourage the development of cross-border payment systems enabling the public to benefit more fully from the single currency, the Eurosystem, in line with its basic task of promoting the smooth functioning of payment systems, as laid down in Article 105 of the Treaty establishing the European Community and Article 3 of the Statute of the ESCB, has drawn up the following objectives for cross-border retail payments in the euro area. The Eurosystem calls on the banking and payment service industry to fulfil these objectives by 1 January 2002 at the latest. These objectives have been set in order to help to strike a balance between what is expected by users of payment services and what is achievable in the short run. In order to take up this challenge, the ECB and the national central banks are open to discussion on possible solutions and to co-operation with the industry, in order that these objectives may be achieved.

Objective 1:

Enhanced system(s)/services to be ready by 1 January 2002

When the euro banknotes and coins are introduced on 1 January 2002, the citizens of Europe will be able to use the same currency denomination in all the countries of the euro area. They also expect to benefit, by then, from efficient, cheap and user-friendly cross-border payment systems. For the banking community to meet that expectation, measures to substantially improve the efficiency and performance of cross-border retail payments should be in place before January 2002.

Objective 2:

Priority should be given to cross-border credit transfers

The banking and payment service industry has already made significant efforts in developing cross-border systems, in particular in the field of card payments, which allow for an efficient execution of "face-to-face" payments. The industry is invited to continue its efforts in this respect and to extend them to other payment instruments which also require efficient remote servicing. As credit transfers appear to be an important vehicle for cross-border retail payments, and an area in which there is scope for substantial improvement, priority should be given to this particular instrument.

Objective 3:

The price of cross-border credit transfers should decrease substantially

The final price of credit transfers will be determined by banks, acting in a competitive environment. Without prejudice to fair remuneration for the service provided, it should be possible to achieve a substantial reduction in fees. As a short-term objective, the domestic processing component of cross-border transfers should be priced at the same level as for national ones, insofar as they comply with domestic standards and procedures and can thus be processed together with domestic payments.

Objective 4:

Settlement time should be comparable for domestic and cross-border payments

Cross-border retail credit transfers should be processed as quickly as payments made within the domestic environment. The end-to-end execution of cross-border payment orders should not take more than one day longer than the time needed for domestic payments.

Objective 5:

Unless otherwise agreed in advance, fees for cross -border credit transfers should be borne by the originator of the payment only

The Directive on cross-border credit transfers states that customers should be informed in advance of all costs relating to transactions. When the sending and the receiving credit institution have a well-established business relationship, it should be possible to meet this requirement. Where this is not the case, and in order to assist the banks in fulfilling this price-transparency requirement, only the originator of the payment should be charged, with no costs being borne by the beneficiary. This default practice would also be in line with prevailing current practices for domestic credit transfers and hence contribute to the creation of a single euro payment area and to the achievement of full cost transparency, as required by the Directive.

Objective 6:

Access to cross-border retail payment systems should be open

To avoid additional costs and an extended payment execution time linked to the involvement of many intermediaries, the criteria for access to systems should be public, objective, fair and non-discriminatory.

Objective 7:

Existing standards should be implemented as soon as possible.

Standardisation is a key element in increasing the efficiency of cross-border retail payments. Banks should speed up the implementation of the standards already defined by the European Committee for Banking Standards (ECBS). The Eurosystem stands ready to play a co-ordinating and supportive role with the aim of facilitating the actual implementation of such standards.

The full report, entitled "Improving cross-border retail payment services in the euro area - the Eurosystem's view", will be distributed by each of the EU central banks to interested parties in their respective countries. It can be accessed via the ECB's Web site (section: other publications). Copies are also available from the ECB at the following address:

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