SEPA for Cards: Uncertainty Remains after the Deadline

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Single Euro Payment Area, or SEPA, has finally entered into the migration phase on January 28, 2008. As the first step of the migration, the European banking industry has started to offer SEPA-compliant credit transfer services across the SEPA region, which includes 27 European Union countries as well as Iceland, Liechtenstein, Norway, and Switzerland. The new SEPA-compliant services will co-exist with existing non-SEPA compliant ones until the latter are finally replaced by the end of 2010, according to the SEPA timeline. Direct debit services will follow later next year. However, in the area of payment cards which is directly related to consumers and merchants among the three payments services covered by SEPA, progress has been slow and a lot of uncertainties remain.

New research report by Mercator Advisory Group.

Single Euro Payment Area, or SEPA, has finally entered into the migration phase on January 28, 2008. As the first step of the migration, the European banking industry has started to offer SEPA-compliant credit transfer services across the SEPA region, which includes 27 European Union countries as well as Iceland, Liechtenstein, Norway, and Switzerland. The new SEPA-compliant services will co-exist with existing non-SEPA compliant ones until the latter are finally replaced by the end of 2010, according to the SEPA timeline. Direct debit services will follow later next year. However, in the area of payment cards which is directly related to consumers and merchants among the three payments services covered by SEPA, progress has been slow and a lot of uncertainties remain.

Among the uncertainties around SEPA for Cards are:

Confusion and argument around card schemes
Dispute over multilateral interchange fees MIF)
Delayed implementation of Payment Services Directive (PSD) as national laws
Lack of clarity in SEPA Cards Framework (SCF)
Confusion among users
Remaining standardization issues
These uncertainties, together with other factors such as the huge investment required for banks to migrate, have held off banks and other stakeholders from moving quickly forward in SEPA migration. The latest twist has been the EC's ruling against MasterCard on MIF, which had come just a month before the migration began.

Terry Xie, Director of Mercator Advisory Group's International Advisory Service and principal analyst on this report comments, "We expect the European banking industry to continue to move slowly in the next 6 months, as MasterCard appeals the EC ruling and as Visa is trying to negotiate its deal with the Commission. The parties involved in the EAPS will be cautious in rolling out their service in the near future until there is more clarity as of what the perspective of MIF would be. In the meantime, the delay of SEPA for Cards will create some time for some other possible new entrants in the European card scheme market."

The most recent report from Mercator's International Advisory Service provides an update of current SEPA for Cards progress, a discussion of key issues remaining in the SEPA for Cards migration, as well as a survey of existing and emerging card schemes in the European market, their current state, recent developments, and outlooks.
Report Highlights:

  • SEPA's migration phase officially starts on January 28, 2008. But unlike credit transfers and direct deposits, SEPA for cards has been seeing delays and will not be ready in the near future.
  • Uncertainties over existing international card schemes and emerging new ones are at the center of discussion of SEPA for cards.
  • At this point, MasterCard, Visa Europe, and EAPS are expected to be the three major card schemes in SEPA. But most national schemes have been holding off their decisions on which one to use or co-brand until there is more clarity from the authorities.
  • Dispute over interchange fees, delayed implementation of PSD as national law, in-sufficient public communications, lack of clarify in SCF, and standardization are major issues that need to be addressed.
  • The European and national authorities are expected to step up regulatory efforts to ensure SEPA's progress. But before that, they must work with the industry to define a clear roadmap for the payment cards industry.

Members of Mercator Advisory Group have access to these reports as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits. Please visit us online at http://www.mercatoradvisorygroup.com.

For more information call Mercator Advisory Group's main line: 781-419-1700 or send email to info(at)mercatoradvisorygroup.com.

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