Cross-Border Payments [EU]
Cross-border payments in euros
The aim of the single euro payments area (SEPA) is to ensure that making electronic payments throughout the entire euro area is as easy as making cash payments and that there are no extra charges when making an electronic payment in euros in another European (EU) country.
Regulation (EC) No 924/2009 of the European Parliament and of the Council of 16 September 2009 on cross-border payments in the Community and repealing Regulation (EC) No 2560/2001.
The aim of the single euro payments area (SEPA) is to ensure that making electronic payments throughout the entire euro area is as easy as making cash payments and that there are no extra charges when making an electronic payment in euros in another European (EU) country.
The rules require banks to levy the same charges for electronic payment transactions in euros conducted cross-border, between two European countries, and for corresponding electronic payment transactions* in euros conducted nationally, within the same European country.
Key Points
Electronic payment transactions include credit transfers, direct debits, withdrawals from automatic teller machines, payments by debit and credit cards, as well as cash transfers.
The payments concerned are to be made in euros or in the national currency of EU countries wishing to apply the regulation. Thus, following a request from Sweden, the principle of equality of charges also applies to payments made in Swedish kronor.
In practical terms, banks have to provide their clients with an international bank account number (IBAN) to be used when making cross-border electronic payment transactions. Banks also have to give them a bank identifier code (BIC). These transfers therefore cost no more than transfers made within the same country.
Compliance with obligations
If a bank does not comply with the charging rules, its customers or any interested party may submit a complaint to the national authority.
To guarantee that disputes arising between banks and customers are settled, EU countries must establish effective out-of-court complaint and redress procedures. Penalties can be handed out in case of infringements.
Context
From 1 November 2009.
KEY TERMS
Corresponding payments: payments with similar characteristics, such as same amount, payment channel – e.g. by ATM (automated teller machine), online, etc. – or payment instrument used – cards, cheques, direct debits or credit transfers.
REFERENCES
Act
Entry into force
Deadline for transposition in the Member States
Official Journal
Regulation (EC) No 924/2009
1.11.2009
–
OJ L 266 of 9.10.2009, pp. 11-18
Amending acts
Entry into force
Deadline for transposition in the Member States
Official Journal
Regulation (EU) No 260/2012
31.3.2012
-OJ L 94 of 30.3.2012, pp. 22-37
Regulation (EU) No 248/2014
21.3.2014
–
OJ L 84, 20.3.2014, pp. 1-3
Cross-border payments in the EU
Regulation (EU) 2021/1230 on cross-border payments in the European Union
It codifies the rules within the European Union (EU) on:
cross-border payments
the transparency of currency conversion charges.
Key Points
The regulation applies to cross-border payments denominated in:
euro;
the national currencies of EU Member States which have signed up to the legislation and have informed the European Commission.
Charges* for cross-border payments in euro or in the national currency of participating Member States should be the same as for corresponding payments within a Member State.
Payment service providers provide customers:
using card-based transactions, free of charge, with:
total currency conversion charges as a percentage markup of the latest European Central Bank euro reference exchange rates in a comprehensible and easily accessible manner before the payment is made,
details electronically without undue delay, and at least once a month, after the transaction;
making online credit transfers with:
clear, neutral and comprehensible information before the transaction of the total amount of the transfer, including any transaction fee and currency conversion charges.
Companies providing currency conversion services at an ATM or at point of sale provide customers with clearly displayed information before a transaction with:
total currency conversion charges as a percentage markup;
the amount involved in both the payer’s and payee’s own currencies and the possibility of paying in either.
Customers and suppliers of goods and services applying the regulation to make and receive payments use their international payment account number identifier (IBAN) and the payment service provider’s business identifier code (BIC).
Member States:
designate national authorities to monitor and ensure compliance with the legislation;
establish procedures for payment service users and others to submit complaints;
provide for adequate and effective out-of-court complaint and redress procedures;
ensure cooperation between their national authorities, particularly in solving cross-border disputes;
apply penalties for violations of the legislation.
The Commission presents a report by 19 April 2022 on the application and impact of the regulation, between at least 15 December 2019 and 19 October 2021, to the European Parliament, the Council of the European Union, the European Central Bank and the European Economic and Social Committee.
The regulation repeals Regulation (EC) No 924/2009.
Application & Context
It has applied since 19 August 2021.
A Member State that does not have the euro as its currency, which decides to extend the application of this regulation to its national currency, is required to notify the Commission accordingly.
The single euro payments area aims to ensure that:
making electronic payments in the euro area is as easy as making cash payments;
no extra charges are involved when making an electronic euro payment from one Member State to another.
Directive (EU) 2015/2366 requires the charges and exchange rate used in cross-border payments to be transparent. It also specifies the information to be given to customers (see summary).
Cross-border payments. Electronic wholesale and retail payments where the payer and the recipient are in different countries.
Charge. The direct or indirect cost linked to a payment transaction.
Payment service provider. A company that enables businesses to accept credit or debit card and digital wallet in-person and online payments.
MAIN DOCUMENT
Regulation (EU) 2021/1230 of the European Parliament and of the Council of 14 July 2021 on cross-border payments in the Union (codification) (OJ L 274, 30.7.2021, pp. 20–31).
RELATED DOCUMENTS
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (OJ L 337, 23.12.2015, pp. 35–127).
Successive amendments to Directive (EU) 2015/2366 have been incorporated into the original text. This consolidated version is of documentary value only.
Single Euro Payments Area Regulation
Regulation (EU) No 260/2012 — technical and business requirements for credit transfers and direct debits in euro
It sets out the rules and technical requirements for credit transfers and direct debit transactions in euro within the single euro payments area (SEPA).
Key Points
National accounts used for credit transfers and direct debits within each country should also be accessible EU-wide. This is known as ‘reachability’.
The same rules apply to both national and cross-border operations.
Payment systems should be interoperable with each other.
Credit transfers and direct debit transactions must meet certain conditions, including:
the use of international bank account numbers, bank identifier codes and a financial messaging standard for all payments in euro;
the right of payers to issue specific instructions, such as the amount and frequency of a direct debit.
The legislation set the following entry dates:
from 1 February 2014 (later postponed to August 2014), all credit transfers and direct debits in euro to be made under the same format in EU countries with the euro as national currency;
from 31 October 2016, all credit transfers and direct debits in euro to be made under the same format also in non-euro EU countries;
from 1 February 2017, abolition of multilateral interchange fees* for direct debits;
from 1 February 2016, an end to compulsory use of the business identifier code (BIC).
EU countries had to:
appoint a national authority with the necessary powers to ensure the legislation is fully implemented;
lay down, by 1 February 2013, rules on penalties for any violations of the legislation;
establish adequate and effective out-of-court complaint and redress procedures.
The European Commission:
was given the five-year renewable power from 31 March 2012 to adopt delegated acts;
had to present a report by 1 February 2017 on implementation of the legislation.
Regulation (EU) No 248/2014 amended Regulation (EU) No 260/2012, introducing certain transitional arrangements. These ended on 1 February 2016.
Application & Background
It has applied since 31 March 2012.
The single euro payments area harmonises the way cashless euro payments are made across the EU. It makes them as easy as national payments.
SEPA covers payments in euro in the EU and Iceland, Norway, Switzerland, Liechtenstein, Andorra, Monaco, San Marino and the Vatican City.
Multilateral interchange fees: fees which the sellers of goods and services pay for the cross-border payments they receive by consumer debit and credit cards.
MAIN DOCUMENT
Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009 (OJ L 94, 30.3.2012, pp. 22-37)
Successive amendments to Regulation (EU) No 260/2012 have been incorporated into the original text. This consolidated version is of documentary value only.
RELATED DOCUMENT
Regulation (EC) No 924/2009 of the European Parliament and of the Council of 16 September 2009 on cross-border payments in the Community and repealing Regulation (EC) No 2560/2001 (OJ L 266, 9.10.2009, pp. 11-18)
ECB Guideline on TARGET2
Guideline of the European Central Bank 2013/47/EU on a trans-European automated real-time gross settlement express transfer system (TARGET2) (ECB/2012/27)
It regulates the trans-European automated real-time gross settement express transfer (TARGET2) real-time gross settlement (RTGS) system. TARGET2 is a payment system that enables EU banks to transfer money between each other in real time. Central and commercial banks can submit payment orders in euro to TARGET2 where they are processed and settled in money held in an account with a central bank.
TARGET2 aims to:
support the implementation of the Eurosystem’s monetary policy and the functioning of the euro money market;
minimise systemic risk in the payment market, i.e. the possibility of a single actor causing an entire market to collapse;
ensure the efficient processing of cross-border payments in euro.
Key Points
TARGET2 is owned and managed by the Eurosystem. Each central bank in the Eurosystem operates its own TARGET2 component.
Central banks in non-euro-area countries may participate and settle euro transactions via the platform and comply with the guideline to that effect.
Other financial institutions can participate in TARGET2 via a participating central bank through:
direct participation (being in the European Economic Area (EEA) and sending and receiving payments on their own or their customers’ behalf);
indirect participation (in the EEA and channelling payments via a direct participant in TARGET2);
multi-addressee access (branches and subsidiaries of a direct participant in the EEA authorised to process payments through its account);
addressable BIC, a correspondent of a direct participant that holds a Bank Identifier Code (BIC), irrespective of its place of establishment.
Management of TARGET2 is based on three levels of governance.
Level 1: the ECB’s Governing Council is responsible for overall direction, management and control of TARGET2, including common cost and pricing methodology, security and policies.
Level 2: the Eurosystem central banks are responsible for certain technical and operational management tasks related to TARGET2.
Level 3: Deutsche Bundesbank, Banque de France and Banca d’Italia are acting as a service provider for the single shared platform infrastructure on behalf of the Eurosystem.
The four main tasks and responsibilities within the TARGET2 system are:
framework setting by the Eurosystem by producing guidelines with common requirements for the users;
compliance check by the central banks;
providing central banks with the relevant information by the users;
monitoring and follow-up activities by central banks.
The guideline contains specific rules for the operation of TARGET2, i.e.:
the opening and operation of an account;
fees for core TARGET2 services;
pooling liquidity;
intraday credit (a short period when an account may be overdrawn);
suspension or termination of participation;
rejection of an application for participation in TARGET2;
compensation and treatment of losses from technical malfunction;
dispute resolution.
Application & Background
It entered into force on 7 December 2012 and has applied since 1 January 2013. Guideline ECB/2012/27 repealed Guideline ECB/2007/2.
TARGET2 is the Eurosystem’s interbank funds transfer system, which is designed to support the Eurosystem’s objectives of defining and implementing the monetary policy of the euro area and promoting the smooth operation of payment systems.
TARGET2 services are developed and operated by the Eurosystem to ensure the safe and efficient flow of cash, securities and collateral across Europe. This contributes to the stability of the euro.
The predecessor of TARGET2, TARGET, linked different national RTGS structures together and commenced operations on 4 January 1999, a few days after the launch of the euro.
TARGET2, launched on 19 November 2007, fully replaced the first-generation TARGET by May 2008 by providing harmonised core services on a single shared platform developed by the Banque de France, Deutsche Bundesbank and Banca d’Italia (known as 3CB).
TARGET2 is one of the largest payment systems in the world, reaching over 52,000 banks and processing payments close to the entire euro-area GDP every 5 days.
The Eurosystem has launched a project to consolidate TARGET2 and TARGET2-Securities in terms of both technical and functional aspects. The objective is to meet changing market demands by replacing TARGET2 with a new RTGS system called T2 and optimising liquidity management across all TARGET services. The new consolidated platform will be launched in November 2022.
For more information, see:
TARGET Services (European Central Bank).
MAIN DOCUMENT
Guideline of the European Central Bank 2013/47/EU of 5 December 2012 on a Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2) (recast) (ECB/2012/27) (OJ L 30, 30.1.2013, pp. 1-93)
Successive amendments have been incorporated into the original text. This consolidated version is of documentary value only.
RELATED DOCUMENTS
Decision 2007/601/EC of the European Central Bank of 24 July 2007 concerning the terms and conditions of TARGET2-ECB (ECB/2007/7) (OJ L 237, 8.9.2007, pp. 71-107)