Proposed work programme for e and m payment

This paper sets out the proposed priorities for work to be undertaken by the EPC in the area of e and m payments. These proposals have been developed by the Ad Hoc Expert group on e and m payment channels and standards, chaired by Dag-Inge Flatraaker which came into being at the EPC Plenary in December 2006, operating under the auspices of the EPC Coordination Committee.

At the meeting of the Coordination Committee in September 2006, it was agreed that new payment channels should be an important part of the SEPA landscape and that the EPC should have a clear response to these opportunities, which are rapidly emerging. There is a strong momentum both within the banking community and among regulators and other stakeholders to see the emergence of concrete solutions. By so doing the EPC would strengthen the SEPA value proposition.

To date, useful work has been produced by the two EPC task forces operating within the EPC Electronic Credit Transfer Working Group but this work has been distracted by the more important need to deliver the core SEPA Credit Transfer scheme. A new and more dedicated approach is now needed.

The initial priority is to scope a work programme to identify the rules and standards to allow online bank customers and merchants to use and accept the new SEPA instruments in the settlement of online transactions, a SEPA "Click to Pay" service. Such a service would form part of a portfolio of options to customers alongside the already existing card based solutions. In addition to this initial focus, the work will also identify a set of priorities for mobile payments and make recommendations for the terms of reference of an EPC Working Group to be created at the appropriate moment to review, refine and monitor the implementation of agreed proposals.

During its deliberations the Expert Group has discussed a number of expectations from which it is clear that the emphasis should lie on the need for focus, practicality, the leveraging of already completed work/projects, a clear customer and provider value proposition and a sense of urgency.

The Expert Group will develop a plan based on a roadmap with clear deliverables and milestones. Any proposal resulting from this work is not envisaged to result in a mandatory development for EPC communities, but a solution for adoption on a voluntary basis and giving an opportunity to banks to provide value added services.

For the work on online payments the following key definitions and guiding principles are proposed:

• A focus on the perspective of web-merchants and their on-line customers.
• The provision of on-line remote payments from customer bank accounts.
• Using as the basis the 4 corner model (web merchant, web merchant’s bank; consumer, consumer’s bank) although these parties may choose to involve additional service providers.
• The SEPA Credit Transfer to be the basic underlying instrument.
• The need to provide an assurance (or guarantee) of payment in real time, recognizing that the actual payment will follow according to the normal rules of the SEPA Credit Transfer Scheme.
• To use existing bank authentication models meeting industry standards.
• To support the solution with appropriate standards, legal provisions and other rules so as to support interoperability.

To leverage existing solutions, where possible.

For the purposes of the work programme, it is proposed to name such a solution ‘SEPA Click to Pay’. In due course a trade mark will probably be required and needs further investigation.

The essential features of such a solution are as follows:

• The consumer moves to check-out while shopping on a merchant’s web-site.
• The payment page offers the SEPA Click to Pay option in addition to card payment options.
• On clicking to SEPA Click to Pay the consumer is transferred to their online banking welcome page and follows the standard bank authentication.
• The bank’s own pre-filled and unalterable credit transfer initiation form is displayed on the bank’s website and authorised using the bank’s standard procedures.
• On completion of the initiation process, the consumer is transferred back to the web-site of the merchant to complete any other processes or enter into new transactions.
• The Merchant receives a trusted on-line message assuring (or guaranteeing) that the payment will be made.
• The payment is delivered in the normal way under the SEPA Credit Transfer Scheme.

This solution offers a convenient assured and trusted payment mechanism for both the merchant and the consumer, whilst offering the consumer the opportunity to use a trusted and tested channel for payment initiation.

Out of scope for this phase of the initiative are:

• Card payments, as solutions have already been developed, will remain important and grow in use. Other parties like Visa/MC are very active and the addition of EPC activity is not needed at this stage other than to ensure coherence and integrity.
• Specifically tailored B2B payments, which are being addressed in other forums such as the Corporate Action on Standards program (CAST), TWIST, EBA and SWIFT with the engagement of many banking communities.
• Micro payments, the development of a European-wide PKI model, standardisation of bank authentication, the use of direct debits and the development of e-invoicing.

The Expert Group has discussed possible approaches to a SEPA solution:

• A first model would be to let market forces decide and allow schemes to develop in competition with each other across SEPA. This would have the problem that national-only solutions would probably prevail.
• A second model, at the other extreme, would be to start with a clean model and require all existing "legacy" systems and currently planned developments to adopt new standards and protocols
• A third model would promote 'interoperability' between existing solutions using interconnectivity based on SEPA standards. In addition a converged set of standards would be developed for new solutions and towards which existing solutions would migrate as appropriate.

At this stage the third model is preferred. Nevertheless, it is clear that achieving interoperability could be rather complex on account of technical issues, legal/VAT tax issues and business model differences. Further analysis is required. Even the most recently developed solutions have made a variety of different choices on these issues.

The second scoping exercise referred to in the introduction concerns mobile payment channels and standards. It will build on the work outlined above and address additional opportunities.

It is proposed that the Ad Hoc Group be mandated to carry out its work as an Ad Hoc Expert group until at least June 2007.

At that stage a formal Working Group could be created using the Expert Group as a nucleus. The Working Group might then focus on reviewing and refining the proposals in readiness for community consultation and Plenary decision.

It is further proposed that the on-line proposal "SEPA Click to Pay" be brought to the EPC for a first reading in September 2007 and for approval at the December 2007 Plenary.

It is proposed to bring forward an initial scoping proposal for mobile payments at the June 2007 Plenary, with a further level of detail provided to the September 2007 Plenary.

The expert group proposes that its priority task will be to seek solutions for interoperability between current national solutions operating in SEPA. Such solutions would include the full potential for other schemes to join as well as allowing individual banks and their customers to join. In addition to refining the detailed functional scope, it will be important to consider, address and contemplate the following aspects: