The Commission presented a report on the application of Regulation (EC) No 2560/2001 on cross-border payments in euro. This final report examines the most important problems encountered in the application of Regulation 2560 in the Member States. It includes recommendations for amendments to the text of the Regulation, in order to address weaknesses identified during the review process, to better reflect market realities and to align its text with changes introduced by Directive 2007/64/EC - the Payment Services Directive (PSD).

The report concludes that Regulation 2560 has broadly achieved its two main objectives.

It brought the costs of cross-border electronic payment transactions in euro into line with the costs of domestic payments and triggered an important decrease of fees for cross-border payments, in particular for credit transfers. It encouraged the financial services industry, in the absence of an efficient and integrated European payment services infrastructure, to undertake the necessary efforts to turn the concept of a 'domestic payment area' for non-cash euro payments into a reality.

In light of the conclusions presented in this report, the Commission intends to propose a number of amendments to that Regulation, in order to address weaknesses identified during the review process, to better reflect market developments and to align it with the changes introduced by the PSD. These include:

· Introduction of the 'SHARE' cost option as obligatory (charges are shared between the originator and the beneficiary) for all regulated transactions;

Reference to the competent authorities and out-of-court redress schemes established for the purposes of PSD to deal with Regulation 2560 issues; Extension of the scope to cover direct debit transactions (with the PSD and the adoption of the SEPA direct debit scheme by the EPC, cross-border direct debits will become a reality from November 2009); Increase of the balance of payments reporting exemption threshold up to EUR 50 000, introduction of a deadline (for example 2011-2012) after which banks will be completely exempt from the balance of payments reporting obligations, together with a clarification of the scope of Article 6(1) concerning Member States' obligations, specifying that this provision refers to the collection of information from the institutions participating in payment systems and excludes enterprises.

In addition, some changes in Article 2 (definitions) and in Article 8 (review clause) appear necessary.

When formally tabling its proposal, the Commission will take into account progress in the ongoing development of SEPA ( Single Euro Payments Area), and may propose some additional measures in order to accelerate and facilitate the achievement of the SEPA project. The Commission will continue to screen the situation in the market carefully. The possibility cannot be ruled out that, after careful analysis, antitrust enforcement might still be necessary. The European Commission will not hesitate to exercise its powers of enforcement under Articles 81, 82 and 86 of the EC Treaty, to ensure that the competition rules are respected in retail banking.

Any amendments to the Regulation will be proposed to the Council and the European Parliament once the appropriate impact assessments are finalised.

This Commission staff working document concerns the application of Regulation on the application of Regulation (EC) No 2560/2001 on cross-border payments in euro. To recall, Article 8 (Review Clause) of Regulation (EC) No 2560/2001 s tates that the Commission shall submit to the European Parliament and to the Council a report on the application of this Regulation.

The report highlights the difficulties encountered in application of Regulation No 2560/2001. These can be summarised as follows:

Geographic scope of application: there is no link between charges applied to euro payments and SEK payments; they can be subject to very different fees. It is the principle of non-discrimination between cross-border and domestic payments which is maintained; Credit transfers: these are by far the most disputed category of payments under Regulation 2560. There are also difficulties relating to the pricing and execution of transfers. It should be noted that the use of all three cost options ('OUR', 'BEN', 'SHARE') is covered by Regulation 2560. There is no rule in Community law giving preference to one over the other. However, the principle of equality of charges in Regulation 2560 states that charges at both ends of the credit transfer (i.e. for the originator and for the beneficiary) have to be the same as for corresponding national payments. Domestic (national) transfers in euro area countries are generally executed by default as SHARE, with no other cost options available. In most situations cross-border transfers within the euro area should be therefore also executed by default as SHARE (no other cost option should be proposed to customers). The situation is usually different in non-euro area countries, where OUR, SHARE and BEN cost options are frequently offered for domestic euro transfers. In this case charges for cross-border payments in euro should correspond to the prices for domestic transfers in euro, accordingly for each cost option. Cash withdrawals in ATMs: a problem of euro withdrawals in non-euro area countries appeared when one UK ATM operator started offering withdrawals of euro notes through cash machines in the UK. The question arouse whether the new service offered by this ATM operator to UK cardholders with sterling accounts – i.e. the possibility for these customers to withdraw euro notes from cash machines in the UK – would be subject to the Regulation. Card payments: the principle of equality of charges introduced by the Regulation is also applicable to the Merchant Service Charges (MSC). MSC is a fee paid usually for each transaction by a merchant to an acquirer, who processes the merchant's transaction through the network and obtains the funds from the cardholder's bank. Though no difficulty was encountered when applying the Regulation to MSC, the structure of fees for card payments and characteristics of the supply side (merchant-acquirer relations) in some Member States raise concerns about the degree of competition in the provision of card payments.

The review process and received complaints revealed wide discrepancies as regards powers and practices of existing schemes, questioning in some cases their ability to effectively solve Regulation-related cross-border disputes.

Consumer awareness of Regulation (EC) No 2560/2001 : c ustomers appear to receive the necessary information about any modification in the applicable charges. Nonetheless rules surrounding the date when any modification takes effect differ considerably between countries. In Italy and in Germany, for example, in some specific cases the information on modification of charges may be available only when the change has already taken effect. In Sweden customers should be informed about any modification of charges at least 14 days prior to the modification taking effect or 'in reasonable time' where cards and ATM charges are concerned. In contrast, in France the information should be communicated to the customer three months in advance of the scheduled date. Over 50% of those surveyed expressed their total ignorance as regards charges for cross-border payments. It seems that only those groups of consumers directly interested in cross-border payment services (e.g. people working or studying in other Member States) may have a better awareness of the Regulation.

This low level of consumer awareness has its reflection in the misunderstandings and confusion that occur, particularly when cross-border credit transfers are concerned.

Some typical issues may be identified:

use of other cross-border payments instruments and payments in other EEA currencies. Some consumers are convinced that the provisions of Regulation 2560 cover all EEA currencies and apply to all cross-border payment instruments in use (e.g. cheques); free of charge cross-border credit transfer. In some Member States of the euro area sending a domestic credit transfer is free of charge (or, in fact, the cost is included in the account service fees paid monthly, quarterly or yearly). By analogy some consumers are expecting that the same situation takes place in every Member State and argue that their cross-border transfers executed in these countries should be free of charge, too; transfer from euro to non-euro Member States. In contrast to the euro area, where charges on incoming transfers are rare, incoming transfers in the non-euro area Member States are usually charged. The misunderstanding stems then from the false beneficiary interpretation of the 'full amount transferred' principle (understood as no charges should be applied even in the separate transaction) and from the payer belief, that the amount will be received free of charge. Currency conversion fees usually add to the confusion. Furthermore, in many cases consumers from non-euro countries compare the cost of cross-border euro transfers to the cost of domestic transfers in their national currency; one other source of confusion is related to the already discussed problem of a cost option (OUR, SHARE and BEN). It should be noted that, when different charging options are proposed to the consumer, lack of information on charges faced by the beneficiary when using SHARE cost option may be seen as an incentive to choose a more expensive OUR option.

The report also takes note of changes in cross-border payment system infrastructures (such as the Single Euro Payments Area ( SEPA ) and the Payment Services Directive ( PSD )). It states that c onsumers should be able to benefit from increased simplicity and convenience of making payments (the effect of SEPA), as well as from price and information transparency (as a result of PSD).

Lastly, the report notes that p ayment systems in the EU are still in the phase of transition towards modern infrastructures and new SEPA rules and procedures. This means that banks and other institutions offering cross-border payment services in different Member States have to join various national systems, adapt to different standards and face different costs. In most EU Member States there is one national clearing infrastructure, which is operated either by the central bank or by a membership association controlled by the main banks in the country.

To recall, the cross-border payment Regulation (No 2560/2001) gives EU consumers a guarantee that when they make a payment in euro to an account in another Member States, it will cost the same as it would to make a payment within their own Member State . The purpose of this report is to analyse and consider the impact of the Regulation on bank charges for national payments .

As a result, this evaluation report seeks to compare bank charges levied for national payments made in euro within a Member State after Regulation (EC) No 2560 came into force. In particular, it examines whether the obligation to charge the same fee for cross-border transactions as for domestic ones has increased domestic charges. The report also looks at the question of whether charges for cross-border payment transactions have become cheaper. The report covers credit transfers as well as ATM cash withdrawals via payment cards with a value up to € 12 500.

Prior to the Regulation, charges for cross-border euro payments were often excessive, with a € 100 transfer costing the consumer an average € 24. This evaluation report shows that charges for cross-border euro payments have reduced significantly since the introduction of the Regulation. A € 100 transfer now costs, on average, € 2.50. The European banking industry’s concern that the charges for “national” payments within the Member States would have to rise in order to subsidise the higher cost of cross-border euro payments has proved to be unfounded. The Regulation has not, in general, led to any substantial increase in charges for national payments. In addition, the Regulation has provided banks with an incentive to develop and invests more in an EU-wide payments infrastructures, which the Commission concludes will help reduce costs for all consumers and all payments – both domestic and cross-border.

In its findings, the Commission concludes that the cross-border payments Regulation has brought about a huge decrease of charges for cross-border payments in euro without provoking significant increases on charges for national payments. Moreover, it has provided an incentive for the payments industry to modernise its EU-wide payment infrastructure and as such represents an important step towards creating a Single Euro Payment Area (SEPA) for non-cash payments in the Internal Market.

The adoption and implementation of Regulation (EC) No 2560 has acted as a force for other measures including the proposed Payment Services Directive, the objective of which is to establish a harmonised set of rules for the provision of payment services across the EU. By mid-2007, the Commission intends to issue a full review and evaluation of the Regulation. Any follow-up for future modification will be determined by this review as well as the final text of the Payment Services Directive.