Payments in Europe

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Payments in Europe
Stewart MacKinnon EPC Secretary General

• Payments Council Conference
• London, 23 January 2008

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SEPA COUNTDOWN
LAUNCH
1 day to go
2 days to go
3 days to go
4 days to go
5 days to go to 28 January 2008
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Presentation structure

• The SEPA Programme
• The SEPA Payments Schemes
• Governance and Scheme Management
• The Adherence Process
• EM Payments
• Standards and the future of UK Payments

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The SEPA ProgrammeOverview

• Vision A euro area in which all payments are
  domestic, where the current differentiation
  between national and cross-border payments no
  longer exists
• Expected deliverables for the Euro area (EU15)
• credit transfer available to customers from 28
  Jan. 2008
• direct debit available for customers at the
  latest from Nov. 2009, earlier start encouraged
• cards elimination of all technical and
  contractual provisions, business practices and
  standards from Jan. 2008
• Other deliverables
• encouragement to deliver a debit card scheme
• encouragement to deliver e-payments, m-payments
  and e-invoicing
• 2008 implementation
• NCBs will facilitate implementation process
• public administrations should be first movers
• 2010 migration of critical mass
• NCBs will facilitate migration process

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The SEPA ProgrammeObjectives European
Commission

• Objectives of Payment Services Directive
• The EU needs to create a single market for
  payments
• Enhanced competition by opening up markets,
  ensuring a level playing field, encouraging
  innovation and increased market transparency for
  both providers and users
• Policy Provisions
• Standardised rights and obligations for providers
  and users of payment services in the EU, with a
  strong emphasis on a high level of consumer
  protection
• Creation of Payment Institutions
• Next Steps
• Transposition in national laws of EU27 (and EEA)
• Public administrations should be first movers
• Objectives of European Competition Network
• Stakeholder involvement, innovation and
  interchange agreements

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SEPA Payment Schemes

• A Scheme is a set of rules, practices and
  standards agreed between
• providers of payments services
• SEPA Credit Transfer (SCT) Scheme
• SEPA Direct Debit (SDD) Scheme
• The strategy adopted for payment schemes
  includes
• replacement of current schemes (25 today)
• separation of Scheme from Clearing Settlement
  Mechanism (CSM)

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SEPA Payment SchemesThe full picture
PRODUCT SERVICE LAYER
COMPETITIVE
Client 1
Client 2
CLIENT CHOICE
Core and Value Added Services
End to End Standards and Data-Elements
SCHEME LAYER
COOPERATIVE
Bank 2
Bank 1
Scheme Management Business Rules
Practices Standards
SEPA Credit Transfer Rulebook
EPC
SEPA Direct Debit Rulebook
INFRASTRUCTURE LAYER
Principles for SEPA Scheme-compliant Clearing
Settlement Mechanisms
EPC
COOPERATIVE
SEPA-Scheme Compliant ACH
Bilateral/ Multilateral/ Decentralised
Intra- group
PE-ACH
Pure Bilateral
BANKS CHOICE
PARTLY COMPETITIVE PARTLY COOPERATIVE
BANKS CSM CHOICE
PROCESSORS
NETWORKS
COMPETITIVE
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SEPA Payment SchemesBaseline for implementation

• SEPA Credit Transfer Scheme Rulebook, version 2.3
  approved in June 2007
• SEPA Direct Debit Scheme Rulebook, version 2.3
  approved in June 2007
• Supporting documents
• SEPA Data Model
• UNIFI (ISO 20022) XML Standards
• Implementation Guidelines
• PE-ACH/CSM Framework
• SEPA Testing Framework

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SEPA Payment SchemesScheme Characteristics

• For payments in euro (although customer
  account(s) may be in another currency)
• Payments are made in full, no deductions
  permitted
• Maximum time cycles defined (e.g. D3 for SCT,
  although the PSD may overrule this)
• BIC for routing
• IBAN as sole account identifier
• 140 character remittance data carried end-to-end

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SEPA Payment SchemesUNIFI (ISO 20022)XML
Standards

UNIFI (ISO 20022)XML Standard
Core data elements
AOS data elements
N/A
All core data entering the payment chain must be
carried through unaltered to the Beneficiary
Bank, with a defined minimum subset - including
remittance data field of 140 characters
delivered to the Beneficiary. A community may
implement Community Data Additional Optional
Services (AOS) and/or additional Usage Rules for
core data elements. Community Data AOS Usage
Rules must be declared publicly
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The Approach to SEPA Implementation Actions
needed from banks

• What does operational readiness mean?
• By 28th January 2008, adhering banks will
• be SEPA Credit Transfer Scheme compliant
• process SEPA payments according to SEPA rulebooks
• offer customers at least one SEPA
  Scheme-compliant C-2-Bank channel
• adapt internal and external systems and
  interfaces
• have conducted tests according to SEPA Testing
  Framework with national participants and CSMs
• be reachable

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Scheme ManagementRequirements

• Dialogue with stakeholders allowing them to make
  suggestions concerning the Schemes
• Maintenance and evolution of the Schemes in a
  controlled manner to reflect evolving market
  needs and innovation
• Design introduction of new Schemes
• Management of the Adherence Process by which
  banks become Scheme Participants
• Conciliation of non-compliance disputes between
  Participants (not end customers)

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Scheme Management Governance Structure 1/2
Scheme Management Committee
EPC Plenary
Structured dialogues with stakeholders

• SM Functions
• Structured dialogue with stakeholders
• Change management for the Scheme Rulebooks
• Introduction and design of new Schemes

• SM functions
• Management of adherence process
• Management and promotion of compliance
• Conciliation of disputes
• The provision of an information service

Development Evolution
Administration compliance

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Scheme ManagementGovernance Structure 2/2

• Development Evolution
• The as is EPC Structure
• Plenary as the sole decision making body
• Funding by EPC Members
• Plenary approval required for any changes to
  Rulebooks
• Administration Compliance
• Scheme Management Committee (SMC)
• Part of the existing EPC legal structure (EPC
  aisbl, under Belgian law)
• EPC Charter amended to give decision-making power
  to the SMC
• SMC has 3 independent members (one of whom is
  Chair) and 9 bankers

EPC Secretary General is the link between EPC
Plenary and SMC, which have arms length
relationship
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Scheme ManagementAdherence Process

• Adherence window for SCT opened in September 2007
• Adhere here page on EPC website for adherents
  use
• SMC held 4 meetings since October 2007, to review
  and approve received adherence agreements
• 4121 participants have now adhered to participate
  in SCT from next Monday
• 12 ACHs have already declared intent to be CSM

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E and M ChannelsFuture work Programme

• EPC has agreed to prepare a framework setting out
  the standards and business rules for making SEPA
  payments on-line with web retailers
• Framework will be generic and transversal as
  regards messaging standards and SEPA core
  services
• Use of framework to be voluntary by banks
• First deliverable e-payment channel, with a
  guarantee for web retailers, based on SCT
• No appetite within EPC to develop any scheme for
  m-channels
• Scope is being restricted to establishing high
  level principles and a framework to create
  standards and business rules for banks and to
  work together with mobile operators and other
  stakeholders
• Most promising areas seems to be contactless
  payments exploring co-operation with GSMA and
  on requirements, standards and security for using
  a mobile to initiate payments

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Standards and the futureof UK Payments 1/3

• UK National Payments Plan is both extensive and
  creative
• Highly ambitious but laudable initiative and
  Payments Council should be congratulated
• But, Standards must be at the core of the plan
• UK has an overabundance of payment standards
• Real danger is that UK is getting out of step
  with Europe, where UNIFI (ISO 20022) XML
  standards are the base
• UK should develop a vision and strategy for
  standards, that is open, specific, and reasoned
• Multiple standards add to costs, complexity,
  confusion and frustration

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Standards and the futureof UK Payments 2/3

• Distinction between domestic and foreign payments
  is artificial and archaic
• Multiple standards impact end user customers thus
  strategic vision must embrace all stakeholders
• UK banks have played their full part in the
  development of SEPA and will offer SEPA compliant
  services to the UK users of the euro
• Should the UK payments industry go further?

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Standards and the futureof UK Payments 3/3

• UK should consider maximising the opportunities
  which SEPA will bring, with payment schemes in
  the UK using the same rules and standards of SEPA
• Customers will demand the same look and feel of
  payments throughout Europe
• Should not underestimate the amount of work
  involved
• Orderly planning and open consultation would be
  essential to successful implementation
• It is my hope that the UK payments industry will
  continue to play its full part in SEPA and take a
  leadership role in what lies beyond

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• It has been my pleasure to address this
  Conference
• Thank you for your attention
• Any questions?