Istanbul

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SWIFT regional conference in Istanbul

• Istanbul
• 6 8 March 2006

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Welcomeback
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18.00 Welcome Cocktail Sponsored by the
Exhibiting partners
Istanbul 6-8 March 2006
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Gala dinner at the Esma Sultan RestaurantBuses
leave from the hotel at 7pm
Istanbul 6-8 March 2006
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Whats next for the evolving European payments
landscape?

• Istanbul
• 6 8 March 2006

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Todays plenary session

• HostGeoffroy de Schrevel, Head of Payments
  Markets, Banking Industry Division, SWIFT
• SEPA threat or opportunity? Günther Gall,
  Member of the SWIFT Board, Head of Division
  Transaction Services, Raiffeisen Zentralbank,
  Austria, Member of the EBA Board and the European
  Payment Council Plenary
• A look at SEPA effects Roger Storm, Member of
  the SWIFT Board, Senior Vice President, Banking
  Market Infrastructures, SEB, Sweden, Member of
  the Board of EBA Clearing S.A.
• SEPA implications for financial institutions
  outside the eurozoneFinn Otto Hansen, Member of
  the SWIFT Board, Head of Clearing and Settlement
  Strategies, DnB NOR Bank ASA, Norway, Member of
  the CLS Bank Board, the CLS Holding Board and
  representative of DnB NOR to EBA Clearing S.A.

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Whats next for the evolving European payments
landscape?

• Geoffroy de Schrevel
• Head of Payments Markets, Banking Industry
  Division, SWIFT

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Harmonisation of EU financial markets
Single Euro Payments Area
Single European market in Financial Services
Self-regulation
EU Directive
Pan-European RT Clearing and Settlement
Securities Clearing and Settlement space
Eurosystem
Self-regulation
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Key objectives with similar transformational
impacts

• Eurozone is domestic market
• All accounts reachable, same way same price, for
  end-users

• EU single market in financial services
• All transactions routed to whatever venue
  displays best quote

• More transparency
• More liquidity
• Lower costs

• More competition
• More efficiency
• Lower costs

• Uncertainty about future landscape
• No value being cross-border only
• No future being domestic only
• Volume-driven business
• Co-existence with non-EU

• Uncertainty about future landscape
• Threat for those not able to keep up
• Increased competition for sources of liquidity
• Market data volume challenges
• Impact versus non-EU

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SWIFT regional conference in Istanbul
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SEPA Threat or opportunity for the European
finance industry?

• Günther Gall
• Member of the SWIFT Board, Head of Division
  Transaction Services, Raiffeisen Zentralbank,
  Austria, Member of the EBA Board and the European
  Payment Council Plenary

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Agenda

• Facts
• The Change Process
• Threat and Opportunities

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Facts

• Political demands
• Same payment instruments for customers both for
  national and pan-european payments by 2008
• Irreversible migration of a critical mass of
  transactions from the national standards,
  practices and infrastructures to the common
  pan-european solution by 2010
• Complete migration to the common pan-european
  solution and phasing out of the national
  practices in 2010 driven by market forces

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FACTS

• To comply with these demands, the European
  finance industry formed the European Payments
  Council as decision body and is developing the
  following basis products/frameworks
• The SEPA Credit Transfer
• The Priority Euro Payment ( PRIEURO)
• The SEPA Direct Debit and
• The SEPA Card Framework for charge cards

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EPC European Payments Council
NGC
NGC
EPC Plenary Members from Austria Alfred
Schmauss/Erste, Günther GALL/RZB
EPC Co-ordination Committee
Legal Support Group BAWAG/PSK
WG Electronic Direct Debit Payments ERSTE BANK
WG Electronic Credit Transfer Günther GALL
OITS Support Group
WG Cards
WG Cash Karl GRÜNBERGER
ECBS Board
MC
TCI Plastic Cards Devices
SWIFT Standards committee
TC2 Automated Cross Border Payments
TC6 Electronic Services
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EPC ROAD MAP
Co-existence and gradual adoption
Implementation and deployment
Scheme design and preparation
Responsible
Scheme Framework
EPC
Design Specification Stage for the 3 SEPA
payment schemes
EPC
EPC and operator(s)
Pilots
Adoption and Implementation
Planning
EPC, banks and national communities
Programme management
EPC
Regulator, legislator and lobby groups
relationships and communication
EPC and associations
Monitoring and Support
EPC
Monitoring realisation of SEPA in accordance with
Cooperation Model
ECB (ESCB)
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STAKEHOLDERS for SEPA
Demands change, issues regulations and
directives
Customer lobby groups
ESCB Monitors progress Creates pressure for
change, Acts both as facilitator and regulator
EPC Develops rulebooks Coordinates
migration Harmonizes the Possible with the Wanted
Customers Buy and use the products
national communities
Global Banks Wait for harmonization
EBA Develops products, Based on EPC rulebooks
Payment processing providers Non banks/ payments
factories face new possibilities
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The Change Process

• The harmonisation is aiming at
• - common core basic products ( credit
  transfer, direct debit, framework for charge
  cards)
• - common clearing and settlement via a
  clearinghouse model ( PEACH)
• - common rules and practices
• - fully automated end-to-end STP, including
  the customer sides
• The migration is influencing the complete
  payments value chain
• - customer itself order initiation, changes
  in the financial applications,
• - customer-bank more data to capture,
  mandates management for direct debits,
• paper orders,
• - interbank guaranteed data transmission,
  roll-out of new products, shorter transfer times,
  new format ( XML ) , routing via PEACH, changes
  in liquidity management, phasing out of
  correspondent banking in payments

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Opportunities

• Harmonization of payment infrastructures, rules,
  practices, a common format have deep impact on
  the cost side of payment processing
• Common product portfolios across Europe offer new
  transparency to the customers, which supports
  the mobility both of retail and corporate
  customers within Europe
• Larger markets offer scales effects to the
  benefit of the customer
• Europeeconomy may become more efficient by a
  unique structured payment system and can compete
  better with other continents

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Threats

• No patience from the political side for the
  self-regulation in the European finance industry
• Pressure/lobby groups unlevel the playing field
• Additional regulations and demands ( i.e. money
  laundering, etc) block resources for the
  realization of SEPA
• Customers unwilling to contribute to the change
  process
• Long duality in the payment infrastructures ( old
  and new) due to different local interest
• Global ( non European )players take over the
  payment infrastructure of Europe

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Open questions

• Can local interest be overcome by the pan -
  european vision of SEPA ?
• What quality in payments will be lost due to the
  hastily migration to a common compromise in
  European payments infrastructure ?
• Is the New Legal Framework supporting the SEPA
  migration ?
• Can the necessary work really be done in that
  short time ? Do we have all needed resources ?
• Are we adding value in the payments market by
  agreeing to a certain level of common denominator
  ?

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Open questions

• At what time do we i.e. the European finance
  industry have a common agreed opinion of the
  realization of SEPA ?
• Is the best in class principle applicable
  across Europe? Whats perfect fit in Finland,
  does is solve problems in Greece ?
• Are all stakeholders contributing to the
  migration steps ? Are governmental institutions
  acting as front-runners using the SEPA products ?
• What is SWIFTs role in this change process ?

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SWIFT regional conference in Istanbul
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A look at SEPA effects

• Roger Storm
• Member of the SWIFT Board, Senior Vice President,
  Banking Market Infrastructures, SEB, Sweden,
  Member of the Board of EBA Clearing S.A.

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A Look at SEPA Effects
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Warning!
From politics to data formats! Dont understand
everything? Welcome to the Club!
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SEPA EU Payments Convergence

• A politically driven and encouraged process
• A single market for payments - pay and receive
  to a single account, with a single set of
  instruments in a single format throughout the EU
• Payments in Euro as easy, safe and efficient as
  the best of national systems no differentiation
  of cross-border and national
• An enabler and catalyst for EU market
  integration and competitiveness

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The SEPA Schedule
2006
2007
2008
2009
2010
2011
Deadline 1
Deadline 2
Now
Harmonization completed Decommissioning of
national instruments
Migration Co-existence and gradual adoption
Implementation and deployment
SEPA Instruments Available
SEPA Instruments in general use
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Payment Industry-Wide Change Induced from Highest
Level
Legal framework
Self regulation
Market acceptance
Drivers Affecting Inducing Reactions
Banks business models
Infrastructure governance
Standards
Competition
Consolidation
Interoperability/ decommissioning
Cost rationalization
Investments
Automation
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New Legal Framework (NLF) Massive Impact
Previous regulation (2560/2001) impacted a
European transaction base of 2
NLF impacts a European transaction base of 98
and more
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SEPA Impacted Process Modules
Process components
Impact (examples)
Customer access
Add/amend data fields
Payment processing
New/enhanced system
Issuing
Add/amend elements
Acquiring
Acquiring TC
Messaging Routing
Add/amend rules
Clearing Settlement
New supplier/functionality
SEPA Offering
Account information
Add/amend data elements
Customer advising
Add/amend data elements
Liquidity services
New services/process
Investigations
Add search criteria elements
Billing
Add charge codes
Customer Contracts
Amend TC
Scheme Contracts
Amend TC
IT and Operations
Products Process
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The future of low-value clearing in Europe?
?
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SEPA Standards Evolution
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European standards
National standards
0
Time
Medium-Term Converter models Enabling
both European and local standards
Long-Term European model(s) PE-ACH Vision
Short-Term Local models
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Integration Connectivity -What has this got to
do with SEPA?

• SEPA is likely to drive development and take-up
  of new standards
• ISO 20022 based on XML
• Impacts your bank integration and very likely
  also your ERP
• SEPA might enable improvements in the area of
  end-to-end remittance information - requires
  complete business chain to adopt
• Impacts your ERP as well as ERP of vendors and
  clients
• Market developments regarding data communication,
  e.g. MA-CUG, web-services etc, often mentioned in
  the context of SEPA
• Impact not yet clear

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Remittance informationThe matching problem

• What is the problem?
• Remittance information requires manual processing
• Truncation, loss of structure and business
  practices
• Where does the problem occur?
• Cross-border payments, domestic clearing
• Geography
• Netting of B2B transactions
• A/P vs. A/R vs. GL
• Why cant the banks fix this?
• The buyer to seller chain, banks clearing
• Lack of standards and incentives
• It has already been fixed in some countries!

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SEB Preparations for SEPA

• 2005
• Participation in SEPA, EPC and EBA Clearing work
• Payments and card business status inventory
• SEPA program planning
• Initial customer dialogue
• 2006
• SEPA Program establishment
• Strategy development (Business,
  Processes/operations, IT)
• Communication
• Project pre-studies
• Further customer dialogue
• 2007
• IT Development implementation
• Testing
• SEPA Product/solution promotion
• 2008

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Conclusions

• The question is not If but When SEPA will be a
  reality
• SEPA is both an opportunity and a threat to
  providers and users
• Standardization is a necessary evil
• Regulators may catalyze the process but payment
  service providers and users must define the
  solutions
• Pro-activity is needed to ensure compliance,
  exploit opportunities and avoid pitfalls such as
  redundant investments

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Thank you for your attention!
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SWIFT regional conference in Istanbul
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Implications for financial institutions outside
of the Euro zone

• Finn Otto Hansen
• Member of the SWIFT Board, Head of Clearing and
  Settlement Strategies, DnB NOR Bank ASA, Norway,
  Member of the CLS Bank Board, the CLS Holding
  Board and representative of DnB NOR to EBA
  Clearing S.A.

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Agenda

• Why is SEPA important for institutions in
  non-euro countries
• Is SEPA a threat or an opportunity
• How should you position your bank and your
  national financial infrastructure
• Conclusions

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Why is SEPA important

• Growth of Euro-trade
• Cross border financial institutions want to
  standardise and harmonise processes
• Your euro-activities would have to adapt
• Public and political pressure

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Is SEPA a threat or an opportunity

• Could be both
• You decide
• Self regulation better than legislation
• Cooperation important
• Compete on the basic issues that are relevant for
  your clients
• Service
• Price

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What are the opportunities

• Streamline products and processes through
• Standardisation of connectivity and messaging
• Agreed rules and best practises
• Through transparent and simple pricing
• To achieve reduced cost per item
• To be a quick adaptor
• To be more flexible than the big banks

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How should you position your bank and national
infrastructure
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About DnB NOR

• 1 billion transactions domestic
• 15 million SWIFT transactions mostly cross
  border
• More that 60 of liquidity in domestic market
• Leading Nordic player in FX market
• Leading Nordic player in Asset Management

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Options for DnB NOR

• Preserve domestic infrastructure or go for
  European or Global standards
• Make barriers to entry domestically and to
  clients or invest in open standards
• Chosen strategy
• Move domestic infrastructure to global standards
• Move connectivity to global standards

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Reasons for choice of strategy

• To survive you do what's good for your clients
• Financial transactions is a cost game it is not
  what is attracting clients
• Too costly and too complicated to support all
  types of standards, networks, legal agreements,
  licences etc.
• Diverts focus away from client support and into
  how to take advantage of them

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SWIFT as only network
Central Bank
Oslo Stock Exchange
Correspondent banks
ACH/RTGS
CSD
CLS
Target 2
Corporates on SWIFT
EBA
DnB NOR
Clearstream/ Euroclear
International DnB NOR Offices
Consentrator model
Domestic branches
Terra-banks
Cooperation banks
) Other European Central Banks
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Conclusions

• SEPA is happening
• Be proactive
• It is more fun working with opportunities than
  threats
• The global players are big "tankers", slow to
  start, but when they go, you can't stop them
• Be flexible and find your position there is
  always room

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SWIFT regional conference in Istanbul
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Whats next for the evolving European payments
landscape?

• Geoffroy de Schrevel
• Head of Payments Markets, Banking Industry
  Division, SWIFT

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SWIFT contribution to EU financial industry
harmonisation

• TARGET2 Leveraging the infrastructure
• SEPAContributing to the construction of a more
  efficient infrastructure

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TARGET2

• One central system
• Concentrates all euro RTGSs
• 1,000 members
• 4,000 indirect participants
• 380,000 payments a day
• FIN, IA, FA, Browse
• MT, MX, XML
• U-to-A or A-to-A
• SAG, SAS, SAB
• Goes live November 2007

SwiftNet Services
Bank B
Bank A
SSP
NCBs
Ancillary Systems
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Single Euro Payments Area

•  The EU needs to create a single market for
  payments in which everybody will be able to make
  any payments as easily, safely, efficiently and
  inexpensively as within national borders
• Banks will need to transform their payment
  products, back-offices and clearing
  infrastructures

EC definition
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The SEPA challenge an operational angle

• New instruments, new standards
• A tight timetable for readiness 2008 - 2010
• An uncertain environment
• multiple clearing settlement mechanisms
• A multi-year co-existence and migration period
• Lower costs, higher efficiency than today

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SEPA - what will it take?
Payment schemes managed by EPC
Infrastructure
Clearing settlement mechanisms
Intra Group
Bilateral / Multilateral
PE-ACH
SEPA compliant ACH
Common schemes, multiple clearing settlement
mechanisms
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SEPA SWIFT stragegy
ACH 1
ACH 2
PE ACH
Bilateral
O
O
Single pan-European Clearing Solution
P
3. Infrastructure improvement
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Conclusion

• EU financial services harmonisation will impact
  all participants in coming years
• New business models will emerge
• The infrastructure will be transformed
• SWIFTs 3-legged entrepreneurial approach
• Support
• Contribute
• Lead

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SWIFT regional conference in Istanbul
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SWIFT regional conference in Istanbul Todays
agenda

• 0900-1030 Plenary session
• Whats next for the evolving European payments
  landscape?
• 1100-1230 Work session 2
• 1400-1530 Special Interest Session
• TARGET2 and SEPA the role of Technology and
  Standards
• 1400-1530 Work session 3
• 1600-17.30 Work session 4
• 1900 Buses depart for the Gala Dinner

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SWIFT regional conference in IstanbulWednesdays
agenda

• 0900-1030 Plenary session
• Securities and treasury Daring to transform
• 1100-1230 Panel session
• Transformation in action
• 1400-1530 Closing plenary
• Transforming the way you do business

1100-1230 Work session 5
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SWIFT regional conference in Istanbul

• Istanbul
• 6 8 March 2006