Payments in the Americas: Comparing Experiences: PEACH

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Payments in the Americas  Comparing Experiences
 PE-ACH  Norbert Bielefeld Deputy
Director Atlanta 8 Oct. 2004
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Foreword

• Purpose of  Panel 2 
•  focus on the experiences of building
  cross-border exchanges in Asia and Europe, with
  particular emphasis on their lessons for the
  Americas. 
• Europe
• The experience goes beyond  remittances , and
  is broader and deeper than  PE-ACH 

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Agenda

• A vision
• Defining SEPA
• How it is being built
• Baseline
• Dimensions, constraints
• Interim status
• Lessons for the Americas
• Remittances, more specifically

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Imagine

• A geographical area
• where any customer could step onto any plane,
  paying the same price, getting the same service,
  regardless of the destination,
• Or make and receive any phone call, regardless
  of the distance, with the same convenience, and
  at the same price,
• Or
• make and receive any payment with the same
  convenience, and at the same price

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For payments

• Such an area will exist by 2010 at the latest
• In the Single Euro Payments Area (SEPA)
•  Customers will be able to make and receive
  retail and commercial payments in euro with the
  same level of security, ease and convenience,
  than they do in their hometown 
• Note precise perimeter of  SEPA  is function
  of payment instrument considered (credit
  transfer, direct debit, cards, cash)
• Can be eurozone, EU, EU EEA, CH

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How banks build SEPA

• A phased programme,
• First to deliver pan-European instruments and
  schemes,
• To be subsequently adopted by national systems,
• At a pace determined by communities and supported
  by regulators,
• This reflects customer demand rather than a pure
   push  approach
• EPC (European Payments Council) schemes to be
  attractive to operators, other market actors and
  their communities market forces dictate the
  evolving landscape

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The banks focus

• Continuation of plans to establish a genuine
  euro-cash area
• During next 2 years, formulation of 3
  pan-European  schemes  (rule books with data
  formats, rules, liabilities,) for pan-European
• Credit transfers
• Direct debits
• Debit and credit cards
• For voluntary adoption by market operators, and
  migration of national solution as decided by
  national communities, and required by customers
• Delivery 2008 - 2010

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The baseline
Retail payment transactions in the EU 25 (2002
data) Euro non-Euro Year 2002
(millions) EU12 EU13 EU25 Population
308 147 455 Credit Transfers 12.517
4.198 16.715 Direct Debits 10.200
2.833 13.033 57.8 Cheques 5.919 2.477
8.396 Debitcards 9.423 4.398 13.821 Credit
cards 2.045 2.184
4.229 E-money 285 11
296 42.2 ATM 6.147 3.301
9.448 Total 46.536 19.402 65.938 Payment
market-share 70.6 29.4 100
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is complex
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very complex
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And Cross-Border 1,2 (EU15, 2001)
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Dimensions, constraints

• Multi-payment instrument approach credit
  transfers, direct debits, debit/credit cards
• Highly efficient, existing non-cash payment
  systems
•  cross-border  solutions in operation for over
  15 years
• Any new solution to be full STP, end-to-end from
  the beginning
• Profound re-engineering of payment systems to
  ensue
• Standardization (different levels) significant
  work item
• Technology is not a barrier
• There is no obvious business case!

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E.g. current structure for cards
Proceeds

• Traditional POS

• Magnetic strip card

• Emerging M-V, TV commerce

• Chip cards

Country 1
International Switch
Country 2
International Switch
Country 3
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Cards medium term structure
Proceeds

• Existing products

• Chip cards

• Digital Wallet

Country 1
Country 2
Country 3
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Credit transfers PE-ACH framework
-owner /or user -direct participant
settlement bank
BANKs L,M,N
BANK I
ACH
Tech. Facilitators
BANKs O,P,Q
NCB
-non-settlement banks -direct participants
-settlement bank -direct participant -user
PE-ACH
BANK A

• -settlement bank
• -direct participant
• -owner
• -user

BANK C
-settlement bank -direct participant -owner -user
BANK B or F.I. Grouping (with banking licence)
BANK D
BANK E
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Credit transfers going forward Concentric
Model
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An essential component

• Pan-European settlement systems
• TARGET1 interlinking of national RTGS systems
• EBA Euro1 Lamfalussy-compliant net settlement
  system (settling in TARGET)
• General Functional Specifications of TARGET2
  debated and agreed (although this goes beyond
  retail and commercial payments)
• Planned deployment of TARGET2 as Single Shared
  Platform 2007

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Interim status

• Conventions for basic credit transfers (Credeuro)
  and their interbank handling (ICP) implemented,
  architecture for clearing defined (PE-ACH), 1st
  operator active (STEP2)
• Cards conditions for SEPA- wide issuing and
  acquiring,and dissociation of branding and
  processing, spelled out. Under implementation
  with schemes
• Significant work underway in Card Fraud
  Prevention
• A high level description of a pan European Direct
  Debit agreed
• Conditions for re-engineering of cash handling
  and distribution spelled out

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Lessons for the Americas?

• (this is a quote from the programme!)
• What is comparable, and less so
• Scope, approach priority to self-regulation?
• Going forward need for catalyst, dialogue

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What is comparable, and less so

• Multi-country requirement
• Multi-currency
• Heterogeneous payment systems
• Political, society-level vision, ambition?
• Multi-country implementation legislative,
  regulatory, self-regulatory capabilities?
• Multi-payment instrument?
• End-to-end, full STP initiation and delivery?
• Cohabitation, or migration of national schemes?

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Scope, approach

• Pre-condition remove any ambiguity about scope,
  objectives
• Who are the drivers? Who are the stakeholders?
• Originators and beneficiaries should be equal
  partners
• Identifying and removing obstacles
• Making the most of existing systems
• Technology an enabler, yet not a constraint

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Going forward

•  Public ,  private  what balance?
• Regulation can have perverse effects lessons
  from Regulation 2560/2001
• There are business cases and business cases
• Structured dialogue a necessity

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Remittances key hurdles

• For  customers 
• Access to market information
• Access to banking services
• Access to transaction information
• Access to redress procedures
• The macro-economic questions
• Untapped lever for economic development
• Potential feeder for criminal activities
• Unrecognized opportunity for social integration

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Remittances challenging regulators

• Should the remittance business be regulated?
• Who should bear that burden (related costs)?
• What balance of public and private initiatives to
  enhance conditions in the market?
• How to foster competition, motivate financial
  institutions to play a more active role?
• Should public intervention foster the
  infrastructure?
• How to move away from cash (without putting the
  burden on remitters and their recipients)?
• How to move beyond remittances?

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The WSBI action plan in remittances

• Contributing to formulation and implementation of
  policy overseeing market structure evolution and
  monitoring performance, enhancing the legal and
  regulatory framework, setting standards and
  defining infrastructure, encouraging and
  facilitating
• Motivating players working closely with Members
  to identify and qualify opportunities, creating
  partnerships, setting best practice
• Delivering the value establishing a SLA
  framework as the benchmark, facilitating redress
  and dispute resolution, developing a toolkit for
  Members

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