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Thomas J Etzel, CTP Vice President Internationa
l Treasury Services
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SEPA and the Payment Services Directive
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Timeline and Ramp up
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Meaning for Corporates and Evaluating your
procedures
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Appendix 1 Sample User Guide
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Appendix 2 Glossary
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Payment Transformation in Europe is driven by
SEPA and the Payments Services Directive

• SEPA Definition and ScopeSEPA (Single Euro
  Payments Area) has become a reality in 31
  European countries from January 28, 2008 onwards,
  when citizens, companies and other economic
  actors will be able to make and receive payments
  in euros, within Europe, whether between or
  within national boundaries, under the same basic
  conditions, rights and obligations, regardless of
  their location
• Payments Services Directive Harmonization of
  Legal FrameworkThe PSD harmonizes the regulatory
  regime for payment services across the 27 EU
  member states. On April 24, 2007 the European
  Parliament adopted the proposal for which the
  ECOFIN Council had already agreed. EU member
  states have to transpose the directive as early
  as possible, and by November 1, 2009 at the
  latest, into national law.
• In addition there is already EU regulation
  2560/2001 that impacts all cross-border payments
  with IBAN/BIC

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On January 28th SEPA was launched in 31
countries within 15 the euro is national currency
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SEPA to replace some existing 39 national
payment schemes
Today different country implementations
Tomorrow harmonised SEPA

• National/local solutions

• Common solutions with additional optional
  services (AOS)

• Different schemes, experiences, standards,
  consumer protection laws

• Common core payment instruments and experiences,
  consistent standards, application of harmonised
  consumer protection laws

• No interoperability of national schemes

• Improved interoperability

• Different country implementations

• Harmonisation and consolidation

• Cross-border complexity and risk

• Reduced complexity, improved efficiency

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Timeline and Ramp up
SEPA and the Payment Services Directive
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Meaning for Corporates and Evaluating your
procedures
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Appendix 1 Sample User Guide
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Appendix 2 Glossary
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Timeline to SEPA compliance and gradual migration

• SEPA implementation and migration
• From January 28th, 2008 onwards, SEPA Credit
  Transfers (SCT) will operate alongside existing
  national schemes
  
• Due to the delay of the Payments Services
  Directive, SEPA Direct Debits are expected to be
  available in 2009, with critical mass migration
  achieved from 2012 onward
• After the transition, purely national solutions
  for core credit transfers and direct debits, and
  purely national payment card schemes, will no
  longer exist
• The implementation of SEPA will be driven by
  national central banks, banks, payment
  associations, schemes and public authorities in
  each country in the euro area

Source Making SEPA a Reality EPC066-06
Version 1.4, April 2007
JPMorganChase Update
Harmonization will prove to be challenging
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WPR2007 Regulators to provide incentives to
speed up adoption of SEPA payment instruments

• Overall success for achieving full SEPA
  compliance and avoiding a mini-SEPA will depend
  on regulatory incentives to attract essential
  first movers such as corporates and the public
  sector to SEPA instruments
• Public sector could contribute 29 of required
  volumes to reach critical mass for new SEPA
  Credit Transfer and SEPA Direct Debit
  
• If corporate payments volumes for these
  instrument types were added, then critical mass
  of SEPA transactions can be reached easily

Source World Payments Report 2007 (Capgemini,
ABN Amro and Efma) published 13 September 2007
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Meaning for Corporates and Evaluating your
Procedures
SEPA and the Payment Services Directive
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Timeline and Ramp up
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Appendix 1 Sample User Guide
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Appendix 2 Glossary
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What does SEPA mean for Corporates?

• Transparency of cost for transactions
• Standardization of format across all SEPA
  countries along with standardized return codes
  and standardized return timeframes
  
• Guaranteed transmission of 140 Characters
  remittance data to improve your reconciliation
  
• IBAN and BIC is the way forward for domestic and
  cross border paymentsSEPA means there is no
  cross border within EU! But
  
• IBANs and BICs are not nice to haves. They
  should be viewed as necessities. Payments may be
  rejected by banks since 2007 if payments are not
  compliant
• You should include them on all your invoices as
  best practice
  
• All EU zone banks have to supply them by law
  (EUReg 2560)
  
• Opportunity to rationalize account structures
• Potential to simplify Liquidity management

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Require Flexible Banking Systems To Accommodate
Both Legacy SEPA Credit Transfers
SCT from Germany to Ireland

• Include validation of BIC and IBAN
• Payments need to be available to be sent as SCT
  or in existing domestic format.
  
• Query your Bank on SEPA and Legacy availability
  by country.
  
• Query your Bank on SEPA cut off times.

BIC and IBAN Details
Up to 140 characters of remittance information
can be sent
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Seven things you should consider to prepare for
SEPA

• Set up your ERP system with IBAN / BICs even if
  the domestic clearing system does not currently
  use them at this stage. They will down the line,
  and your bank should be able to help you automate
  this translation of IBAN to BBAN now
• Use BICs and IBANs on all Payments where
  possible
  
• cross border and domestic
• urgent and non-urgent
• Include IBANs on all your invoices
• Plan to reduce Cheque usage cheques are not
  covered by SEPA and will be a drag on a company's
  drives to simplify and rationalise its payments
  and receivables solutions
• Consider how you wish to communicate with the
  banks from 2008 XML vs. heritage formats
  
• Plan ahead Think about how SEPA could help you
  simplify
  
• your cross-border and domestic payments
• your liquidity structure
• Visit the JPMorgan SEPA web-site for up to date
  information and discussion http//www.jpmorgan.co
  m/europayments

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Query your bank in terms of how they have tested
and prepared for SEPA
Seventeen major banks have agreed to work with
financial messaging network SWIFT to test
compliance of payments with SEPA standards
across theeuro zone from Q3 2007.
SWIFT will provide the messaging platform,
testing solutions, services and the
organizational infrastructure to support this
initiative in coordination with the EPC and
banks. The testing will help ensure that standar
d procedures are used across the area,
irrespective of clearing arrangements, and
generate results that allow for consistent
interpretation by all parties.
SWIFT launches SEPA Testing Programme
Testing environment ready one month ahead of sch
edule Brussels, 14 June 2007 SWIFT announced to
day that the SEPA Testing Programme has started
nearly one month ahead of schedule. The
Programme, initiated by major European banks, and
operated by SWIFT, enables all parties concerned
to perform comprehensive testing that simulates
payments under SEPA. More than 185 SWIFT customer
s have already registered to the SEPA Testing
Programme and have now received 'smart test
messages', test cases and 'directory
specifications
Sibos 2006 (released on 11 October 2006)
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Make sure your bank has prepared and adapted to
the new schemes
Plan to query your provider on the following

• How do you select payment routing? To reduce
  the overall cost of making same-day payments for
  their clients, banks have implemented algorithmic
  routing logic that automatically selects the most
  cost efficient channel to route payments. Others
  have efficient manual methods to do likewise.
• Will your SEPA services provide secure payment
  confirmations?Will you offer real-time
  advice-of-payment with a time-stamped completion
  confirmation?

• Will you offer euro priority payments?Utilizing
  the European Banking Association Priority
  Payments Scheme, banks can execute priority
  payments in a span of hours, guaranteed.

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• Thank You!
• Questions?

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Appendix 1 Sample User Guide
SEPA and the Payment Services Directive
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1
Timeline and Ramp up
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5
Meaning for Corporates and Evaluating your
procedures
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Appendix 2 Glossary
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Appendix 2 Glossary
SEPA and the Payment Services Directive
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Timeline and Ramp up
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Meaning for Corporates and Evaluating your
procedures
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Appendix 1 Sample User Guide
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Glossary for SEPA, Euro payments and associated
subjects

• BIC - Bank Identifier Code unique
  international code for each bank
  
• EURO1 - A private sector owned urgent payment
  system operated by EBA Clearing for cross-border
  and domestic commercial and financial payments in
  euro between banks operating in the European
  Union.
• Euro Banking Association (EBA) - The EBA plays a
  major role in the financial industry as a
  developer of European payment infrastructures.
  EBA supervises EBA Clearing, the operating
  company for e.g. EURO1 and STEP2 services
• EBA Priority Payment Scheme In June 2007, the
  Euro Banking Association announced the EBA
  Priority Payments Scheme, a payment instrument
  enabling banks located in the single euro
  payments area to transfer funds end to end within
  a maximum time frame of four hours.
• European Payments Council (EPC) - The
  decision-making and coordination body of the
  European banking industry in relation to payment
  services. The EPC released the SEPA CT rulebooks
  in version 2.3, the technical basis for its
  launch on 28 January 2008.

• EC Cross Border Regulation 2560/2001 Mandated
  that cross border EUR payments made within the
  European community up to the value of 50,000 and
  including BIC and IBAN must be levied the same
  charge as a domestic transfer by the same
  financial institution.
• International Bank Account Number (IBAN) - Up to
  34 contiguous alphanumeric character code
  containing country code, check digits, and BBAN
  (Basic Bank Account Number). IBAN / BIC are the
  way forward for all your EU payments - SEPA means
  there is no cross-border within the EU you
  should use them for EU payments and include them
  on all your invoices.
• IBAN/BIC Resolution Adoption In January 2006,
  the IBAN/BIC resolution came into effect. It
  stated that all intra-EEA commercial Euro
  payments of any value must contain IBANs and
  BICs. Non Compliance would open the door for
  financial institutions to charge repair fees. The
  IBAN/BIC resolution also stated payments without
  proper IBANs and BICs could be rejected from the
  start of 2007.
• Lisbon Agenda in March 2000, various members of
  the European Union proposed to make the European
  Union the most competitive and dynamic economy by
  2010.

A P P E N D I X   2    G L O S S A R Y
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Glossary for SEPA, Euro payments and associated
subjects
Payment Services Directive (PSD) (formerly
called the new legal framework) is an enabling
legislation for the full introduction of the
Single Euro Payments Area (SEPA). This directive
was approved by the European Commission in 2007
and is intended to be transposed into national
law by all member states by November 2009. The
PSD will align cash management services with
clear payment timings and value dates and oblige
the usage of an unique identifier to benefit from
SEPA scheme conditions (BIC and IBAN).
Rulebooks in June 2007, the European Payments
Council adopted version 2.3 of the rulebooks for
the SEPA Credit Transfer Scheme (SCT). They also
postponed the launch of the SCT by four weeks to
28 January, 2008. The SEPA Direct Debit Scheme
(SDD) is expected to launch in 2009 based on EPC
Rulebook 3.1. The exact date depends upon the
adoption of the Payment Services Directive (PSD)
into national law in each European Union member
state, a process that is targeted for completion
no later than November 2009. The data model
required to support the SEPA schemes is based on
Universal Financial Industry ISO 20022 XML.
STEP2 (SCT service) - The only SEPA automated
clearing house (SEPA ACH) that provide full reach
today operated by EBA Clearing for non-urgent
SEPA payments. The system was launched on 28
January 2008.
STEP2 (XCT service) - The first pan-European
automated clearing house (PE-ACH) operated by EBA
Clearing for non-urgent payments in euro. The
system processes retail payments of up to 50,000
per transaction, in accordance with the
requirements of EC Regulation 2560/2001.
Single Euro Payments Area (SEPA) - On 28 January
the SEPA Credit Transfer (SCT) was launched. 31
participating SEPA countries consist of 15 euro
zone countries (Austria, Belgium, Cyprus,
Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal,
Slovenia and Spain) and 16 non-euro countries
(Bulgaria, Czech Republic, Denmark, Estonia,
Hungary, Iceland , Latvia, Liechtenstein ,
Lithuania, Norway , Poland, Romania, Slovakia,
Sweden, Switzerland and United Kingdom). Four
non-euro countries (marked with ) are non EU
members, but also participate in SEPA. SEPA
Direct Debit (SDD) will become available in
2009. TARGET2 - The new pan-European urgent singl
e payments platform. TARGET2 was rolled out in a
phased approach during 2007. Proposed
enhancements include Timed Payments and Priority
Payments
A P P E N D I X   2    G L O S S A R Y
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