SEPA and the Payments Services Directive Michael van Doeveren

1

• SEPA and the Payments Services
  Directive Michael van Doeveren
• 3rd Conference of the
  Macedonian Financial sector on Payments
  and Securities settlement Systems
  Ohrid 28 June 2010

2
Agenda

• SEPA-basics
• SEPA-products
• Payment Services Directive
• Migration
• Closing remarks

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4















5
How to realise SEPA?

• Self-regulation European Payment Council of
  banks develops standards and products
• Payment Services Directive legal harmonisation

6
EPC Technical harmonisation

• Two kinds of agreements in EPC
• 1. About interbank processing
• Credit transfer rulebook
• Direct debit rulebook
• 2. Restructuring of the market
• SEPA Cards-framework (SCF)
• Clearing Settlement Framework
• Single Euro Cash Area

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European Payment Market
End of 2008 (numbers) NL EU 16 EU 27
Inhabitants 16.5 mln 322 mln 499 mln
Firms 240.000 17 mln 25 mln
Banks 70 7,000 9,000
Payment accounts 25 mln 306 mln 450 mln
Transactions 4.8 bln 54.8 bln 78.1 bln
POS terminals 316,000 6.2 mln 8.1 mln
ATMs 8,650 315,000 426,000
Cards 31 mln 473 mln 727 mln
Bron ECB, Eurostat
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Payment Trends in the EU

• Number of transactions per type of payment
  instrument (billions)

Source ECB
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SEPA Migration is like a Cascade

• Banks, Payment Institutions,
• Card schemes and processors
• offer SEPA products
• New infrastructure
• Governments, firms and merchants
• Realise migration
• Consumers
• Adoption of new
• products like cards

SEPA is of all of us!
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BIC

• BIC Bank Identifier Code
• Issuing agent (on behalf of ISO) SWIFT

I
N
X
G
B
N
L
2
A
X
X
Branch code
Bank code
Country code (ISO)
Location code
BIC8
BIC11
BIC standardised construction
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IBAN

• IBAN International Bank Account Number
• Administrator of Register of national IBANs (on
  behalf of ISO) SWIFT

Country code (ISO)
Bank identifier
Check digit
Domestic account Number

• Remarks
• The Bank Identifier in an IBAN is country
  specific
• The length of the bank identifier varies from
  country to country
• Each country has its own Basic Bank Account
  Number system
• Summary
• Country code and check-digits uniform
• Bankidentifier and BBAN country specific

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IBAN examples
IBAN Examples Finland FI21 1234 5600 0007
85 France FR14 2004 1010 0505 0001 3M02 606
length 27 Germany DE89 3704 0044 0532 0130
00 Ireland IE29 AIBK 9311 5212 3456
78 Luxembourg LU28 0019 4006 4475
0000 Netherlands NL91 ABNA 0417 1643 00 length
18 Norway NO93 8601 1117 947 Poland PL61 1090
1014 0000 0712 1981 2874 length 28 United
Kingdom GB29 NWBK 6016 1331 9268 19 (composition
country code check digits Bankidentifier
branchindentifier BBAN) Source www.swift.com
20080811 IBAN Registry

• Remarks
• IBAN and BIC contain both bank identifiers, but
  they could differ
• IBAN and BIC contains both a country code, but
  they could differ

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SEPA Credit Transfer (in use since 28 January
2008)

• SEPA Credit Transfer Standard for bank to bank
  credit transfers in euro (mass payments)
• Payments are made for the full original amount
• IBAN and BIC are obliged
• ISO 20022 UNIFI standards (XML-language)
• 140 characters of remittance information are
  delivered to the beneficiary
• Unstructured or restructured remittance
  information as agreed between partners

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SEPA Direct Debit(introduced on 2 November 2009)

• SEPA Direct Debit Standard for bank to bank
  Direct Debits in euro (B2C and B2B)
• Payments are made for the full original amount
• IBAN and BIC are obliged
• ISO 20022 UNIFI standards (XML-language)
• One-off or recurrent
• A mandate is signed by the debtor (e-mandate)
• Pre-notification (mostly 14 calender days in
  advance)
• Refunds (PSD 8 weeks) and returns

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Impact of SEPA for Cards

• Consumers
• Use of cards in the whole SEPA area any card at
  any terminal
• Retailers
• More choise terminal, acceptance of brands,
  acquiring
• Banks and payment schemes
• Change of markets, new products, new systems

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Legal harmonization Payment Services Directive

• Content
• Proportional supervisory regime for non-bank
  payment service providers
• Transparency requirements
• Rules about the relationship of the payment
  service provider and user

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Scope payment services

• 1. Services enabling cash to be placed on a
  payment account
• 2. Services enabling cash withdrawals from a
  payment account
• 3. Execution of payment transactions direct
  debits, payment
• transactions through a payment card, credit
  transfers
• 4. Execution of payment transactions where the
  funds are
• covered by a credit line for a payment
  service user
• 5. Issuing and/or acquiring of payment
  instruments.
• 6. Money remittance.
• 7. Execution of payment transactions where the
  consent of the
• payer to execute a payment transaction is
  given by means of
• any telecommunication, digital or IT device
  and the payment
• is made to the telecommunication, IT system
  or network
• operator, acting only as an intermediary
  between the
• payment service user and the supplier of the
  goods and
• services.

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Payment Institution

• What is a payment institution?
• Non bank provider of payment services, and
• End users
• Transferable balances no cash
• Owns customer funds temporarily
• Pure intermediary
• Payments are a main activity

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Payment institutions

• Proportional prudential supervision
• License
• Capital requirements
• Internal processes

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Rights and obligations

• Information requirements - single payment
  transactions
• Information to the payer
• prior after receipt

Transaction Identifier, payee Amount of the
payment Charges payable exchange rate used Date
of receipt order
Information needed Execution time Charges Referenc
e exchange rate
Information to the payee
Reference, payer Amount Charges Exchange
rate Credit value date
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Rights and obligations

• Information requirements - Payments via framework
  contract
• prior after receipt
• Information for payee

Payment service provider Supervisor Product
features Charges Safeguard requirements
Transaction identifier, payee Amount
Charges Exchange rate used Debit value date
Transaction identifier, payer Amount Charges Excha
nge rate used Credit value date
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Rights and obligations

• Other obligations for the provider
• d 1
• No sending of unsolicited payment instruments
• User provides incorrect unique identifier
  reasonable efforts to recover funds
• And more..

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Rights and obligations

• Obligations for the user
• Act according to the contract
• Reasonable safety measures
• Direct notification of loss/theft
• And more..

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PSD summing up

• PSD provides harmonisation of
• Market access besides credit institutions and
  electronic money institutions also payment
  institutions
• Rights and obligations
• Implementation in national legislation 1november
  2009 done by most countries

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European law other items

• Regulation 924/2009 (renewal of regulation
• 2560/2001)
• No price difference between domestic and cross
  border direct debits
• Adaptation of the electronic money directive
• Greater consistency with the PSD
• New prudential regime

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Need for Standardisation!
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Standardisation SEPA for Cards

• Four card domains of action
• Card to terminal (EMV)
• Terminal-to-acquirer (EPAS, ERIDANE)
• Acquirer-to-issuer (ISO 8583 and ISO 20022)
• Certification of cards and payment terminals

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What is EMV?

• EMV Europay, MasterCard, VISA

• Worldwide standard for
• Chip on cards
• (readers) ATM EFT POS terminals
• Debit and credit cards

insert

• Much safer than magstripe

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Status Migration EMV Cards
Status 1 January 2010 (Source EPC)
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Status Migration EMV ATMs
Status 1 January 2010 (Source EPC)
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Status Migration EMV POS Terminals
Status 1 January 2010 (Source EPC)
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SEPA Awareness Dutch end-users

• SEPA awareness SMEs fairly low
• SEPA awareness public sector and large companies
  very high
• Public sector and large companies well informed
  about SEPA consequences

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Transition stage Dutch end-users

• 90 of SMEs have not made any SCT SDD
  preparations yet
• 20 of large companies and public sector can
  accept and make SCTs
• 60 of large companies and public sector is
  busy with SDD preparations

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Concluding Remarks

• The success of SEPA depends on
• SEPA for Cards means Any card at any terminal.
  This requires time.
• Further European standardisation, which is not
  easy
• An end date for national payment instruments
• Interchange fees and payment fees
• Well organised stakeholder involvement and
  consultation
• Innovation at a European level (e-SEPA,
  contactless payments, mobile payments)

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Questions?