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PAYMENT SYSTEMS DEPARTMENT
Integrating retail payment systems in the Euroland: On the road to a Single Euro Payments Area (SEPA)
Sergio GorjónPayment Systems Specialist
Exploring Frontiers in Payment System DevelopmentThe World Bank, International Finance Corporation & SWIFTWashington, D.C.29 May – 1 June, 2007
2PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
AGENDA
An introduction to the Single Euro Payments Area
A practical example of implementation: the case of Spain
3PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
The Single Euro Payments Area (SEPA) is a market-driven initiative
seeking to establish a common payments area in which
consumers, companies and other economic actors will be able to
make and receive payments in euro, whether between or
within national boundaries under the same basic conditions,
rights and obligations, regardless of their location.
What is SEPA?
4PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
Is there really a need for SEPA?
National/Local solutions Diversity of standards Lack of interoperability Non-unified legal framework
Euroland todayPopulation: 315mCorporates: 17mBanks: 6/7kACH Schemes: 11Card Schemes: 14POS: 5mATMs: 253kVolume tr.: 50bn
Integrated market for
payment services in the
euro area
5PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA is all about:
Harmonisation as an endgame?
Restructuring, harmonising and integrating retail payment systems
across the Euro area
Enhancing competition between banks, service providers and vendors
Achieving a greater consolidation in the payments market
Promoting the use of more efficient electronic payments
Modernising the European payments landscape with improved service
levels and customer-oriented products
6PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
The stakeholders
The European banking industryDeveloping and implementing a new set of payment instruments
The European Clearing and Settlement industry
Ensuring that any beneficiary in the euro area can be reached using SEPA instruments
Euro area companiesContributing to the development of automated processes to reduce the extent of manual intervention
Public administration and consumers
In their condition as end users of the new payment instruments
Public authorities
Removing barriers in the internal market (EC), monitoring progress and becoming increasingly involved in the preparations for the roll-out of the new SEPA schemes (NCBs/ECB).
An interaction is needed between:
7PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
Evolution of non-cash payment instruments
The building blocks
SEPA Credit TransfersSEPA Direct Debits
SEPA Card Payments
Replacement strategy
Adaptation strategy
Additional optional services (AOS)
Wide range of product improvements and/or value added services with the
ultimate purpose of making the payment itself or the process before and
after a payment more efficient for customers
8PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
The building blocks
Processing infrastructures
Harmonised rules and standards will be defined in the SEPA schemes. They
will be generally separated from the processing infrastructures
Standards
Full interoperability between infrastructures shall be achieved. Processing
services will be offered on a competitive basis to any bank or card scheme
provider. Access shall be free and open.
9PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA Credit Transfers (SCT)
SEPA deliverables - SCT
Core product with SEPA-wide reachability (basic, non-urgent transfers)
Full amount credited to the beneficiary’s account
No value limit at scheme level
Maximum settlement time 3 business days (*)
IBAN and BIC are used as identifiers
Open issues Priority credit transfer scheme with same day settlement
Alignment with PSD (max. execution times)
Customer-to-bank standards enabling full STP
10PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA Direct Debit (SDD)
SEPA deliverables - SDD
Core product with SEPA-wide reachability
Recurrent and one-off payments
Mandate dematerialization
Maximum processing time 5 business days (first
payment) and 2 business days (recurring payments)
IBAN and BIC are used as identifiers
Open issues Mandate handling is a sensitive issue
Peculiarities of B2B transactions
Reachability of all debtor banks
11PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA Cards Framework
SEPA deliverables – Card Payments
High-level principles for issuers, acquirers, card schemes and operators
Scheme governance will be separated from underlying processing
Scheme interoperability (SEPA cards will be accepted all over the euro
area)
Cardholders will have a common, consistent experience at POS and ATM in
the euro area
Open and transparent pricing policies
EMV implementation (Chip and PIN)
Open issues Further work on standards
Consolidation trends
12PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA Clearing and Settlement Infrastructures
SEPA deliverables – Infrastructures
Full interoperability between infrastructures through co-
operation (technical and business requirements)
Different types of infrastructures are possible (e.g. PEACH,
inter-group or bilateral arrangements)
Ability to process SEPA instruments (nationally -2008- and
within the euro area -2010-)
Greater consolidation through competition (economies of scale
and further cost reductions through modern technologies)
Readiness to cope with future developments (capability to
process message standards)
Open issues
13PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA Standards - Key features
SEPA deliverables – Standards
Support end-to-end STP payments Allow for simplification and value added services (customer
domain) Remain independent from infrastructures Use open, more secure and common message standards
(UNIFI ISO 20022 XML) Compulsory in the bank-to-bank domain and recommended
in the customer-to-bank domain
14PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA Timeline
Source: EPC
15PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
SEPA Migration Plan: Spain
A practical example of implementation
SEPA objectives are common in the euro area but local conditions
vary across countries
A tool is needed to translate those pan-European SEPA objectives
into national goals
Local implementation will allow each bank and infrastructure
provider to adapt its strategies and solutions for the gradual
transition to a SEPA
NCBs/ECB should help smoothen the said implementation and
monitor progress
The EPC should be made aware of each national banking
community’s contribution to SEPA
16PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
Governance structure
A practical example of implementation
Payment Systems Working Group
SEPA Migration Monitoring Committee
SEPA Observatory
Other Task Forces
Ad-hoc SEPA Conferences
17PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
Pragmatic approach: first ensure short term deliverables but don’t
forget long term goals
Initial mapping exercise: what are the currently available retail
payment transactions in Spain?
Breakdown of retail payments: a.) instruments subject to migration
and b.) instruments that will not be migrated in the first wave
A strategy and a timetable for migration was defined for each
instrument. This strategy further foresees providing the necessary
support to banking customers in the adoption of the new set of
instruments
The national banking community is further committed with enlarging
the types of transactions to be migrated and reviewing the current
migration strategy
A practical example of implementation
Key issues
18PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
Migration of payment instruments
A practical example of implementation
Credit Transfers & Direct Debits
Gradual deployment of SEPA payment instruments from January 2008 A critical mass of SEPA transactions shall be reached by end-2010
(i.e. 95% of credit transfers & almost 100% of direct debits) Marginal legacy products will be subject to innovative ideas in a
second wave approach Customer acceptance and PSD transposition will be key to speeding
up the migration path
Card Payments Co-branding with international card schemes is the preferred strategy in the short run EMV deployment is currently under way and will be completed by Dec. 2010 National schemes will need to change their operating rules and governance
agreements to meet the goals of the SEPA Cards Framework
19PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
A practical example of implementation
Migration of infrastructures (SNCE)
Three-tiered strategy to cope with a new scenario:
a) Legacy products and non SEPA-compliant ones will be processed through traditional channels
b) New SEPA instruments used in transactions within Spain will fall under the scope of an updated payments platform (January 2008)
c) Cross-border SEPA-compliant operations will be channeled though an external provider/PE-ACH. Different options are currently under review
20PAYMENT SYSTEMS DEPARTMENT
On the road to a Single Euro Payments Area (SEPA)
Market-driven process that intends to harmonise and modernise
cashless retail payment systems across the euro area
Credit transfers, direct debits and card payments constitute the primary
focus of attention
Competition, co-operation, reachability and long-term consolidation are
the ultimate cornerstones of the project
Establishing common standards and procedures becomes crucial to
ensure interoperability and end-to-end security of payment transactions.
Each banking community will need to define its own migration plan to
meet the deadlines of the SEPA project
Summary
PAYMENT SYSTEMS DEPARTMENT
Thank youSergio Gorjón