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Payments in Europe

Payments in Europe. Stewart MacKinnon EPC Secretary General. Payments Council Conference London, 23 January 2008. SEPA COUNTDOWN. LAUNCH. 1 day to go. 2 days to go. 3 days to go. 4 days to go. 5 days to go to 28 January 2008. Presentation structure. The SEPA Programme

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Payments in Europe

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  1. Payments in Europe Stewart MacKinnon EPC Secretary General Payments Council Conference London, 23 January 2008

  2. SEPA COUNTDOWN LAUNCH 1 day to go 2 days to go 3 days to go 4 days to go 5 days to go to 28 January 2008

  3. Presentation structure • The SEPA Programme • The SEPA Payments Schemes • Governance and Scheme Management • The Adherence Process • E&M Payments • Standards and the future of UK Payments

  4. The SEPA Programme:Overview • Vision: “A euro area in which all payments are domestic, where the current differentiation between national and cross-border payments no longer exists” • Expected deliverables for the Euro area (EU15): • credit transfer available to customers from 28 Jan. 2008 • direct debit available for customers at the latestfrom Nov. 2009, earlier start encouraged • cards: elimination of all technical and contractual provisions, business practices and standards from Jan. 2008 • Other deliverables • encouragement to deliver a debit card scheme • encouragement to deliver e-payments, m-payments and e-invoicing • 2008: implementation • NCBs will facilitate implementation process • public administrations should be first movers • 2010: migration of critical mass • NCBs will facilitate migration process 3

  5. The SEPA Programme:Objectives European Commission • Objectives of Payment Services Directive • The EU needs to create a single market for payments • Enhanced competition by opening up markets, ensuring a level playing field, encouraging innovation and increased market transparency for both providers and users • Policy Provisions • Standardised rights and obligations for providers and users of payment services in the EU, with a strong emphasis on a high level of consumer protection • Creation of Payment Institutions • Next Steps • Transposition in national laws of EU27 (and EEA) • Public administrations should be first movers • Objectives of European Competition Network • Stakeholder involvement, innovation and interchange agreements 4

  6. SEPA Payment Schemes A Scheme is a set of rules, practices and standards agreed between providers of payments services • SEPA Credit Transfer (SCT) Scheme • SEPA Direct Debit (SDD) Scheme The strategy adopted for payment schemes includes: • replacement of current schemes (25+ today) • separation of Scheme from Clearing & Settlement Mechanism (CSM)

  7. SEPA Payment SchemesThe full picture PRODUCT & SERVICE LAYER COMPETITIVE CLIENT CHOICE Client 1 Client 2 Core and Value Added Services End to End Standards and Data-Elements SCHEME LAYER COOPERATIVE Scheme Management Business Rules & Practices Standards Bank 1 Bank 2 SEPA Credit Transfer Rulebook EPC SEPA Direct Debit Rulebook INFRASTRUCTURE LAYER Principles for SEPA Scheme-compliant Clearing & Settlement Mechanisms EPC COOPERATIVE PE-ACH SEPA-Scheme Compliant ACH Bilateral/ Multilateral/ Decentralised Intra- group Pure Bilateral BANKS CHOICE PARTLY COMPETITIVE PARTLY COOPERATIVE BANKS + CSM CHOICE PROCESSORS NETWORKS COMPETITIVE

  8. SEPA Payment SchemesBaseline for implementation SEPA Credit Transfer Scheme Rulebook, version 2.3 approved in June 2007 SEPA Direct Debit Scheme Rulebook, version 2.3 approved in June 2007 Supporting documents: • SEPA Data Model • UNIFI (ISO 20022) XML Standards • Implementation Guidelines • PE-ACH/CSM Framework • SEPA Testing Framework

  9. SEPA Payment SchemesScheme Characteristics • For payments in euro (although customer account(s) may be in another currency) • Payments are made in full, no deductions permitted • Maximum time cycles defined (e.g. D+3 for SCT, although the PSD may overrule this) • BIC for routing • IBAN as sole account identifier • 140 character remittance data carried end-to-end

  10. SEPA Payment SchemesUNIFI (ISO 20022)XML Standards UNIFI (ISO 20022)XML Standard Core data elements AOS data elements N/A All core data entering the payment chain must be carried through unaltered to the Beneficiary Bank, with a defined minimum subset - including remittance data field of 140 characters – delivered to the Beneficiary. A community may implement Community Data Additional Optional Services (AOS) and/or additional Usage Rules for core data elements. Community Data AOS & Usage Rules must be declared publicly

  11. The Approach to SEPA Implementation Actions needed from banks What does operational readiness mean? By 28th January 2008, adhering banks will: • be SEPA Credit Transfer Scheme compliant • process SEPA payments according to SEPA rulebooks • offer customers at least one SEPA Scheme-compliant C-2-Bank channel • adapt internal and external systems and interfaces • have conducted tests according to SEPA Testing Framework with national participants and CSMs • be reachable

  12. Scheme ManagementRequirements • Dialogue with stakeholders allowing them to make suggestions concerning the Schemes • Maintenance and evolution of the Schemes in a controlled manner to reflect evolving market needs and innovation • Design & introduction of new Schemes • Management of the Adherence Process by which banks become Scheme Participants • Conciliation of non-compliance disputes between Participants (not end customers)

  13. Working & Support Groups Scheme Management Governance Structure 1/2 Scheme Management Committee EPC Plenary Structured dialogues with stakeholders • SM Functions: • Structured dialogue with stakeholders • Change management for the Scheme Rulebooks • Introduction and design of new Schemes • SM functions: • Management of adherence process • Management and promotion of compliance • Conciliation of disputes • The provision of an information service Development & Evolution Administration & compliance

  14. Scheme ManagementGovernance Structure 2/2 Development & Evolution: • The “as is” EPC Structure • Plenary as the sole decision making body • Funding by EPC Members • Plenary approval required for any changes to Rulebooks Administration & Compliance: • Scheme Management Committee (SMC) • Part of the existing EPC legal structure (EPC aisbl, under Belgian law) • EPC Charter amended to give decision-making power to the SMC • SMC has 3 independent members (one of whom is Chair) and 9 bankers EPC Secretary General is the link between EPC Plenary and SMC, which have ‘arms length’ relationship

  15. Scheme ManagementAdherence Process • Adherence window for SCT opened in September 2007 • “Adhere here” page on EPC website for adherents’ use • SMC held 4 meetings since October 2007, to review and approve received adherence agreements • 4121 participants have now adhered to participate in SCT from next Monday • 12 ACHs have already declared intent to be CSM

  16. E and M ChannelsFuture work Programme • EPC has agreed to prepare a framework setting out the standards and business rules for making SEPA payments on-line with web retailers • Framework will be generic and transversal as regards messaging standards and SEPA core services • Use of framework to be voluntary by banks • First deliverable – e-payment channel, with a guarantee for web retailers, based on SCT • No appetite within EPC to develop any scheme for m-channels • Scope is being restricted to establishing high level principles and a framework to create standards and business rules for banks and to work together with mobile operators and other stakeholders • Most promising areas seems to be contactless payments – exploring co-operation with GSMA and on requirements, standards and security for using a mobile to initiate payments

  17. Standards and the futureof UK Payments 1/3 • UK National Payments Plan is both extensive and creative • Highly ambitious but laudable initiative and Payments Council should be congratulated • But, Standards must be at the core of the plan • UK has an overabundance of payment standards • Real danger is that UK is getting out of step with Europe, where UNIFI (ISO 20022) XML standards are the base • UK should develop a vision and strategy for standards, that is open, specific, and reasoned • Multiple standards add to costs, complexity, confusion and frustration

  18. Standards and the futureof UK Payments 2/3 • Distinction between domestic and foreign payments is artificial and archaic • Multiple standards impact end user customers thus strategic vision must embrace all stakeholders • UK banks have played their full part in the development of SEPA and will offer SEPA compliant services to the UK users of the euro • Should the UK payments industry go further?

  19. Standards and the futureof UK Payments 3/3 • UK should consider maximising the opportunities which SEPA will bring, with payment schemes in the UK using the same rules and standards of SEPA • Customers will demand the same look and feel of payments throughout Europe • Should not underestimate the amount of work involved • Orderly planning and open consultation would be essential to successful implementation • It is my hope that the UK payments industry will continue to play its full part in SEPA and take a leadership role in what lies beyond

  20. It has been my pleasure to address this Conference Thank you for your attention Any questions?

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