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The Role of the Financial Institutions

The Role of the Financial Institutions. Payment and Contractual Issues of EETS. Report of EG7 for Road Platform. Brussels, February, 23 rd , 2007. Report EG7. Members of EG7. Agenda. 1. Scope of work Klaus Philipp 2. Basic Terms Klaus Philipp 3. Status of EETS Provider Anne Grünkorn

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The Role of the Financial Institutions

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  1. The Role of the Financial Institutions Payment and Contractual Issues of EETS Report of EG7 for Road Platform Brussels, February, 23rd, 2007

  2. Report EG7 Members of EG7

  3. Agenda 1. Scope of workKlaus Philipp 2. Basic TermsKlaus Philipp 3. Status of EETS ProviderAnne Grünkorn 4. Contractual RelationshipsEva Tzoneva 5. EETS and InvoicingEva Tzoneva 6. EETS Charging and Payment ProcessesChristoph Lankheit

  4. 1 Contract aims at aims at EETS Directive 2004/52 leads to 1 OBU Technical ProceduralContractual I N T E R O P E R A B I L I T Y 1. Scope of work (1) EC

  5. Cert. EG12 EG04 Clearing Invoicing VAT Issues Contracting Payment Obligations Liability/Risks Security EG08 EG07 1. Scope of work (2) EG09 EG05 EG03 EG10 EG13 EG01 EG11 EG02 EG06 OBU

  6. 1 Contract EETS Directive 2004/52 Light vehicles HGV 1 OBU legal or fiscal statements Consumer protection law Privacy Different business models Different security 1. Scope of work (3) aims at aims at

  7. Interoperability Management EETSProvider TollCharger Service User Expert Group 7 2. Basic Terms (1) CESARE III’s Logical Approach to Roles REC: study in detail, & ensure fair re- presentation of stakeholders Role = Set of Responsibilities

  8. Payment Mode Pay-Now Pay-After (Post-paid) Pay-Before (Pre-paid) Payment Mean Cash Direct Debit Credit Card Stored Value Financial World Bank, CC company Bank, CC company Payment = remittance of a monetary countervalue EFC World EP TC Not offered yet SU REC: investigate and study in detail Charging raises a claim, settled through payment 2. Basic Terms (3) Charging vs. Payment EETS Environment REC: standardise information flow

  9. Credit institutions They take deposits from users to fund payment transactions and they fall under the prudential requirements of Directive 2000/12/EC3; Electronic money institutions They issue electronic money to fund payment transactions and they fall under the prudential requirements of Directive 2000/46/EC4; Post office giro institutions Those type which are referred to in the second indent of Article 2(3) of Directive 2000/12/EC and are so entitled under national or Community law to provide payment services. Payment institutions Non-bank financialcompanies These are other natural or legal persons who have been granted authorisation in accordance with Article 6 of Directive 2000/12/EC to provide and execute payment services throughout the Community. They provide banking services without meeting the legal definition of a bank and can act as suppliers of loans / credit facilities, however they are not allowed to take deposits. 3. Status of EETS Provider (1) Classification of Financial Institutions Type Scope ECDirective

  10. 3. Status of EETS Provider (4) Contractual Relationships with Financial World Mandate TC Bank Toll charger Guarantee for toll payment Service agreement for payment obligation by EP Fulfilling payment obligation Mandate Client agreementfor claiming paymentsfrom the SU EP Bank EETS Provider Service User Mandate SUBank Processing of transactions REC:The guarantee of toll payment provided by the EP to the TC not necessarily requires the EP to hold a bank license – the EP can either cooperate with financial institutions or within the EP role one type of financial institution takes on some EP functions, e.g. guarantee & risk management.

  11. 3. Status of EETS Provider (3) What does this mean in the context of EETS? EP activity portfolio in relation to financial activities Acceptance of deposits (in case of Pre-paid Mode / pre-paid account) Issuing and administering bank Payment Means Guarantees and commitments Credit reference services (in case of Post-paid Mode) REC: The contractual framework needs to be designed to meet European and national law for all EETS functions and different legal status of toll.

  12. SEPA The Single European Payment Area is about improving the efficiency of cross border euro payments, it is a major restructuring and harmonising project, which will impact national payments markets concerning business rules and technical standards. Direct Debit payment SEPA will change the post payment world within the EU for standard data exchange (remittance information), execution time, security rules and the costs for users. Credit card payment SEPA will change the post payment world for card payments within the EU for standard data exchange, interchange fee, costs charged for retailers Time schedule The banks have committed themselves to be ready in 2008 for B2B and 2009 for B2C with a migration period to 2011, the European Presidency has issued a compromised proposal of the Payment Service Directive expected to be adopted by EP in 1Q of 2007. 3. Status of EETS Provider (2) What is the future development for EETS within a financial world?

  13. 2 4. Contractual Relationships (1): Interfaces • There is a need to establish a common basis for the contractual and technicalinterfaces between the key roles REC: It is recommended that a common contractual framework should govern the interface between TC and EP, irrespective of country(ies) of operation, number of entities involved and type of toll charged. The local legislation impact should be brought to the unavoidable minimum. 1 3 REC: It is recommended that technical and content standards be established for the required exchange of data to minimise the cost of delivery of EETS to SU. REC: It is recommended to define a minimum set of terms and conditions used by all EPs towards the SU. Other areas for harmonization: EETS to offer single registration interface to SU and single process (channel) for OBU delivery

  14. TOLL TAX USAGE FEE 4. Contractual Relationships (2): Legal Status of Tolls • Two main legal forms of tolls currently apply in Europe:  Usually, a usage fee is charged when a service is provided – e.g. the right to access the toll domain.  A tax is charged on basis of public law, is considered as revenue to the authority, granting the right to charge it.  The legal status of tolls define the business models for the provision of EETS  The models differ in the contractual relationships between the key roles, as well as in ownership, charging, invoicing, and payment flows.  Common element between all models: there is always a relation TC - SU

  15. TC SU B2 B1 EP Right to invoice in the name and on behalf of TC Right to pay in the name and on behalf of SU 4. Contractual Relationships (3): Models for Tolls • Two contractual models are commonly used for the provision of EETS:  The “resale” model (model A), in which the EP buys the Tolls from the TC and invoices them to a SU in his own name.  The “agency” model (model B), in which the TC sells directly the Toll to the SU. Two angles of the agency model:

  16. 4. Contractual Relationships (4): Comparison of Models

  17. 4. Contractual Relationships (5): Models for Tolls Conclusions: REC:It is recommended that regulations across Europe allowing the reselling of tolls from the TC to the EP and from the EP to the SU be harmonised. The principles behind the reselling model should be basis for future Tolling Systems. REC: It is recommended that the implementation of the reselling model should allow for civil responsibility to be split from fiscal and commercial liabilities – e.g. the EP should not be responsible for incidents the SU might have while using the Tolled Road.

  18.  resale model EP TC SU  agency model Invoice Invoice EP TC SU Statement Statement Invoice 5. EETS and Invoicing (1) According to EETS models, invoicing takes place at least at two levels:  TC invoices EP (inter-company invoicing) • EP invoices SU (customer invoicing) The legal status of tolls and respective business models also drive differences in invoicing: REC: A review of existing national regulations is recommended to identify gaps in current practices, related to toll service in the context of EETS. Where possible, local regulations should be adjusted.

  19. 5. EETS and Invoicing (2): VAT • When viewed in a financial context, the term toll can have one of the four following meanings:  tax = where a duty to pay exists because public authorities have declared something to be a “taxable” attribute  duty = where a duty to pay exists because of public governance rules  fee = where a duty to pay exists because public authorities have set a price for public services  charge = where a duty to pay exists because someone has received a service of the public or private sector • Usually, where tolls are defined as a usage fee or charge, they are subject to VAT. When defined as tax or duty, no VAT is charged.

  20. 5. EETS and Invoicing (3): VAT • The VAT on Toll Payments is charged with the rate of the TC’s country. • The VAT on toll service-related charges is applied with the rate of the EP’s country of residence. • Under defined conditions, VAT charged on tolls is recoverable by commercial users – both local and international. The issuing of a valid VAT invoice to the SU is therefore a key activity within EETS. • The invoices can be issued either by the EP (resale model) or in the name and on behalf of the TC (agency model B1). REC:It is recommended that European legal and tax experts investigate if the provision of a road network within EETS should coherently be defined as a provision of service no matter if provided by the state or a private enterprise in order to define toll as a usage fee or charge, which can be bought and resold (re-sale model).

  21. TC (Czech) Currency of TC EP (French) Currency of SU SU’s (PL, DK, UK…) 5. EETS and Invoicing (4): Currency Issues Interoperability brings a new dimension…. EETS will be delivered in different currencies • Invoicing/settlement takes place at two levels 1) Between TC and EP, currency driven by TC 2) Between EP and SU, currency driven by SU It may be expected that the EP will face the burden of handling multi-currency settlements but without the flexibility to apply exchange rate surcharges (e.g., as credit cards) • A potential area for simplification could be the consideration of the EURO as the single currency for delivery of EETS.

  22. OBU OBU 6. EETS Charging and Payment Processes (1) 6. EETS Charging and Payment Processes (1) • Charging in DSRC and GNSS environment will follow two different approaches: • In DSRC environment the OBU will transmit the TDR (Toll Data Record) to the TC first. Then the TC will transmit the records to the EP. • In GNSS environment the OBU will communicate directly with the EP. The EP will give a copy of the records to the TC. TC EP SU EP SU TC

  23. 6. EETS Charging and Payment Processes (2) • Finance follows underlaying technical and economic processes and procedures. It has to be assured that these are compliant with legal requirements, face the respective documentation and give sufficient certainty to manifest the accrued claims. REC: It is recommended to develop a legal framework regarding security and enforcement measures so that the EP can guarantee the payment to the TCs. REC: It is recommended to implement end-2-end security mechanisms. Their implementation and operational costs have to be justified by the probability and the importance of the risk. REC: It is recommended to define clearly the responsibilities of the EP and the TC in front of the SU in case of malfunction of the OBU or the toll equipment.

  24. EG 07 is very confident that existing Post-Payment-procedures are seen to be easily adaptable to EETS. Financial institutions and payment service providers seem well prepared and will cover the system needs in due time. EG 07 states that as for today there are only local or/and individual schemes for Pre-Payment. They all are based on remote centralised storage of money countervalue and a centralised white- or blacklisting. The availability of funds depends on the quality of transfer procedures used by the involved financial institutions and Toll Chargers. None of the schemes will grant ad hoc access. OBU OBU 6. EETS Charging and Payment Processes (3) DSRC-Domain TC SU Bank SU Bank EP EP GNSS-Domain

  25. OBU 6. EETS Charging and Payment Processes (4) DSRC-Domain TC SU Payment device GNSS-Domain EP Payment means Issuer REC: It is recommended on mid-term to evaluate a universal Pre-Payment System able to directly communicate with the OBU, especially with regard to an EETS solution for private cars. The technical platform (e.g. smart card or mobile phone) has to be trustable and anonymous.

  26. OBU OBU 6. EETS Charging and Payment Processes (5) • Revenue assurance via effective hotlisting and blocking/deblocking management of OBUs is crucial to the solid business case of an EP. DSRC-Domain TC Hotlist SU EP SMS GNSS-Domain TelCo TelCo SMS Roaming TC Hotlist (Enforcement)

  27. 6. EETS Charging and Payment Processes (6) REC: It is recommended that: • toll data records (TDR) will be send at minimum once a day. Where technically (GNSS) and economically suitable a more frequent update may contractually be agreed. • a daily hotlist elaboration and communication between EP to TC takes place for early detection of fraudulent SUs. • to assure most reasonable care detailed obligations and service levels as well as financial and legal consequences must be agreed, binding all parties involved.

  28. 6. EETS Charging and Payment Processes (7) REC: It is recommended to perform a legal analysis to evaluate under which conditions information on fare dodgers (maybe even a hotlist of companies or plate numbers) can be exchanged between EPs and/or TCs or collected in a common database (fraud prevention pool) REC: It is recommended to improve and facilitate legal possibilities for collecting the toll from non-payers across national borders.

  29. The Role of the Financial Institutions Payment and Contractual Issues of EETS Thank you very much for your kind attention EG7 members are at your disposal now for any questions

  30. The EP is responsible for Establishing and maintaining contractual relationships with TCs for EETS, Establishing and maintaining contractual relationships with SUs for EETS, Fulfilling its contractual payment obligation to the TCs for Tolls due Managing , Issuing certified EETS OBE the OBEs during their lifetime Claiming payment from the SUs Implementing the defined security architecture Managing data exchange and interfaces regarding EETS management Providing the invoice process for the Tolls to the SU Developing the acceptance network, to increase its competitiveness (if an EP can not offer EETS in the entire EETS domain this should not prevent him from playing the role) Ensuring payment of the toll consumed by his SU whenever supported by genuine claims from the TCs Maintaining customer relation with the SU Ensuring the defined quality of the service

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