SEPA and the Payments Services Directive Michael van Doeveren

1. De Nederlandsche Bank 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

3. The euro is the common currency of 16 countries today, but retail paymentsare still organised nationally € € € € € € € € € € € € € € € €

4. SEPA means an uniform payments market EU € € € € € € € € € € € € € € €

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

7. EU European Payment Market Bron: ECB, Eurostat

8. Payment Trends in the EU • Number of transactions per type of payment instrument (billions) Source ECB

9. 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!

10. BIC • BIC: Bank Identifier Code • Issuing agent (on behalf of ISO): SWIFT I N G B N L 2 A X X X Branch code Bank code Country code (ISO) Location code BIC8 BIC11 BIC: standardised construction

11. IBAN • IBAN : International Bank Account Number • Administrator of Register of national IBANs (on behalf of ISO): SWIFT Country code (ISO) Check digit Bank identifier 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

12. IBAN examples IBAN Examples Finland FI21 1234 5600 0007 85 France FR14 2004 1010 0505 0001 3M02 606length 27 Germany DE89 3704 0044 0532 0130 00 IrelandIE29 AIBK 9311 5212 3456 78 Luxembourg LU28 0019 4006 4475 0000 NetherlandsNL91 ABNA 0417 1643 00length 18 Norway NO93 8601 1117 947 Poland PL61 1090 1014 0000 0712 19812874 length 28 United KingdomGB29 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

13. 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

14. 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

15. 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

16. 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

17. 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.

18. 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

19. Payment institutions Proportional prudential supervision License Capital requirements Internal processes

20. Rights and obligations Information requirements - single payment transactions Information to the payer priorafter receipt Transaction Identifier, payee Amount of the payment Charges payable exchange rate used Date of receipt order Information needed Execution time Charges Reference exchange rate Information to the payee Reference, payer Amount Charges Exchange rate Credit value date

21. Rights and obligations Information requirements - Payments via framework contract prior after receipt Information for payee Transaction identifier, payee Amount Charges Exchange rate used Debit value date Payment service provider Supervisor Product features Charges Safeguard requirements Transaction identifier, payer Amount Charges Exchange rate used Credit value date

22. 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..

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

24. 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

25. 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

26. Need for Standardisation!

27. 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

28. 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

29. Status Migration: EMV Cards Status 1 January 2010 (Source: EPC)

30. Status Migration: EMV ATM’s Status 1 January 2010 (Source: EPC)

31. Status Migration: EMV POS Terminals Status 1 January 2010 (Source: EPC)

32. 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

33. 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

34. 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)

35. Questions?