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SEPA Opening the way for payments processing convergence

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SEPA Opening the way for payments processing convergence

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    1. Visa Europe SEPA – Opening the way for payments processing convergence? Fifth SEPA Poland Event, Warsaw 6 October, 2008 Doug West Managing Consultant Visa Europe

    2. Visa Europe 2 SEPA Warsaw | Oct 2008 SEPA will be a BIG Change….

    3. Visa Europe 3 SEPA Warsaw | Oct 2008 SEPA - vision for tomorrow

    4. Visa Europe 4 SEPA Warsaw | Oct 2008 But we are still operating and processing in silos An added layer of complexity is in the growing use of customer channels, to access the growing number of payment types We have trained the customer to use multiple channels (this about how we encouraged them to use ATMs, not the branch They now expect and demand us to keep pace with their future requirements. Indeed they will invent their own if left alone – think of Internet CNP An added layer of complexity is in the growing use of customer channels, to access the growing number of payment types We have trained the customer to use multiple channels (this about how we encouraged them to use ATMs, not the branch They now expect and demand us to keep pace with their future requirements. Indeed they will invent their own if left alone – think of Internet CNP

    5. Visa Europe 5 SEPA Warsaw | Oct 2008

    6. Visa Europe 6 SEPA Warsaw | Oct 2008 The Pan European landscape SEPA is the change catalyst

    7. Visa Europe 7 SEPA Warsaw | Oct 2008 SEPA Impacts are already affecting the market

    8. Visa Europe 8 SEPA Warsaw | Oct 2008 SEPA – who has the answers …

    9. Visa Europe 9 SEPA Warsaw | Oct 2008 SEPA – compliance…. and an opportunity

    10. Visa Europe 10 SEPA Warsaw | Oct 2008 SEPA impacts on banks - Cost Reductions expected by Corporates (and Banks response) Corporates “For Western Europe we would like a 30-40% reduction in the next three years. We would like to reduce transaction costs to zero by 2015 globally. “We would require a 50% reduction to justify the investment.” Banks “40% - more if improvements to business processes taken into account.” “Expect significant reduction (50%) in costs for CHAPS and SWIFT from our new platform. We must have at least this reduction to offset the reduction in revenue that we foresee.”

    11. Visa Europe 11 SEPA Warsaw | Oct 2008 SEPA - Bank product portfolio Merchants & Corporates to gain

    12. Visa Europe 12 SEPA Warsaw | Oct 2008 SEPA Cost Reduction - IT Platforms

    13. Visa Europe 13 SEPA Warsaw | Oct 2008

    14. Visa Europe 14 SEPA Warsaw | Oct 2008 SEPA - Interbank processors Impacts Players in wider SEPA market Potential for interbank processors M&A/sale/JV’s Short time period to adapt/ adjust High cost SEPA implementation (new platforms needed?) Members migration/in-house/ new solutions Member migration to ICS brands

    15. Visa Europe 15 SEPA Warsaw | Oct 2008 Evolution of an Interbank Processor UK - BACS to VocaLink

    16. Visa Europe 16 SEPA Warsaw | Oct 2008 SEPA – Commercial processors Market consolidation through M&A already occurring New markets, customers and revenues as barriers removed Major investments required to build/modify platforms to SEPA Single common platform results in lower processing cost Growth of ISO/on-risk acquiring displacing banks New pan-EU products and services

    17. Visa Europe 17 SEPA Warsaw | Oct 2008

    18. Visa Europe 18 SEPA Warsaw | Oct 2008

    19. Visa Europe 19 SEPA Warsaw | Oct 2008

    20. Visa Europe 20 SEPA Warsaw | Oct 2008

    21. Visa Europe 21 SEPA Warsaw | Oct 2008 SEPA - Harmonisation & Convergence Payments as a Utility In Europe, with the requirement for faster settlement times under SEPA and with the harmonisation of standards via UNIFI XML ISO 20022, convergence of different payments networks will now be possible. ISO 20022 is being suggested as a card payment clearing format The emergence of payment processors such as Equens, in both the Netherlands and Germany (& Italy) combining pan European ACH and card transactions, is evidence of this convergence. Payment Processor Interoperability Pact – Equens, Iberpay, Seceti, VocaLink, STET using SwiftNet for SEPA transactions The UK has a major payments initiative in progress, UK Faster Payments which is intended to provide near real-time value for sterling payments. This points to an evolving trend in payments processing – that of online processing for low value/high volume transactions. Paypal is using Direct Debit process for payments outside E-bay on the internet and elsewhere

    22. Visa Europe 22 SEPA Warsaw | Oct 2008 Payments Convergence – Three Critical Numbers

    23. Visa Europe 23 SEPA Warsaw | Oct 2008 SEPA - Direct Access to Payment Networks – Merchants and Corporates It will now be possible for non banks to access payment and clearing networks directly, by-passing banks. This will mean that large merchants, corporations and government agencies will look to reduce their costs by going direct. SWIFT has recently set up SCORE (Standardised CORporate Environment) which is a closed user group for corporates. This makes it easier and more attractive to access SWIFT. SCORE has been piloted with a number of corporate firms including Alstom, Arcelor Mittal, CIBA, Danone, Gaz de France, General Electric and Microsoft. This represents a threat to banks’ revenue from Corporate customers

    24. Visa Europe 24 SEPA Warsaw | Oct 2008

    25. Visa Europe 25 SEPA Warsaw | Oct 2008 “The potential to provide benefit to our customers and the European economy, strong revenue streams to those bold banks and a payments model that can be used globally – this is the real end game – the fullest realisation of the SEPA vision…..”

    26. Visa Europe 26 SEPA Warsaw | Oct 2008 The problem - proliferating channels An added layer of complexity is in the growing use of customer channels, to access the growing number of payment types We have trained the customer to use multiple channels (this about how we encouraged them to use ATMs, not the branch They now expect and demand us to keep pace with their future requirements. Indeed they will invent their own if left alone – think of Internet CNP An added layer of complexity is in the growing use of customer channels, to access the growing number of payment types We have trained the customer to use multiple channels (this about how we encouraged them to use ATMs, not the branch They now expect and demand us to keep pace with their future requirements. Indeed they will invent their own if left alone – think of Internet CNP

    27. Visa Europe 27 SEPA Warsaw | Oct 2008 The problem - multiple platforms drive complexity Today, each payment type sits on a separate platform, which reflected “state of art” when it was built. Different payment types are subject to different regulation and require different change management IT resources are under ever increasing pressure to maintain all different payment platforms Leaving less resource to use on undertaking activities and developments we want them to, and that would help better serve our customers. Including introducing new payment types. Today, each payment type sits on a separate platform, which reflected “state of art” when it was built. Different payment types are subject to different regulation and require different change management IT resources are under ever increasing pressure to maintain all different payment platforms Leaving less resource to use on undertaking activities and developments we want them to, and that would help better serve our customers. Including introducing new payment types.

    28. Visa Europe 28 SEPA Warsaw | Oct 2008 Today’s payment infrastructure By allowing the same infrastructure to simplify and enhance legacy payment systems by migrating them to the real-time service (and by encouraging customers to move to real-time through true self-service) the banking industry will see a step change in customer contact costs, in payment capture and reconciliation costs and in error and exception handling. If we thought ATMs had saved branch teller costs, if we thought telephone banking had revolutionised customer service overheads, and if we thought Internet Banking had saved customer contact expenses – we have seen nothing yet. This is the biggest revolution in Payments of our generationBy allowing the same infrastructure to simplify and enhance legacy payment systems by migrating them to the real-time service (and by encouraging customers to move to real-time through true self-service) the banking industry will see a step change in customer contact costs, in payment capture and reconciliation costs and in error and exception handling. If we thought ATMs had saved branch teller costs, if we thought telephone banking had revolutionised customer service overheads, and if we thought Internet Banking had saved customer contact expenses – we have seen nothing yet. This is the biggest revolution in Payments of our generation

    29. Visa Europe 29 SEPA Warsaw | Oct 2008 Tomorrow’s payment infrastructure Multiple propositions, one payments backbone In short: - Domestic interbank architecture can be radically simplified - Centralised, shared service model delivers optimum industry efficiency - VocaLink enables and brokers bilateral arrangements providing choice - Commercial independence accelerates the rate of innovation - Commercial independence proliferates range of choices for all stakeholders - Costs can come down - Efficiency can improve - Product innovation can increase In short: - Domestic interbank architecture can be radically simplified - Centralised, shared service model delivers optimum industry efficiency - VocaLink enables and brokers bilateral arrangements providing choice - Commercial independence accelerates the rate of innovation - Commercial independence proliferates range of choices for all stakeholders - Costs can come down - Efficiency can improve - Product innovation can increase

    30. Visa Europe 30 SEPA Warsaw | Oct 2008 The result - re-engineering the economics of payments

    31. Visa Europe 31 SEPA Warsaw | Oct 2008

    32. Visa Europe 32 SEPA Warsaw | Oct 2008 European Payments – A Five Year Vision? Bankers believe that banks will continue to be at the core of the payments industry. They see potential for greater efficiency and profitability by adopting new business models for payment services. However, customers have a different vision. They want convenience, simplicity and speed. Here are a few visions for 2011: There are no cheques. Expensive coins and currency are rare. Consumers pay by pushing a button on a mobile or tapping a card on a reader. Corporate payments are 100% electronic. International standards are common. We will have global interoperability making a cross-border payment anywhere around the world as easy and speedy as making a local currency payment. There is no segregation between high and low value payments. A payment is a payment is a payment. Pressure from the private and public sectors coupled with technological change has forced convergence. Mark S Garvin, CEO, JP Morgan and CLS Group, 2006

    33. Visa Europe 33 SEPA Warsaw | Oct 2008 Could all this really happen in just 5 years? Who had one of these in 2002? Since 2002, passengers on low cost airlines increased by 400%

    34. Visa Europe 34 SEPA Warsaw | Oct 2008

    35. Visa Europe 35 SEPA Warsaw | Oct 2008

    36. Visa Europe 36 SEPA Warsaw | Oct 2008 SEPA HealthCheck background

    37. Visa Europe 37 SEPA Warsaw | Oct 2008 Visa SEPA HealthCheck – scope of bank operations

    38. Visa Europe 38 SEPA Warsaw | Oct 2008 Visa SEPA HealthCheck - SEPA coverage SEPA Cards Framework including ‘new’ requirements of the ECB document on SCF SEPA Direct Debits SEPA Credit Transfers SEPA Rules for PE-ACHs Payment Services Directive

    39. Visa Europe 39 SEPA Warsaw | Oct 2008 Visa SEPA HealthCheck - Objectives and Benefits for Your Bank

    40. Visa Europe 40 SEPA Warsaw | Oct 2008 The Visa SEPA HealthCheck process

    41. Visa Europe 41 SEPA Warsaw | Oct 2008 SEPA HealthCheck – Output Summary

    42. Visa Europe 42 SEPA Warsaw | Oct 2008 HealthCheck output Dashboard analysis – Whole programme

    43. Visa Europe 43 SEPA Warsaw | Oct 2008 HealthCheck output Corrective actions plan – product area

    44. Visa Europe 44 SEPA Warsaw | Oct 2008 This is an initial ‘HealthCheck Lite’ process Further in-depth reviews can be carried out in identified ‘red flag’ areas looking at those most at risk The ‘HealthCheck Lite’ service is available now If you would are interested in having an independent, objective HealthCheck carried out on your SEPA preparations then please speak to your Relationship Manager Visa SEPA HealthCheck – Next Steps

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