Current status of of the Single Euro Payments Area Michael van Doeveren

1. De Nederlandsche Bank Current status of of the Single Euro Payments Area Michael van Doeveren 4th Conference on Payments and Securities Settlements Ohrid, Republic of Macedonia 21 June 2011

2. Johannes Vermeer – The Milkmaid 1658

3. Agenda • Backround of SEPA • SEPA-products • Impact of SEPA • Current status of migration • Concluding remarks

4. European Payment Market EU Bron: ECB, Eurostat

5. Payment Trends in the EU Number of transactions per type of payment intrument (billions) Source ECB

6. The euro is the common currency of 17 countries today, but retail paymentsare still organised nationally € € € € € € € € € € € € € € € € €

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

8. What is SEPA? Political vision: The euro area will be an internal ´domestic´ market for retail payments generate scale economies and promoting competition Concretely: European payment instruments for both cross-border and domestic payments in euro: credit transfers, direct debit and cards

9. Why SEPA? European Politics • Improvement EMU and European economy: logic step after the euro introduction Economics • Internal market: volume, competition and innovations Banks • To prevent ‘further regulation’ after Regulation 2560/2001 and 924/2009 • Especially Cross-border banks can profit from new market circumstances

10. How to realise SEPA? • Self-regulation: European Payment Council of banks develops standards and products • Payment Services Directive: legal harmonisation • SEPA Regulation

11. Payment chain debit credit payment instruction payment information bank bank clearing payment information credit debit payment instruction seller buyer good/service

12. 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

13. 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

14. 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

15. SEPA Credit Transfer (in use since 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

16. SEPA Direct Debit(introduced in 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

17. SEPA Regulation • End dates: • 1 February 2013 (2016 non-euro countries) national credit transfers • 1 February 2014 (2017 non-euro countries) national direct debits • 1 August 2015 niche products SCT and 1 August 2016 niche products SDD • Conversion facilities IBAN for consumers and XML services for firms until 1 August 2016 • Technical requirements: consumer demands w.r.t. the SDD, white listing, black listing, maximum size and frequency • No MIF SDD after 2016-2018 European Commission published the draft SEPA-Regulation on 16 December 2010

18. Point-of-sale card payment system

19. SEPA Cards FrameworkPolicy scope (1) • Seperation of scheme governance from underlying processing • Open non-discriminatory scheme membership • Single, pan-European license • Open and transparant pricing policies • EMV-implementation: Chip and PIN

20. SEPA Cards FrameworkPolicy scope (2) • A common approach to fraud and reporting • Standardised processes and procedures for card acceptance and certification • Convergence of scheme rules for common non-competitive aspects • References the Payment Services Directive • Common, consistent experience for all cardholders at POS and ATM • Merchant choice of card type accepted • Interoperability and all merchant SEPA card acceptance

21. SEPA for CardsVision of the Eurosystem (1) • The Consumer can choose between different debit card brands • The Merchant can choose which debit cards brands he or she accept • The cards market is competitive, reliable and efficient, as well as for card holders, merchants as for processing • More aspiration is needed in the SEPA for cards: need for an additional European debit card scheme • Further card standardisation is vital

22. SEPA for CardsVision of the Eurosystem (2) • All technical and legal barriers are eliminated • Interchange fees should not be misused to generate excess revenues for the banking system, at the costs of merchants and cardholders • Preference for no MIF-model: see for example the MasterCard and VISA cases • Ideal situation: ‘Any card at any terminal’

23. Standardisation SEPA for Cards • Card to terminal (EMV) • Terminal-to-acquirer (EPAS, ERIDANE) • Acquirer-to-issuer (ISO 8583 and ISO 20022) • Certification of cards and payment terminals

24. 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

25. Payment Services Directive 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

26. Impact of SEPA Consumers • Use IBAN and BIC • Use of cards in the whole SEPA area Firms (private and public) • Easier cash-management and administration • Standard formats (ISO 20022 XML) • Use of IBAN and BIC • Centralisation of accounts and direct debits Retailers • More choise: terminal, acceptance of brands, acquiring Banks • Change of markets, new products, new systems

27. Benefits of SEPA • Efficiency, level playing field and transparency lead to cost benefits for society in the long run • Reduction costs for average user of payment services in Europe • Comfort/User-friendliness • Innovation

28. Migration to SEPA • Aim: a smooth migration to SEPA • To organise nationally • Market driven • Speed can differ between countries • Stakeholder involvement and communication are important tools for success • Clear end dates

29. Use of SEPA Credit Transfer

30. National Forum for SEPA-migration

31. Aim of the SEPA Migration Monitor Insight into the status of SEPA migration ofcorporates, public authorities and software suppliers 1. Awareness of the meaning and implications of SEPA Stage of preparations Actual use of SEPA payment instruments Development of software packages

32. Large corporates, public authorities and most municipalities and software suppliers know what SEPA means. In contrast, over 80% of SMEs don’t know what SEPA means (no change compared to the previous measurement). Over 40% of mid-sized businesses (a new category) don’t know what SEPA means. Results third SEPA MonitorSEPA awareness

33. Results: SCT • Large corporates are most advanced: almost 30% can already use the SCT. • Over 25% of public bodies can also use the SCT already; almost two-thirds are investigating or making preparations; 9% have not done anything yet. • A few municipalites can use the SCT already, 10% are making preparations and 42% are investigating what needs to be done. • 86% of SMEs and 60% of mid-sized businesses have done little or nothing. On the other hand, 20% of mid-sized businesses can already use the SCT.

34. Results: SDD • Public bodies are all investigating or making preparations: clear progress compared to the previous measurement • 5% of large corporates can already use the SDD, over 75% are investingating or making preparations: also progress compared to the previous measurement. • 55% of municipalities have done little or nothing; 39% are investigating what needs to be done. • 98% of SMEs and 80% of mid-sized businesses have done little or nothing.

35. Status Migration: EMV Cards Status 1 October 2010 (Source: EPC)

36. Status Migration: EMV ATM’s Status 1 October 2010 (Source: EPC)

37. Status Migration: EMV POS Terminals Status 1 October 2010 (Source: EPC)

38. 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 etc.