EUROPEAN PAYMENTS COUNCIL Towards our Single Payment Area

1. FEDERATION BANCAIRE DE L'UNION EUROPEENNEBANKING FEDERATION OF THE EUROPEAN UNIONBANKENVEREINIGUNG DER EUROPÄISCHEN UNION EUROPEAN SAVINGS BANKS GROUPGROUPEMENT EUROPEEN DES CAISSES D’EPARGNEUROPÄISCHE SPARKASSENVEREINIGUNG EUROPEAN ASSOCIATION OF COOPERATIVE BANKSGROUPEMENT EUROPEEN DES BANQUES COOPERATIVESEUROPÄISCHE VEREINIGUNG DER GENOSSENSCHAFTSBANKEN O O O O O O O O O O I I O I O I I O I O I O I O I EUROPEAN PAYMENTS COUNCIL Towards our Single Payment Area Roadmap for the Single Euro Payments AreaThe challenges and the progressGerard Hartsink ChairmanEuropean Payments Council Conference “On the road to SEPA: Reaching the Goals in Co-operation” Budapest, November 19, 2004

2. Agenda • ECB and EPC visions • EPC governance framework • Progress for retail payments • Progress for high value payments • Conclusions

3. EPC and EPC Visions

4. G. Tumpel-Gugerell: “Time to act- clear objectives and a convincing Roadmap for SEPA” • “Real SEPA is achieved when people can make payments throughout the whole euro area from one bank account, or by using one card as easily and safely as a national payment is today”. • Request for concrete action plan and timetable • End game for EU-12 (Euro Countries): - card solutions from 2007 - credit transfer from 2008 at the latest - prieuro from 2008 at the latest - direct debit from 2008 at the latest • Consolidation by 2010 at the latest • Call for letter of intent (signed by CEO’s)

5. EPC Vision • All Euro payments are domestic payments in EU12 • Scope: basic payment services • Principle: self-regulation • Banks join forces to implement this vision for the benefit of their customers (with support of their associations) Source: White Paper, March 2002; « Euroland - Our Single Payment Area » supported by 42 banks and their 4 European Associations EBF, ESBG, EACB, EBA and article 1 of the EPC Charter

6. SEPA definition and scope Definition: « SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro, within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location. » Scope: Focus on EU-12 (eurozone), but with opportunities for EU-13 + 4 EFTA/EEA countries to adopt standards and participate in euro payment systems.

7. Retail Payment Transactions in the EU25 Euro non-Euro Year 2002 (millions) EU12 EU13 EU25 Population 308 147 455 Credit Transfers 12.517 4.198 16.715 Direct Debits 10.200 2.833 13.033 57.8% Cheques 5.919 2.477 8.396 Debitcards 9.423 4.398 13.821 Creditcards 2.045 2.184 4.229 E-money 285 11 296 42.2% ATM 6.147 3.301 9.448 Total 46.536 19.402 65.938 Payment market-share 70.6% 29.4% 100%

8. EPC Governance Framework

9. Some principles of the approved EPC Charter • The EPC = the « decision making body for the European payments industry » • EPC is neither a payment association nor a market infrastructure (but is a legal entity; Belgian law) • Major players of the payments industry with a fairrepresentation of the smaller players • Proper representation of banks of 12 Euro countries (with 305 million inhabitants) and 13 + 3 non-Euro countries (with 138 + 10 million inhabitants) • 4 European associations (EBF, EACB, ESBG, EBA) and national banking or payment associations should all be embedded properly to support a proper preparation and implementation of decisions by banks • The EPC will give the strategic guidance to the standards process executed by ECBS, SWIFT, card companies, etc.

10. Billion trans. Million inhab. Members Billion trans. Million inhab. Members Germany 15,6 82 7 Estonia 0,1 1 1 France 13,4 60 7 Latvia 0,1 2 1 Italy 3,6 58 4 Lithuania 0,1 4 1 Spain 3,0 40 3 Poland 0,9 39 2 Portugal 1,6 10 2 Czech Republic 1,0 10 1 Belgium 1,8 10 2 Slovakia 0,2 5 1 Netherlands 3,6 16 4 Hungary 0,4 10 1 Luxembourg 0,1 0,4 1 Slovenia 0,1 2 1 Austria 1,1 8 1 Malta 0,03 0,4 1 Greece 0,2 11 1 Cyprus 0,05 0,7 1 Finland 1,1 5 1 Norway 1 4 1 Ireland 0,4 4 1 Iceland 0,075 0,25 1 Sweden 1,5 9 1 Switzerland 0,65 6 1 Denmark 0,9 5 1 ECSAs _ _ 3 UK 13,3 60 5 EBA _ _ 1 Total 64 453 59 Total Euro countries 45 305 34 Plenary structure: country dimension • Source ECB numbers 2001 • Seat numbers could be adjusted based on criteria Charter

11. EPC structure for retail payments EPC Plenary * Secretary NGC Audit EPC Co-ordination Committee** Legal Support Group WG Electronic Direct Debit Payments WG Electronic Credit Transfers WG Cards WG Cash OIT*** Standards Support Group * Decision Making Body ** Process Decision Making Body *** EPC Co-ordination Committee will become the ECBS Board

12. EPC Executives • Gerard Hartsink (Chair) • Claude Brun (Vice Chair) • EDD: Christian Westerhaus • ECT: Terry Dirienzo • Cards: Alfred Schmauss • Cash: Leonor Machado • OITS: Alfredo Rodriguez • Legal: Herman Segers • NGC: Dag-Inge Flatraaker • Audit: n.n. (Roger Jones, interim chair) • Secretary: Charles Bryant (Secretary General)

13. Other SEPA Stakeholders (1) • European Commission and European Parliament European Commission: PSMG meetings Bilateral meetings European Parliament: EMAC hearings • Central banks (ECB and ESCB) • Roles: - catalyst role - oversight role - regulator role - operator role (settlement services) • COGEPS meetings - co-operation model - no dirigistic model, but self-regulation • Progress report on retail payments 2004

14. Other SEPA Stakeholders (2) • Lobby Groups: - Treasurers: EACT (together with ECB) - Retailers: Eurocommerce - SME’s: UEAPME - Consumers: BEUC - Government treasurers • Dialogue: - What do you expect from SEPA? - What is the vision of the EPC? - What is the progress so far? - What are your top 10 concerns?

15. Progress for retail payments

16. Progress for retail payments • Legal framework • Private law and administrative law • Regulations and/or directives • Payment schemes (inclusive standards) • Upgrading existing schemes • Creation of new schemes • Business cases for market-participants • (Positive) network effects for economy

17. New legal framework for payments in EU25 • EC consultative document of December 2, 2003: • “…..technical and legal barriers still prevent EU citizens, companies and payment services providers from reaping the full benefits of a fully integrated area for non cash payments”. • “the removal of technical and legal barriers should ensure efficient payment services, competition on equal terms, adequate protection of payment service users, security of payments, and should guarantee legal certainty for all parties concerned in the payment process”. • NLF version 5 (expected in December 2004)

18. Standardisation • “….the EPC shall also provide strategic guidance to the ECBS (European Committee for Banking Standards), and to other standardisation bodies....”(art. 3 EPC Charter) • Payment instruments Working Groups should first formulate the business model and business functions of the payment schemes; standardisation is a second step • ECB (ESBC): 7 high level recommendations for standards • Several open governance issues for standardisation • EPC Co-ordination Group will become ECBS Board

19. Credit Transfers • Upgrading existing schemes • Business rules (Credeuro, ICP) • Standards (MT 103+, IBAN) • Legal (reporting threshold, FATF Recom 7) • Monitoring implementation • Creation new payment schemes • EBA: Step2 (done) • Creation of Credit Transfer scheme (credeuro 2) 2005 • E-payment (web retailers: standards) • Mobile payments (standards)

20. Direct Debits • Creation new payment scheme in Euros • EC: Landwell Report on Direct Debits • Recommendations for EPC Plenary June 17, 2004 • Refinement of EPC White Paper 2002 • Business functions and specifications • Communication document • Creation: Direct Debit scheme 2005 • Remarks: • Governments: Launching customers? • Commitment corporates to migrate?

21. Infrastructures • Approved recommendations: • PE-ACH concept • PE-ACH concentric model • Receiver capability of banks before 2004 • PE-ACH governance guiding principles • Grouping of financial institutions within PE-ACH • Remarks: • “Split”: payment schemes and operator(s) • PE-ACH: so far only EBA Step2 • Costs market infrastructures less than 15% total costs • Consolidation options for 22 + 9 = 31 ACH’s? • Consolidation options for 80? card service providers?

22. Cards • Approved recommendations: • 8 recommendations: fraud, standardisation, SEPA-compliant rules, legal obstacles, data collection, implementation, etc. • In Pipeline: • Debit (account linked) card scheme • Modify and/or adapt existing schemes • Feasibility study on anti-fraud database • Monitoring implementation EMV • Defining gaps for standardisation • Improving market statistics (together with ECB) • Dialogue with international and national schemes

23. Cash • Cash is King! • Approved positions and recommendations: • 9 Recommendations: joint cards and cash strategies, promotion electronic products, standardisation (equipment), legal obstacles, NCB functions, etc. • Core functions of NCB’s regarding cash • Cross-border cash transport in Euro zone • In Pipeline: • Cash rule book (with ECB) • Inventory national cash plans • Defining gaps for standardisation

24. Progress for high value payments

25. Target 2 • ECB Governance Council decision: October 24, 2002: • Multi platform system • System for large value Euro payments • Core service with options for NCB to provide additional services • Euro system wide price structure • EPC position on Target user requirements • Single integrated system • Core functionalities • Compliance with core principles SIPS • Service level improvement • Timing project deliverables

26. Target 2 • Decision ECB (ESCB) Q1 2004: Mono platform with delivery date January 2, 2007 • UDFS: User Detailed Functional Specifications (107 ancillary systems) • Target is (will be) the « back-bone » for the payments and/or securities settlements in Euro • Target and Euro 1 are the 2 (competing) public and private high value payment systems for the Euro like Fedwire and CHIPS are for the US Dollar

27. Conclusions • The EPC was able to create commitment for a vision and for the next steps in the Euro(pean) payment industry • The ECB (and the EC) and other stakeholders (Corporates, retailers) expect deliverables with concrete deadlines and milestones • Key words for the next 2 years are: creation of payment schemes, standardisation and consolidation for retail payment systems and for Target 2 • A strong payments industry governance structure (including banks of the 10 new countries) of all major players with a fair representation of smaller players is necessary to realise SEPA