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Payments in the Americas  Comparing Experiences: « PE-ACH » Norbert Bielefeld Deputy Director

Payments in the Americas  Comparing Experiences: « PE-ACH » Norbert Bielefeld Deputy Director Atlanta – 8 Oct. 2004. Foreword. Purpose of « Panel 2 »:

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Payments in the Americas  Comparing Experiences: « PE-ACH » Norbert Bielefeld Deputy Director

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  1. Payments in the Americas  Comparing Experiences: « PE-ACH » Norbert Bielefeld Deputy Director Atlanta – 8 Oct. 2004

  2. Foreword • Purpose of « Panel 2 »: « …focus on the experiences of building cross-border exchanges in Asia and Europe, with particular emphasis on their lessons for the Americas…. » • Europe The experience goes beyond « remittances », and is broader and deeper than « PE-ACH »

  3. Agenda • A vision • Defining SEPA • How it is being built • Baseline • Dimensions, constraints • Interim status • Lessons for the Americas • Remittances, more specifically

  4. Imagine… • A geographical area… • … where any customer could step onto any plane, paying the same price, getting the same service, regardless of the destination,… • Or: …make and receive any phone call, regardless of the distance, with the same convenience, and at the same price,… • Or: • …make and receive any payment with the same convenience, and at the same price…

  5. For payments… • Such an area will exist by 2010 at the latest • In the Single Euro Payments Area (SEPA): « Customers will be able to make and receive retail and commercial payments in euro with the same level of security, ease and convenience, than they do in their hometown » • Note: precise perimeter of « SEPA » is function of payment instrument considered (credit transfer, direct debit, cards, cash) • Can be: eurozone, EU, EU +EEA, +CH

  6. How banks build SEPA • A phased programme, • First to deliver pan-European instruments and schemes, • To be subsequently adopted by national systems, • At a pace determined by communities and supported by regulators, • This reflects customer demand rather than a pure « push » approach • EPC (European Payments Council) schemes to be attractive to operators, other market actors and their communities: market forces dictate the evolving landscape

  7. The banks’ focus • Continuation of plans to establish a genuine euro-cash area • During next 2 years, formulation of 3 pan-European « schemes » (rule books with data formats, rules, liabilities,…) for pan-European: • Credit transfers • Direct debits • Debit and credit cards • For voluntary adoption by market operators, and migration of national solution as decided by national communities, and required by customers • Delivery: 2008 - 2010

  8. The baseline… Retail payment transactions in the EU 25 (2002 data) 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%

  9. …is complex

  10. …very complex

  11. Domestic transactions* Cross-border transactions billion transactions billion transactions 0.8 100% = 100% = 62.4 Others** E-money 1.5% Cheques 0.3% 0.2% Credit transfers 16.5% Direct debits 21.4% Card payments are by far the most frequently used means of payment for cross-border transactions Cheques 15.5% Credit transfers 28.1% Card payments 83.2% Cash withdrawals 13.7% Card payments 19.5% • * Estimate based on 1999 figures, with a CAGR of 6% • ** The "others" category include bills of exchange and other paper based transactions • Source: EFMA; SWIFT; TARGET; ECB statistics; McKinsey analysis And: Cross-Border = 1,2% (EU15, 2001)

  12. Dimensions, constraints • Multi-payment instrument approach: credit transfers, direct debits, debit/credit cards • Highly efficient, existing non-cash payment systems • « cross-border » solutions in operation for over 15 years • Any new solution to be full STP, end-to-end from the beginning • Profound re-engineering of payment systems to ensue • Standardization (different levels): significant work item • Technology is not a barrier • There is no obvious business case!

  13. Acquirer Processor Issuer Processor Clearing Merchant Cardholder Issuer Acquirer E.g.: current structure for cards Proceeds • Traditional POS • Magnetic strip card • Emerging M-V, TV commerce • Chip cards Country 1 International Switch Country 2 International Switch Country 3

  14. Acquirer Processing Issuer Processing Clearing Cardholders Merchants Issuer Acquirers • Traditional POS • TV commerce • M commerce • E commerce Cards: medium term structure Proceeds • Existing products • Chip cards • Digital Wallet Country 1 Country 2 Country 3

  15. BANK F BANK G BANK H Credit transfers: PE-ACH framework -owner &/or user -direct participant settlement bank BANKs L,M,N BANK I ACH Tech. Facilitators BANKs O,P,Q NCB -non-settlement banks -direct participants -settlement bank -direct participant -user PE-ACH BANK A • -settlement bank • -direct participant • -owner • -user BANK C -settlement bank -direct participant -owner -user BANK B or F.I. Grouping (with banking licence) BANK D BANK E

  16. Market Practice A User Group Specific Market Practice B User Group Specific PAN - EUROPEAN ACH SLA MODEL ex. MGS Type: MT103+ Amount : € 12.500 STP Beneficiary Account Identification: IBAN + BIC Guaranteed Execution Timeframe Others.. PAN - EUROPEAN ACH SLA MODEL Market Practice ...X User Group Specific Core Market Practice: Common Standard Code ex. All the elements of the Common standard Code maintained except the Amount : € 250.000 ……... ex. …... Amount : € 250.000 STP Beneficiary Account Identification: BBAN (Clearing Code + Acc. number ex. RIB) ….. Credit transfers going forward: «Concentric Model»

  17. An essential component • Pan-European settlement systems • TARGET1: interlinking of national RTGS systems • EBA Euro1: Lamfalussy-compliant net settlement system (settling in TARGET) • General Functional Specifications of TARGET2 debated and agreed (although this goes beyond retail and commercial payments) • Planned deployment of TARGET2 as Single Shared Platform: 2007

  18. Interim status • Conventions for basic credit transfers (Credeuro) and their interbank handling (ICP) implemented, architecture for clearing defined (PE-ACH), 1st operator active (STEP2) • Cards: conditions for SEPA- wide issuing and acquiring,and dissociation of branding and processing, spelled out. Under implementation with schemes • Significant work underway in Card Fraud Prevention • A high level description of a pan European Direct Debit agreed • Conditions for re-engineering of cash handling and distribution spelled out

  19. Lessons for the Americas? • (this is a quote from the programme!) • What is comparable, and less so • Scope, approach: priority to self-regulation? • Going forward: need for catalyst, dialogue

  20. What is comparable, and less so • Multi-country requirement • Multi-currency • Heterogeneous payment systems • Political, society-level vision, ambition? • Multi-country implementation: legislative, regulatory, self-regulatory capabilities? • Multi-payment instrument? • End-to-end, full STP initiation and delivery? • Cohabitation, or migration of national schemes?

  21. Scope, approach • Pre-condition: remove any ambiguity about scope, objectives • Who are the drivers? Who are the stakeholders? • Originators and beneficiaries: should be equal partners • Identifying and removing obstacles • Making the most of existing systems • Technology: an enabler, yet not a constraint

  22. Going forward • « Public », « private »: what balance? • Regulation can have perverse effects: lessons from Regulation 2560/2001 • There are business cases and business cases • Structured dialogue: a necessity

  23. Remittances: key hurdles • For « customers » • Access to market information • Access to banking services • Access to transaction information • Access to redress procedures • The macro-economic questions • Untapped lever for economic development • Potential feeder for criminal activities • Unrecognized opportunity for social integration

  24. Remittances: challenging regulators • Should the remittance business be regulated? • Who should bear that burden (related costs)? • What balance of public and private initiatives to enhance conditions in the market? • How to foster competition, motivate financial institutions to play a more active role? • Should public intervention foster the infrastructure? • How to move away from cash (without putting the burden on remitters and their recipients)? • How to move beyond remittances?

  25. The WSBI action plan in remittances • Contributing to formulation and implementation of policy: overseeing market structure evolution and monitoring performance, enhancing the legal and regulatory framework, setting standards and defining infrastructure, encouraging and facilitating • Motivating players: working closely with Members to identify and qualify opportunities, creating partnerships, setting best practice • Delivering the value: establishing a SLA framework as the benchmark, facilitating redress and dispute resolution, developing a toolkit for Members

  26. For further information: www.savings-banks.com e-mail: info@savings-banks.com

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