payment systems department integrating retail payment systems in the euroland: on the road to a...

PAYMENT SYSTEMS DEPARTMENT

Integrating retail payment systems in the Euroland: On the road to a Single Euro Payments Area (SEPA)

Sergio GorjónPayment Systems Specialist

Exploring Frontiers in Payment System DevelopmentThe World Bank, International Finance Corporation & SWIFTWashington, D.C.29 May – 1 June, 2007

2PAYMENT SYSTEMS DEPARTMENT

On the road to a Single Euro Payments Area (SEPA)

AGENDA

An introduction to the Single Euro Payments Area

A practical example of implementation: the case of Spain



The Single Euro Payments Area (SEPA) is a market-driven initiative

seeking to establish a common payments area in which

consumers, companies and other economic actors will be able to

make and receive payments in euro, whether between or

within national boundaries under the same basic conditions,

rights and obligations, regardless of their location.

What is SEPA?



Is there really a need for SEPA?

National/Local solutions Diversity of standards Lack of interoperability Non-unified legal framework

Euroland todayPopulation: 315mCorporates: 17mBanks: 6/7kACH Schemes: 11Card Schemes: 14POS: 5mATMs: 253kVolume tr.: 50bn

Integrated market for

payment services in the

euro area



SEPA is all about:

Harmonisation as an endgame?

Restructuring, harmonising and integrating retail payment systems

across the Euro area

Enhancing competition between banks, service providers and vendors

Achieving a greater consolidation in the payments market

Promoting the use of more efficient electronic payments

Modernising the European payments landscape with improved service

levels and customer-oriented products



The stakeholders

The European banking industryDeveloping and implementing a new set of payment instruments

The European Clearing and Settlement industry

Ensuring that any beneficiary in the euro area can be reached using SEPA instruments

Euro area companiesContributing to the development of automated processes to reduce the extent of manual intervention

Public administration and consumers

In their condition as end users of the new payment instruments

Public authorities

Removing barriers in the internal market (EC), monitoring progress and becoming increasingly involved in the preparations for the roll-out of the new SEPA schemes (NCBs/ECB).

An interaction is needed between:



Evolution of non-cash payment instruments

The building blocks

SEPA Credit TransfersSEPA Direct Debits

SEPA Card Payments

Replacement strategy

Adaptation strategy

Additional optional services (AOS)

Wide range of product improvements and/or value added services with the

ultimate purpose of making the payment itself or the process before and

after a payment more efficient for customers



The building blocks

Processing infrastructures

Harmonised rules and standards will be defined in the SEPA schemes. They

will be generally separated from the processing infrastructures

Standards

Full interoperability between infrastructures shall be achieved. Processing

services will be offered on a competitive basis to any bank or card scheme

provider. Access shall be free and open.



SEPA Credit Transfers (SCT)

SEPA deliverables - SCT

Core product with SEPA-wide reachability (basic, non-urgent transfers)

Full amount credited to the beneficiary’s account

No value limit at scheme level

Maximum settlement time 3 business days (*)

IBAN and BIC are used as identifiers

Open issues Priority credit transfer scheme with same day settlement

Alignment with PSD (max. execution times)

Customer-to-bank standards enabling full STP



SEPA Direct Debit (SDD)

SEPA deliverables - SDD

Core product with SEPA-wide reachability

Recurrent and one-off payments

Mandate dematerialization

Maximum processing time 5 business days (first

payment) and 2 business days (recurring payments)

IBAN and BIC are used as identifiers

Open issues Mandate handling is a sensitive issue

Peculiarities of B2B transactions

Reachability of all debtor banks



SEPA Cards Framework

SEPA deliverables – Card Payments

High-level principles for issuers, acquirers, card schemes and operators

Scheme governance will be separated from underlying processing

Scheme interoperability (SEPA cards will be accepted all over the euro

area)

Cardholders will have a common, consistent experience at POS and ATM in

the euro area

Open and transparent pricing policies

EMV implementation (Chip and PIN)

Open issues Further work on standards

Consolidation trends



SEPA Clearing and Settlement Infrastructures

SEPA deliverables – Infrastructures

Full interoperability between infrastructures through co-

operation (technical and business requirements)

Different types of infrastructures are possible (e.g. PEACH,

inter-group or bilateral arrangements)

Ability to process SEPA instruments (nationally -2008- and

within the euro area -2010-)

Greater consolidation through competition (economies of scale

and further cost reductions through modern technologies)

Readiness to cope with future developments (capability to

process message standards)

Open issues



SEPA Standards - Key features

SEPA deliverables – Standards

Support end-to-end STP payments Allow for simplification and value added services (customer

domain) Remain independent from infrastructures Use open, more secure and common message standards

(UNIFI ISO 20022 XML) Compulsory in the bank-to-bank domain and recommended

in the customer-to-bank domain



SEPA Timeline

Source: EPC



SEPA Migration Plan: Spain

A practical example of implementation

SEPA objectives are common in the euro area but local conditions

vary across countries

A tool is needed to translate those pan-European SEPA objectives

into national goals

Local implementation will allow each bank and infrastructure

provider to adapt its strategies and solutions for the gradual

transition to a SEPA

NCBs/ECB should help smoothen the said implementation and

monitor progress

The EPC should be made aware of each national banking

community’s contribution to SEPA



Governance structure


Payment Systems Working Group

SEPA Migration Monitoring Committee

SEPA Observatory

Other Task Forces

Ad-hoc SEPA Conferences



Pragmatic approach: first ensure short term deliverables but don’t

forget long term goals

Initial mapping exercise: what are the currently available retail

payment transactions in Spain?

Breakdown of retail payments: a.) instruments subject to migration

and b.) instruments that will not be migrated in the first wave

A strategy and a timetable for migration was defined for each

instrument. This strategy further foresees providing the necessary

support to banking customers in the adoption of the new set of

instruments

The national banking community is further committed with enlarging

the types of transactions to be migrated and reviewing the current

migration strategy


Key issues



Migration of payment instruments


Credit Transfers & Direct Debits

Gradual deployment of SEPA payment instruments from January 2008 A critical mass of SEPA transactions shall be reached by end-2010

(i.e. 95% of credit transfers & almost 100% of direct debits) Marginal legacy products will be subject to innovative ideas in a

second wave approach Customer acceptance and PSD transposition will be key to speeding

up the migration path

Card Payments Co-branding with international card schemes is the preferred strategy in the short run EMV deployment is currently under way and will be completed by Dec. 2010 National schemes will need to change their operating rules and governance

agreements to meet the goals of the SEPA Cards Framework




Migration of infrastructures (SNCE)

Three-tiered strategy to cope with a new scenario:

a) Legacy products and non SEPA-compliant ones will be processed through traditional channels

b) New SEPA instruments used in transactions within Spain will fall under the scope of an updated payments platform (January 2008)

c) Cross-border SEPA-compliant operations will be channeled though an external provider/PE-ACH. Different options are currently under review



Market-driven process that intends to harmonise and modernise

cashless retail payment systems across the euro area

Credit transfers, direct debits and card payments constitute the primary

focus of attention

Competition, co-operation, reachability and long-term consolidation are

the ultimate cornerstones of the project

Establishing common standards and procedures becomes crucial to

ensure interoperability and end-to-end security of payment transactions.

Each banking community will need to define its own migration plan to

meet the deadlines of the SEPA project

Summary

PAYMENT SYSTEMS DEPARTMENT

Thank youSergio Gorjón

payment systems department integrating retail payment systems in the euroland: on the road to a...

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