Information about the Swiss Payment Traffic Systems

Interview with the Swiss Banking Ombudsman

News about EBPP in Switzerland and Hungary

Business Direct Debit – a new direct debit procedure

VOLUME 27 | March 2006

All of us remember only too well the 9/11 terrorist attacks in New York and those of the 7th of July, 2005, in London. These events proved once and

for all how the functioning of the financial markets is directly dependent on the technical platforms and infrastructures. The preparations to design

and implement Business Continuity Planning (BCP), which is intended to ensure being able to rapidly become operational again after technical

failures, have become increasingly urgent for the entire financial sector.

Over the past years, financial institutions, systems operators, and regulators have considerably increased their efforts in the BCP area. One of the

most important realizations is this: measures must be coordinated not only within individual institutions, but also on an inter-institutional level.

Thus, it doesn’t make sense that the operator of a large value payment system can deal with a major catastrophe while important system partici-

pants are only preparing for far more harmless scenarios. Because BCP preparations are usually extremely costly, it is very important to apply the

limited resources as efficiently as possible.

It is specifically this balancing of the business continuity measures that was established as the objective of a working group within the Swiss

financial sector. During the past two years, and after thorough analysis, this working group has developed draft recommendations for the crisis

prevention and management in Switzerland. The most significant results were published in February 2006. (See the article on page 12).

In terms of the aforementioned requirements to handle resources responsibly, the recommendations specifically focus on those systems and

business areas which could jeopardize the stability of the financial system. Once the working group recommendations are implemented, Switzer-

land will yet again rank among the world’s most progressive financial places even in the field of BCP.

Niklaus Blattner, Vice-Chairman of the Governing Board of the Swiss National Bank, Berne

Content ClearIT, Edition 27 Editorial

32

EDITORIAL 3

THE BANKING OMBUDSMAN HELPS 4

The Swiss Banking Ombudsman deals with disputes between the bank customers and their

banks – including issues revolving around payment traffic. It is his stated mission to reestablish

trust between the consumers and their banks. But he wants to do more than

resolving conflict – he wants to help prevent it.

ELECTRONIC BILLING IS ON THE RISE 8

The trend toward electronic billing cannot be slowed down. This becomes evident from the

increasing number of transactions and various national and international projects. PostFinance

is actively involved in this development and adapts yellowbill to meet new demands.

THE E-BILL WITH PAYNET IS READY FOR SMBS 10

The PayNet network was successfully expanded by connecting with more banks and e-billers.

Thanks to this new solution, user-friendly participation is now also guaranteed available for

small and medium-sized businesses.

ELECTRONIC BILLING IN HUNGARY 11

Since May 2004, Hungarian legislation permits issuing e-bills. The Hungarian Deutsche Telekom

subsidiary, in its function as a consolidator, has been offering EBPP services since last year.

BUSINESS CONTINUITY PLANNING IN THE SWISS FINANCIAL CENTER 12

In February, a work group made up of representatives of the Swiss financial sector has published

a report with recommendations for crisis prevention and management. It shows that the institutions

represented in the working group are well prepared even for major failures.

BUSINESS DIRECT DEBIT – A NEW DIRECT DEBIT PROCDURE 14

The new Swiss direct debit procedure LSV+ went live at the end of 2005. This year in July, an

additional service based on the former will be introduced: BDD – Business Direct Debit.

DEAR READER

Compliance ClearIT, Edition 27

4 5

ClearIT: Mr. Häni, as the bankingombudsman, you have been dealingwith customer reactions driven byemotion, with deceit and fraud aswell as with misconduct or wrong-doing by banks for ten years now.Where have you observed the mostnoticeable changes during thisdecade?

Hanspeter Häni: In the most general

of terms it can be said that the ban-

king business and – as a result – its

services have become more complex

on the one hand, and on the other,

that an ever increasing number of

bank customers are actually making

use of these services. This leads to a

growing number of potential mis-

understandings. While clients once

had no more than a savings account,

perhaps a medium term bond and a

variable rate mortgage, today stocks,

shares, bonds as well as structured

investment products are on deposit.

Add to that a broad palette of various

mortgage models and credit card

offerings. It is no wonder, then, that

the banking business today poses

much higher demands on all parties

involved. Furthermore, services that

used to be free are increasingly being

charged, leaving the customer to

wonder not simply about those fees,

but also about the banking services

themselves.

«The Swiss Banking Ombudsmanhas a problem: Banks often don’ttake him seriously.» This quote isfrom a publication in summer of2002 and seems to indicate that yourwork wasn’t always met with appre-ciation and understanding. Whatdoes your interaction with bankslook like today?

Isolated negative incidents often

prove very media-effective and dama-

ging to the entire system. Sadly, it is

true that a bank will sporadically

attempt to shirk responsibility on the

assumption that the aggrieved client

will not pursue legal steps or sue

Hanspeter Häni: «Mistakes are made – what matters is how they are resolved».

Compliance

them. This behavior is not only unfair,

it also undermines the system, and

we use our entire influence to prevent

such behavior. Case in point: We are

not afraid to demand that the bank’s

executive management confirm in

writing its apparent misinterpretation

in consideration of our argumen-

tation.

However, we can’t generalize – with a

few exceptions, the interactions with

the banks are indeed very positive:

They are putting tremendous efforts

into correcting mistakes and transpa-

rent communications.

According to your annual report, in2004, 7% of a total of 1,700 inquiriesreferred to the specific area of pay-

ment traffic. If compared with, say,the area of investment consultingand trust administration (24%) pay-ment traffic problems apparentlyrepresented a lower significance. In2005, phishing attacks on Swissbanks and the PostFinance weremuch more of a concern. How havethese frauds affected your work?

Until now, phishing attacks have not

significantly impacted our work. This

may be in part a result of the very

open and fast communications by

those financial institutions affected.

Phishing attacks work because gulli-

ble customers of banks and financial

institutions are tricked into releasing

their passwords to third parties. Simi-

SHORT BIOGRAPHY

lar scenarios occur if individuals write

their PINs directly onto their debit or

credit cards and then lose those

cards or have them stolen. In those

cases, we really are unable to help at

all. Uninformed customers are one

thing, foolish ones another.

What does today’s typical paymenttraffic inquiry look like?

Interestingly enough, as opposed to

other specific areas, there is no such

thing as a typical inquiry from the

payment traffic area. Rather, I could

identify three problems that we keep

being confronted with: First: pay-

ments that didn’t reach the recipient

or «got lost» at the intermediary

Hanspeter Häni was born in Basel, Switzer-

land, in 1950. He obtained his education

there, and graduated from the University in

1976 with a degree in economics. After a

subsequent banking internship at the then

SBC (Swiss Bank Corporation) he worked in

their IT department until 1979. From 1979

until 1986 he predominately dealt with

questions within the technical banking

aspects (security, payment traffic) in his

function as the secretary of the Swiss Bank-

ers Association and wrote various political

petitions on various subject areas. After a

stint at the ZKB (Zürcher Kantonalbank),

Hanspeter Häni became the Head of Com-

pany Organization since the installation of

the Swiss Banking Ombudsman Foundation

on April 1, 1993 and has managed the orga-

nization since September 1, 1995.

THE BANKING OMBUDSMAN HELPS SOLVE PROBLEMS

The Swiss Banking Ombudsman deals with disputes between bankcustomers and their banks – including those referring to payment traffic.It is his expressed goal to restore the trust between the customer and thebank. However, Hanspeter Häni is as invested in preventing conflict asmuch as he is in resolving it after it has occurred.

7

ComplianceCompliance ClearIT, Edition 27

6

correspondence bank. These are all

incidents that can be resolved after

short research. I only know of one

very involved case where a bank fai-

led to thoroughly investigate an erro-

neous booking. As a result, it ended

up being liable and paying the con-

siderable significant attorney’s fees

generated in the process.

Secondly, we have some problems

regarding value dates: It still happens

from time to time that a bank

«steals» a value date by inferring that

this corresponds to their in-house

regulations.

And finally, there are some short-

comings in check collection. Espe-

cially if a check from abroad is issued

for an amount much higher than

agreed with the surplus to be forwar-

ded to a third party e.g. a son in col-

lege. After the funds have already

been disbursed it turns out, that

these checks were not covered, and

the surplus amount is lost.

In contrast with the aforementioned

phishing attacks, the financial insti-

tutions were much more restrained in

their communications in these cases.

According to industry observers,there is uncontrolled growth in ser-vice fees for euro payment traffic.New pricing regulations for cross-border payments are supposed toprovide relief. What have been yourexperiences in this area on the basisof customer requests inquiries?

Fees are always a topic, since costs

are examined very closely. Here, it is

especially challenging for a customer

to realize how the fees are actually

charged. If, for example, for a transfer

of 50 euros there is a service charge

of 30 euros the clients don’t under-

stand that the operational cost for

this transaction are the same as for a

transaction of 1 million euros. We

don’t actually deal with the amount

of the fees – so long as everything is

transparent and it is clear how much

each service costs, the client is able

to choose whether or where he wis-

hes to use that particular service.

The ombudsman’s boundaries areclearly defined: You act as an arbi-trator between the banks and theirclients – without adjudication autho-rity. Were there moments in yourcareer when you wished for moreauthority?

You are right. We are a neutral infor-

mation, arbitration and referral

agency. But we do speak out and

benefit from our immense know-how.

Each one of our staff members can

easily keep up with the experts in his

or her field of experience at the finan-

cial institutions. And we are governed

by a very open set of regulations,

allowing us to obtain access to a

financial institution’s records.

We seek to convince using logic and

common sense. In each final report of

each case, we include our interpreta-

tions alongside the arguments of the

financial institution. In extreme cases

we may go so far as to recommend to

the client to take the case to court. In

some isolated cases, I do wish to

have had more authority. In Rome do

as Romans do: My Canadian counter-

part, for instance, is authorized to

include the names of the offending

parties in the annual report, in accor-

dance with the «Naming and Sha-

ming» philosophy. Having said that,

I believe that such a system would

not be effective here.

But there are times the financial insti-

tutions do tend to overlook our use-

fulness. Numerous complaints are

handled by us without the affected

bank ever being aware of it. Further-

more, we always strive to achieve an

The client must first submit his grievance

directly to the bank and demand a written

reply. If this response is unsatisfactory, the

customer can then address the ombuds-

man, either verbally or in writing. Most

inquiries are placed by telephone and can

be dealt with directly by explaining the

facts at issue. For more complex cases, the

customer is required to submit the appro-

priate documentation. Usually, the

ombudsman subsequently requests com-

plementary explanations and statements

from the bank. In approximately 50% of

those cases, the bank is at fault. In order to

reach an amicable solution or settlement,

the ombudsman may undertake anything

that appears appropriate in his opinion. To

this purpose, he may also request files and

disclosure from the financial institution.

amicable settlement. Instead of

coming to us, the customer could go

directly to the news media with their

issue: That scenario is not really in

the banks’ interest, since that could

quickly create a very generalized per-

ception based on just a very few

cases. I think that, with our profes-

sional work, we make an important

contribution to the overall positive

impression of the Swiss financial

center.

What are the banks’ most frequentmistakes and how – in you opinion –can they be avoided?

(Smiles) Do you want me to be out of

work? Now to be serious: If custo-

mers haven’t already done so when

they approach us, they are first being

referred to the bank by us. Even after

that, we only approach the financial

institution in a third of all the cases

submitted in writing. All other cases

can be resolved directly with the

clients. In half the cases where we

intervene at the bank, the financial

institution actually is at fault. You can

see that inquiries on our part deserve

to be taken seriously. Accordingly,

the acceptance at the banks is high,

as I mentioned before. Nonetheless,

here are my suggestions for the

banks on how to best deal with such

customer inquiries, according to the

motto: «mistakes are made – what

matters is how they are resolved»:

● If a client complains, she/he is to

be taken seriously.

THE BANKING OMBUDSMAN

The Swiss Banking Ombudsman is an

impartial source of information and an

intermediary whose services are free of

charge. He deals with specific complaints

which are raised against banks based in

Switzerland.

The Banking Ombudsman also runs a

Contact Office for persons searching for

dormant assets. Successors of deceased

bank clients can initiate a search via this

centre if they do not know in which bank

the presumed assets are held.

The Swiss Banking Ombudsman took up his

duties in April 1993. Since then his office

has grown and deals with an increasing

number of enquiries (currently over 1,500 a

year). Hanspeter Häni has been the Banking

Ombudsman since September 1, 1995. He is

supported by a multilingual team of

lawyers, economists and bankers.

The office of the Swiss Banking Ombuds-

man is sponsored by the Swiss Banking

Ombudsman Foundation, established by

the Swiss Bankers Association. The Board

of the Foundation is composed of impartial

public figures and appoints the Ombuds-

man. Its president is Dr. Otto Schoch, who

is a former member of the Council of States.

THE COMPLAINTPROCESS

● React quickly to a complaint (e.g.

confirm receipt within three days,

etc.).

● Settle mistakes fairly and con-

veniently; fear of prejudice

against the banks is unfounded.

● Recognize the potential error

source (pattern, single mistake,

system error, reputation (!)).

● In case of errors caused by a

pattern, inform quickly and tho-

roughly (similar to how informa-

tion was dispersed during/after

phishing attacks).

● Do not overlook the client’s emo-

tional state; do not portray the

customer as a liar.

Interview:

Gabriel Juri,

Swiss Interbank Clearing Ltd.,

gabriel.juri@sic.ch

André Gsponer,

Enterprise Services AG,

andre.gsponer@eps-ag.ch

9

EBPP

In 2005, the PayNet network was

expanded by seven canton banks.

Now, the cantonal banks of Vaud,

Neuchatel, Geneva, Valais, Schaff-

hausen, Uri and Schwyz are also offe-

ring e-billing with PayNet as a perma-

nent function of their e-banking servi-

ces. This brings the number of banks

participating in PayNet to 89.

Thanks to the «delivery service yel-

lowbill», billers have been able to

submit electronic bills to PostFinance

e-banking clients via their PayNet

interface since April 2005.

Simple participation for SMBs

Since last fall, there is a simple and

cost-efficient method to send e-bills

to private individuals for those billers

using no invoicing software at all or a

system that doesn’t yet support Pay-

Net access. With the new Windows

application «mammut PayNet», bil-

lers can submit e-bills via their print

function to PayNet, regardless of the

invoicing system they use. The biller

registration is executed conveniently

online via the PayNet registration

portal. The client can record all data

required for network access with a

few simple steps and transmit it to

PayNet. A few days later, the biller is

able to start e-billing. The registration

portal is continually updated to

include additional software solu-

tions.

New billers are introducingthe e-bill

In 2005, the e-billing spectrum

offered has been expanded with the

inclusion of nationally active billers

like UBS Card Center, VISECA Card

Services, sunrise as well as the

health insurance companies Assura,

Philos, Kolping, Sumiswalder, Supra

and Wincare. Several regional invoi-

cing companies were also added,

such as the Services Industriels de

Genève (SIG), a Franco-Swiss power

company, the Transport and Tariff

Association of Northwestern Switzer-

land, as well as some first local

governments (Arboldswil and

Titterten).

Prospect

In 2006, the cantonal banks of

Appenzell, Glarus, Obwalden and

Nidwalden, as well as all the Raiffei-

sen Banks will connect to the PayNet

network. Once the Graubunden

Cantonal Bank joins during the 1st

quarter of 2007, there will be 95

banks participating in PayNet. This

means that in 2007 approximately

90% of all e-banking participants in

Switzerland will be able to receive

and pay electronic bills. And the

number of billers is still steadily

increasing. Additional information is

available at www.paynet.ch.

Martin Frick,

PayNet (Schweiz) AG,

martin.frick@paynet.ch

EBPP ClearIT, Edition 27

8

Last September, the first European

EXPP Summit on the topic «EBPP &

e-Invoicing» was held in Zurich. The

two-day conference was launched by

Billentis, an organization specializing

in EBPP consulting, and organized in

cooperation with Vereon. The event

represents a unique European finan-

cial sector meeting for approximately

220 experts from 22 countries in

Europe, and also included partici-

pants from North America and the

Middle East. Within Europe, there are

currently more than 100 different pro-

ducts for processing e-bills. One

trend emerging clearly is the networ-

king of various systems. Here, too,

the Swiss systems are at the leading

edge with various initiatives.

Registrations for the 2nd European

EXPP Summit on September 25/26,

2006 in Berlin can already be made

at www.expp-summit.com.

swissDIGIN Forum

The project to develop a content

standard for an industry-neutral e-bill

was successfully completed last year.

The participating organizations deci-

ded to continue the activities within

the framework of the swissDIGIN

Forum which was held for the first

time in June. It provides an expe-

rience and communication platform

for the advancement of the electronic

bills between businesses in Switzer-

land. The forum is managed by the

University Of Applied Sciences Of

Northern Switzerland in Basel and its

content and financing is provided by

eleven partners.

Representing some 44 organizations

and businesses were 50 participants,

all eager to exchange their experien-

ces. They discussed the choices and

opportunities to further prepare the

market to this particular topic, to

popularize and spread standards,

and to influence the international

development in e-billing. According

to information provided on

www.swissdigin.ch the next schedu-

led forum will take place on June 21,

2006.

Interconnect yellowbill –Conextrade productive startingMay 2006

The preparations announced this

past summer for the cooperation bet-

ween PostFinance and Swisscom IT

Services are moving along rapidly.

Legal questions have been answered,

commercial aspects defined and the

contracts governing cooperation sig-

ned. IT specialists are currently wor-

king feverishly on the technical

EBPP – ELECTRONIC BILLS ARE ADVANCING FAST

The trend toward electronic billing cannot be slowed down. This becomes evident from theincreasing number of transactions (at yellowbill a doubling of the numbers from the previousyears was achieved) and various new national and international projects.

Simplified participation for billing parties

Since 2005, PostFinance and PayNet can transfer electronic bills between their two systems. Billing parties can enter

all e-bills into one system, regardless whether the bill recipient has a PostFinance or banking relationship. Origi-

nally, this interface worked only for transferring e-bills to private e-banking participants.

Simplified marketing for billing parties

Additionally, for 2006 PayNet and PostFinance have agreed to closer cooperation regarding the promotion and mar-

keting of electronic billing to private individuals. To that end, the e-bill will be moved front and center in all customer

communications. This greatly simplifies the electronic bill promotion and commercialization from the billers to their

customers.

POSTFINANCE AND PAYNET JOINTLY ADVANCE E-BILLING

implementation. A generic data for-

mat based on the swissDIGIN stan-

dard was defined for the data

exchange between the systems. This

permits for data exchange between

the sender and the recipient without

requiring direct reconciliation.

The actual launch date will be toward

the end of May 2006, when the first

e-bills are exchanged by billers –

replete with appropriate sales tax –

via the Interconnect interface bet-

ween yellowbill and Conextrade.

Adrian Sem,

PostFinance,

sema@postfinance.ch

E-BILLING WITH PAYNET NOW ALSO FOR SMBS

The PayNet network was successfully expanded by connecting additional banks and billers.Thanks to new solutions, simple participation in PayNet is now being offered to small andmedium-sized businesses (SMBs).

11

EBPP

chip authenticates the customer. Of

course, it is not possible to issue

electronic bills with this system,

since it is only capable of making

payments. It has been in operation

for over a year now and the number

of customers is increasing steadily.

A similar situation exists beyond the

mass billing environment in the utility

industry: there is only a slow gain in

popularity increase in the use of elec-

tronic billing. While many progressive

companies with numerous suppliers

see the need for EBPP, most of their

small suppliers are still lacking the

appropriate technical tools and

The legal background makes the issu-

ing and acceptance of electronic bills

possible. The technical infrastructure

and expertise are also available. With

the launching of appropriate marke-

ting and roll out efforts, extensive

increases in electronic billing use is

expected in 2006-2008.

Dr. Péter Racskó,

Hungarian Telekom,

racsko.peter.dr@telekom.hu

EBPP ClearIT, Edition 27

10

launched in Hungary. However, it did

not start with a big bang. The reasons

for the comparatively modest deve-

lopment to date include Internet

penetration that is below the EU

average and the low usage level of

the tools necessary for both parties

involved in EBPP.

The Hungarian Telekom Group is a

Hungarian telecommunications com-

pany, the majority of which is held by

Deutsche Telekom. It provides fixed

line and mobile telephony, Internet

and cable television services and first

introduced electronic billing and

EBPP to its customers in May 2005.

Tens of thousands of customers regis-

tered with the company to receive

and to pay their bills electronically for

fixed line and mobile telephones, for

Internet and cable television servi-

ces. Customers cancelled the delivery

of hard-copy invoices after joining the

electronic billing system. They opted

for the use of electronic payment

methods, including direct debit, both

over the Internet or by phone.

The reduction of postal banking

costs, the improvement of timely pay-

ment (payment discipline) and a

decrease of DSO offset the operatio-

nal expenses for the EBPP system.

Hungarian Telekom’s system is a con-

solidation model, which means that

the system can both accept other bil-

lers’ invoices and display them elec-

tronically. Preparations are underway

to connect non-telecom billers to the

system.

The special characteristics of the

Hungarian banking system actually

require individual agreements with

each bank and specific connection to

their systems for the payment of elec-

tronic bills. Obviously, this would be

extremely complicated and it is ac-

tually unnecessary. We therefore plan

to connect only the leading banks to

this system.

There are currently two different tech-

nical solutions for the presenting and

paying of electronic bills. The two lea-

ding Hungarian mobile phone service

providers are operating one of them,

while the other one is an interbank

solution. Public utilities participating

in our system send the account

balance to their registered customers

by mobile phone, and the customer

settles the account by instructing his

bank - from his mobile phone - to

transfer the appropriate funds. The

algorithm stored on his or her SIM

According to the decree, electronic

bills must be issued with electronic

signatures for enhanced security and

with a time stamp, or via electronic

data interchange (EDI). Electronic

bills are to be issued by the common

consent of both biller and customer.

Billers are required to prove the

authenticity of the bill’s origin, the

completeness of its content, its inte-

grity, irreversibility, readability, the

availability of the entitled persons

and the protection of the electronic

bill against illegal access and cancel-

lation. For bills issued with an elec-

tronic signature, the common con-

sent of biller and customer is not

necessary and an agreement made

verbally or over the Internet is suffi-

cient. Written agreement is required

for bills issued in an EDI system. The

regulations regarding the storage of

electronic bills are similar to those for

paper bills. The rules and regulations

listed above correspond to directives

regarding electronic bills adopted by

the European Union.

Electronic billing and EBPPin practice

Following the introduction of these

regulations, electronic billing was

expertise, and above all, there is a

want of motivation. As an easily avai-

lable service, nothing hinders the

dissemination of EDI in Hungary.

Huge potential

At the Fast Moving Consumer Goods

(FMCG) conference held last October,

participants expressed their intention

to issue 50% of their bills amongst

themselves electronically by the end

of 2006. Most of these invoices will

be processed using EDI and the rest

will be signed electronically.

THE STATUS OF ELECTRONIC BILLING IN HUNGARY

The history of electronic billing in Hungary is relatively short. Although the Hungarian parliamentapproved legislation regarding electronic signatures, it did not result in the regular usage thereofuntil the introduction of its legal regulation. The Ministry of Finance decree regulating the issu-ance of electronic bills made electronic billing accessible on May 1, 2004.

HUNGARIAN BILL PAYING BEHAVIOR AS OF THE END OF 2004

Mobilephone

Fixed-line telephone

Communalservice

Internet Cable TV Power0

10

20

30

40

50

60

70

80

90

100

Source: Hungarian Telekom

The chart shows Hungarian public payment habits and gives

an idea of the potential of electronic billing and payment.

N.a.

Cash

Directdebit

Internet

Banktransfer

Paper check viathe Post

70.8 67.6 64.3 63.6 61.0

17.6 20.718.8 20.2 21.9 24.2

8.0 9.9

8.49.4 11.6 12.7

1.3 0.8

5.8

2.0 1.5 1.10.3

60.3

0.8 0.60.5 2.9 0.2

%

13

Business & PartnersClearIT, Edition 27

12 3

Business & Partners

BUSINESS CONTINUITY PLANNINGIN THE SWISS FINANCIAL CENTER

In February 2006, a working group of the Swiss financial sector published a report withrecommendations for crisis prevention and management. The report shows that thefinancial institutions represented within this working group are well prepared, even formore significant failures or larger disturbances. However, several measures were identi-fied that will further enhance the resilience of the financial system.

Overall, the institutions represented in the

working group are well prepared, even in

the event of large-scale disruptions. How-

ever, various areas for improvement

were identified and a set of guiding princi-

ples and measures was defined for busi-

ness continuity planning in the Swiss

financial center:

● In the event of major disruptions, the

management of key financial market

institutions (SIS/SECOM, Telekurs/SIC

and SNB) must be in a position to res-

tore operations within two hours.

Important market participants must be

able to resume critical business pro-

cesses within four hours. For all other

system participants, as far as they are

subject to regulation under the Swiss

Banking Law, the requirements defined

by the Swiss Federal Banking Commis-

sion are applicable in terms of «orderly

conduct of business».

● Creation of an alarm and crisis organi-

zation spanning the financial sector.

The vulnerability of the technical and

operational infrastructure of the

financial system has increased over

the past years. Several factors contri-

buted to that. Processes and systems

were increasingly automated. The

considerable gains in efficiency

require more and more complex data

management systems. The depen-

dence on technology increased as

did the operational risks.

Specific events, such as the terrorist

attack in New York in 2001 or the one

in London this past summer, have

shown, on the one hand, the vulnera-

bility of the financial market infra-

structure and, on the other hand, the

need for adequate measures in the

areas of crisis prevention and mana-

gement. Such provisions are often

referred to as «Business Continuity

Planning» (BCP).

Coordinated proceeding

While the Business Continuity Plan-

ning of individual financial system

participants is of tremendous impor-

tance, the events mentioned above

also showed the need of a coordina-

ted effort for the wholesale financial

market. As a result, business continu-

ity measures were discussed and

agreed upon at the level of the finan-

cial market in several countries. In

2003, a working group was formed

under the direction of the Swiss

National Bank to evaluate the state of

BCP in the Swiss financial sector and

to identify potential improvements.

The working group is made up of re-

presentatives of the major financial

market infrastructures (SIS, SWX and

Telekurs), the major participants in

these infrastructures (Crédit Suisse,

UBS und PostFinance) as well as the

Federal Banking Commission and the

Swiss National Bank.

Working group report

In February 2006, this working group

has made its findings available in a

report published on the Web site of

the Swiss National Bank

(www.snb.ch). The target audiences

are participants of the Swiss financial

market as well as interested parties

outside of Switzerland, particularly

regulatory agencies and international

organizations. The analysis that the

reports are based on is intended to

enhance the stability of the financial

system. The intention is to prevent a

major operation failure of critical

business processes from affecting

the entire financial system. Additio-

nally, the aim is making sure that the

MAXIMUM DOWNTIME

Source: The “Business Continuity Planning in the Swiss Financial Centre” report

Central infrastructures

(Direct impact on all market

participants)

Critical participants

(Direct impact solely in the

own institution; secondary

impact on the entire market

due to size and central

market position)

Other participants

(Impact solely in the own

institution)

e.g. UBS, CS <4h

others <24h

SNBSIC <2hSIS

preparatory measures can take place

effectively in the case of need, and

that a coordinated approach is gua-

ranteed in unexpected incidents.

Daniel Heller,

Swiss National Bank, Zurich,

daniel.heller@snb.ch

MAJOR CONCLUSIONSOF THE REPORT

ClearIT, Edition 27

14 15

Products & ServicesProducts & Services

The combination of LSV+ and BDD enables the financial institutions to specifically customize their product portfolio in the

area of direct debit according to the varying demands of their business clients.

Banks and corporate clients benefit in many respects

Both direct debit procedures grant the creditors crucial advantages vis-à-vis other payment processes.

Right of objection in LSV+,but not in BDD

LSV+ perfectly covers the needs of

creditors in the B2C area. They have

the right to object within 31 calendar

days after notification. With this, LSV+

guarantees the best possible custo-

mer protection. In reality, objections

are rare in LSV+: the number of objec-

tions by the debtors is expected to be

below half a percent of the collection

transactions.

BDD, on the other hand, does not

include a right of objection. Thus, the

creditor can use the funds deposited

immediately after receiving the

appropriate credits and without

restrictions. This corresponds with

the creditor’ requirements for various

business processes in the B2B area.

For example, delivery of goods will

only be executed after payment

receipt is confirmed.

The debtor’s bank is required to ver-

ify the liquidity on the account to be

charged, the identity of the debtor,

the validity of the debit authorization

and accounting number, before pay-

ing a claim from LSV+ or BDD. This

process prevents costly and labor

intensive returns due to technical

banking factors. Consequently, any

returns can only be generated based

on an objection by the debtor.

Modular structure

LSV+ and BDD use the same stan-

dards and regulations and – with SIC

and euroSIC – the same market infra-

structures. Both the conditions for

participation and the debit authoriza-

tions comprise the legal foundation.

The former govern the order proces-

sing between the creditor and his/her

bank. The debit authorization defines

the legal relationship between the

creditor, the debtor and his/her

bank. Both processes are designed to

enhance SIC and euroSIC central mar-

ket infrastructures utilization: The

payment of claims from direct debits

by the debtor’s bank occurs through

normal SIC and euroSIC payment

transfers. This guarantees the best

possible way to benefit from the re-

usability of existing applications and

from the know-how available, which

leads to cost savings for all parties

involved. This in turn contributes to

lower marginal costs per transaction,

which Swiss Interbank Clearing can

pass on to its participating financial

institutions in an appropriate form.

The creditor’s bank determines

whether their clients’ direct debits

are submitted via their own interface

(e.g. by e-banking) or electronically

via Swiss Interbank Clearing.

Christian Schwinghammer,

Swiss Interbank Clearing Ltd.,

christian.schwinghammer@sic.ch● Timely and final receipt of payment is guaranteed: The creditor sets the date upon which the debtor’s account is debited. The creditor can

thus optimize cash management by actively steering the time of payment receipt and due to the same value-date credits.

● Both processes can be used for either Swiss francs or euros. LSV+ and BDD were primarily designed for the Swiss market, but can be

employed by banks, creditors, and debtors in other countries without any problems. The only prerequisite is that both the creditor’s bank

and the debtor’s bank are SIC resp. euroSIC participants.

● Significant time and money savings in administering invoices and collections – a benefit for the creditor.

● All processes are automated, so long as there are sufficient funds in the debtor’s account, there is a valid debit authorization, and all

required account data is available. This results in significant cost savings.

● Credited payments are final and as soon as the funds are in the account, they can be used.

● Financial institutions can use established and standardized processes throughout the billing cycle.

● Direct debits can be submitted either via a financial institution or via Swiss Interbank Clearing.

● The financial institutions can easily communicate the advantages of products based on those two procedures to their own customers.

BDD – BUSINESS DIRECT DEBIT

LSV+, the new Swiss direct debit processing began operation at the end of 2005. This year inJuly, an additional procedure will be available, building on LSV+, the BDD or Business DirectDebit. BDD was created to meet market demand in the B2B area. In essence, the BDD differsfrom LSV+ in that there is no right of objection.

LSV+ AND BDD ADVANTAGES

16

PUBLISHERSwiss Interbank Clearing Ltd., Hardturmstrasse 201,

CH-8021 Zürich, Switzerland

ORDERING/FEEDBACK – ClearIT@sic.ch

EDITION – No. 27 – March 2006

Published regularly,

Circulation German (1300 copies), French (400 copies),

English (available in electronic format only on www.ClearIT.ch)

COUNCILAndré Bamat, CEO, Swiss Interbank Clearing Ltd., Christian Bieri, RBA, Armin

Brun, PostFinance, Boris Brunner, UBS AG, Susanne Eis, SECB, Robert Fluri,

SNB, Andreas Galle, Swiss Interbank Clearing Ltd., André Gsponer (Leader),

Enterprise Services AG, Gabriel Juri, Swiss Interbank Clearing Ltd., Peter Kunz,

Credit Suisse, Ueli Strüby, BCV

EDITORIAL TEAMAndré Gsponer, Enterprise Services AG, Andreas Galle, Gabriel Juri (Leader)

and Christian Schwinghammer, Swiss Interbank Clearing Ltd.

MASTHEAD

TRANSLATIONFrench: Word + Image, English: HTS

LAYOUT – Mirjam Steiner Advertisement Agency

PRINTER – Binkert Druck AG, Laufenburg

CONTACTSProduct Management Swiss Interbank Clearing AG

+41 44 279 47 47,

Customer Service Swiss Euro Clearing Bank GmbH

+49 69 97 98 98 35

Additional information about the Swiss payment traffic systems can be found on theInternet at www.sic.ch.

Swiss Banking Operations Forum

The next payment traffic seminar organized by the Swiss Bankers Association (SBA) will take

place on June 2, 2006, in Zurich. Its focus: «The European payment traffic guides Swiss banks

towards a new awareness». The following topics will be discussed: current status of the single

euro payments area (SEPA) and its repercussions on Switzerland, Basel II with regard to pay-

ment traffic services, and switching to LSV+ from the banks' point of view.

Additional information about this seminar will be provided by the SBA or on www.sic.ch.