The Change-over to SEPA Michiel van Doeveren

1. The Change-over to SEPA Michiel van Doeveren SixthMacedonian Financial Sector Conference on PaymentsandSecuritiesSettlement Systems Ohrid, 1-3 July 2013

2. Agenda • Background of Single Euro Payments Area (SEPA) • SEPA products • SEPA Migration • National Forum on SEPA migration SEPA communication • Concluding remarks

3. What is SEPA? One single market forretailpayments in euro in 33 countries 3

4. Why SEPA? • Logic completion Internal Market • To enforce European economy • Mandatory by European Regulation • End date: 1st February 2014

5. SEPA, what is it? • Political vision: One internal “domestic” market for euro retail payments, generating economies of scale and promoting competition • Aim: Consumers and businesses will be able to make and receive payments in euro within Europe under the same basic conditions, rights and obligations, regardless of their location • Concretely: European payment instruments for both cross-border and domestic payments in euro: credit transfers, direct debit and cards. This also means the end of all domestic payment instruments.

6. SEPA: before… • The euro is the common currency of 17 countries today • But retail paymentsare still organised nationally € € € € € € € € € € € € € € € € €

7. … and after • Auniform Euro Payments Market • With common standards for bank account numbers, credit transfers, direct debits, and more… € € € € € € € € € € € € € € € € €

8. SEPA, how? • Self-regulation by European banks in European Payments Council: • Common rules and standards for euro payments in Europe • Legal harmonisation of all European legislation: • Payment Services Directive for euro and non-euro payments • End date(s) for national payment instruments

9. What specifically will change? • Account number becomes International Bank Account Numbers (IBAN) • SCT becomes standard for credit transfers • SDD becomes standard for direct debits • XML becomes technical standard (ISO 20022) Clear but with a major impact

10. Pros and cons Internal (euro) market for retail payments In the long run • More choice processors and providers payment services • Scale effects in processing • Increased competition and innovation • Decreasing costs of payments In the short run • More efficient cross border paying and collecting • Cross border collecting by direct debit • Centralisation of accounts But........ • Nothing ventured, nothing gained • Cross border euro payments < 2% of total payments • Migration mainly domestic process • Difference in current levels of efficiency

11. ECB: SCT indicator Q1 2013

12. National SCT indicators

13. National SDD indicators There is no breakthrough in a majority of countries

14. ‘’Traffic Lights’’ SCT Traffic lights: SCT SEPA migration has been successfully completed by all representatives SEPA migration is in progress SEPA migration has not started yet

15. ‘’Traffic Lights’’ SDD Traffic lights: SDD SEPA migration has been successfully completed by all representatives SEPA migration is in progress SEPA migration has not started yet

16. Status SEPA Migration Belgium Banks Big billers PA SMEs Banks Big billers PA SMEs

17. Germany Status SEPA Migration Germany Banks Big billers PA SMEs Banks Big billers PA SMEs

18. Spain Status SEPA Migration Spain Banks Big billers PA SMEs Banks Big billers PA SMEs

19. The Netherlands Status SEPA Migration The Netherlands Banks Big billers PA SMEs Banks Big billers PA SMEs

20. IBAN • IBAN : International Bank Account Number • Administrator of national IBAN registers (ISO): SWIFT Country code (ISO) Check digit Bank identifier Domestic account number • Notes: • The bank identifier is country-specific • The length of the bank identifier differs from country to country • Each country has its own Basic Bank Account Number system • The Netherlands has an 18-digit IBAN

21. SEPA Credit Transfer • EPC Interbank standard for credit transfers in euro 2008 • Main characteristics: • Payments are made for full original amount • IBAN and BIC • ISO 20022 UNIFI standards • 140 characters of remittance information are delivered to beneficiary • Unstructured or restructured remittance information as agreed between partners • End dates: • 1 February 2014 (31 October 2016 for non-euro countries)

22. SEPA Direct Debit • EPC Interbank standard for direct debits in euro - introduced in 2009 • Main characteristics: • Payments are made for full original amount • IBAN and BIC • ISO 20022 UNIFI standards • One-off or recurrent • A mandate is signed by debtor (option: e-mandate) • Pre-notification (14 calendar days in advance) • Refunds (PSD: 56 days) and returns • End dates: • 1 February 2014 (31-10-2016 for non-euro countries) • No domestic MIF after 1 February 2017

23. Information flows and choice of channel Basis: business-to-consumerrelationshipwith business as initiator Business deliverspaymentinstructionsto bank andreceivesreports back Customer’schoice of channeldrivenbyvariousconsiderations: Timing: carefullydeterminewheninstructions are executedandfast account reporting; Functionality: paymentproductsand formats (from back office) as desired; Completeness: correct reference information in instructions (end-to-end) andreports (forautomatedreconciliation); Secure: payment files cannotbemanipulated. Clearing & Settlement Report Report Payment instruction

24. Channels • Banks offer theircustomersvariouschannelsforexchangingpaymentinstructionsand account information • Choice of channeldepends in part on type of customer (retail, wholesale), productsusedand volumes • Mainchannels • Paper • Internet banking • Client application • Bulk channel

25. 1. Paper Features Forms (based on BBAN) for initiation Account statements for reporting Only for very low volumes High cost per transaction Generation and processing by customer not computerised Impact of SEPA Adjust forms to IBAN Report must include mandatory information (rule books), including IBAN, reference, (original) initiator Examples Supported by most banks, used by customers with little computerisation or non-standard instructions (e.g. urgent payments) Clearing & Settlement Report Report Payment instruction

26. 2. Internet banking Features Automation by banks Manual input of payments or upload Reporting on screen or downloaded Limited volumes (100-1,000 tx/day) Limited integration possible with back office systems Impact of SEPA Adjust screens (IBAN) and upload and download format (to XML) Bank decides migration date Bank can offer central migration support services Examples Almost all banks have extensive websites Clearing & Settlement Report Report Payment instruction

27. File formats will change under SEPA • Current situation: national formats for payment instructions and reporting • Additional information in SEPA messages, does not fit current formats: • IBAN (SCT, SDD) • Creditor scheme identifier (SDD) • Mandate information (SDD) • Therefore, change to ISO 20022 XML for SEPA products: • Payment instructions: mandatory via PAIN messages • Reporting: CAMT messages (not mandatory) • Banks’ own reporting formats permitted provided they meet SEPA requirements

28. SEPA for Cards • EPC Cards Framework • Ideal situation: ‘Any card at any terminal’ • Schemes which are accepted throughout Europe • Open non-discriminatory card scheme membership • Uniform pan European processing for all schemes and processors • Options for SEPA Compliancy • Make national schemes SCF-compliant • Replace national by international schemes • Co-branding • Initiatives for additional European Card Scheme • Safety • EMV-implementation: Chip and PIN code

29. SEPA for cards: policy issues (Green Paper) • Multilateral interchange fees (see following slides) • Transparency on fees • Co-branding • Central licensing, issuing or acquiring • European POS-terminal • Honour all cards rule • Blending • Chip-only cards • Mobile payments • Access to Bank Accounts (Dual Consent-approach)

30. How do Dutch consumers pay when abroad?

31. How do Dutch consumers make cross-border payments?

32. Cross-border payments by Dutch consumers: trends and attitudes • Differences in the use of debit cards at home or abroad have declined • Growing satisfaction with debit card use abroad • Debit cards are seen as safer and easier to use than cash • Acceptance levels do leave some room for further improvement • For cross-border payments, online banking is seen as the safest option • For ease of use, credit cards score highest • PayPal is considered the cheapest and fastest means of payment • Satisfaction with the costs of cross-border payment through online banking has increased in recent years

33. Organisation of the NFS National Forum on SEPA Migration (NFS) High-level consultations Task Force SEPA Netherlands Programme Agency Providers Users Software suppliers Supporting parties Umbrella organisations Individual parties Stakeholders represented in nationalmigration via umbrellaorganisations Programmelinkedtomigrationactivities of umbrellaorganisations

34. National Forum on SEPA-migration (NFS) • All stakeholders involved • Information-exchange and binding appointments • Activitieswith respect of • planning migration • communication • monitoring • Signalingandsolving of socialmigrationproblems • Three levels: Board, Technical and a Programme Office

35. Activities NFS 2011-2014 • Impact analysis SEPA Regulation (2011) • New National SEPA Migration Plan (2011) • Establishment of NFS (2011) • Projectsandactivities (2012-2014) • Central communicationcampaign • Stimulating the development of SEPA-proof software • National governance • Exchange of experiences • Identifying and resolving migration issues and risks • Monitoring SEPA change-over

36. National Migration Plan 1 February: end date for migration to SCT and SDD Infrastructure ready for mass migration Specifications for basic product range for business users SDD meets Regulation’s consumer protection requirements SCT SDD 2012 1-10 2013 1-3 1-7 2014 Banks Adjust infrastructure to European payment instrument requirements Possible use of niche products beyond end date Support user migration Adjust applications Software suppliers Support user migration Wholesale SCT users Early movers Mass migration Small-business SCT users Early movers Mass migration Wholesale SCT users Early movers Mass migration Small-business SCT users Early movers Mass migration Consumers Increasing use of IBAN Communication Communication by umbrella organisations, intermediaries, banks Public information campaign

37. SEPA – General remarks Full migration per 1-2-2014 remains the common goal The Netherlands will not make use of waiver possibilities Banks and software companies under pressure to be ready in time, preparations are in order; ultimately end of Q2 2013 the basic payments infrastructure will be ready for full mass migration. Major concern is congestion close to the end-date.

38. Aim of the SEPA Migration Monitor Insightinto the status of SEPA migration ofcorporates, public authoritiesand software suppliers 1. Awareness of the meaningandimplications of SEPA Stage of preparations Actualuse of SEPA paymentinstruments Development of software packages

39. SEPA-preparations

40. SEPA Communication campaign • To improve knowledge on IBAN and products • Three stage rocket: - General public campaign - Umbrella organisations with members - Enterprises & organisations with clients • Timing: milestones

41. SEPA communication Public information campaign: Iedereen krijgt een langer rekeningnummer. Uw bedrijf dus ook. Houd er rekening mee. Everyone will have a longer account number. Including your business. Take it into account.

42. Campaign website

43. Toolkit • Banner • Factsheet/flyer • Animation(s) • Campaign logos • SEPA checklist for firms • Source texts • Set of Q & A • Helpdesk • Radio and TV commercials • Template impact analyse

44. Information More information via www.overopIBAN.nl & www.sepanl.nl

45. Concluding Remarks The SEPA-migration is under way.The success of SEPA depends on • Timely implementation of the National Migration Plans with respect to the end date for national payment instruments (SEPA-Regulation) • Well organised stakeholder involvement and consultation • SEPA for Cards means ‘Any card at any terminal’ - this requires time • Further European standardisation, which is not easy • What is coming after 1 February 2014?

46. Discussion points • What are the advantages of SEPA for different market parties? • What are possible barriers for the migration to SEPA for market parties? • How could SEPA governance be organised on an European and national level? • What could be the next wave of SEPA products after 1 February 2014? • How could countries outside Europe profit from SEPA?