Roadmap for the Single Euro Payments Area: Public-Private Sector Cooperation

1. www.europeanpaymentscouncil.eu Roadmap for the Single Euro Payments Area Public – private sector cooperation Gerard Hartsink Chair - European Payments Council UN/CEFACT Geneva, 16 February 2012 1

2. Agenda • Expectations ECB, EC and European Parliament • EPC commitment and deliverables • EPC cooperation model and communication • Conclusions 2

3. SEPA vision ECB and EC * • Vision: “An euro area in which all payments are domestic, where the current differentiation between national and cross-border payments no longer exists” • Expected deliverables for the Euro area (EU17): • SEPA credit transferand SEPA direct debit • Additional European Card Scheme • E-Payments and m-Payments ** • Objectives Payment Services Directive • The EU needs to create a single market for payments • Benefits for users and providers • Enhanced competition by opening markets • Encouraging innovation • Increased market transparency • Ensuring a level playing field * 7th Progress Report 2010 and ** PSD 2008 3

4. European Parliament Resolutions 12 March 2009 and 10 March 2010 ▪“Emphasises its continued support for the creation of SEPA, which is subject to effective competition and in which there is no distinction between cross-border and national payments in euro; ▪Calls on the Commission to set a clear, appropriate and binding end-date, which should be no later than 31 December 2012, for migrating to SEPA instruments, after which all payments in euro must be made using the SEPA standards; 4

5. ECOFIN Council2 December 2009 • REITERATES the importance of and its support for the full realisation of theSingle Euro Payments Area (SEPA), which aims at achieving an integrated and competitive internal market for euro payments for the benefit of citizens and businesses and in this regard WELCOMES the Communication from the Commission: "Completing SEPA: a Roadmap for 2009-2012" ....... 2WELCOMES the substantial progressachieved by industry with the successful launch of the SEPA Direct Debit (SDD) following the earlier launch of the SEPA Credit Transfer (SCT); 5 CALLS upon industry to complete its work in relation to the outstanding technical standards required in the cards market by mid 2010, ……. 5

6. COMMISSION OF THE EUROPEAN COMMUNITIES SEPA Roadmap* • 1. Foster migration • 2. Increase SEPA awareness and promote SEPA products • 3. Ensure a sound legal environment and strengthen SEPA compliance • 4. Promote innovation • 5. Ensure necessary standardisation, interoperability and security • 6. Clarify and improve SEPA governance: SEPA Council 1. enhance stakeholder participation and consultation 2. increase transparency 3. enlarge membership to payment institutions * European Commission, 10 September 2009 and ECOFIN 2 December 2009

7. SEPA Regulation (1) • The SEPA Regulation: In December 2010 the European Commission tabled proposal for ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros’ • In February 2012 the European Parliament adopted the SEPA Regulation, which will be endorsed by the Council of the European Union in March 2012 (publication in the Official Journal of the EU) • Deadline for migration to SEPA • 1 February 2014 for euro area countries • 31 October 2016 for non euro area countries • February 2016 niche productsin euro countries 7

8. SEPA End-Date Regulation (2) SEPA End-Date Regulation (2) Points in SEPA RegulationRequired review and actions • IBAN and BIC● Review of Rulebooks and Implementation Guidelines required • SDD mandatory mandate checking● Obligation for Scheme Participants obligations● Optional feature in SDD Rulebook to be reviewed • Mandatory use of ISO 20022 XML● B2C Implementation Guidelines are standards for Payment Service Users recommended and not mandatory • Empowerment European Commission● Impact on Rulebooks (master agreement) technical requirement through delegated act ● Impact on Implementation Guidelines with ISO Standards ● Impact on ISO Standards • Review of SEPA governance● EPC governance is not the same as SEPA governance ● EPC proposal to SEPA Council

9. Green Paper 11 December 2011 “Towards an integrated European market for card, internet and mobile payments” • Objective: “……… to validate or contribute to the commissio’n’s analysis and help the right way to improve market integration” • Drivers: - more competition - more choice and transparency for consumers - more innovation - more payment security and customer trust • Follow up: “proposal, if applicable, will be adopted by Q4, 2012 or Q1, 2013”

10. Agenda • Expectations ECB, EC and European Parliament • EPC commitment and deliverables • EPC cooperation model and communication • Conclusions

11. Competitive and cooperative space in SEPA (two side market) Competitive Space Competitive Space Cooperative Space Bank A Bank B Priority Payments Public Administrations Public Administrations Credit Transfer   Corporates Corporates DirectDebit SME’s SME’s Merchants Merchants Card POS Transaction Consumers Consumers Card ATM Transaction Cooperative space for Business Rules Cooperative space for Standards 11

12. SEPA Credit Transfer & SEPA Direct Debit • Three layer structure: competition and/or cooperation • Payment services layer to customers by banks (competition) • Scheme layer: rules and standards for SCT and SDD (cooperation) • Processing layer inclusive clearing and settlement (competition) • Rulebooks and Implementation Guidelines • Rulebook = master agreement for scheme participants • Implementation Guidelines = MIG (Message Implementation Guideline) based on ISO 20022 and ISO Identifier Standards (BIC ISO 9362 and IBAN ISO 13616) • Current releases : Nov 2011 (Approvedreleases from 17 Nov 2012) • SCT version 5.1●SCT version 6.0 • SDD version 5.1 ● SDD version 6.0 • SDD B2B version 3.1 ● SDD B2B version 6.0

13. SEPA Credit Transfer & SEPA Direct Debit • Scheme Management Committee (with an independent Chair) approves Scheme Participants • SCT Implementation • So far over 4491 SEPA Credit Transfer Scheme Participants • So far about 20% of the euro credit transfers have been migrated to SCT • SDD Implementation • So far 3912 SDD core and 3384 SDD B2B Scheme Participants • So far about 1% of the euro direct debit transfers have been migrated to SDD 13 13

14. Customer Stakeholder Forum • Objective - alignment on functionalities of SCT and SDD schemes and Implementation Guidelines - CSF is not a forum inside the EPC, but a forum of the buy-side and the supply-side for the EPC Scheme Management • Co-chaired - Chair End User Committee - Chair EPC • Participants EUC - Corporates : EACT, Business Europe, FAEP, CEA - Retailers : Eurocommerce - SME’s : UAPME - Consumers : BEUC - Public Administrations : None • EPC Scheme - Chair, Vice-chair SPS (and some members), Chair SSG, Management EPC Secretary General • Observers - ECB and European Commission 14

15. SEPA for Cards • The ECOFIN concluded on 2 November 2009 “calls upon the industry to complete its work in relation to outstanding technical standards required in the cards market by mid 2010,….” • The EPC has no policy or mandate to create an additional European Card Scheme as asked for by the European Public Authorities • The EPC created the SEPA Cards Framework* • enable European customers to use general purpose cards to make payments and cash withdrawals in euro throughout the SEPA area with the same ease and convenience than they do in their home country, • no differenceswhether they use their card(s) in their home country or somewhere else within SEPA, * SEPA Cards Framework: approved June 2006

16. SEPA for Cards Framework: principles and standards • SEPA Cards Framework (version 2.1 December 2009) • Provides a single framework for the payment function of cards for • Banks • Card schemes • Service providers • Clarified in 17 Q&A’s (Published 11 June 2008) • SEPA for Cards objective requires more standardisation (SCF 3.6.3) • SEPA Cards Standardisation Volume: Book of Requirements • version 6.0 approved December 2011 • volume 7 expected December 2012

17. Book of Requirements: standards • BoR: requirements for card standardisation, security and certification • Functional requirements (BoR chapters 1 - 4) • Security requirements (BoR chapter 5) • Certification: SEPA Cards Certification Management Body (SCCMB) (BoR chapter 6) • Focus to adopt openglobal standards • Cooperation and alignment with partners: EMV, PCI, ISO

18. Cards Stakeholders Group • Objective - Combine the efforts of all stakeholders for the “SEPA for Cards” objective • Co-chaired - Chair retailers team Chair EPC Cards WG • Participants - Representatives with technical expertise from the different stakeholders in the cards value chain - Five representatives of five groups of stakeholders: ◦ banks ◦ retailers ◦ scheme owners ◦ vendors ◦ operators • Observers: - ECB and European Commission * Approved June 2009 18

19. Agenda • Expectations ECB, EC and European Parliament • EPC commitment and deliverables • EPC cooperation model and communication • Conclusions 19

20. COMMISSION OF THE EUROPEAN COMMUNITIES Governance cooperation: SEPA Council Representatives of suppliers Representatives of the public sector Representatives of buyers Objectives: • Promote Realisation SEPA Vision • Monitor and support migration process • Promote product innovation to meet the needs of end-users FSC: public administration

21. SEPA Governance model COORDINATION CHALLENGE: STAKEHOLDERS ARE EUROPEAN AND/OR NATIONAL Buyers Public Sector Suppliers SEPA Council Corporates ECB European Commission EPC Consumers European Level • Promote SEPA vision • Support migration • Promote innovation SMEs Public Admins - SEPA - SEPA Design Design - Euro - Legal Payments Framework Policies - Oversight - Rulebooks - Frameworks Merchants National SEPA Committee National Customer Associations Corporate Associations NCB National Government National Banking Associations National Level • Communication • Migration Planning • Implementation Consumer Associations Public Admins Merchants Associatons 21

22. EPC Organigram 2011 * Alignment with other stakeholders ** Decision-making bodies *** Strategy and process body 22

23. Stakeholders involvement * CSF: since Q1, 2011

24. SEPA End-date Regulation: Recital 5 "Self-regulatory efforts of the European banking sector through the SEPA initiative have not proven sufficient to drive forward concerted migration to Union-wide schemes for credit transfers and direct debits on both the supply and demand sides. In particular, consumer and other user interests have not been taken into account in a sufficient and transparent way. The voice of all relevant stakeholders should be heard. Moreover, this self-regulatory process has not been subject to appropriate governance mechanisms, which may partly explain the slow uptake on the demand side. While the recent establishment of the SEPA Council represents a significant improvement to the governance of the SEPA project, fundamentally and formally governance still remains very much in the hands of the European Payments Council (EPC). The Commission should therefore review the governance arrangements of the whole SEPA project before the end of 2012 and where necessary make a proposal. This review should examine, inter alia, the composition of the European Payments Council (EPC), the interaction between the EPC and an overarching governance structure, such as the SEPA Council, and the role of this overarching structure."

25. SEPA Governance – EPC Proposal SEPA Council EC/ECB + Supply (Banks / PIs) and Demand (Users) • «Owns» the SEPA project, • decides on priorities and • arbitrates disagreements between stakeholders Political layer The operations of stakeholders structure could be subcontracted to «NewOrg» under the SEPA Council responsibility. Stakeholders*: structure «à la CSG1» established and managed by the SEPA Council *Banks in SEPA are one sector in a layered, multi-stakeholder structure E-payment² Multi-stakeholderrealisation layer Mobile Payment² Cards² Cash² SCT, SDD Core, SDD B2B² Scheme Management adherence and compliance functions for SEPA Schemes (SCT, SDD Core, SDD B2B....). To be further discussed EUROPEAN INTERBANK LAYER Stakeholderspositioning and organising layer Other stakeholders Current EPC to be reorganised; «NewORG» to serve the banks for the cooperative space of payment services³: • Forms industry position in stakeholders’ structure and SEPA Council discussions • Provides technical support at stakeholders’ request • Inspired by the functioning of the ‘Cards Stakeholders Group”. • Current work items (i.e. E-payments, mobile, etc.) are illustrative and may evolve in future. • Concept of cooperative space for payment services to be clarified.

26. EPC Communications • EPC Shortcut Series: • Shortcut to SEPA • Shortcut to Who is Who in SEPA • The Most Popular Misunderstandings about SEPA – Clarified • Shortcut to the SCT Scheme • Shortcut to the SDD Schemes • Shortcut to SEPA Data Format • Shortcut to SEPA Cards Framework • Shortcut to Business (10 Best Reasons to Practice SEPA) • Shortcut for the Public Sector (10 Best Reasons to Practice SEPA) • Shortcut for Merchants (10 Best Reasons to Practice SEPA) • EPC Brochures: • SEPA for Business • SEPA for Consumers • SEPA Direct Debit for Consumes • SEPA for IT Providers • SEPA for the Media • SEPA for the Public Sector (available in all EU languages courtesy of ECB and national central banks!) • EPC on Social Media • Follow EPC on Twitter • Join EPC on LinkedIn • Read the EPC Blog • Free Online EPC Newsletter • EPC Videos and Podcasts

27. Agenda • Expectations ECB, EC and European Parliament • EPC commitment and deliverables • EPC cooperation model and communication • Conclusions 27

28. Conclusions • SEPA will create a single market for euro payments and enhance competition as asked for by the ECOFIN, the Governing Council of the ECB and the European Parliament • SEPA is created via co-regulation • for legislation by the public authorities (Payment Services Directive) • for business rules and standards by market participants • SEPA will be achieved with the SEPAend date regulation on 1 February 2014 • SEPA implementation is taking care of by the SEPA Committees in the 17 Euro countries and the additional 15 SEPA countries with support of the SEPA Council • The standardisation program for cards, e-payments and mobile payments is complex. The European Public Authorities are not happy with the progress made so far and published a Green Paper