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STEP2 A Pan-European ACH for the Single Euro Payments Area

STEP2 A Pan-European ACH for the Single Euro Payments Area. Payment Systems Conference, Budapest, 9th October 2003. Overview. EBA history and background. High-level overview of EURO1 and STEP1. STEP2 objectives, benefits and participation. STEP2 and SEPA. Introduc tion.

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STEP2 A Pan-European ACH for the Single Euro Payments Area

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  1. STEP2 A Pan-European ACH for the Single Euro Payments Area Payment Systems Conference, Budapest, 9th October 2003

  2. Overview • EBA history and background • High-level overview of EURO1 and STEP1 • STEP2 objectives, benefits and participation • STEP2 and SEPA

  3. Introduction • EBA was founded in 1985 • by 18 commercial banks and the European Investment Bank • today : more than 190 members from all EU countries and the US, Switzerland, Norway, Australia, Japan, China • 18 years of experience in • operating a cross-border payment system with the BIS as • Settlement Agent (till end-1998) and the ECB (since 1999) • consensus building and decision making within a • pan-European, industry owned organisation

  4. Introduction • Successful migration to the euro • development of the EURO1 and STEP1 system • creation of EBA Clearing Company as operator of the • system, 74 EURO1 banks are shareholders • Association pursues its mission with further initiatives

  5. Introduction The EBA Group  EBA Euro Banking Association EBA Clearing Operator of EURO1/STEP1/ STEP2 EBA Administration S.A.

  6. Introducing EBA The Euro Banking Association’s mission • to initiate further interbank cooperation arrangements • inrelation to payments infrastructure needs • to serve as a forum for the practitioners in the • euro payments industry • to carry out studies and research to increase the • general knowledge and awareness of the euro • payments industry

  7. Introducing EBA Clearing The mission of EBA Clearing • to develop and implement processing arrangements • for new pan-European payment schemes • to ensure that services delivery conforms to the • highest levels of cost-effectiveness, robustness and • resiliency • to facilitate the migration of the banks’ payment • traffic from domestic to pan-European platforms

  8. The EBA … a source of private sector initiatives for pan-European payment infrastructures • a meeting place of practitioners • capable of building consensus • creating commitment • delivering solutions

  9. Overview • EBA history and background • High-level overview of EURO1 and STEP1 • STEP2 features, benefits and participation • STEP2 and SEPA

  10. EURO1 and STEP1 Two schemes for single payments processing, operated on one technical platform provided by SWIFT EURO1 Participants settle with ECB, extend to each other credit lines to create liquidity, share risk, collateral EURO1 STEP1 Participants settle with a EURO1 Settlement Bank, liquidity is provided by the Settlement Bank STEP1 Processing of single payments

  11. EURO1 and STEP1 Two schemes for single payments processing, operated on one technical platform provided by SWIFT 74 Direct Participants 42 Sub-participants EURO1 >190 Direct Participants (incl. EURO1 Banks) STEP1 8000+ directly addressable BICs Processing of single payments

  12. Daily average value (EUR bn) - 200 - 180 EURO1/STEP1 Traffic Daily average volume (000) 160 - 140 - 120 - 100 - 80 - 60 - 40 - 0 - x1000 Q2 Q3 Q4 Q2 Q3 Q4 Q1 Q2 Q1 Q1 Q1 Q2 Q3 Q4 2000 2001 2002 2003

  13. EURO1/STEP1 platform Key facts Second-largest high-value system in the world in terms of volume Settlement at the European Central Bank Includes all major players of the European payments industry Evolution towards Flexible Settlement Capability

  14. Overview • EBA history and background • High-level overview of EURO1 and STEP1 • STEP2 features, benefits and participation • STEP2 and SEPA

  15. The starting point A new Single Currency Area … with proper pan-European arrangements for high-value payments, - but deeply fragmented infrastructures for low-value payments, different standards and business practices, legal environments

  16. What infrastructure approach ? DON’T WANT WHAT WE

  17. What infrastructure approach ? … a truly pan-European platform !

  18. STEP2 key features a pan-European ACH connecting directly or indirectly the banks from all EU countries distribution of payment instructions to any bank operating in the EU, no need to maintain routing tables for payments in EU highly automated, based on new pan-E. standards and latest technology, simple to operate, minimising bank internal costs integrated liquidity position for EURO1/STEP1/STEP2 open to progressive integration of domestic traffic

  19. Sending cut-off Settlement cut-off D-1 22:00 D 7:00 8:00 STEP2 processing cycle Receiving files from participants Processing of settlement payments in EURO1 Validation of files and of instructions Sending one file to each addressed participant Sorting per ad- dressed participant, creating reject file Calculation of bilateral obligations Generation of settlement payment orders, transmission to EURO1/STEP1 Creation of outgoing file for each addressed participant Files not settled are returned Time line

  20. 1 1 STEP2 Participation Modes EURO1 STEP1 1 1 funds file file STEP2 1. Direct Participants : Banks sending to and receiving from STEP2 files directly

  21. STEP2 Participation Modes EURO1 STEP1 1 1 2 STEP2 1. Direct Participants 2. Indirect Participants : banks in the EU that have appointed a STEP2 direct participant to receive files and funds on their behalf

  22. 1 1 STEP2 Entry Point Direct Participants acting as country Entry Point EURO1 STEP1 1 3 3 file 3 STEP2 1. Direct Participants 2. Indirect Participants 3. Other banks : Routing of payments to any other bank in the EU via STEP2 Direct Participants acting as Entry Points for a country

  23. STEP2 ramp-up Direct Participants in STEP2, since live date in April 2003 Banca Intesa Banco Bilbao Vizcaya Argentaria Banco Commercial Portugues Banco Espirito Santo Banco Popular Español Banco Santander Central Hispano Bank Austria Creditanstalt Banque Fed. du Credit Mutuel Barclays Bank BCEE CECA Commerzbank Credit Commercial de France Deutsche Bank Dresdner Bank EFG Eurobank HSBC Hypovereinsbank ING Bank ING Belgium JP Morgan Chase Bank La Caixa National Bank of Greece Nordea Bank Danmark Nordea Bank Finland Rabobank Nederland SanPaolo IMI Société Générale Sydbank Unicredito Italiano WestLB

  24. STEP2 ramp-up Banks joining in October 2003 as Direct Participants Banca Pop. Verona e Novara Banca Popolare di Milano BNP Paribas Caixa Geral de Depositos Capitalia Caja Madrid Credit Agricole Credit Lyonnais Credito Bergamasco Danske Bank Den norske Bank Deutsche Bundesbank Dexia – BIL Fortis Bank KBC Bank Natexis Banques Populaires Österreichische Nationalbank SEB Swedbank 760+ Indirect Participants by the end of 2003

  25. STEP2 admission cycle Live Declarationof interest Letter confir- ming interest Complete legal and technical documen- tation Test & training registration Bank internal preparations Briefing sessions in EBA 8 weeks scripted testing - 1 - 5 - 4 - 6 - 2 months

  26. STEP2 admission cycle Joining windows in 2004 8 March 5 July 8 November Indirect Participants join on a monthly basis

  27. STEP2 ramp-up Receiver Capability as of 31/12/03 STEP2 Direct Participants in 14 EU countries act as Entry Points to ensure country wide distribution of payments coming from STEP2

  28. STEP2 receiver capability Country Entry Points Dir. Particip. as of Nov 03 as of Nov 03 Austria 2 2 Belgium 1 3 Denmark 3 3 Finland 1 1 France 2 7 Germany 4 6 Greece 2 2 Ireland - - Italy 4 7 Luxembourg 2 2 Netherlands 1 2 Portugal 3 3 Spain 6 6 Sweden + 2 United Kingdom 1 3

  29. EU 25 Receiver Capability as of 31/12/04 STEP2 Direct Participants in 14 EU countries act as Entry Points to ensure country wide distribution of payments coming from STEP2

  30. Overview • EBA history and background • High-level overview of EURO1 and STEP1 • STEP2 features, benefits and participation • STEP2 and SEPA

  31. Where do we have to go ? The Single Euro Payments Area !

  32. Challenges and opportunities • SEPA : a change of scale or changes of horizons ? • How equal are banks vis-à-vis • - scale driven cost saving potentials ? • - opportunities emerging from de-fragmentation • and broadening business horizons ? • En route to SEPA : which sort of business cases for • abandoning domestic standards/infrastructures and • creating new ones ? • New infrastructures : the difficult balance between the need • for consensus, the need for leadership and market driven • consolidation.

  33. STEP2 : a migration project Step2 not only provides a solution for the future pan-European mass payments processing … … Step2 also offers a variety of paths to individual banks and bank communities for migrating their traffic to PEACH !

  34. Market Practice A User Group Specific Market Practice B User Group Specific MGS Type: MT103+ Amount : € 12.500 STP Beneficiary Account Identification: IBAN + BIC Guaranted execution timeframe Others . . . PAN - EUROPEAN ACH SLA MODEL ex. All the elements of the common standard code Maintanined, except the amount : € 250.000 . . . ex. Amount : € 250.000 STP Beneficiary Account identification: BBAN (Clearing Code + Acc. number ex. RIB) . . . STEP2 and EPC Concentric Model Market Practice ...X User Group Specific Core Market Practice: Common Standards

  35. STEP2 key features Innovation and value for SEPA A new technology : InterAct and FileAct, SWIFT XML Standards for Bulk Payments A new business platform : a pan-European ACH supporting the new pan-European payment instruments A new customer proposition : low cost, secure and rapid payment services across Europe for retail customers

  36. STEP2 and SEPA The next steps … • « ... the Pan-European Infrastructure WG should ensure that the following milestones are respected : ... • By mid-2003, the pan-European infrastructure should be • operational for cross-border STP compliant credit transfers. • By mid 2004, 50% of current cross-border credit transfers • volumes should be processed on the pan-European • infrastructure as well as, potentially, domestic payments from • countries with no ACH infrastructure. • By mid-2005, the pan-European infrastructure should • accommodate new Euro direct debit schemes. • By 2007, the agreed target service levels as defined should • be met (e.g. same day settlement). » (Excerpts of S.E.P.A. Workshop report, March 2002)

  37. EURO1 STEP1 STEP2 The EBA vision Different blocks … for settlement : for processing: direct single payments, same-day, STP and non-STP, credit&debit indirect payment files, STP credit&debit

  38. The EBA vision … one integrated offering EURO1 STEP1 STEP2

  39. The EBA vision … one integrated offering The EBA Payments Processing Center for the SEPA Direct settlement Indirect settlement Single payments Bulk payments A broadly based clearing and settlement services provider open to all financial institutions in the EU for processing single and bulk payments in euro

  40. The EBA Payments Processing Center www.abe.org

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