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The Single Euro Payments Area and payment innovation

The Single Euro Payments Area and payment innovation. Johannes Priesemann Head of Payment Systems Policy Division. Magyar Nemzeti Bank, 19 November 2004. Two topics:. 1. Retail payments: Single Euro Payments Area and payment innovation. 2. Large value payments: TARGET2.

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The Single Euro Payments Area and payment innovation

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  1. The Single Euro Payments Area and payment innovation Johannes Priesemann Head of Payment Systems Policy Division Magyar Nemzeti Bank, 19 November 2004

  2. Two topics: 1. Retail payments: Single Euro Payments Area and payment innovation 2. Large value payments: TARGET2 2

  3. Single Euro Payments Area (SEPA) by 2010 fully established and SEPA services as option for citizens by 2008 In the euro area innovation shall be taken benefit of: pan-European payment solutions should be leading in terms of efficiency and safety 1. Retail payments - 2 streams: integration and innovation 3

  4. Message of EC Regulation 2560/2001 1. SEPA: EC regulation • All payments in euro are domestic payments: Single Euro Payment Area (SEPA) • Regulation covers all payments in euro also in countries that have not adopted the euro as their currency • No price difference anymore between national and cross-border payments for cards (since July 2002) and for STP credit transfers up to EUR 12,500 (since July 2003) 4

  5. TOMORROW ECB's objective SEPA YESTERDAY EC Regulation • Transparency & • Competition Profit margin TODAY "CREDEURO" Loss Efficiency gain Profit margin Processing costs Processing costs • Efficient • pan-European • infrastructure Profit margin Processing costs Processing costs NATIONAL PAYMENTS CROSS-BORDER PAYMENTS PAN-EUROPEAN PAYMENTS 1. Consequences of the EC regulation “From Regulation to a real SEPA” 5

  6. Z Z Z Y Y Euroarea country: Y X X € ACH X € Corporate customer Bank € “National payments ” “Cross-border payments ” PEACH • 12 different files • 12 formats (incl. BBAN) • 1file • 1 format (incl. IBAN) € € € Payment initiation (national standard) Payment initiation (no standard) € reconciliation (national standard) reconciliation (no standard) All euro area banks Flows of money & information: 1. SEPA : Present state of payments integration 6

  7. Citizens should be able to make payments throughout SEPA from a single bank account, using a single set of payment instruments, as easily and safely as in the national context today. The Eurosystem’s vision for the SEPA is that all euro area payments should become domestic, and reach a level of safety and efficiency at least at the level of the best performing national payment systems today. 1. SEPA Objective 7

  8. euro area customer euro area bank Payment initiation (ePI) “Credeuro + PEDD” € Automatic reconciliation € “in the euro area all payments are domestic” PEACH • 1 file • 1 format (incl. IBAN) • all payments € € € € Flow of money & information All euro area banks 1. SEPA for citizens and corporates 8

  9. Reconfirm the white paper of May 2002 and present a convincing project plan with realistic milestones • Define pan-European schemes for credit transfers (Cred/Prieuro), direct debits (PEDD) and cards agree on and employ standards (IBAN) • Make national migration plans by mid-2005 • Make pan-European instruments available also for national use from 2008 (SEPA for citizen) 1. SEPA: Our expectationstowards the banking industry 9

  10. 1. SEPA: Our expectations towards the banking industry Complete SEPA by consolidating national infrastructures into a few remaining PEACHES by 2010 (SEPA for the infrastructure) 10

  11. Assist national banking communities in making national migration plans by mid-2005 Contribute to the local implementation of SEPA objectives Monitor progress of the national migration to SEPA for the citizens 2008 and SEPA for the infrastructure 2010 1. SEPA: Central Banks’ contribution 11

  12. The Eurosystem has pushed for SEPA since 1999 Improving cross-border retail payment services in the euro area - the Eurosystem’s view, September 1999 Improving cross-border retail payment services - Progress report September 2000 Towards an integrated infrastructure for credit transfers in euro, November 2001 (ECOFIN report) Towards a Single Euro Payments Area - 2nd Progress report, June 2003 and a 3rd Progress report expected to be published still in 2004 1. SEPA: List of relevant publications 12

  13. location & needs Private consumer Sports, hobby, leisure Gastronomy Shop access devices /initiation Home PIN etc. Working place Transport & travel Biometric access Home Other digital devices (flash, stick, cam, player, console …) ATM PKI certificate Interactive TV Desktop Kiosk Magnetic card & reader contactless chip IDTV RFID Laptop Mobile Phone communication networks Organizer Smart card & reader Infrared(IrDA) Bluetooth Fixed analogue line Radio Frequency Fixed high-speed line (xDSL) Wireless Local Area Network ISDN Means of payment(deposits, e-money,others) Mobile networks (GSM, GPRS, UMTS) WAP clearing & settlement World Wide Web CLS E-Mail SMS, MMS SWIFT National Direct Debit Credit card processing PEDD Pre-funded Pay later Debit card processing Real time Batch processing CREDEURO Invoice & debit Gross settlement National Credit Transfer counterparts Netting National ACH Data & digital goods providers PE-ACH Government Service providers Retailers,merchants,outlets Banks/ financial services Other persons 1. Innovation leads to diversity of options 13

  14. Cost-benefit / risk distribution? Consumer protection? Level playing field for all EU countries? Merchant interests? Addressing changes in transaction needs? Safety? Substitution effects? Core Principles Compliance? Availability? Competition between different institution types? Efficiency? Social exclusion? Lisbon Agenda? Privacy? Shadow economy? Changing preferences / habits? Redeemability? Terrorist financing? Money Laundering? Externalities? Monetary order? Trust in currency? Network effects? 1. Innovation raises questions of public interest 14

  15. Card-based e-money B2C, new: P2P/server-based Cheques 1% Paper-based P2P, B2C, B2B; Truncation & substitution 15% Direct debits B2C, G2C… (trust/liability requirements) 23% Credit/debit cards P2P, B2B,new: integrated B2C 31% B2C (e-commerce, cash substitution), new: P2P Credit transfers 30% Blue Books addendum incorporating 2002 figures (2004) 1. Observing payment innovation Relative use of cashless payment instruments in EU-25, according to total number of transactions (2002 figures) 15

  16. i.e. improve and facilitate co-ordination, provide analysis and information Articles, issues papers, events, newsletter “Payments and Settlements News” (P+S-N)” Re-launch of the electronic Payment Systems Observatory (ePSO, www.e-pso.info) in 2003 Offering online databases, discussion forum Work to improve statistics (beyond Blue Book), first results envisaged next year Facilitate the development and adoption of EU-wide standards for the whole payment cycle Single Euro Payments Area (SEPA) - observer at the e and m payments task forces (EPC) 1. ECB activities as innovation-related catalyst 16

  17. Users’ request for more harmonised service level • Cost recovery problem • Adaptability problem • EU enlargement • Credibility of the Eurosystem AMPLIFIES 2. The reasons for building TARGET2 17

  18. Customer Migration Process Customer Migration Process Customer Migration Process 2003 2004 2005 2006 2007 Definition phase General functional specifications (GFS) Detailed functional specifications (DFS) Development phase (technical implementation) Testing phase Tests with users: - Credit institutions - Market infrastructures - Central banks = country window (wave) 2. Current status and future milestones 18

  19. 2. TARGET2 features and functionalities (I) What will remain? • Direct business contacts between central banks and their banks • SWIFT-based messaging • No upper or lower value limits • Broad customer base 19

  20. 2. TARGET2 features and functionalities (II) What will be new? • “Single platform” system • More robust and resilient system • Harmonised interfaces for the connection of the users to TARGET2 • Same core service for all TARGET2 participants • Single price structure • Flexible liquidity management 20

  21. 2. TARGET2 features and functionalities (III) “Single platform” system • all central banks will use the same technical platform • Central Banks remain responsible for the accounts of “their” banks and for the business relationship • Cross-border transactions processed in same way as domestic transactions • Availability of “TARGET-wide” liquidity saving features 21

  22. 2. Oversight of TARGET2 Oversight of TARGET2 • Project is being reviewed against the Core Principles for systemically important payment systems (BIS “CP”) • Initial assessment of the design of TARGET2 project against Core Principles is ongoing (CP III, IV, V, VI, VIII and IX) 22

  23. 2. Information on TARGET and TARGET2 • TARGET brochure, October 2004 • http://www.ecb.int/pub/pdf/other/target_brochure_update_2004en.pdf • Future developments in the TARGET system (ECB Monthly Bulletin April 2004) • http://www.ecb.int/paym/pdf/target/future/mb-target2-future.pdf • TARGET2 brochure, October 2004 • http://www.ecb.int/pub/pdf/other/target2_brochure_update_2004en.pdf • TARGET2 presentation – Sibos, October 2004 • http://www.ecb.int/paym/html/sibos2004target2presentation.pdf • Article on TATGET2 – Sibos, October 2004 • http://www.ecb.int/paym/pdf/target/future/sibos_article_en.pdf 23

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