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SEPA and PSD: Achieving an Integrated European Payments Market

This presentation discusses the Single Euro Payments Area (SEPA), the Payment Services Directive (PSD), and their impact on achieving an integrated European payments market. Topics covered include SEPA products, migration, and the benefits of harmonization.

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SEPA and PSD: Achieving an Integrated European Payments Market

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  1. De Nederlandsche Bank Single Euro Payments Area and the Payment Services Directive Michael van Doeveren 2nd Conference of the Macedonian Financial sector on Payments and Securities settlement Systems Ohrid 29 June 2009

  2. Agenda • What, why and how about SEPA? • SEPA-products • Payment Services Directive • Impact of SEPA • Migration • Closing remarks

  3. In 16 countries the Euro........ Euro area € € € € € € € € € € € € € € € €

  4. .....but completely different standards, products and rules for retail payments… € € € € € € € € € € € € € € € €

  5. and the goal of the European Union is to achieve an integrated European payments market EU € € € € € € € € € € € € € € €

  6. What is SEPA? Political vision: The euro area will be an internal ´domestic´ market for retail payments generate scale economies and promoting competition Concretely: European payment instruments for both cross-border and domestic payments in euro: credit transfers, direct debit and cards

  7. Why SEPA? European Politics • Improvement European economy: Lisbon agenda Economics • Internal market: volume and competition Banks • To prevent ‘further regulation’ after Regulation 2560/2001 • Especially Cross-border banks can profit from new market circumstances

  8. How to realise SEPA? • Self-regulation: European Payment Council of banks develops standards and products • Payment Services Directive: legal harmonisation

  9. EPC Technical harmonisation Two kinds of agreements in EPC: 1. About interbank processing: • Credit transfer rulebook • Direct debit rulebook 2. Restructuring of the market: • SEPA Cards-framework (SCF) • Clearing & Settlement Framework • Single Euro Cash Area

  10. Payment chain debit credit payment instruction payment information bank bank clearing payment information credit debit payment instruction seller buyer good/service

  11. BIC • BIC: Bank Identifier Code • Issuing agent (on behalf of ISO): SWIFT I N G B N L 2 A X X X Branch code Bank code Country code (ISO) Location code BIC8 BIC11 BIC: standardised construction

  12. IBAN • IBAN : International Bank Account Number • Administrator of Register of national IBANs (on behalf of ISO): SWIFT Country code (ISO) Check digit Bank identifier Domestic account Number • Remarks: • The Bank Identifier in an IBAN is country specific • The length of the bank identifier varies from country to country • Each country has its own Basic Bank Account Number system • Summary: • Country code and check-digits : uniform • Bankidentifier and BBAN : country specific

  13. IBAN examples IBAN Examples Finland FI2112345600 0007 85 France FR14200410100505 0001 3M02 606lengte 27 Germany DE893704 0044 0532 0130 00 IrelandIE29AIBK93115212 3456 78 Luxembourg LU280019 4006 4475 0000 NetherlandsNL91ABNA 0417 1643 00lengte 18 Norway NO938601 1117 947 Poland PL611090 1014 0000 0712 19812874 lengte 28 United KingdomGB29NWBK60161331 9268 19 (composition: country code check digitsBankidentifier branchindentifier BBAN) Source: www.swift.com 20080811 IBAN Registry • Remarks: • IBAN and BIC contain both bank identifiers, but they could differ • IBAN and BIC contains both a country code, but they could differ

  14. SEPA Credit Transfer (in use since 28 January 2008) • SEPA Credit Transfer: Standard for bank to bank credit transfers in euro (mass payments) • Payments are made for the full original amount • IBAN and BIC are obliged • ISO 20022 UNIFI standards (XML-language) • 140 characters of remittance information are delivered to the beneficiary • Unstructured or restructured remittance information as agreed between partners

  15. SEPA Direct Debit(coming from 1 November 2009 on) • SEPA Direct Debit: Standard for bank to bank Direct Debits in euro • Payments are made for the full original amount • IBAN and BIC are obliged • ISO 20022 UNIFI standards (XML-language) • One-off or recurrent • A mandate is signed by the debtor (e-mandate) • Pre-notification (mostly 14 calender days in advance) • Refunds (PSD: 8 weeks) and returns

  16. Competition on cards in SEPA

  17. Point-of-sale card payment system

  18. SEPA Cards FrameworkPolicy scope (1) • Seperation of scheme governance from underlying processing • Open non-discriminatory scheme membership • Single, pan-European license • Open and transparant pricing policies • EMV-implementation: Chip and PIN implementation shift for all cards by end 2010

  19. SEPA Cards FrameworkPolicy scope (2) • A common approach to fraud and reporting • Standardised processes and procedures for card acceptance and certification • Convergence of scheme rules for common non-competitive aspects • References the Payment Services Directive • Common, consistent experience for all cardholders at POS and ATM • Merchant choice of card type accepted • Interoperability and all merchant SEPA card acceptance

  20. SEPA for cardsVision of the Eurosystem (1) • The Consumer can choose between different debit card brands • The Merchant can choose which debit cards brands he or she accept • The cards market is competitive, reliable and efficient, as well as for card holders, merchants as for processing • More aspiration is needed in the SEPA for cards: need for an additional European debit card scheme • Further card standardisation is vital

  21. SEPA for cardsVision of the Eurosystem (2) • All technical and legal barriers are eliminated • Interchange fees should not be misused to generate excess revenues for the banking system, at the costs of merchants and cardholders • Preference for no MIF-model: see for example the MasterCard and VISA cases • Ideal situation: ‘Any card at any terminal’

  22. Need for Standardisation!

  23. Standardisation SEPA for Cards • Card to terminal (EMV) • Terminal-to-acquirer (EPAS, ERIDANE) • Acquirer-to-issuer (ISO 8583 and ISO 20022) • Certification of cards and payment terminals

  24. Options for SEPA Compliancy • Select one (or more) of the international schemes to replace the current national schemes • Make national schemes SCF-compliant • Co-branding of national systems with international systems

  25. Initiatives for additional European Card schemes • PayFair:merchant initiative • EAPS: cooperation of national schemes • Monnet: French and German banks • Transforming a three party payment scheme? • Other?

  26. Impact of SEPA for cards Consumers • Use of cards in the whole SEPA area: any card at any terminal Retailers • More choise: terminal, acceptance of brands, acquiring Banks and payment schemes • Change of markets, new products, new systems

  27. Milestones Credit transfer and Direct debit • European Rulebooks are the basis for products of the banks • Framework for clearing and settlement • Credit transfers from 28 January 2008 on • Direct debit from end 2009 on Cards • SEPA Cards Framework • After 2010 only SEPA-cards

  28. Role public sector • SEPA is a project banks: self-regulation via EPC However… • European Commission • Payment Services Directives • Public users are the early adopters • Eurosystem: catalyst role • 6th Progress report November 2008

  29. Legal harmonization: Payment Services Directive Content: • Proportional supervisory regime for non-bank payment service providers • Transparency requirements • Rules about the relationship of the payment service provider and user

  30. Payment Institution What is a payment institution? Non bank provider of payment services, and: End users Transferable balances: no cash Owns customer funds temporarily Pure intermediary Payments are a main activity

  31. Payment institutions Proportional prudential supervision License Capital requirements Internal processes

  32. Rights and obligations Information requirements - single payment transactions Information to the payer priorafter receipt Transaction Identifier, payee Amount of the payment Charges payable exchange rate used Date of receipt order Information needed Execution time Charges Reference exchange rate Information to the payee Reference, payer Amount Charges Exchange rate Credit value date

  33. Rights and obligations Information requirements - Payments via framework contract prior after receipt Information for payee Transaction identifier, payee Amount Charges Exchange rate used Debit value date Payment service provider Supervisor Product features Charges Safeguard requirements Transaction identifier, payer Amount Charges Exchange rate used Credit value date

  34. Rights and obligations Other obligations for the provider d + 1 No sending of unsolicited payment instruments User provides incorrect unique identifier: reasonable efforts to recover funds And more..

  35. Rights and obligations Obligations for the user Act according to the contract Reasonable safety measures Direct notification of loss/theft And more..

  36. PSD wrap up PSD provides harmonisation of: • Market access: besides credit institutions and electronic money institutions also payment institutions • Rights and obligations • Implementation in national legislation ultimately 1november 2009

  37. Potential for SEPA compliancy NL

  38. Impact of SEPA Consumers • Use IBAN and BIC • Use of cards in the whole SEPA area Firms (private and public) • Easier cash-management and administration • Standard formats (ISO 20022 XML) • Use of IBAN and BIC • Centralisation of accounts and direct debits Retailers • More choise: terminal, acceptance of brands, acquiring Banks • Change of markets, new products, new systems

  39. Benefits of SEPA • Efficiency, level playing field and transparency lead to cost benefits for society in the long run • Reduction costs for average user of payment services in Europe • Comfort/User-friendliness • Innovation

  40. Migration • Aim: a smooth migration to SEPA • To organise nationally • Market driven • Speed can differ between countries • Stakeholder involvement and communication are important tools for success • Need for an end date

  41. Migration Plan of the Netherlands • Objective: an orderly and efficiently change over from domestic payments to SEPA • Scope: all existing payment instruments for which there is a SEPA-alternative • Consequences and choices for different stakeholders • Market driven migration • Identifying barriers, changes and solutions • Mid 2009 evaluation: an end date can foster migration

  42. Points of concern SEPA National Forum on the Payment System • Price developments • Range of options open to consumers and retailers, caterers and other regarding debit card brands • User-friendliness of migration to IBAN and BIC • Safety of SEPA direct debit • Prolongation of direct debit contracts and mandates • Standardisation in the Bank-client domain • Interbank Swich support service • Dispute handling • Accessibility of the noncash payment system • Consultation process

  43. Closing remarks • The first phase of SEPA (SCT) was introduced succesfully on 28 January 2008 • SEPA will transform the European landscape • SEPA is good and has benefits for all users! • Legal harmonisation is essential • Implementation and transition will be planned carefully • End date can stimulate the migration • SEPA will raise further dynamics: e-invoicing, e- and m-payments etcetera

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