1World Bank payment system conference, Washington, 29 May 2007

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Trade offs in Payment Systems

Henrik ParlWashington, 29 May 2007

Cooperation versus competition

World Bank payment system conference, Washington, 29 May 2007 2

Key message

• It is virtually impossible to provide a global bank and remittance payment solution without a cooperative approach.

• Co-competition is the key to success

• Commercial interest must be the key driver for system interoperability, not technology. Key ingredients:– Commercial framework– Products & standards– Reach

World Bank payment system conference, Washington, 29 May 2007 3 * Shareholder

60 connections in 49 countries

AL Posta Shqiptare sh.a.AT * BAWAG P.S.K.AU ANZ BankBA Nova BankaBE * Financial PostBG Bulgarian PostsBG Finance EngineeringBR Empresa Brasileira de Correios e Telégrafos -

ECTCA National Bank of CanadaCA Canada Post CorporationCH * PostFinance/Swiss Post CV Cape Verde PostCN China PostCZ CSOBDE * Deutsche PostbankDK SydbankEG CIB (Egypt) S.A.E.ES BBVAES Correos y TelegrafosFI ING/Postbank (EUR transfers)FR * La Banque PostaleGB * Alliance & Leicester Commercial Bank plcGB VisaGR Hellenic PostGR EFG Eurobank ErgasiasHR Croatia PostHU Magyar PostaIE * An PostIL Israel Postal CompanyIS * Póstgíró

IT * Poste ItalianeIT Banca Popolare di SondrioJP Japan Post, Postal Savings Business

Headquarters KR Korea PostLU * EPT LuxembourgLV Latvia PostMA Banque Centrale PopulaireMA Barid Al MaghribMN XacBank NL * ING/PostbankNO ING/Postbank (EUR & NOK transfers)NZ ANZ National BankPH Philippine Postal CorporationPL ING/Bank SląskiPL Polish PostPT * CTT Correios de PortugalRO Banc PostRO Posta RomanaRS Postal Savings BankSE ING/Postbank (EUR & SEK transfers)SI Postna Banka SlovenijeSK Postova BankaSN PostefinancesTG Societe des Postes du TogoTH Thailand Post CoTR Turkish PostTN La Poste TunisienneUS American Express BankUS Deutsche BankUS Federal Reserve Bank

World Bank payment system conference, Washington, 29 May 2007 4

Monthly transactions

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

World Bank payment system conference, Washington, 29 May 2007 5

The new Eurogiro mission

Connectivity

Dedicatedlinks

SWIFTCUG

Eurogiro

Eurogiro is a commercial company that actively

promotes and catalyzes bilateral and multilateral business opportunities

among its

Alliances & Members

BanksPostal

Non-Fin.Inst.

Alliances

Regions

Products

CardPayments

Credittransfers

MoneyOrders

Direct debits

customers in retail financial services and

wholesale banking worldwide with the aim

to constantly add business value to the

whole Eurogiro community

World Bank payment system conference, Washington, 29 May 2007 6

Eurogiro – providing interoperability

Gateway of business opportunities for Eurogiromembers:

The Eurogiro SWIFTNet Closed User Group- Exchange transactions in FileAct format with any

SWIFTNet member and any Eurogiro member on the same system;

- Access from SWIFT system to (postal) members with ELS systems and access from ELS system to (banking) members with SWIFT system

Eurogiro Select solution- Access for non-banks through dedicated network

The Eurogiro/Visa solution- Receive payments from Visa card holders; additional

volume and revenue to the Eurogiro members

WSBI (Savingsbanks) co-operation on remittances

World Bank payment system conference, Washington, 29 May 2007 7

Eurogiro – providing connectivity (cont.)

The FED-Eurogiro Partnership- Incoming traffic (from potentially any US bank) with fee and

foreign exchange income- Live in pilot phase.

Eurogiro/Postal org. – The Eurogiro Cash International (ECI)- New revised two-day cash product mixing Track & Trace

techniques and Eurogiro bulking principles- Can be exchanged electronically between the UPU/IFS

network and the Eurogiro network

Eurogiro/Western Union – Urgent Cash- Support from Eurogiro of the Urgent Cash product of

Western Union- Option to connect to Western Union through the Eurogiro

ELS interface- Nearly 30 Eurogiro members as Western Union agents and

strong volume growth

Multilateral settlement: ESSP and USSP

World Bank payment system conference, Washington, 29 May 2007 8

Example 1: Low cost connectivity of non-banks

Host system

Eurogironetwork

Modem

PC terminals

Prod. system

Test system

Cisco 1721 VPNencryption

Hub

Multitech Modem for remote configuration

Normally disconnected!

Printer

Eurogiro deliveryMember’s network

ELS ApplicationInstallations CD

ELSVer. x.x

World Bank payment system conference, Washington, 29 May 2007 9

Example 2: linking postal and banking world

Eurogiro is approved as a CUG administrator on SWIFTNet allowing SWIFT members to connect to Eurogiro using their SWIFTNet connection

Eurogiro SWIFT

GatewaySWIFTNet

EurogiroCUG

EurogiroNetwork

World Bank payment system conference, Washington, 29 May 2007 10

Valicert

Eurogiro MemberFED

ELS

Example 3: Dedicated link to US ACH

103-10Nacha

103-10

network

Nacha

Store Nacha files and transaction numbers

Forward advices for reconciliation. The EFI will reconcile with the received

Nacha files and send MT910

ELS returns MT011. ELS part of EFI will reconcile with sent

MT103-10

Settlement

NachaNachaNacha

Nacha

There is a 1-to-1 relation between Nacha file and

MT103-10

World Bank payment system conference, Washington, 29 May 2007 11

UK Sender

GermanBank

UK Bank

GermanBeneficiary

Visa Direct

EG Settlement

Bank - ESSP

7 MT103-20

8MT103-20

6CFT

Example 4: Links between card and bank world

1

4 AFT

3AFT+CFT

5CFT

2Auth

VisaNet

Visa DirectSettlement

Bank

GB-GBPFR-EURDE-EUR

9MT202

10MT910

World Bank payment system conference, Washington, 29 May 2007 12

Example 5: Links to remittance organisation

InternetELS

WUdatabase

Eurogiro interface

CSC

Domestic

PO

e-bankingcustomer

Eurogiro

POPO

PO

POPO

PO

Host

ELS screens

Local screens

World Bank payment system conference, Washington, 29 May 2007 13

Example 6: Settlement interoperability

Member BMember A

22 Cover Message MT202

Debit advice MT900

33

D EUR/USD 1000

C EUR/USD1000

ESSP/USSP

A/C A A/C B

Credit advice MT910

3344

Statements of account MT950

44Statements of

account MT950

1

EUR/USD payment instructions[Eurogiro Envelope, MT103]

World Bank payment system conference, Washington, 29 May 2007 14

Examples of key interoperability projects

• SEPA– Cards & ATM’s– Credit transfers– Direct debits

• Global Payment Framework (linking banks and ACH’s)

• Asian regional ACH• SWIFT remittance standards project• BIS/WB remittance standards

World Bank payment system conference, Washington, 29 May 2007 15

‘Co-competition’ could be solution

• Co-operative space– Infrastructure & connectivity– Reach– Products & standards (WB/BIS)– Lobbying & compliance

• Competitive space– Customers and fees– Added value services– Branding

No single organisation can cover first, intermediary and last mile for

payments. With Co-competition can work together at the infrastructure level while still competing for the customer

16World Bank payment system conference, Washington, 29 May 2007

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