© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Local and Pan European ACH –
Promise versus Reality
Kris Koppelman, VP, Global Treasury Management
MNAFP
April 24, 2012
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Agenda
Treasury management – U.S. vs. Europe
Payment methods by country
Pan-European payments systems
SEPA
The future of European payments
Questions?
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2
Treasury management
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Treasury Management – U.S. and Europe
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U.S. Europe
Payment and collection systems
Nationwide - No regional differences whether clearing check or making ACH payment
Country-specific and pan-European
Float
Check float. Funds not immediately available
Beneficiaries can expect to receive value immediately when payment hits their account
Accounts
Corporate accounts earn ECR or interest
Corporate accounts pay interest
Lockbox
Used to consolidate collections and accelerate postings
Not common, guaranteed clearing of checks through integrated central clearing system
Positive pay
Necessary protection against check fraud
Unnecessary with most payments electronic
Direct debit
NACHA Rules: Consumers have 60 days to return. Fact: If item truly is unauthorized, can be returned any time
Guarantee. Consumer protection is open ended, which has promoted acceptance
Mobile Bank mobile apps, Google Wallet, PayPal wallet in early stages
Europe ahead of U.S. in use and adoption.
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Treasury Management – U.S. and Europe U.S. Europe
Payment and collection systems
Nationwide - No regional differences whether clearing check or making ACH payment
Country-specific and pan-European
Float
Check float. Funds not immediately available
Beneficiaries can expect to receive value immediately when payment hits their account
Accounts
Corporate accounts earn ECR or interest
Corporate accounts pay interest
Lockbox
Used to consolidate collections and accelerate postings
Not common, guaranteed clearing of checks through integrated central clearing system
Positive pay
Necessary protection against check fraud
Unnecessary with most payments electronic
Direct debit
NACHA Rules: Consumers have 60 days to return. Fact: If item truly is unauthorized, can be returned any time
Guarantee. Consumer protection is open ended, which has promoted acceptance
Mobile Bank mobile apps, Google Wallet, PayPal wallet in early stages
Europe ahead of U.S. in use and adoption.
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5
Payment methods by country
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The U.S. and the U.K.
U.K. – 6th largest trading partner of U.S.
U.S is largest investor into U.K.
U.K.-U.S. trade = $107.1B in 2011
U.S. exports to U.K. = $55.9B in 2011
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Sources:british-american-business.com; Census.gov, U.S. International Trade Data ukinusa.fco.gov.uk/en/business/economic-relations/key-facts
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Payments in U.K.
Cash
– Payment volumes projected to fall 27% 2009-2018
Checks – Business usage down 32% since 2004
– Still 3.1 mm check transactions per day
Cards – Account for over 60% of non-cash payments
– 2012 debit card transaction value should exceed cash
Electronic payments
– Make up 33% of non-cash payments
Mobile
– First contactless mobile payment service for consumers launched May 2011
Source:.Bank for International Settlements
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U.K. payment systems
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• U.K. ACH for GBP
• Debits and credits
• For future-dated payments
• No float (debit and credit occur on day 3)
• Widely used for vendor and payroll
• Customers have multiple entry point options
• U.K. wire system for GBP
• Real time Gross Settlement System
• Urgent and large payments
• Premium service for immediate finality of payment
• Introduced in 2008
• Consumer driven – retail and Internet
• Threshold limit GBP 100,000.00
• Corporations mainly use Bacs as it is cheaper than
Faster Payments
• Large urgent payments can be transferred only via CHAPS
Faster Payments
CHAPS
Bacs
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U.K. payment systems
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• U.K. 2/4/6 Rules • D+2 you will be given credit, which can offset debits and begin to earn interest, if applicable • D+4 You can pay away the funds • D+6 the funds will not be debited unless you make this request, funds are full and final
• Card payments are increasing in use in the U.K. • Debit cards used widely • Credit cards increasing steadily • Pre-pay card schemes in use across the U.K. • T&E cards not as prevalent in the U.K., typically reserved for for very large spends
Check & Credit Clearing Company
U.K. Card
Association
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Payments in France
Cash
– Low usage
– French made 236 cashless transactions per year versus EU average of 157
• 99% of population has bank accounts
Checks
– Still popular
Cards
– Account for almost 38% of payments (over 5.6B)
Electronic payments
– Growing in popularity
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Source:.Bank for International Settlements
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Payments in Germany Cash
– Makes up most consumer transactions
Checks
– Historically a low level of check usage
Cards
– 130mm cards; 120mm have a debit function
– 82,700 ATMs – 1 for every 900 people
Electronic payments
– The main payment type for corporations
– Gaining popularity with consumers
Direct debits
– Make up nearly 40% of non-cash transactions Source:.Bank for International Settlements
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Payments in Nordic region
Cash – Used so little that Finland once considered abolishing
Checks – Rarely used, being driven out
• Banks in some countries don’t issue checks to customers
• Cashing a foreign bank check is possible but expensive
Cards – Dominant form of payment
Electronic payments
– giro (bank-to-bank transfers)
• International, inter-connected giro system in use since 1950s
• Account for nearly 90% of all payment value
Direct debits
– Popularity and usage vary by country
Mobile
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Source:.Bank for International Settlements
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Payment preferences by country Type U.S. U.K. France Germany Nordics
Cash To decline $200B by 2015*
<50% consumer payments by 2015**
Low: 99% banked
>50% consumer payments
Minimal
Checks World’s highest usage but declining
High Business use falling
Popular Low Rare to none
Cards 60% non-cash payments
>60% non-cash payments
38% of payments
High Dominant
Electronic >17% of non-cash payments
33% of non-cash payments
Growing Credits main corp method Debits 40% of non-cash payments
Giros = 90% of payment value
Mobile Just starting up
Just starting up
Usage 2nd to Asia
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*Source: Aite Group, 2011, "The Less-Cash Society: Forecasting Cash Usage in the United States.“
** Source: U.K. Payments Council
Use of main payment instruments in EU
2000-2009
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0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Card payments
Credit transfers
Direct debits
Cheques
Number of transactions per year in billions, estimated
Source: European Central Bank
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Pan-European payment systems
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The euro
Launched in 1999
– 17 countries use the euro as their national currency
– Euro zone includes more than 332 million people
Goal for the euro
– To create a harmonized financial community where citizens of Europe can cross borders, from a payment and collection perspective, easily and efficiently
European Central Bank (ECB)
– Manages the euro
– Has sole authority to set monetary policy
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Pan-European payment systems
ACH: SEPA, STEP2, Eurogiro
Wires: TARGET2, STEP1, EURO1
Checks: no plans to create pan-European check processing system due to declining check use
Individual countries continue to operate national payment systems until February 1, 2014
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SEPA (Single Euro Payment Area) Countries
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Euro zone European
Economic Area (non Euro)
Non Euro EU
Austria
Belgium
Cyprus
Estonia
France
Finland
Germany
Greece
Ireland
Italy
Luxembourg
Malta
Monaco*
Netherlands
Portugal
Slovakia
Slovenia
Spain
Iceland
Liechtenstein
Norway
Switzerland
Bulgaria
Czech
Republic
Denmark
Hungary
Latvia
Lithuania
Poland
Romania
Sweden
U.K.
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SEPA (Single Euro Payment Area)
Benefits
Cross-border payments possible across the euro zone
Most banks have access to SEPA credits
U.S. companies can access by establishing an account in the European Union
Cheaper than wire payments
Settlement has to occur D+1
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SEPA (Single Euro Payment Area)
Limitations/considerations
Banks within the euro zone have had little incentive to move away from local systems
Some companies reluctant to migrate to SEPA, waiting for SEPA payments to become mandatory
Not every European financial institution is reachable
SEPA Direct Debit is still in its infancy, many banks are still using national systems for this purpose until 2014
SEPA card framework will be introduced to harmonize cards across the zone in 2012
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SEPA usage volumes in euro zone
SEPA Credit Transfers = 25% of total credit transfers
SEPA Direct Debits = less than 1% of total direct debits
March 2012 – SEPA migration end-date of February 1, 2014 was set by the European Parliament
Will banks and corporate customers be ready in two years?
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Source: European Central Bank SEPA Indicators
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Managing SEPA Direct Debit Risk
Regulatory requirements for return timeframes differ from the U.S. standard
Consumers are protected by the right to return:
– 8 weeks, no questions asked
– 13 months for unauthorized transactions
SEPA B2B direct debit
– 13 months for unauthorized transactions
Managing “R” transactions
22
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Managing SEPA Direct Debit Mandates
Different warranties and obligations than U.S.
Creditor-Driven Mandate Flow (CMF)
Originator responsible for obtaining the debit authorization
Receiving Bank electronically receives mandate information with first collection
Some legacy direct debit mandates can be used, but may need to be enriched
Regulation 260/2012
– Receiving Bank must have capability limit SEPA DD collections by amount and block certain payees
– Receiving Bank must maintain a database of exceptions to scrub transaction prior to paying
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SEPA Direct Debit migration challenges
IBAN/BIC requirements
Mandate management
Message formats/contents
Payment collection timelines
Return transactions
Customer communications
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Target2– cross border euro wires
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TARGET 2
Real-time gross settlement system (RTGS) for the euro. Used for settlement of central bank operations, large-value euro interbank transfers, and other euro payments.
Target2 is automatically accessible to all EU member states as well as any other country that can join on a voluntary basis.
The popular method of making centralized euro corporate payments until introduction on SEPA.
In RTGS payment systems, processing and settlement take place continuously "in real time" rather than in batch processing mode. RTGS transactions can be settled with immediate finality. "Gross settlement" means each transfer is settled individually rather than on a net basis.
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The future of European
payments
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
A look to the future of European payments
SEPA will replace national non-urgent electronic
payment systems in February 2014
Preparation toward Single European Account
concept
Larger European corporations leading adoption of
SWIFT for Corporates
Centralization continues to be a important theme
for companies in the euro zone
Euro retains global currency status
Mobile consumer payments grow
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Questions?
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