SEPA and the Payments Services Directive Michael van Doeveren

De Nederlandsche Bank Eurosysteem

SEPA and the Payments Services Directive Michael van Doeveren

3rd Conference of the Macedonian Financial sector on Payments and Securities settlement Systems Ohrid 28 June 2010

De Nederlandsche Bank


Agenda

SEPA-basics SEPA-products Payment Services Directive Migration Closing remarks


The euro is the common currency of 16 countries today, but retail paymentsare still organised nationally

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SEPA means an uniform payments market

EU

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How to realise SEPA?

Self-regulation: European Payment Council of banks develops standards and products

Payment Services Directive: legal harmonisation


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


End of 2008 (numbers)

NL EU 16 EU 27

Inhabitants 16.5 mln 322 mln 499 mln

Firms 240.000 17 mln 25 mln

Banks 70 7,000 9,000

Payment accounts 25 mln 306 mln 450 mln

Transactions 4.8 bln 54.8 bln 78.1 bln

POS terminals 316,000 6.2 mln 8.1 mln

ATM’s 8,650 315,000 426,000

Cards 31 mln 473 mln 727 mln

European Payment Market

Bron: ECB, Eurostat

EU


Payment Trends in the EU

Source ECB

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2000 2001 2002 2003 2004 2005 2006 2007 2008

debit and credit cards

credit transfers

direct debits

cheques

E-money cards

• Number of transactions per type of payment instrument (billions)


SEPA Migration is like a Cascade

Banks, Payment Institutions, Card schemes and processors:

offer: SEPA products New infrastructure

Governments, firms and merchants:Realise migration

Consumers: Adoption of new products like cards

SEPA is of all of us!


BIC

• BIC: Bank Identifier Code• Issuing agent (on behalf of ISO): SWIFT

Bank code Countrycode (ISO)

Locationcode

Branch code

BIC: standardised construction

BIC8BIC11

I N XG B N L 2 A X X


IBAN

• IBAN : International Bank Account Number• Administrator of Register of national IBANs (on behalf of ISO): SWIFT

Countrycode (ISO)

Bank identifierCheck digit

Domestic accountNumber

• 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


IBAN examples

IBAN Examples

Finland FI21 1234 5600 0007 85France FR14 2004 1010 0505 0001 3M02 606 length

27Germany DE89 3704 0044 0532 0130 00Ireland IE29 AIBK 9311 5212 3456 78Luxembourg LU28 0019 4006 4475 0000Netherlands NL91 ABNA 0417 1643 00 length

18Norway NO93 8601 1117 947Poland PL61 1090 1014 0000 0712 1981 2874 length

28United Kingdom GB29 NWBK 6016 1331 9268 19(composition: country code check digits Bankidentifier 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


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 amountIBAN and BIC are obligedISO 20022 UNIFI standards (XML-language)140 characters of remittance information are

delivered to the beneficiary Unstructured or restructured remittance

information as agreed between partners


SEPA Direct Debit(introduced on 2 November 2009)

SEPA Direct Debit: Standard for bank to bank Direct Debits in euro (B2C and B2B)

Payments are made for the full original amountIBAN and BIC are obligedISO 20022 UNIFI standards (XML-language)One-off or recurrentA mandate is signed by the debtor (e-mandate)Pre-notification (mostly 14 calender days in advance)Refunds (PSD: 8 weeks) and returns


Impact of SEPA for Cards

ConsumersUse of cards in the whole SEPA area: any card at any terminal

RetailersMore choise: terminal, acceptance of brands, acquiring

Banks and payment schemesChange of markets, new products, new systems


Legal harmonization: Payment Services Directive

Content: Proportional supervisory regime for non-bank payment service providers

Transparency requirementsRules about the relationship of the payment service provider and user


Scope: payment services

1. Services enabling cash to be placed on a payment account 2. Services enabling cash withdrawals from a payment account 3. Execution of payment transactions; direct debits, payment transactions through a payment card, credit transfers4. Execution of payment transactions where the funds are covered by a credit line for a payment service user:5. Issuing and/or acquiring of payment instruments.6. Money remittance.7. Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.


Payment Institution

What is a payment institution?Non bank provider of payment services, and:End usersTransferable balances: no cashOwns customer funds temporarilyPure intermediaryPayments are a main activity


Payment institutions

Proportional prudential supervisionLicense Capital requirementsInternal processes


Rights and obligations

Information requirements - single payment transactions

Information to the payer

prior after receipt

Information needed Execution time

ChargesReference exchange

rate

Transaction Identifier, payeeAmount of the payment

Charges payableexchange rate usedDate of receipt order

Reference, payerAmountCharges

Exchange rateCredit value date

Information to the payee



Information requirements - Payments via framework contract

prior after receipt

Information for payee

Payment service providerSupervisor

Product featuresCharges

Safeguard requirements

Transaction identifier, payeeAmount Charges

Exchange rate usedDebit value date

Transaction identifier, payerAmountCharges

Exchange rate usedCredit value date



Other obligations for the providerd + 1No sending of unsolicited payment

instrumentsUser provides incorrect unique identifier:

reasonable efforts to recover fundsAnd more..



Obligations for the userAct according to the contractReasonable safety measuresDirect notification of loss/theftAnd more..


PSD summing up

PSD provides harmonisation of: Market access: besides credit institutions and

electronic money institutions also payment institutions

Rights and obligationsImplementation in national legislation

1november 2009: done by most countries


European law: other items

Regulation 924/2009 (renewal of regulation

2560/2001)No price difference between domestic and

cross border direct debits

Adaptation of the electronic money directiveGreater consistency with the PSDNew prudential regime


Need for Standardisation!


Standardisation SEPA for Cards

Four card domains of action:

Card to terminal (EMV)Terminal-to-acquirer (EPAS, ERIDANE)Acquirer-to-issuer (ISO 8583 and ISO 20022)Certification of cards and payment terminals


What is EMV?

• Worldwide standard for • Chip on cards• (readers) ATM & EFT POS

terminals • Debit and credit cards

• Much safer than magstripe

• EMV: Europay, MasterCard, VISA

insert


Status Migration: EMV Cards

0

10

20

30

40

50

60

70

80

90

100

AT BE FR LU IE FI SI DE CY NL PT IT SK GR MT ES

Status 1 January 2010 (Source: EPC)


Status Migration: EMV ATM’s


0

10

20

30

40

50

60

70

80

90

100

FI FR IE NL PT SK LU AT ES GR DE SI BE IT CY MT


Status Migration: EMV POS Terminals


0

10

20

30

40

50

60

70

80

90

100

LU FR IE MT BE SK PT ES IT SI CY GR AT FI NL DE


SEPA Awareness Dutch end-users

SEPA awareness SMEs fairly low

SEPA awareness public sector and large companies very high

Public sector and large companies well informed about SEPA consequences

Do you know what is meant by the integration of the European retail

payments market ?

0%20%40%60%80%

100%

SMEs (n=458) Large organisations(n=7)

Public sector (n=10)

yes no

Do you know the consequences for your own organisation of the introduction of European

payment instruments?

0%

20%

40%

60%

80%

100%

SMEs (n=458) Large organisations(n=7)

Public sector (n=10)

No insight Insufficient insight General picture Complete insight


Transition stage Dutch end-users

90% of SMEs have not made any SCT & SDD preparations yet

± 20% of large companies and public sector can accept and make SCTs

± 60% of large companies and public sector is busy with SDD preparations

Transitional stage end-users SEPA direct debit (SDD)

0%

20%

40%

60%

80%

100%

SMEs(n=229)

Largeorganisations

(n=7)

Public sector(n=10)

Hardly done anythingyet

Busy with preparations

I can accept and makepayments wit SDD

Transition stage end-users SEPA credit transfer (SCT)

0%

20%

40%

60%

80%

100%

SMEs (n=440) Largeorganisations

(n=7)

Public sector(n=10)

Hardly done anythingyet

Busy with preparations

I can accept and makepayments wit SCT


Concluding Remarks

The success of SEPA depends on: SEPA for Cards means ‘Any card at any

terminal’. This requires time. Further European standardisation, which

is not easy An end date for national payment

instruments Interchange fees and payment fees Well organised stakeholder involvement

and consultation Innovation at a European level (e-SEPA,

contactless payments, mobile payments)


Questions?

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SEPA and the Payments Services Directive Michael van Doeveren

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