SEPA Heat Map

Treasury & Trade Solutions

August 2013

SEPA – Current Uptake across the market

2

June - 47%

SEPA Credit Transfers

SEPA Direct Debits

June – 3.7%

%

%

Source: European Central Bank, Citi assessment

• SEPA Credit Transfer is steadily increasing month-on-month and stands at 47% at the end of June.

• We expect to see much of the flow switchover in Q3 as organisations across Europe switch over to SEPA.

• There is a lower level of SEPA awareness in Middle Market organisations. The European Commission are aware of this and asking countries’ SEPA bodies to push banks and market participants to inform this group.

• Main reasons in the market for reject/returns are:

• Account identifier invalid (i.e. invalid IBAN or account number does not exist or wrong BIC)

• Account closed

• SEPA Direct Debit adoption is still lagging well behind, however momentum is building.

• During the period Aug 2012 to May 2013 adoption remained between 2 – 2.7%, however in June we have seen an increase to 3.7%,

• Movement in countries is being driven by movement of Big Billers. In June we have seen a major national electricity provider in Ireland move to SEPA. Also increases in Netherlands SEPA Direct Debits.

• Slower adoptions can be attributed to the complexity of adopting SEPA Direct Debits - technical changes, additional information requirements, changes to mandate processes and internal decision making.

• Main reasons for reject/returns are:

• Insufficient funds

• Not specified reason (by debtor bank)

Citi observations and discussions in the market End Date There is no talk of a change in the end date – EC/ECB/EPC are re-iterating that “there is no Plan B”.

Bank Readiness

Many banks are making changes to their cash management infrastructures to become SEPA and ISO 20022 XML compliant.

SEPA credit transfers - High market readiness. Citi is seeing sporadic issues with banks not yet recognising the Category Purpose Code (e.g. “SALA” for salary payments) contained within the SEPA messages. When these issues have arisen, the account holder has approached their bank and the issues tend to be resolved. However issues are reducing.

For SEPA Direct Debit – Medium market readiness. Bank infrastructure adjustments for SDD are additionally complex. Citi understand that there are many banks still preparing automated processes to meet SDD requirements.

Market Discussions

SEPA DD ‘R’ Reason Codes – A reject/return reason code should help the receiver of the R-transaction to understand why the original SEPA DD collection was not successfully executed. However an accurate reason code is not used in all markets - reason code ‘Not specified reason’ is commonly used. In a number of European countries, more accurate reason codes are not used because of legal restrictions (e.g. data protection laws) or local business practices. Currently there is an EBA working group seeking to provide further guidance on this to banks and the market.

Ireland – Market expected to adopt SEPA DD Core scheme.

Italy – Market expects the SEDA Direct Debit AOS to go live in late October 2013.

Spain - Main Billers representing 80% of the SEPA DD volumes have announced migration for beginning of Q4 2013.

Finland - Legacy direct debits which account for only ~4 % of all payment transactions in Finland will mainly be replaced by e-invoice and direct payment (see for further information at FFI websites http://www.fkl.fi/en/themes/sepa/Pages/default.aspx).

France - Main utility companies expected to move to SEPA DD in Q3.

Belgium – Large biller, Electrabel GDF Suez, migrated to SEPA DD in Nov 2011. (details here) Other big billers expected to migrate during Q3 2013.

Sources: Citi assessment, European Payments Council 3

Country Readiness

Legend Preparations completed successfully Preparations in progress and expected to be ready on time Preparations not yet commenced and/or not expected to be ready on time Service offerings not envisaged and/or actively marketed by local PSPs and/or direct debits not used by public administrations

Country Readiness

• To assess SEPA’s preparedness across the transaction chain, the Eurosystem has developed a set of qualitative indicators, which are updated on a quarterly basis by the national central banks, taking into account the specificities of the respective country. These indicators are published by the European Central Bank on a quarterly basis.

• Qualitative indicators are based on a common approach and cover market readiness of

• Banks

• Big Billers

• Public Administrations

• SMEs

• Traffic lights are primarily meant to indicate the level of preparedness of the different stakeholder groups within the respective country and are less of an indication for doing any cross-referencing between the various individual countries.

• Traffic lights are complemented by qualitative statistics for adoption of SEPA CT and SEPA DD by country, in addition to commentary from Citi on market adoption.

• Current Traffic lights reflect readiness view as at the end of Q1 2013. Citi will publish further updates as and when the ECB obtains and publishes this data.

Source: European Central Bank, Citi assessment 4

Country Heat Map - SEPA

5

Austria Belgium Finland

• Q1 SCT uptake: 27.3%

• Q1 SDD uptake: 11.15%

• Niche Schemes: ATIB, ELV (exemption until 2016)

• AOS - No AOS defined

• SEPA CT –

• Vendor - Wide adoption

• Payroll - Wide adoption

• Tax – Accepting SEPA. Tax Payments have to be identified as by using specific indication in the Remittance Information and EndToEndIdentification

• SEPA DD - COR1 Direct Debit scheme will be supported by banks in the market.

• Q1 SCT uptake: 64.9%

• Q1 SDD uptake: 19.2%

• Niche Schemes: N/A

• AOS - OGM-VCS Structured communication

• SEPA CT –

• Vendor - Wide adoption

• Payroll - Wide adoption

• Tax – Accepting SEPA

• SEPA DD – For Belgian debtors, SEPA Direct Debit mandate is recommended to contain a field "In respect of the contract" with reference to the underlying contract. This reference can be direct (by use of a contract number, client number or invoice number) or indirect by description of the underlying contract such as "Distribution of electricity". Also DOM number is recommended to be used in the Unique Mandate reference number field

• AOS: common solution for e-mandate management is currently being examined.

• Q1 SCT uptake: 100%

• Q1 SDD uptake: N/A

• Niche Schemes: N/A

• AOS – AOS1 (payment date) and AOS2 (structured remittance)

• SEPA CT –

• Vendor - Fully migrated to SEPA

• Payroll - Fully migrated to SEPA

• Tax - Fully migrated to SEPA

• SEPA DD – The Federation of Finnish Financial Services is recommending that legacy DD’s in Finland will be replaced by e-invoicing (for debtors using online bank services) and direct payments (for debtors without bank services).

Sources: Traffic lights - European Central Bank –national central banks, EBA Clearing, Citi assessment

Country Heat Map - SEPA

6

France Germany Greece

• Q1 SCT uptake: 37.9%

• Q1 SDD uptake: 0.78%

• Niche Scheme:

• Titre Interbancaire de Paiement (TIP) / Telérèglement

• AOS - No AOS defined

• SEPA CT –

• Vendor - Wide adoption

• Payroll - Wide adoption

• Tax – most taxes paid by niche scheme Telérèglement

• SEPA DD – Big Billers expected to move in Q3 2013.

• Q1 SCT uptake: 8.7%

• Q1 SDD uptake: 0.14%

• Niche Scheme: • None, ELV ((exemption until 2016)

• AOS - No AOS defined

• SEPA CT – Adoption increasing from low base.

• Vendor - adoption increasing

• Payroll - adoption increasing

• Tax – Accepting SEPA.

• SEPA DD - COR1 Direct Debit scheme will be supported by banks in the market in November.

• Q1 SCT uptake: 90.5%

• Q1 SDD uptake: 91.7%

• Niche Scheme: • Non-automatic credit (credit transfer product used on the platform of DIAS payment system).

• AOS – 1. Greek characters AOS. 2. AOS to facilitate local mandate processes

• SEPA CT –

• Vendor - Wide adoption

• Payroll - Wide adoption

• Tax – via LCH DIAS which is SEPA compliant..

• SEPA DD - High adoption

• Greece has delayed BIC phasing out for national transactions until 2016.

Sources: Traffic lights - European Central Bank –national central banks, EBA Clearing, Citi assessment

Country Heat Map - SEPA

7

Ireland Italy Luxembourg

• Q1 SCT uptake: 7.2%

• Q1 SDD uptake: 0.42%

• Niche Scheme: None,

• AOS - No AOS defined

• SEPA CT – Adoption increasing from low base. Ireland banks currently use EBA for settlement purposes.

• Vendor - Increasing usage

• Payroll - Increasing usage

• Tax – Accepting SEPA but most tax collected via local DD.

• SEPA DD – Major utility company moved to SDD in June.

• Ireland has delayed BIC phasing out for national transactions until 2016.

• Q1 SCT uptake: 15.5%

• Q1 SDD uptake: 0.01%

• Niche Scheme: RID finanziario., RID a importe fisso.

• AOS - SEPA Electronic Database Alignment (SEDA) for mandate management and AOS SCT Routing

• SEPA CT – Adoption increasing.

• Vendor - Increasing usage.

• Payroll - Low but increasing.

• Tax – Mostly non-SEPA. Wire payments mostly used for tax payments.

• SEPA DD – Low adoption to date. SEPA Electronic Data Alignment due to be delivered in the market October 2013.

• Q1 SCT uptake: 94.2%

• Q1 SDD uptake: 0.01%

• Niche Scheme: None,

• AOS - No AOS defined

• SEPA CT –

• Vendor - Adoption almost complete.

• Payroll - Adoption almost complete.

• Tax – Adoption almost complete.

• SEPA DD – Low usage in the market.

Sources: Traffic lights - European Central Bank –national central banks, EBA Clearing, Citi assessment

Country Heat Map - SEPA

8

Netherlands Portugal Slovakia

• Q1 SCT uptake: 14.4%

• Q1 SDD uptake: 0.01%

• Niche Scheme: None,

• AOS - No AOS defined

• SEPA CT –

• Vendor - Growing steadily

• Payroll - Adoption increasing

• Tax – Accepting SEPA.

• SEPA DD – Significant increase in June SEPA DD transactions

• Q1 SCT uptake: 22.5%

• Q1 SDD uptake: 0.01%

• Niche Scheme: No formal announcement

• AOS - No AOS defined

• SEPA CT – Adoption steadily increasing.

• Vendor - Increasing usage

• Payroll - Low but increasing.

• Tax – SEPA CT not used. Most tax collected through legacy DD.

• SEPA DD – Low adoption with no significant sign of recent increase.

• Q1 SCT uptake: 100%

• Q1 SDD uptake: 0%

• Niche Scheme: None,

• AOS - No AOS defined

• SEPA CT –

• Vendor - Increasing usage

• Payroll - Increasing usage

• Tax – SEPA CT accepted - . Local tax authorities require payment symbols.

• SEPA DD – Low uptake. Default practice to auto block accounts for SEPA Direct Debits..

Sources: Traffic lights - European Central Bank –national central banks, EBA Clearing, Citi assessment

Country Heat Map - SEPA

9

Spain

• Q1 SCT uptake: 43%

• Q1 SDD uptake: 0.02%

• Niche Scheme:

• 1. Los anticipo de credito (cuaderno 58).

• 2. Los recibos (cuaderno 32).

• AOS - No AOS defined

• SEPA CT – Adoption high and increasing.

• Vendor - Increasing usage

• Payroll - Low but increasing.

• Tax – Mostly non-SEPA.

• . SEPA DD – COR1 Direct Debit scheme will be supported by banks in the market.

Sources: Traffic lights - European Central Bank –national central banks, EBA Clearing, Citi assessment

SEPA Credit Transfers – Reject/Returns

0% 5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 46.97%

31.13%

7.53% 3.43% 2.56% 2.00% 1.91% 1.29% 1.23% 1.14% 0.31% 0.24% 0.13% 0.10% 0.04% 0.00%

• The predominant reason for R messages in the SEPA Credit Transfer scheme is incorrect account or BIC details:

• Account identifier invalid (i.e. invalid IBAN or account number) Note this is being used by some banks to also indicate that the BIC is incorrect, even though there is a separate code for this specific purpose.

• Account closed

It is highly advisable to ensure accuracy of payment data to avoid rejects and returns.

Sources: EBA Clearing 10

SEPA Direct Debits – Reject/Returns

0% 5%

10% 15% 20% 25% 30% 35% 32.66% 31.94%

10.46% 9.21%

3.93% 3.93% 2.66% 2.34% 1.78% 0.41% 0.35% 0.14% 0.08% 0.03% 0.03% 0.03% 0.01% 0.01% 0.00%

• The main reasons for reject and returns in SEPA DD are:

• Insufficient funds

• Not specified reason (by debtor bank)

• This code does not provide sufficient information to creditors to take remedial actions.

• Countries such as Austria, Belgium and Germany have data and/or consumer protection laws that restrict banks from providing certain reason codes concerning the financial or alive/deceased status of an account holder.

• In other markets, bank readiness and ability to differentiate and provide the correct reason code is having an impact.

Sources: EBA Clearing 11

Additional Information

• SEPA Direct Debit Country Guide

• Citi SEPA Countdown Series

(practical guidance)

• Market Commentary and insights on reengineering with SEPA

• Regulatory information, niche schemes, case studies, further information

12 Sources: Citi

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