1FEDERATION BANCAIRE DE L'UNION EUROPEENNEBANKING FEDERATION OF THE EUROPEAN UNION

BANKENVEREINIGUNG DER EUROPÄISCHEN UNION

EUROPEAN SAVINGS BANKS GROUPGROUPEMENT EUROPEEN DES CAISSES D’EPARGNE

UROPÄISCHE SPARKASSENVEREINIGUNG

EUROPEAN ASSOCIATION OF COOPERATIVE BANKSGROUPEMENT EUROPEEN DES BANQUES COOPERATIVES

EUROPÄISCHE VEREINIGUNG DER GENOSSENSCHAFTSBANKEN

EUROPEAN PAYMENTS COUNCILTowards our Single Payment Area

O O OO O OO O O O

I I O

I O II O I O

I O I O I

Roadmap for the Single Euro Payments AreaThe challenges and the progress

Gerard Hartsink Chairman

European Payments Council

Conference “On the road to SEPA: Reaching the Goals in Co-operation”

Budapest, November 19, 2004

2

ECB and EPC visions

EPC governance framework

Progress for retail payments

Progress for high value payments

Conclusions

Agenda

3

EPC and EPC Visions

4

G. Tumpel-Gugerell: “Time to act- clear objectives and a convincing Roadmap for SEPA”

“Real SEPA is achieved when people can make payments throughout the whole euro area from one bank account, or by using one card as easily and safely as a national payment is today”.

Request for concrete action plan and timetable

End game for EU-12 (Euro Countries): - card solutions from 2007

- credit transfer from 2008 at the latest - prieuro from 2008 at the latest - direct debit from 2008 at the latest

Consolidation by 2010 at the latest

Call for letter of intent (signed by CEO’s)

5

EPC Vision

All Euro payments are domestic payments in EU12

Scope: basic payment services

Principle: self-regulation

Banks join forces to implement this vision for the benefit of their customers (with support of their associations)

Source: White Paper, March 2002; « Euroland - Our Single Payment Area » supported by 42 banks and their 4 European Associations EBF, ESBG, EACB, EBA and article 1 of the EPC Charter

6

SEPA definition and scope

Definition:

« SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro, within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of theirlocation. »

Scope:

Focus on EU-12 (eurozone), but with opportunities for EU-13 + 4 EFTA/EEA countries to adopt standards and participate in europayment systems.

7

Retail Payment Transactions in the EU25

Euro non-EuroYear 2002 (millions) EU12 EU13 EU25

Population 308 147 455

Credit Transfers 12.517 4.198 16.715Direct Debits 10.200 2.833 13.033 57.8%Cheques 5.919 2.477 8.396

Debitcards 9.423 4.398 13.821Creditcards 2.045 2.184 4.229E-money 285 11 296 42.2%ATM 6.147 3.301 9.448

Total 46.536 19.402 65.938

Payment market-share 70.6% 29.4% 100%

8

EPC Governance Framework

9

Some principles of the approved EPC Charter

The EPC = the « decision making body for the European payments industry »

EPC is neither a payment association nor a market infrastructure (but is a legal entity; Belgian law)

Major players of the payments industry with a fair representation of the smaller players

Proper representation of banks of 12 Euro countries (with 305 million inhabitants) and 13 + 3 non-Euro countries (with 138 + 10 million inhabitants)

4 European associations (EBF, EACB, ESBG, EBA) and national banking or payment associations should all be embedded properly to support a proper preparation and implementation of decisions by banks

The EPC will give the strategic guidance to the standards process executed by ECBS, SWIFT, card companies, etc.

10

Plenary structure: country dimension

3430545Total Euro countries

1__EBA56013,3UK

5945364Total

3__ECSAs150,9Denmark

160,65Switzerland191,5Sweden

10,250,075Iceland140,4Ireland

141Norway151,1Finland

10,70,05Cyprus1110,2Greece

10,40,03Malta181,1Austria

120,1Slovenia10,40,1Luxembourg

1100,4Hungary4163,6Netherlands

150,2Slovakia2101,8Belgium

1101,0Czech Republic2101,6Portugal

2390,9Poland3403,0Spain

140,1Lithuania4583,6Italy

120,1Latvia76013,4France

110,1Estonia78215,6Germany

MembersMillion inhab.

Billion trans.

MembersMillion inhab.

Billion trans.

• Source ECB numbers 2001• Seat numbers could be adjusted based on criteria Charter

11

EPC structure for retail payments

EPC Plenary *

WG Electronic

Credit Transfers

WG Cards

WG Cash

WG Electronic

Direct Debit Payments

OIT***Standards

SupportGroup

LegalSupportGroup

EPC Co-ordination Committee**

* Decision Making Body** Process Decision Making Body*** EPC Co-ordination Committee will become the ECBS Board

NGC Audit

Secretary

12

EPC Executives

1. Gerard Hartsink (Chair)2. Claude Brun (Vice Chair)3. EDD: Christian Westerhaus4. ECT: Terry Dirienzo5. Cards: Alfred Schmauss6. Cash: Leonor Machado7. OITS: Alfredo Rodriguez8. Legal: Herman Segers9. NGC: Dag-Inge Flatraaker10. Audit: n.n. (Roger Jones, interim chair)11. Secretary: Charles Bryant (Secretary General)

13

Other SEPA Stakeholders (1)

European Commission and European ParliamentEuropean Commission: PSMG meetings

Bilateral meetingsEuropean Parliament: EMAC hearings

Central banks (ECB and ESCB)Roles: - catalyst role

- oversight role- regulator role- operator role (settlement services)

COGEPS meetings- co-operation model- no dirigistic model, but self-regulation

Progress report on retail payments 2004

14

Other SEPA Stakeholders (2)

Lobby Groups: - Treasurers: EACT (together with ECB)

- Retailers: Eurocommerce

- SME’s: UEAPME

- Consumers: BEUC

- Government treasurers

Dialogue: - What do you expect from SEPA?

- What is the vision of the EPC?

- What is the progress so far?

- What are your top 10 concerns?

15

Progress for retail payments

16

Progress for retail payments

Legal framework Private law and administrative law Regulations and/or directives

Payment schemes (inclusive standards) Upgrading existing schemes Creation of new schemes Business cases for market-participants (Positive) network effects for economy

17

New legal framework for payments in EU25

EC consultative document of December 2, 2003: “…..technical and legal barriers still prevent EU

citizens, companies and payment services providers from reaping the full benefits of a fully integrated area for non cash payments”.

“the removal of technical and legal barriers should ensure efficient payment services, competition on equal terms, adequate protection of payment service users, security of payments, and should guarantee legal certainty for all parties concerned in the payment process”.

NLF version 5 (expected in December 2004)

18

Standardisation

“….the EPC shall also provide strategic guidance to the ECBS (European Committee for Banking Standards), and to other standardisation bodies....”(art. 3 EPC Charter)

Payment instruments Working Groups should first formulate the business model and business functions of the payment schemes; standardisation is a second step

ECB (ESBC): 7 high level recommendations for standards

Several open governance issues for standardisationEPC Co-ordination Group will become ECBS Board

19

Credit Transfers

Upgrading existing schemes Business rules (Credeuro, ICP) Standards (MT 103+, IBAN) Legal (reporting threshold, FATF Recom 7) Monitoring implementation

Creation new payment schemes EBA: Step2 (done) Creation of Credit Transfer scheme (credeuro 2) 2005 E-payment (web retailers: standards) Mobile payments (standards)

20

Direct Debits

Creation new payment scheme in Euros EC: Landwell Report on Direct Debits Recommendations for EPC Plenary June 17, 2004

Refinement of EPC White Paper 2002 Business functions and specifications Communication document

Creation: Direct Debit scheme 2005 Remarks:

Governments: Launching customers? Commitment corporates to migrate?

21

Infrastructures

Approved recommendations:PE-ACH conceptPE-ACH concentric modelReceiver capability of banks before 2004PE-ACH governance guiding principlesGrouping of financial institutions within PE-ACH

Remarks: “Split”: payment schemes and operator(s)PE-ACH: so far only EBA Step2 Costs market infrastructures less than 15% total costsConsolidation options for 22 + 9 = 31 ACH’s?Consolidation options for 80? card service providers?

22

Cards

Approved recommendations:8 recommendations: fraud, standardisation, SEPA-

compliant rules, legal obstacles, data collection, implementation, etc.

In Pipeline:Debit (account linked) card schemeModify and/or adapt existing schemesFeasibility study on anti-fraud databaseMonitoring implementation EMVDefining gaps for standardisation Improving market statistics (together with ECB)Dialogue with international and national schemes

23

Cash

Cash is King!

Approved positions and recommendations:9 Recommendations: joint cards and cash strategies,

promotion electronic products, standardisation (equipment), legal obstacles, NCB functions, etc.

Core functions of NCB’s regarding cashCross-border cash transport in Euro zone

In Pipeline:Cash rule book (with ECB) Inventory national cash plansDefining gaps for standardisation

24

Progress for high value payments

25

Target 2

ECB Governance Council decision: October 24, 2002:Multi platform systemSystem for large value Euro payments Core service with options for NCB to provide additional services Euro system wide price structure

EPC position on Target user requirements Single integrated system Core functionalities Compliance with core principles SIPS Service level improvement Timing project deliverables

26

Target 2

Decision ECB (ESCB) Q1 2004: Mono platform with delivery date January 2, 2007

UDFS: User Detailed Functional Specifications (107 ancillary systems)

Target is (will be) the « back-bone » for the payments and/or securities settlements in Euro

Target and Euro 1 are the 2 (competing) public and private high value payment systems for the Euro like Fedwire and CHIPS are for the US Dollar

27

Conclusions

The EPC was able to create commitment for a vision and for the next steps in the Euro(pean) payment industry

The ECB (and the EC) and other stakeholders (Corporates, retailers) expect deliverables with concrete deadlines and milestones

Key words for the next 2 years are: creation of payment schemes, standardisation and consolidation for retail payment systems and for Target 2

A strong payments industry governance structure (including banks of the 10 new countries) of all major players with a fair representation of smaller players is necessary to realise SEPA