4th paysys breakfast conference frankfurter hof, 28 march 2003 the sepa framework and its...

4th Paysys Breakfast Conference

Frankfurter Hof, 28 March 2003

The SEPA framework and its The SEPA framework and its implications for retail and card implications for retail and card

paymentspayments

- A Central Bank perspective - - A Central Bank perspective -

Johannes Priesemann / Carlo Martens

European Central BankPayment Systems Policy Division

4th PaySys Breakfast ConferenceFrankfurt, 28 March 2003

Slide 2

I. Introduction: the Eurosytem’s objectives

II. Retail payments “yesterday”

III. The vision for “tomorrow”

IV. Specific issues concerning card payments

Overview



I. Introduction I. Introduction


Slide 4

The statutory powers of the Eurosystem

• Article 105 (2) of the Treaty and Article 3 of the Statute: the basic tasks of the ESCB include the obligation “to promote the smooth functioning of payment systems”.

• Article 22 of the Statute: “ The ECB and the NCBs may provide facilities, and the ECB may make regulations, to ensure efficient and sound clearing and payment systems within the Community and with other countries”


Slide 5

The objectives of payment systems policy

• Maintaining systemic stability

• Ensuring efficiency and reliability of payment systems

• Maintaining public confidence in payment systems, payment instruments and the currency

• Contributing to the protection of the transmission channel for monetary policy


Slide 6

Requirements for public confidence

• Safety– no legal risks– no operational risks– no financial risks

• Efficiency– transparent access conditions– prompt and reliable settlement– good value for money



II. Retail Payments “yesterday” II. Retail Payments “yesterday”


Slide 8

The problem for retail payments

Poor service level for cross-border payments in terms of pricing and execution time.

Despite introduction of the euro (in 1999), no substantial progress.

Problem even more visible with introduction of banknotes and coins.


Slide 9

The causes of the problem + ways to overcome

IPI / generic product.

Automation / STP.

Implementation timetable.

MIF

Harmonised Balance of Payments reporting.

ACH-type solution.

Poor interface with clients.

Internal costs within the banks.

Insufficient (use of) European standards.

Problem of remuneration of beneficiary bank.

Differences in legal / regulatory environment.

Lack of an appropriate interbank infrastructure.


Slide 10

Retail Payments: The runway to SEPA

In its report “Towards an integrated infrastructure for credit transfers in euro” (November 2001), the ECB outlined how the industry could progressively amalgamate (the processing of) cross-border and domestic credit transfers. It pointed out that economies of scale could bring costs down to a level below that of current domestic processing.

On 19 December 2001, the EU Parliament and Council imposed equal charges for cross-border and domestic payments in euro through Regulation 2560. Banks quickly realised that the Regulation “internalised” the cost problem of the industry and that, rather than just addressing it, they could actually turn it into an opportunity.



III. The vision for tomorrow III. The vision for tomorrow


Slide 12

Specific context of Euroland

The historical experience is that the evolution of the national payment systems have always been driven not by competition alone, but also by co-operation and public action.

Co-operation among market participants has rarely materialised unless the public authorities’ catalyst role inspired and promoted it.

While this has worked efficiently in one country, it may become a problem in Euroland:

Strong segmentation of financial infrastructures

Strong interests in defending the status quo


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Specific context of Euroland (II)

The overall result of a single payment area is positive,

but there will indeed be losers: A single payment area will benefit all

users,

but only some providers

In these circumstances ONLY great

determination and/or powerful initiatives by the

authorities can promote the requuired changes

in the interest of end users.


Slide 14

The SEPA project

In spring 2002 the banking industry formed an industry

governance body called the European Payments Council (EPC) and took the strategic decision to develop a single payments area.

The choice of a pan-European ACH (PE-ACH) as the main infrastructure option for credit transfers to go live mid-2003 has been confirmed.

Work is being finalised on a convention (Credeuro) for basic, reliable cross-border payments, processed straight through at low cost and with fixed execution time.

The EPC also set as an objective the development of a pan-European direct debit scheme by mid-2005 that could also be offered through PE-ACH.


Slide 15

Customer & Business Requireme

nts WG

End-to-end STP WG

Infrastructure WG

Cards WG Cash WG

Credit Transfer TFDirect Debit TF

Credit Transfer TFDirect Debit TF

P2P TF

Regulatory Constraints TF

Business Model TF

Governance TF

Business Model TF

Chip/Fraud TF

EPC Plenary

Secretariat

Coordination Group

The SEPA structure


Slide 16

Co-operation model – Co-chairmanshipCo-operation model – Co-chairmanship

• EPC and ECB representatives to meet regularly in COGEPS (3 to 4 times a year)

• ECB has an observer status in EPC Working Groups (except Business & Customer Requirements WG)

• ECB representative participating in EPC Plenary

• Co-operation model with co-chairmanship (EPC/ECB) of the COGEPS

Relationship between ECB and EPC


Slide 17

Pan-European ACH

PE-ACH must be able to reach all banks in the euro area (and possibly in the EU).

From the outset, PE-ACH should be more attractive than (at least) some of the existing domestic infrastructures.

It cannot and should not be ruled out that more than one PE-ACH project is launched.

National payment instruments and conventions should be encouraged to integrate with those designed for SEPA.

The real challenge is to achieve implementation by a sufficiently large part of the industry.

Preparing for success and avoiding Preparing for success and avoiding pitfallspitfalls



IV. Specific issues for card IV. Specific issues for card payments payments


Slide 19

The SEPA vision applied to card payments

The ultimate objective can be described as :

In Euroland (or - even better - the EU)

consumers use any card

at any terminal (whether POS, ATM or at home)

to pay under the same conditions

as they can today at “domestic” level


Slide 20

Key tasks for all stakeholders

Eurosystem

Define minimum security objectives and/or standards

Card schemes

Develop and implement safe and efficient card transaction

technology according to these standards

Issuers and acquirers

“Recommend” sound practices for consumers and merchants

EU Commission

Harmonise consumer protection and criminal law


Slide 21

Obstacles for the realisation of this vision

Lack of business development

in terms of services

E-purses

P2P card payments

in terms of acceptance

Profitable value propositions to merchants

No geographical limitations to acquiring

Interoperability of terminals and cards

Card fraud


Slide 22

Costs related to card fraud

Card fraud is a business

Cross-border transactions account for 5% of all

transactions

but for 90% of the fraud volume

Total costs = fraud prevention + fraud compensation

Fraud prevention = technical solution + sound practices

Technical solution : searching for the optimal balance


Slide 23

Costs related to card fraud

Costs

Security levelSecurity target area

Fraud compensation costs

Fraudprevention

costs

Total fraud related costs


Slide 24

The SEPA vision - closing remarks

The realisation of the SEPA vision requires co-operation between all stakeholders

The Eurosystem contributes to the realisation of SEPA as a catalyst, a regulator and, if necessary, also as a service provider; the Eurosystem promotes the dialogue between all stakeholders EU/Euroland wide standards, practices and infrastructures are being developed

The transition of the payment infrastructure into one SEPA will significantly improve its long-term collective use

National and international service providers react to this new situation - the integration process is going on; the banking sector has taken up the strategic challenge (EPC/SEPA)


Slide 25

References / contact• The ECB’s publications and consultations are available at its website www.ecb.int; those of the Bank for International Settlements are available at www.bis.org. • Report on electronic money, ECB, August 1998• Improving cross-border retail payment services in the euro area - the Eurosystem’s view, ECB, Sept. 1999• Role of the Eurosystem in the field of payment systems oversight, ECB, June 2000• Improving cross-border retail payment services - Progress report, ECB, September 2000• Payment and securities settlement systems in the European Union, ECB, June 2001 (Addendum incorporating 2000 figures, July 2002)• Towards an integrated infrastructure for credit transfers in euro, ECB, November 2001• Consultation on electronic money security objectives, ECB, March 2002• Oversight standards for retail payment systems in euro, ECB, July 2002• Policy issues for central banks in retail payments, Bank for International Settlements, September 2002• E-payments in Europe - the Eurosystem’s perspective, ECB, September 2002• Payment and securities settlement systems in accession countries, ECB, August 2002

•Contact: [email protected]


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4th paysys breakfast conference frankfurter hof, 28 march 2003 the sepa framework and its...

Documents

introduction slide

money slide

card payments overview

monetary policy slide

domestic payments

crossborder payments

reliability of payment

payment instruments