The Future of Payments Ireland Update The Royal Dublin Society March 25 th 2010 Russell Burke Head of Strategic Development IPSO 1www.ipso.ie Irish Payment Services Organisation Limited

What I Will Cover Today Statistical Update – Ireland v. Europe – Payment Trends in Ireland The Challenges Ahead – SEPA – PSD – National Payments Implementation Programme – The Role of IPSO

Statistical Update Ireland v. Europe – 2008 Figures

Relative Importance – Volume 4 Source: European Central Bank and IPSO Ltd.

Relative Importance – Value 5 Source: European Central Bank and IPSO Ltd.

Cheques Per Capita – Volume 6 Source: European Central Bank and IPSO Ltd.

Cheques Per Capita – Value Source: European Central Bank and IPSO Ltd.7

Cheque Volumes – Ireland v Peers Source: European Central Bank and IPSO Ltd.8

Electronic Credits - Volumes Source: European Central Bank and IPSO Ltd.9 Volume of Electronic Credit Transfers Per Capita

Electronic Credits – Values Source: European Central Bank and IPSO Ltd.10

Direct Debits Per Capita – Volumes Source: European Central Bank and IPSO Ltd.11 Volume of Electronic Debits Per Capita

Direct Debits – Values Per Capita (2008) Source: European Central Bank and IPSO Ltd.12

Electronic Credits and Debits - Value

Payment Cards Per Capita Source: European Central Bank and IPSO Ltd.14

Card Payments Per Capita – Value Source: European Central Bank and IPSO Ltd.15

ATM Cards Per Capita ATM Cards Per Capita 2008

ATM Cash Per Capita (2008) Source: European Central Bank and IPSO Ltd.17

ATM Cash Per Capita v EU Source: European Central Bank and IPSO Ltd.

Payment Statistics – Ireland

Cheques and Paper Debits - Volume 20Source: IPSO Ltd.

Cheques and Paper Debits- Value 21Source: IPSO Ltd.

Payment Cards 22Source: IPSO Ltd.

Card Payments - Volume 23Source: IPSO Ltd.

Card Payments - Values 24Source: IPSO Ltd.

Card Payments – Average Values 25Source: IPSO Ltd.

ATM Cash – Per Capita 26Source: IPSO Ltd.

Cards and ATM Annual Volumes 27Source: IPSO Ltd. ATM Cash v. Card Payments

Electronic Payments - Volumes 28Source: IPSO Ltd. Electronic Payments - Volume

Electronic Payments - Values Source: IPSO Ltd.29

Irish Payments Landscape - Summary Cheques in steady decline with momentum building. Ireland still too dependent, economy exposed. Electronic Credit Transfers not yet embraced. Direct Debit quite good. Far too much cash. Cards, particularly debit, are very popular with those who have them.

The Challenges Ahead (I) SEPA (The Single Euro Payments Area) 2010 (November 1 st ) – SEPA Direct Debit SEPA DD – Mandate Migration (legal basis) SEPA End Date – migration from existing standards SEPA Communications Programme Government and Public Sector Lead

The Challenges Ahead (II) The Payments Services Directive (PSD) 2012 (January 1 st ) – D+1 Payment Institutions 2012 – Full Review of PSD – 20 Individual Member State Derogations – Other Changes – Further Resource Requirements?

The Challenges Ahead (III) The National Payments Implementation Programme Financial Inclusion – Basic Bank Accounts – Welfare Payments Cash – Tiger Kidnappings – Contactless Cards and Mobile Contactless – IPSO Cash Plan

The Challenges Ahead (IV) National Payments Implementation Programme Cheques – UK 2018 End-Date (some challenges) – 2016 for Ireland (proposed by IPSO in 2008)? – IPSO Cheque Plan – Viable Alternatives Businesses (full value cycle) Consumers (convenience and speed are key) Other Providers? – Larger Players / PayPal etc. / Payment Institutions

IPSO’s Role Maintaining the orderly and secure functioning of Ireland's core payment systems Working with its members, the Government and other stakeholders to ensure the development of world class payments for Ireland Promoting the use of fast, economic and secure payments in Ireland New website: 35

36www.ipso.ie Operating, Developing & Promoting Payments in Ireland

Payments Development Faster Payments in the UK Nick Masterson-Jones Managing Director, Transaction Services

VocaLink safer payments, smarter partner Our history Driving automated payments for over 40 years From domestic supplier to large-scale international provider of modern payment services Our services Real-Time Payments Sterling clearing services Euro Services Connectivity Cards and ATM services Our customers The world’s top banks, their corporate customers and Government departments 2009 awards Best payment system deployment (Faster Payments Service) Best outsourcing partnership (BGC) Overall winner (Faster Payments Service)

VocaLink transaction statistics and records 90.3 million Peak daily automated payments (30 November 07) £37.9 billion Peak value of daily automated payments (27 November 2008) 1.1 million Peak ATM transactions in 1 hour (24 December 2009) 11.9 million Peak daily ATM transactions (30 October 2009) £364 billion Peak value of monthly automated payments (December 2009) £3.8 trillion Value of Bacs automated payments processed in 2009 £174 billion Value of annual ATM transactions for billion Payments transactions processed in 2009 (Bacs, ATM and Faster Payments) 400 million Faster Payment transactions processed to date (up to January 2010) 4.8 million Euro CSM transactions processed to date (up to January 2010) €8.2 billion Value of Euro CSM transactions processed to date (up to January 2010)

VocaLink clients have a dedicated partner with unique experience and expertise which has been recognised by a number of prestigious awards: The VocaLink Payment Platform BGC Accreditation 2008 National Outsourcing Awards ‘Innovation in outsourcing’ for the strategic alliance with BGC 2008 Banking Technology Awards ‘Best Treasury/Cash Management Achievement’ 2008 Financial Innovation Awards ‘Best Payments Initiative’ 2006 Financial Innovations Award ‘Most Innovative Application of Technology’ and ‘Overall Excellence’ 2006 European Banking Technology ‘Outsourcing Achievement Award’ 2009 Financial Sector Technology Awards ‘Best outsourcing partnership’ Faster Payments 2009 Financial Sector Technology Awards ‘Best payment system deployment’ and ‘Overall winner’

Faster Payments – why now? Customers expect 24x7 service, accessibility and immediacy Card not present transactions growing exponentially New entrants satisfying market need and winning business (Pay Pal etc) Real Time payments provide banks with a platform for innovation Online payments Mobile payments Increasing expectation amongst government, central banks and industry regulators that money will be moved more quickly and efficiently and cost of payment processing will be driven down VocaLink real time platform makes immediate payments viable and cost effective Can handle the high level of transactions required in the UK Customer Demand Competitive Advantage Economic pressure The technology is here

Customers: ‘Faster Payments’ is live in UK 24 X 7 operationLess reconciliationRich information content IrrevocableCustomer self-servicePayments in seconds Intra-day settlementMulti-channel Since May 2008 – 400 million payments – total value in 2009 = £106bn

Single Immediate Payment – how it works Step 1: payment initiation and customer authentication at the bank Step 1 – Mr Jones wants to send money to his daughter who is away at university. Mr Jones can go to his nearest banking branch, phone his bank or log on to his internet banking service to initiate a faster payment. Mr Jones goes through his bank’s security procedures to authenticate that he is a genuine customer and that he can send a faster payment from his account to his daughter’s account Customer Sending bank Faster Payments Service Receiving bank Step 1 Mr. Jones contacts bank Operated by VocaLink

Single Immediate Payment Step 2: payment instruction Step 2 – Mr Jones provides his daughter’s sort code and account number to ensure the payment reaches the correct account, and specifies the amount to be paid Customer Sending bank Faster Payments Service Receiving bank Step 1 Mr. Jones contacts bank Step 2 Payment instruction initiated Operated by VocaLink

Single Immediate Payment Step 3: payment authorisation Step 3 – Mr Jones’ bank (the sending bank) – checks that Mr Jones can fund the transaction – performs appropriate validation on Mr Jones and his account – sends the transaction to the Faster Payments service, operated by VocaLink From this stage onwards, Mr Jones cannot cancel the transaction. Customer Sending bank Faster Payments Service Receiving bank Step 1 Mr. Jones contacts bank Step 2 Payment instruction initiated Step 3 Authorisation Operated by VocaLink

Single Immediate Payment Step 4: validation and routing Step 4 – The Faster Payments service checks the identity of the sending bank, checks that the payment details are valid and forwards the payment to the receiving bank. Customer Sending bank Faster Payments Service Receiving bank Step 4 Payment validated Step 1 Mr. Jones contacts bank Step 2 Payment instruction initiated Step 3 Authorisation Operated by VocaLink

Single Immediate Payment Step 5: authorisation by receiving bank Step 5 – The receiving bank checks that Mr Jones’ daughter’s account details are valid and makes its appropriate checks. Customer Sending bank Faster Payments Service Receiving bank Step 4 Payment validated Step 1 Mr. Jones contacts bank Step 2 Payment instruction initiated Step 3 Authorisation Step 5 Receiving bank authorises payment Operated by VocaLink

Single Immediate Payment Step 6: confirmation Step 6 – The receiving bank sends a confirmation message to the Faster Payments service, stating that the payment has been applied to Mr Jones’ daughter’s account. Customer Sending bank Faster Payments Service Receiving bank Step 4 Payment validated Step 1 Mr. Jones contacts bank Step 2 Payment instruction initiated Step 3 Authorisation Step 6 Receiving bank confirms receipt and credits account Step 5 Receiving bank authorises payment Operated by VocaLink

Single Immediate Payment Step 7: receipt of confirmation and routing Step 7 – The Faster Payments service receives notification from the receiving bank stating that the payment was successful. Customer Sending bank Faster Payments Service Receiving bank Step 7 Receives notification that payment was successful Step 4 Payment validated Step 1 Mr. Jones contacts bank Step 2 Payment instruction initiated Step 3 Authorisation Step 6 Receiving bank confirms receipt and credits account Step 5 Receiving bank authorises payment Operated by VocaLink

Single Immediate Payment Step 8: completion Step 8 – The Faster Payments service notifies the sending bank that the transaction has been made successfully. The bank forwards confirmation to Mr Jones. Customer Sending bank Faster Payments Service Receiving bank Step 8 Confirmation of payment Step 7 Receives notification that payment was successful Step 4 Payment validated Step 1 Mr. Jones contacts bank Step 2 Payment instruction initiated Step 3 Authorisation Step 6 Receiving bank confirms receipt and credits account Step 5 Receiving bank authorises payment Operated by VocaLink

Faster Payments Central Infrastructure Settlement Standing Orders Customer channels: Internet, Telephone and Mobile Phone Banking Sending Bank or Building Society UK Faster Payments functionality: an overview Batch File Input of bank payments File Input Module Single Immediate Payments, standing orders, return payments, or future-dated payments. Single Payments Bank of England Batch file input of corporate payments Business Relationship Direct Corporate Access Corporate /Bureau Single Payments Receiving Bank or Building Society Single Payments Third Party Beneficiary

“Tomorrow happened yesterday” Some key findings Customer complaints are minimal Convergence will occur – both high value and low value instruments Volume prediction of 2.5 billion by 2018 – may replace traditional credit transfer For some banks revenues already exceed costs Expected to enable inter-bank mobile payments adoption in 2010/2011 horizon

Where next for Faster Payments in the UK? Alternative to cash and cheque payments Improved third party beneficiary processing: Organisations such as credit cards and utilities can connect direct and receive notifications of payments in near real-time Responding third party beneficiaries can determine the fate of the payment Mobile Payments Industry working group defining requirements Banks developing competitive products that provide mobile payments to customers National scheme being developed to provide interoperability amongst all service providers to support person to person and person to business On-line payments VocaLink working with individual banks to develop products that will provide fully integrated payment mechanism as part of on-line commerce Cross Selling Banks looking to exploit opportunities presented by faster payments, for example selling insurance on back of faster payments purchases

Payments Developments Financial Services Club Ireland Wayne Stephens DWP Head of Corporate Banking 25 th March 2010

DWP Payment Strategy – The Big Picture

Where Have We Come From?

Why Fast Payments Are Important

What Do We Still Need To Do

How Big Will The Change Be?