A common European payments landscape SEPA Single Euro Payments Area A common European payments landscape Good morning!/Afternoon! Thank you for this opportunity to address you here today on the topic of how Europe is creating A Single Euro Payments Area – a common payment landscape. Speaker presentation: Name, Function I will briefly try to explain to you what benefits SEPA is expected to bring, what it means in terms of change, why and when this is coming and who is behind it. After that I’ll dive a bit deeper into some of the many aspects: the new payment types and what it will mean for payment services users,

What is SEPA? Stands for a Single Euro Payments Area Is about simple and efficient payments and card transactions Will bring advantages to our customers, when they use their card in Europe as well as when they send or receive a payment.

A common payments landscape in Europe Common schemes and transfer systems The same instruments, terms and routes for Europe cross border and domestic euro transfers Benefits for society as whole: frees-up capital reduces paper payments reduces cash handling costs A politically supported initiative The European Single Euro Paymets Area project aims at harmonizing the way billions of payments are made - with cards, credit transfers and direct debits. The expressed vision is that it users should be able to pay and receive electronic payments in euro, throughout the area, as easily, reliably and efficiently as currently in the best domestic context, but without any distinction between cross-border and domestic payments. This is being made possible with new common payment and card standards, and common minimum terms & conditions. The political motivation is the will to create a commoin market for financial services in Europe, which supports the Single Market. The macro economic benefits will be better payments discipline in Europe, easier cross-border trade and transactions, less paper payments and cash – all which supports GDP growth and saves tax money and reduces working capital. Many EU politicians experience the problems with mobile European lives first had; Residence in Brussels, salary to home country account (Spain?), rent to be paid in Brussels, Strassbourg and at home, summer cottage, buy funds… 3

A fragmented payments landscape today More than 27 different national payment infrastructures in Europe Separate solutions for high and low value payments Separate solutions for domestic card systems Banks maintain different systems for domestic and cross border transfers If you look at Europe today you see a very fragmented payments landscape. Every country has its own low-.value payments system with its own standard. In parallell there are different systems, for cards, ATMs and High Value Payments (which require instant transfers). In other words there are more than 27+ clearing and settlement systems in Europe, where USA gets by with 2 or 3! In addition banks maintain a separate set of systems for cross-border transactions. Which implies: Potential for rationalization Possibility for customers to reduce number of accounts

13 EMU 14 remaining EU 3 EEA + CH SEPA embraces more than the euro countries 13 EMU 14 remaining EU 3 EEA + CH SEPA is a pan-European project, but is also used as a definition of an area. SEPA affects all Euro countries (15 from January 2008), the other EU countries, the 3 countries that also are part of the EEA (European Economic Area – i.e. Liechtenstein, Iceland and Norway) but also Switzerland. 5 5 5

Part of the vision of an internal market Will increase cross-border mobility for goods, services, people and capital Will serve as a catalyst for market integration and increased competitiveness Part of the European plan for a common market for financial services Part of the European goal of creating a harmonized single market for financial services (as laid down in the Financial Services Action plan, and which has resulted in numerous directives, regulations and recommendations). Also a logical consequence of the introduction of the single currency. Some of the other EU-driven projects that aim at creating an internal market in Europe are Mifid, AML, Basel II. 6

SEPA – a multi year transformation 1. Development phase 2. Migration 3. Phase-out 2007 2008 2009 2010 2011 SEPA Payment SEPA Direct Debit There are three key dates for SEPA: January 2008 (launch of new payment instruments and SEPA compliant cards) November 2009, (PSD and SEPA Direct Debits) end 2010 (Conversion to SEPA compliant cards and bank terminals, significant/critical mass of transaction migration to pan-European instruments) There are also three main ‘stages’ in the SEPA project: The preparation and development phase (started back in 2002 and continuous, but with first delivery milestones in the form of EPC Rulebooks and Guidelines delivered 2006, and the actual payment instruments in January 2008 and in 2009, and thereafter with regular updates The co-existence and migration phase. A time where the old legacy instruments can be used in parallel with the new pan-European instruments, but where volumes are expected to shift to the new as ERP systems are upgraded, billing routines and pre-printed invoices are exchanged, and ATMs and POS terminals exchanged The decommissioning phase, starting 2011, and without a firm end-date (as of yet) when purely national euro instruments will be phased out, if not competitive enough and if not SEPA compliant SEPA Compliant Cards Harmonized legal framework 7 7 7

The future standard payment in Europe SEPA Payment: European launch January 28, 2008 Same conditions for domestic and cross border transfers No amount limitations IBAN and BIC are mandatory More information can be sent with each payment (up to 140 characters) Replaces current EU Regulated Payment The first pan-European product to be rolled-out. A basic non-urgent account-to-account transfer product only usable for Euro transfers, but where the sender and beneficiary account may be in another currency. Requires IBAN and BIC of beneficiary, but comes with a delivery guarantee of full amount, full information to the beneficiary (at the latest D+3. but from 2012 within D+1!) This payment is positioned as a replacement to both the EU Regulated payment, and to the national credit transfer products such as ûberweisung (in Germany, with or without printed advices) and Virement (in France). Whereas the payment will be treated as a traditional payment domestically if furnished without IBAN and BIC, a payment with IBAN and BIC remittance information will in the first instance be treated as a SEPA payment regardless if national or cross-border. It should be noted that all cross-border transfers in Europe must contain IBAN and BIC henceforth (applies from 2006).

New technology for cards, ATMs and POS terminals Within the SEPA area: EMV-chip on general purpose cards (VISA, MasterCard/Maestro) in place 2008–2011 Cardholder should be able to use their chip cards in ATMs and POS terminals from January 1, 2008 PIN (on the terminal side) should be in place before 2011 No domestic card schemes designed only for use in a single country may exist after end of 2010 All card holders will receive, some have already done so, cards with EMV Chip embedded. This is a modernization of the security technology. These cards require the use of PIN at terminals, and users will have to leave the card in the terminals during the whole transaction. Over time, as terminals are exchanged, users should expect to get the same experience regardless if the card is used i a domestic or cross-border context (language choice, fees, etc). EMV=Europay, MasterCard and Visa.

A Direct Debit with pan-European reach European launch 2009 For recurrent payments, e.g. electricity or rent IBAN and BIC mandatory The beneficiary is ensured a receipt within 3 days. The payer does not need to keep track of payment days. Easier for companies to forecast liquidity and less work with reminders and collections The SEPA Direct Debit scheme will allow banks in the SEPA area to offer a new payment instrument that is reliable, simple to understand and has wide geographical reach. Currency of transmission will be euro. Why? Direct debit schemes are currently national in nature. It is difficult to buy goods and services in another country and pay for them using a direct debit. Businesses that sell goods throughout Europe can only collect money by submitting invoices or by accepting credit cards unless they open a network of bank accounts. In addition, debtors often avoid using direct debits because they feel that they lose control over their own bank account. The issues above will be addressed with the new product. How? As today, a signed mandate will signify agreement between debtor and creditor. This mandate will be stored by the creditor. The debtor will receive notification that payment is due from the creditor prior to a debit payment instruction being issued. In addition, the debtor will be able to refuse a debit before settlement. After settlement a refund can be obtained if the debtor didn’t agree with the amount debited or disputed the existence of a mandate. When? 2009 is the estimated introduction date, although this will be confirmed by the EPC (European Payments Council). SEB believes that this new payment tool will offer benefits to both individuals and companies. A comprehensive SEB product offering will therefore be introduced in relevant countries.

Harmonized legal framework Payment Services Directive, legal framework for payments in Europe Implemented in national law by November 2009 Stipulates customer rights and banks obligations Increases requirements for transparency of conditions and information Applies to all EU currencies and countries existing and new payment instruments including cards domestic and cross-border payments within the EU 11

Moving To a Single Account for SEPA Pay and receive to a single account Better liquidity control Fewer bank relations Standard reconciliation procedures Obstacles: Tax reporting and tax payment and redemption requirements Securities/Asset servicing requirements National billing conventions & routines Other local legal requirements The end-game vision is one where users are able to pay from and receive to a single account within the SEPA area, with a single set of payment instruments in a standardized format. This will bring customers benefits in the form of better liquidity control, fewer bank accounts and relations, and standard processes. However, there are a number of obstacles to account consolidation as of yet. Many of them are related to the tax laws and practices in countries, to the bundling of depositary and transaction account services by banks. Time needed to change from national billing conventions and routines, and already established automated reconciliation solutions and the speed of ERP system upgrades will also affect the speed with which single account structure set-ups can be expected to come through. But there are work-around solutions to some of these hurdles, if not all. 12

We bring our customers the benefits of SEPA We participate in building SEPA We realised early on that a common payments landscape would bring advantages to our our customers, but also for society as whole. That is why we are a part of building the SEPA, and have been from start. ”With SEPA inside” SEB’s offering and development of accounts, payment and card services will continuously be made SEPA ‘proof’. Where and when our customers need SEPA SEPA affects the cash flow structures of a growing number of companies, institutions, authorities and consumers. We have carefully looked at all these needs when designing the payment products, access means and the timing of launches to bring the benefits of SEPA to our customers, where and when they need them. Our message is that SEB believes that a Single Euro Payments Area (SEPA) is important, as it will benefit our customers. It promises a harmonization of cards and payments practices, convergence of standards and increases competition among transaction account service providers. This will over time simplify transfers, increase processing efficiency, reduce the number of transaction accounts needed and thus reduce costs. As the leading North European provider of cash management, transaction account and e-solutions, SEB is taking on an active role in the creation of SEPA.

SEPA value for corporates Euro payments are easier and more efficient as the cross border payments More efficient business transactions within Europe Increased competitiveness Less need for collection accounts Business cards for employees with a higher service level and increased accessibility within SEPA Increased liquidity and better cash flow Reduction of manual services (increased STP level) 14

Thank you for listening! Additional information: www.seb.ee cmsupport@seb.ee nostro@seb.ee Checklist What you need to know about SEPA Embraces three new standards for payments Brings new technology: - EMV chip and PIN code for cards - IBAN and BIC for credit transfers - New data format for payments (XML) General purpose cards (Visa, Master Card/Maestro) will be replaced with chip cards 2008–2011 The current EU payment will be phased-out We will be SEPA compliant on time SEB participates in the creation of SEPA