The Change-over to SEPA Michiel van Doeveren Sixth Macedonian Financial Sector Conference on Payments and Securities Settlement Systems Ohrid, 1-3 July 2013

Background of Single Euro Payments Area (SEPA) SEPA products SEPA Migration National Forum on SEPA migration SEPA communication Concluding remarks Agenda

3 What is SEPA? One single market for retail payments in euro in 33 countries

Why SEPA? Logic completion Internal Market To enforce European economy Mandatory by European Regulation End date: 1st February

Political vision: One internal “domestic” market for euro retail payments, generating economies of scale and promoting competition Aim: Consumers and businesses will be able to make and receive payments in euro within Europe under the same basic conditions, rights and obligations, regardless of their location Concretely: European payment instruments for both cross-border and domestic payments in euro: credit transfers, direct debit and cards. This also means the end of all domestic payment instruments. SEPA, what is it?

The euro is the common currency of 17 countries today But retail payments are still organised nationally SEPA: before… € € € € € € € € € € € € € € € € €

A uniform Euro Payments Market With common standards for bank account numbers, credit transfers, direct debits, and more… … and after € € € € € € € € € € € € € € € € €

SEPA, how? Self-regulation by European banks in European Payments Council:  Common rules and standards for euro payments in Europe Legal harmonisation of all European legislation:  Payment Services Directive for euro and non-euro payments  End date(s) for national payment instruments

Account number becomes International Bank Account Numbers (IBAN) SCT becomes standard for credit transfers SDD becomes standard for direct debits XML becomes technical standard (ISO 20022) Clear but with a major impact What specifically will change?

Pros and cons Internal (euro) market for retail payments In the long run More choice processors and providers payment services Scale effects in processing Increased competition and innovation Decreasing costs of payments In the short run More efficient cross border paying and collecting Cross border collecting by direct debit Centralisation of accounts But Nothing ventured, nothing gained Cross border euro payments < 2% of total payments Migration mainly domestic process Difference in current levels of efficiency 10

ECB: SCT indicator Q1 2013

12 National SCT indicators

There is no breakthrough in a majority of countries 13 National SDD indicators

14 Traffic lights: SCT ATBECYDEEEESFIFRGRIEITLUMTNLPTSISK Banks Big billers PA SMEs ‘’Traffic Lights’’ SCT SEPA migration has been successfully completed by all representatives SEPA migration is in progress SEPA migration has not started yet

15 Traffic lights: SDD ATBECYDEEEESFIFRGRIEITLUMTNLPTSISK Banks Big billers N.A. PA N.A. SMEs N.A. ‘’Traffic Lights’’ SDD SEPA migration has been successfully completed by all representatives SEPA migration is in progress SEPA migration has not started yet

Banks Big billers PA SMEs 16 Status SEPA Migration Belgium Banks Big billers PA SMEs

Banks Big billers PA SMEs 17 Germany Banks Big billers PA SMEs Status SEPA Migration Germany

Banks Big billers PA SMEs 18 Spain Banks Big billers PA SMEs Status SEPA Migration Spain

Banks Big billers PA SMEs 19 The Netherlands Banks Big billers PA SMEs Status SEPA Migration The Netherlands

IBAN: International Bank Account Number Administrator of national IBAN registers (ISO): SWIFT IBAN Country code (ISO) Bank identifierCheck digit Domestic account number Notes: -The bank identifier is country-specific -The length of the bank identifier differs from country to country -Each country has its own Basic Bank Account Number system -The Netherlands has an 18-digit IBAN

EPC Interbank standard for credit transfers in euro 2008 Main characteristics: Payments are made for full original amount IBAN and BIC ISO UNIFI standards 140 characters of remittance information are delivered to beneficiary Unstructured or restructured remittance information as agreed between partners End dates: 1 February 2014 (31 October 2016 for non-euro countries) SEPA Credit Transfer

EPC Interbank standard for direct debits in euro - introduced in 2009 Main characteristics: Payments are made for full original amount IBAN and BIC ISO UNIFI standards One-off or recurrent A mandate is signed by debtor (option: e-mandate) Pre-notification (14 calendar days in advance) Refunds (PSD: 56 days) and returns End dates: 1 February 2014 ( for non-euro countries) No domestic MIF after 1 February 2017 SEPA Direct Debit

Information flows and choice of channel Basis: business-to-consumer relationship with business as initiator Business delivers payment instructions to bank and receives reports back Customer’s choice of channel driven by various considerations: Timing: carefully determine when instructions are executed and fast account reporting; Functionality: payment products and formats (from back office) as desired; Completeness: correct reference information in instructions (end-to-end) and reports (for automated reconciliation); Secure: payment files cannot be manipulated. Payment instruction Report Clearing & Settlement

Channels Banks offer their customers various channels for exchanging payment instructions and account information Choice of channel depends in part on type of customer (retail, wholesale), products used and volumes Main channels 1.Paper 2.Internet banking 3.Client application 4.Bulk channel

1. Paper Features Forms (based on BBAN) for initiation Account statements for reporting Only for very low volumes High cost per transaction Generation and processing by customer not computerised Impact of SEPA Adjust forms to IBAN Report must include mandatory information (rule books), including IBAN, reference, (original) initiator Examples Supported by most banks, used by customers with little computerisation or non- standard instructions (e.g. urgent payments) Payment instruction Report Clearing & Settlement

2. Internet banking Features Automation by banks Manual input of payments or upload Reporting on screen or downloaded Limited volumes (100-1,000 tx/day) Limited integration possible with back office systems Impact of SEPA Adjust screens (IBAN) and upload and download format (to XML) Bank decides migration date Bank can offer central migration support services Examples Almost all banks have extensive websites Payment instruction Report Clearing & Settlement

File formats will change under SEPA Current situation: national formats for payment instructions and reporting Additional information in SEPA messages, does not fit current formats: IBAN (SCT, SDD) Creditor scheme identifier (SDD) Mandate information (SDD) Therefore, change to ISO XML for SEPA products: Payment instructions: mandatory via PAIN messages Reporting: CAMT messages (not mandatory) Banks’ own reporting formats permitted provided they meet SEPA requirements

EPC Cards Framework Ideal situation: ‘Any card at any terminal’ Schemes which are accepted throughout Europe Open non-discriminatory card scheme membership Uniform pan European processing for all schemes and processors Options for SEPA Compliancy Make national schemes SCF-compliant Replace national by international schemes Co-branding Initiatives for additional European Card Scheme Safety EMV-implementation: Chip and PIN code SEPA for Cards

SEPA for cards: policy issues (Green Paper) Multilateral interchange fees (see following slides) Transparency on fees Co-branding Central licensing, issuing or acquiring European POS-terminal Honour all cards rule Blending Chip-only cards Mobile payments Access to Bank Accounts (Dual Consent-approach)

How do Dutch consumers pay when abroad?

How do Dutch consumers make cross-border payments?

Cross-border payments by Dutch consumers: trends and attitudes Differences in the use of debit cards at home or abroad have declined Growing satisfaction with debit card use abroad Debit cards are seen as safer and easier to use than cash Acceptance levels do leave some room for further improvement For cross-border payments, online banking is seen as the safest option For ease of use, credit cards score highest PayPal is considered the cheapest and fastest means of payment Satisfaction with the costs of cross-border payment through online banking has increased in recent years

Organisation of the NFS National Forum on SEPA Migration (NFS) Individual parties Programme Agency Stakeholders represented in national migration via umbrella organisations Programme linked to migration activities of umbrella organisations Task Force SEPA Netherlands High-level consultations Software suppliers Supporting parties ProvidersUsers Umbrella organisations

All stakeholders involved Information-exchange and binding appointments Activities with respect of planning migration communication monitoring Signaling and solving of social migration problems Three levels: Board, Technical and a Programme Office National Forum on SEPA-migration (NFS)

Impact analysis SEPA Regulation (2011) New National SEPA Migration Plan (2011) Establishment of NFS (2011) Projects and activities ( ) Central communication campaign Stimulating the development of SEPA-proof software National governance Exchange of experiences Identifying and resolving migration issues and risks Monitoring SEPA change-over Activities NFS

Infrastructure ready for mass migration Adjust infrastructure to European payment instrument requirements Public information campaign Communication by umbrella organisations, intermediaries, banks Adjust applications Support user migration Software suppliers Communication Banks Support user migration Wholesale SCT users Small-business SCT users Consumers Wholesale SCT users Small-business SCT users Early movers Increasing use of IBAN Early movers Mass migration Specifications for basic product range for business users SDD meets Regulation’s consumer protection requirements 1 February: end date for migration to SCT and SDD SCTSDD Possible use of niche products beyond end date National Migration Plan

dd Mmmm yyyy 37 Full migration per remains the common goal The Netherlands will not make use of waiver possibilities Banks and software companies under pressure to be ready in time, preparations are in order; ultimately end of Q the basic payments infrastructure will be ready for full mass migration. Major concern is congestion close to the end-date. SEPA – General remarks

Aim of the SEPA Migration Monitor Insight into the status of SEPA migration of corporates, public authorities and software suppliers 1.Awareness of the meaning and implications of SEPA 2.Stage of preparations 3.Actual use of SEPA payment instruments 4.Development of software packages

SEPA-preparations

40 SEPA Communication campaign To improve knowledge on IBAN and products Three stage rocket: - General public campaign - Umbrella organisations with members - Enterprises & organisations with clients Timing: milestones

Public information campaign: Iedereen krijgt een langer rekeningnummer. Uw bedrijf dus ook. Houd er rekening mee. Everyone will have a longer account number. Including your business. Take it into account. SEPA communication

Campaign website

Toolkit Banner Factsheet/flyer Animation(s) Campaign logos SEPA checklist for firms Source texts Set of Q & A Helpdesk Radio and TV commercials Template impact analyse

More information via & Information

The SEPA-migration is under way.The success of SEPA depends on Timely implementation of the National Migration Plans with respect to the end date for national payment instruments (SEPA-Regulation) Well organised stakeholder involvement and consultation SEPA for Cards means ‘Any card at any terminal’ - this requires time Further European standardisation, which is not easy What is coming after 1 February 2014? Concluding Remarks

What are the advantages of SEPA for different market parties? What are possible barriers for the migration to SEPA for market parties? How could SEPA governance be organised on an European and national level? What could be the next wave of SEPA products after 1 February 2014? How could countries outside Europe profit from SEPA? Discussion points