1 The future of card payments in SEPA (card payments representing 42% of retailpayments and 85% of retail cross border payments in EU25 ) Alfred Schmauss Chair, EPC Cards WG Budapest,19 November 2004 EPC PRES-0110/04 FEDERATION BANCAIRE DE L'UNION EUROPEENNE BANKING FEDERATION OF THE EUROPEAN UNION BANKENVEREINIGUNG DER EUROPÄISCHEN UNION EUROPEAN SAVINGS BANKS GROUP GROUPEMENT EUROPEEN DES CAISSES D’EPARGNE UROPÄISCHE SPARKASSENVEREINIGUNG EUROPEAN ASSOCIATION OF COOPERATIVE BANKS GROUPEMENT EUROPEEN DES BANQUES COOPERATIVES EUROPÄISCHE VEREINIGUNG DER GENOSSENSCHAFTSBANKEN

2 Agenda 1.The Market for Cards 2.Expectations for Cards by Role of the EPC Cards WG 4.EPC Cards Working Group: Status

3 1. The Market for Cards

4 EU vs.Single Euro Payment Area in card payment transactions ( not ATM transactions) ãEU25 = 17.5 Billion card payment transactions ãEU15 = 17 Billion card payment transactions (97% of EU25) ãEU12 = 12 Billion card payment transactions (70% of EU15) EU15 EU12

5 Different types of cards examples in Europe Source: RBR - Payment Cards in Europe Number of payment transactions by country and by type of cards *) Without „OLV“ in DE ( to be stopped by )

6 2. ECB Expectations for Payments by Card by 2007

7 G. Tumpel-Gugerell (ECB): “Time to act: clear objectives and a convincing Roadmap for SEPA” (Sept. 6 th 2004) ã“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”. ãRequest for concrete action plan and timetable ãEnd game for EU-12 (Euro Countries): Card solutions by 2007 Credit transfers by 2008 at the latest Priority credit transfers by 2008 at the latest Direct debit by 2008 at the latest ãConsolidation of infrastructures by 2010 at the latest

8 … Continued Our objective:Our objective: any card at any terminal « To turn the euro area into an area where stakeholders can use any card at any terminal (whether POS or ATM) or remotely to pay – at least – under the same conditions as they can today at national level with national cards » G. Tumpel-Gugerell (ECB), EFMA Conference on « Cards and Payments », Paris, September 21th 2004 at EFMA SEPA for Cards*)  This is the « SEPA for Cards*) » concept *) Remarks : « Single Euro Payment Area » - is a moving target for non € countries - midterm standards are relevant as in Eurozone ( leadtime and bank ownership structure within new EU countries) - Euro Conversion has a long preleadtime anyway

9 …other implications  Pricing  outside ECB and EPC is under pressure by different stakeholders and authorities is under pressure by different stakeholders and authorities  Service Levels Wider acceptance of bank cards by retailers Abolition of geographical limitations on card issuing and acquiring ; « on us » to become SEPA based Card processing industry in restructuring process  Governance of domestic and global cards schemes  Legal environment: Clear New Legal Framework, defined and implemented uniformly across EU ( “PSP”/”PSU” based)  Standardisation  Standardisation: Defined and uniformly implemented standards that facilitate interoperability – based on EMV, Chip and PIN only

10 3. The role of the EPC and EPC Cards Working Group

11 the SEPA Debit Card Scheme  Delivering a payment scheme for debit and account-linked cards  Segregation of ‘scheme’ and ‘operators’, allowing for an overall scheme framework operated by multiple infrastructures  Implementation by 2007 in Single Euro Payment Area, but SEPA 29 for cards to follow  Adaptation of domestic and global schemes  Consistent with P€DD, NLF and EMV roll out 2007  Additional attention to implications of channels for e-payments (web retailers) and mobile payments and security  Continued work on the implementation of the 8 EPC Card Recommendations till 2007

12 EPC Cards WG: the 8 Recommendations 1.Reinforce actions to prevent and combat fraud 2.Schemes present tariffs to members in a transparent, SEPA- objectives consistent manner 3.Schemes amend rules & convention to allow SEPA-wide operations 4.Promote self-regulation and co-operate with regulators/ legislators to remove barriers 5.Strive for greater levels of technical standardization 6.Banks exert their responsibilities as stakeholders in domestic and international schemes 7.Define with the ECB an aggregated high-level statistical data collection and distribution process 8.Establish the Cards WG as the body to monitor Recommendations and debate new issues

13 4. EPC Cards WG: Work Status

14 Cards WG: Work Status (1/2)  Business Model: July 2004: 12 national and international cards schemes’ self-assessments (re. compliance with Recommendations 2 and 3) received – Further evaluation dialogue necessary re. consistency with Findings & Recommendations on « direction », « dates », and « concrete content » for SDCS  New Legal Framework (  New Legal Framework ( Version 4.0) Critical points for the cards business are: payments service providers, security of payments services, rules on data protection, availability of monetary claim on a payment account, allocation of losses between parties Relevant representation made to European Commission Waiting for Version 5.0….  ECB Cards Statistical project: To provide a realistic picture of the European cards market To be completed by year end / 4.Q 04 to start for new EU countries

15 Cards WG: Work Status (2/2)  Card Fraud Prevention: o3rd EMV implementation snapshot (Oct. 2004): migration is less speedy than expected. Tracking now in place for issuing and acquiring till final target date 2007 oEuropean antifraud database opportunity and feasibility study: proposal under development oCard Stop Europe: EPC Position Paper submitted to the European Commission oEU Fraud Prevention Action Plan : Dialogue with EC, incl. proposal on restructuring the Fraud Prevention Experts Group (FPEG) oEuropean antifraud toolkit (matrix of tools set by types of attack, for practitioneers): model validated by Card Fraud Prevention Task Force; to be deployed Standardisation: oPriorities for card specifics to be set for SDCS, EMVCo

16 EMV Implementation Snapshot 3Q 04 EU 15 Debit cards converted Credit cards converted POSs converted ATMs converted Austria68%25%0%37% Belgium0%62%1.2%99.2% Denmark77%Pilot2%65% Finland45%0% 70% France5.5% 11.5%50% Germany24%1%0.008%0% Greece0.15%1.25%16.5%5.5% Ireland4%25%20% Italy0.1% Luxembourg0%40%100%80% Netherlands0% Portugal0% Spain0.001%0.007%0.29%12.25% Sweden26%4%0%83% UK58%71%70%81% TOTAL25.9%16.2%29.2%