Single Euro Payments Area and the Payment Services Directive Single Euro Payments Area and the Payment Services Directive Michael van Doeveren 2nd Conference of the Macedonian Financial sector on Payments and Securities settlement Systems Ohrid 29 June 2009 De Nederlandsche Bank

Agenda What, why and how about SEPA? SEPA-products Payment Services Directive Impact of SEPA Migration Closing remarks

In 16 countries the Euro........ € € € € € € € € € € € € € € € € Euro area € € € € € € € € € € € € € € € €

.....but completely different standards, products and rules for retail payments… € € € € € € € € € € € € € € € €

and the goal of the European Union is to achieve an integrated European payments market EU € € € € € € Euro and non-euro member states, the € € € € € € € € €

What is SEPA? Political vision: The euro area will be an internal ´domestic´ market for retail payments generate scale economies and promoting competition Concretely: European payment instruments for both cross-border and domestic payments in euro: credit transfers, direct debit and cards

Why SEPA? European Politics Economics Banks Improvement European economy: Lisbon agenda Economics Internal market: volume and competition Banks To prevent ‘further regulation’ after Regulation 2560/2001 Especially Cross-border banks can profit from new market circumstances

How to realise SEPA? Self-regulation: European Payment Council of banks develops standards and products Payment Services Directive: legal harmonisation

EPC Technical harmonisation Two kinds of agreements in EPC: 1. About interbank processing: Credit transfer rulebook Direct debit rulebook 2. Restructuring of the market: SEPA Cards-framework (SCF) Clearing & Settlement Framework Single Euro Cash Area

Payment chain clearing debit credit payment instruction payment information bank bank clearing payment information debit payment instruction credit buyer seller good/service

BIC BIC: Bank Identifier Code Issuing agent (on behalf of ISO): SWIFT 2 A X X X Bank code Country code (ISO) Location code Branch code BIC8 BIC11 BIC: standardised construction

IBAN IBAN : International Bank Account Number Administrator of Register of national IBANs (on behalf of ISO): SWIFT Country code (ISO) Check digit Bank identifier Domestic account Number Remarks: The Bank Identifier in an IBAN is country specific The length of the bank identifier varies from country to country Each country has its own Basic Bank Account Number system Summary: Country code and check-digits : uniform Bankidentifier and BBAN : country specific

IBAN examples IBAN Examples Finland FI21 1234 5600 0007 85 France FR14 2004 1010 0505 0001 3M02 606 lengte 27 Germany DE89 3704 0044 0532 0130 00 Ireland IE29 AIBK 9311 5212 3456 78 Luxembourg LU28 0019 4006 4475 0000 Netherlands NL91 ABNA 0417 1643 00 lengte 18 Norway NO93 8601 1117 947 Poland PL61 1090 1014 0000 0712 1981 2874 lengte 28 United Kingdom GB29 NWBK 6016 1331 9268 19 (composition: country code check digits Bankidentifier branchindentifier BBAN) Source: www.swift.com 20080811 IBAN Registry Remarks: IBAN and BIC contain both bank identifiers, but they could differ IBAN and BIC contains both a country code, but they could differ

SEPA Credit Transfer (in use since 28 January 2008) SEPA Credit Transfer: Standard for bank to bank credit transfers in euro (mass payments) Payments are made for the full original amount IBAN and BIC are obliged ISO 20022 UNIFI standards (XML-language) 140 characters of remittance information are delivered to the beneficiary Unstructured or restructured remittance information as agreed between partners

SEPA Direct Debit (coming from 1 November 2009 on) SEPA Direct Debit: Standard for bank to bank Direct Debits in euro Payments are made for the full original amount IBAN and BIC are obliged ISO 20022 UNIFI standards (XML-language) One-off or recurrent A mandate is signed by the debtor (e-mandate) Pre-notification (mostly 14 calender days in advance) Refunds (PSD: 8 weeks) and returns

Competition on cards in SEPA

Point-of-sale card payment system

SEPA Cards Framework Policy scope (1) Seperation of scheme governance from underlying processing Open non-discriminatory scheme membership Single, pan-European license Open and transparant pricing policies EMV-implementation: Chip and PIN implementation shift for all cards by end 2010

SEPA Cards Framework Policy scope (2) A common approach to fraud and reporting Standardised processes and procedures for card acceptance and certification Convergence of scheme rules for common non-competitive aspects References the Payment Services Directive Common, consistent experience for all cardholders at POS and ATM Merchant choice of card type accepted Interoperability and all merchant SEPA card acceptance

SEPA for cards Vision of the Eurosystem (1) The Consumer can choose between different debit card brands The Merchant can choose which debit cards brands he or she accept The cards market is competitive, reliable and efficient, as well as for card holders, merchants as for processing More aspiration is needed in the SEPA for cards: need for an additional European debit card scheme Further card standardisation is vital

SEPA for cards Vision of the Eurosystem (2) All technical and legal barriers are eliminated Interchange fees should not be misused to generate excess revenues for the banking system, at the costs of merchants and cardholders Preference for no MIF-model: see for example the MasterCard and VISA cases Ideal situation: ‘Any card at any terminal’

Need for Standardisation!

Standardisation SEPA for Cards Card to terminal (EMV) Terminal-to-acquirer (EPAS, ERIDANE) Acquirer-to-issuer (ISO 8583 and ISO 20022) Certification of cards and payment terminals

What is EMV? EMV: Europay, MasterCard, VISA Worldwide standard for Chip on cards (readers) ATM & EFT POS terminals Debit and credit cards EMV afkorting van Europay, Mastercard, Visa insert Much safer than magstripe

Options for SEPA Compliancy Select one (or more) of the international schemes to replace the current national schemes Make national schemes SCF-compliant Co-branding of national systems with international systems

Initiatives for additional European Card schemes PayFair:merchant initiative EAPS: cooperation of national schemes Monnet: French and German banks Transforming a three party payment scheme? Other?

Impact of SEPA for cards Consumers Use of cards in the whole SEPA area: any card at any terminal Retailers More choise: terminal, acceptance of brands, acquiring Banks and payment schemes Change of markets, new products, new systems

Milestones Credit transfer and Direct debit European Rulebooks are the basis for products of the banks Framework for clearing and settlement Credit transfers from 28 January 2008 on Direct debit from end 2009 on Cards SEPA Cards Framework After 2010 only SEPA-cards

Role public sector SEPA is a project banks: self-regulation via EPC However… European Commission Payment Services Directives Public users are the early adopters Eurosystem: catalyst role 6th Progress report November 2008

Legal harmonization: Payment Services Directive Content: Proportional supervisory regime for non-bank payment service providers Transparency requirements Rules about the relationship of the payment service provider and user

Scope: payment services 1. Services enabling cash to be placed on a payment account 2. Services enabling cash withdrawals from a payment account 3. Execution of payment transactions; direct debits, payment transactions through a payment card, credit transfers 4. Execution of payment transactions where the funds are covered by a credit line for a payment service user: 5. Issuing and/or acquiring of payment instruments. 6. Money remittance. 7. Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.

Payment Institution What is a payment institution? Non bank provider of payment services, and: End users Transferable balances: no cash Owns customer funds temporarily Pure intermediary Payments are a main activity Examples: money transfer offices, internet payment service providers Is allowed to provide payment services not only in its home country but everywhere in the internal market Rationale for payment institutions: increase competition 32

Payment institutions Proportional prudential supervision License Capital requirements Internal processes Identify, measure and manage their risks Sound governance Integrity 33

Rights and obligations Information requirements - single payment transactions Information to the payer prior after receipt Transaction Identifier, payee Amount of the payment Charges payable exchange rate used Date of receipt order Information needed Execution time Charges Reference exchange rate Single payment transaction, for instance a money transfer: 1. Member States shall ensure that the following information and conditions are provided or made available to the payment service user: (a) a specification of the information or unique identifier that has to be provided by the payment service user in order for a payment order to be properly executed; (b) the maximum execution time for the payment service to be provided; (c) all charges payable by the payment service user to his payment service provider and, where applicable, the breakdown of the amounts of any charges; (d) where applicable, the actual or reference exchange rate to be applied to the payment transaction. Information for the payer after receipt of the payment order Immediately after receipt of the payment order, the payer's payment service provider shall provide or make available to the payer, in the same way as provided for in Article 36(1), the following information: (a) a reference enabling the payer to identify the payment transaction and, where appropriate, information relating to the payee; (b) the amount of the payment transaction in the currency used in the payment order; (c) the amount of any charges for the payment transaction payable by the payer and, where applicable, a breakdown of the amounts of such charges; (d) where applicable, the exchange rate used in the payment transaction by the payer's payment service provider or a reference thereto, when different from the rate provided in accordance with Article 37(1)(d), and the amount of the payment transaction after that currency conversion; and (e) the date of receipt of the payment order. Information to the payee Reference, payer Amount Charges Exchange rate Credit value date 34

Rights and obligations Information requirements - Payments via framework contract prior after receipt Information for payee Payment service provider Supervisor Product features Charges Safeguard requirements Transaction identifier, payee Amount Charges Exchange rate used Debit value date These information requirements will be applicable to the payments via your current account at a bank. Member States shall ensure that the following information and conditions are provided to the payment service user: 1. on the payment service provider: (a) the name of the payment service provider, the geographical address of its head office and, where applicable, the geographical address of its agent or branch established in the Member State where the payment service is offered, and any other address, including electronic mail address, relevant for communication with the payment service provider; and (b) the particulars of the relevant supervisory authorities and of the register provided for in Article 13 or of any other relevant public register of authorisation of the payment service provider and the registration number, or equivalent means of identification in that register; 2. on use of the payment service: (a) a description of the main characteristics of the payment service to be provided; (b) a specification of the information or unique identifier that has to be provided by the payment service user in order for a payment order to be properly executed; (c) the form of and procedure for giving consent to execute a payment transaction and withdrawal of such consent in accordance with Articles 54 and 66; (d) a reference to the point in time of receipt of a payment order as defined in Article 64 and the cut-off time, if any, established by the payment service provider; (e) the maximum execution time for the payment services to be provided; and (f) whether there is a possibility to agree on spending limits for the use of the payment instrument in accordance with Article 55(1); 3. on charges, interest and exchange rates: (a) all charges payable by the payment service user to the payment service provider and, where applicable, the breakdown of the amounts of any charges; (b) where applicable, the interest and exchange rates to be applied or, if reference interest and exchange rates are to be used, the method of calculating the actual interest, and the relevant date and index or base for determining such reference interest or exchange rate; and (c) if agreed, the immediate application of changes in reference interest or exchange rate and information requirements related to the changes in accordance with Article 44(2); 4. on communication: (a) where applicable, the means of communication, including the technical requirements for the payment service user's equipment, agreed between the parties for the transmission of information or notifications under this Directive; (b) the manner in and frequency with which information under this Directive is to be provided or made available; (c) the language or languages in which the framework contract will be concluded and communication during this contractual relationship undertaken; and (d) the payment service user's right to receive the contractual terms of the framework contract and information and conditions in accordance with Article 43; 5. on safeguards and corrective measures: (a) where applicable, a description of steps that the payment service user is to take in order to keep safe a payment instrument and how to notify the payment service provider for the purposes of Article 56(1)(b); (b) if agreed, the conditions under which the payment service provider reserves the right to block a payment instrument in accordance with Article 55; (c) the liability of the payer in accordance with Article 61, including information on the relevant amount; (d) how and within what period of time the payment service user is to notify the payment service provider of any unauthorised or incorrectly executed payment transaction in accordance with Article 58 as well as the payment service provider's liability for unauthorised payment transactions in accordance with Article 60; (e) the liability of the payment service provider for the execution of payment transactions in accordance with Article 75; and (f) the conditions for refund in accordance with Articles 62 and 63; 6. on changes in and termination of framework contract: (a) if agreed, information that the payment service user will be deemed to have accepted changes in the conditions in accordance with Article 44, unless he notifies the payment service provider that he does not accept them before the date of their proposed date of entry into force; (b) the duration of the contract; and (c) the right of the payment service user to terminate the framework contract and any agreements relating to termination in accordance with Article 44(1) and Article 45; 7. on redress: (a) any contractual clause on the law applicable to the framework contract and/or the competent courts; and (b) the out-of-court complaint and redress procedures available to the payment service user in accordance with Articles 80 to 83. Article 47 Information for the payer on individual payment transactions 1. After the amount of an individual payment transaction is debited from the payer's account or, where the payer does not use a payment account, after the receipt of the payment order, the payer's payment service provider shall provide the payer without undue delay in the same way as laid down in Article 41(1) with the following information: (a) a reference enabling the payer to identify each payment transaction and, where appropriate, information relating to the payee; (b) the amount of the payment transaction in the currency in which the payer's payment account is debited or in the currency used for the payment order; (c) the amount of any charges for the payment transaction and, where applicable, a breakdown thereof, or the interest payable by the payer; (d) where applicable, the exchange rate used in the payment transaction by the payer's payment service provider, and the amount of the payment transaction after that currency conversion; and (e) the debit value date or the date of receipt of the payment order. Information for the payee on individual payment transactions 1. After the execution of an individual payment transaction, the payee's payment service provider shall provide the payee without undue delay in the same way as laid down in Article 41(1) with the following information: (a) the reference enabling the payee to identify the payment transaction and, where appropriate, the payer, and any information transferred with the payment transaction; (b) the amount of the payment transaction in the currency in which the payee's payment account is credited; (c) the amount of any charges for the payment transaction and, where applicable, a breakdown thereof, or the interest payable by the payee; (d) where applicable, the exchange rate used in the payment transaction by the payee's payment service provider, and the amount of the payment transaction before that currency conversion; and (e) the credit value date. Transaction identifier, payer Amount Charges Exchange rate used Credit value date 35

Rights and obligations Other obligations for the provider d + 1 No sending of unsolicited payment instruments User provides incorrect unique identifier: reasonable efforts to recover funds And more.. 36

Rights and obligations Obligations for the user Act according to the contract Reasonable safety measures Direct notification of loss/theft And more.. 37

PSD wrap up PSD provides harmonisation of: Market access: besides credit institutions and electronic money institutions also payment institutions Rights and obligations Implementation in national legislation ultimately 1november 2009

European law: other items Renewal of regulation 2560 No price difference between domestic and cross border direct debits Adaptation of the electronic money directive Greater consistency with the PSD New prudential regime

Potential for SEPA compliancy NL Niet sepa-compliant te maken instrumenten: Acceptgiro (4%), Chipknip (4%) en de overige binnenlandse en buitenlandse instrumenten (ca 0,5%), zoals cheques 8,5% van de huidige betalingen kunnen in de toekomst niet met Europese producten worden gedaan Daar gaat het migratieplan niet direct over

Impact of SEPA Consumers Firms (private and public) Retailers Banks Use IBAN and BIC Use of cards in the whole SEPA area Firms (private and public) Easier cash-management and administration Standard formats (ISO 20022 XML) Use of IBAN and BIC Centralisation of accounts and direct debits Retailers More choise: terminal, acceptance of brands, acquiring Banks Change of markets, new products, new systems

Benefits of SEPA Efficiency, level playing field and transparency lead to cost benefits for society in the long run Reduction costs for average user of payment services in Europe Comfort/User-friendliness Innovation

Migration Aim: a smooth migration to SEPA To organise nationally Market driven Speed can differ between countries Stakeholder involvement and communication are important tools for success Need for an end date

Migration Plan of the Netherlands Objective: an orderly and efficiently change over from domestic payments to SEPA Scope: all existing payment instruments for which there is a SEPA-alternative Consequences and choices for different stakeholders Market driven migration Identifying barriers, changes and solutions Mid 2009 evaluation: an end date can foster migration

Points of concern SEPA National Forum on the Payment System Price developments Range of options open to consumers and retailers, caterers and other regarding debit card brands User-friendliness of migration to IBAN and BIC Safety of SEPA direct debit Prolongation of direct debit contracts and mandates Standardisation in the Bank-client domain Interbank Swich support service Dispute handling Accessibility of the noncash payment system Consultation process

Closing remarks The first phase of SEPA (SCT) was introduced succesfully on 28 January 2008 SEPA will transform the European landscape SEPA is good and has benefits for all users! Legal harmonisation is essential Implementation and transition will be planned carefully End date can stimulate the migration SEPA will raise further dynamics: e-invoicing, e- and m-payments etcetera