1. 1 ABEEBA Oct..2003 STEP2 A Pan-European ACH for the Single Euro Payments Area Payment Systems Conference, Budapest, 9th October 2003

2. 2 ABEEBA Oct..2003 STEP2 objectives, benefits and participation High-level overview of EURO1 and STEP1 EBA history and background Overview STEP2 and SEPA

3. 3 ABEEBA Oct..2003 EBA was founded in 1985 by 18 commercial banks and the European Investment Bank today : more than 190 members from all EU countries and the US, Switzerland, Norway, Australia, Japan, China Introduction 18 years of experience in operating a cross-border payment system with the BIS as Settlement Agent (till end-1998) and the ECB (since 1999) consensus building and decision making within a pan-European, industry owned organisation

4. 4 ABEEBA Oct..2003 Successful migration to the euro development of the EURO1 and STEP1 system creation of EBA Clearing Company as operator of the system, 74 EURO1 banks are shareholders Association pursues its mission with further initiatives Introduction

5. 5 ABEEBA Oct..2003 The EBA Group EBA Euro Banking Association EBA Clearing Operator of EURO1/STEP1/ STEP2 EBA Administration S.A. Introduction

6. 6 ABEEBA Oct..2003 The Euro Banking Association’s mission Introducing EBA to serve as a forum for the practitioners in the euro payments industry to initiate further interbank cooperation arrangements in relation to payments infrastructure needs to carry out studies and research to increase the general knowledge and awareness of the euro payments industry

7. 7 ABEEBA Oct..2003 Introducing EBA Clearing The mission of EBA Clearing to develop and implement processing arrangements for new pan-European payment schemes to ensure that services delivery conforms to the highest levels of cost-effectiveness, robustness and resiliency to facilitate the migration of the banks’ payment traffic from domestic to pan-European platforms

8. 8 ABEEBA Oct..2003 … a source of private sector initiatives for pan-European payment infrastructures The EBA a meeting place of practitioners capable of building consensus creating commitment delivering solutions

9. 9 ABEEBA Oct..2003 STEP2 features, benefits and participation High-level overview of EURO1 and STEP1 EBA history and background Overview STEP2 and SEPA

10. 10 ABEEBA Oct..2003 EURO1 and STEP1 Two schemes for single payments processing, operated on one technical platform provided by SWIFT EURO1 Participants settle with ECB, extend to each other credit lines to create liquidity, share risk, collateral Processing of single payments STEP1 Participants settle with a EURO1 Settlement Bank, liquidity is provided by the Settlement Bank EURO1 STEP1

11. 11 ABEEBA Oct..2003 EURO1 and STEP1 74 Direct Participants 42 Sub-participants Processing of single payments >190 Direct Participants (incl. EURO1 Banks) EURO1 STEP1 8000+ directly addressable BICs Two schemes for single payments processing, operated on one technical platform provided by SWIFT

12. 12 ABEEBA Oct..2003 160 - 140 - 120 - 100 - 80 - 60 - 40 - 0 - x1000 Q1 Q2Q3Q4 Q1 20002001 Q2Q4Q3 Daily average value (EUR bn) - 200 - 180 EURO1/STEP1 Traffic 2002 Q1 Q2Q3Q4 Daily average volume (000) 2003 Q1Q2Q2

13. 13 ABEEBA Oct..2003 Key facts EURO1/STEP1 platform Second-largest high-value system in the world in terms of volume Includes all major players of the European payments industry Evolution towards Flexible Settlement Capability Settlement at the European Central Bank

14. 14 ABEEBA Oct..2003 STEP2 features, benefits and participation High-level overview of EURO1 and STEP1 EBA history and background Overview STEP2 and SEPA

15. 15 ABEEBA Oct..2003 with proper pan-European arrangements for high-value payments, The starting point A new Single Currency Area … - but deeply fragmented infrastructures for low-value payments, different standards and business practices, legal environments

16. 16 ABEEBA Oct..2003 WHAT WE DON’T WANT What infrastructure approach ?

17. 17 ABEEBA Oct..2003 … a truly pan-European platform ! What infrastructure approach ?

18. 18 ABEEBA Oct..2003 distribution of payment instructions to any bank operating in the EU, no need to maintain routing tables for payments in EU a pan-European ACH connecting directly or indirectly the banks from all EU countries highly automated, based on new pan-E. standards and latest technology, simple to operate, minimising bank internal costs open to progressive integration of domestic traffic integrated liquidity position for EURO1/STEP1/STEP2 STEP2 key features

19. 19 ABEEBA Oct..2003 Sending cut-off D-1 22:00 Settlement cut-off 8:00 STEP2 processing cycle Receiving files from participants Validation of files and of instructions Sorting per ad- dressed participant, creating reject file Calculation of bilateral obligations Generation of settlement payment orders, transmission to EURO1/STEP1 Processing of settlement payments in EURO1 Creation of outgoing file for each addressed participant Sending one file to each addressed participant D 7:00 Files not settled are returned Time line

20. 20 ABEEBA Oct..2003 1 file 1 EURO1 11 funds STEP2 STEP1 STEP2 Participation Modes 1. Direct Participants : Banks sending to and receiving from STEP2 files directly

21. 21 ABEEBA Oct..2003 2 11 EURO1 1. Direct Participants 2. Indirect Participants : banks in the EU that have appointed a STEP2 direct participant to receive files and funds on their behalf STEP2 STEP1 STEP2 Participation Modes

22. 22 ABEEBA Oct..2003 3 3 3 EURO1 3. Other banks : Routing of payments to any other bank in the EU via STEP2 Direct Participants acting as Entry Points for a country STEP1 file Direct Participants acting as country Entry Point STEP2 11 1 STEP2 Entry Point 1. Direct Participants 2. Indirect Participants

23. 23 ABEEBA Oct..2003 STEP2 ramp-up Direct Participants in STEP2, since live date in April 2003 Banca Intesa Banco Bilbao Vizcaya Argentaria Banco Commercial Portugues Banco Espirito Santo Banco Popular Español Banco Santander Central Hispano Bank Austria Creditanstalt Banque Fed. du Credit Mutuel Barclays Bank BCEE CECA Commerzbank Credit Commercial de France Deutsche Bank Dresdner Bank EFG Eurobank HSBC Hypovereinsbank ING Bank ING Belgium JP Morgan Chase Bank La Caixa National Bank of Greece Nordea Bank Danmark Nordea Bank Finland Rabobank Nederland SanPaolo IMI Société Générale Sydbank Unicredito Italiano WestLB

24. 24 ABEEBA Oct..2003 STEP2 ramp-up Banks joining in October 2003 as Direct Participants Banca Pop. Verona e Novara Banca Popolare di Milano BNP Paribas Caixa Geral de Depositos Capitalia Caja Madrid Credit Agricole Credit Lyonnais Credito Bergamasco Danske Bank Den norske Bank Deutsche Bundesbank Dexia – BIL Fortis Bank KBC Bank Natexis Banques Populaires Österreichische Nationalbank SEB Swedbank 760+ Indirect Participants by the end of 2003

25. 25 ABEEBA Oct..2003 Declaration of interest Briefing sessions in EBA Letter confir- ming interest - 5 months - 2 Bank internal preparations Complete legal and technical documen- tation - 1 Live - 6 Test & training registration - 4 8 weeks scripted testing STEP2 admission cycle

26. 26 ABEEBA Oct..2003 Joining windows in 2004 8 March 5 July 8 November Indirect Participants join on a monthly basis STEP2 admission cycle

27. 27 ABEEBA Oct..2003 STEP2 ramp-up Receiver Capability as of 31/12/03 STEP2 Direct Participants in 14 EU countries act as Entry Points to ensure country wide distribution of payments coming from STEP2

28. 28 ABEEBA Oct..2003 CountryEntry PointsDir. Particip. as of Nov 03 as of Nov 03 Austria22 Belgium13 Denmark33 Finland11 France27 Germany46 Greece22 Ireland-- Italy47 Luxembourg22 Netherlands12 Portugal33 Spain66 Sweden+2 United Kingdom13 STEP2 receiver capability

29. 29 ABEEBA Oct..2003 EU 25 Receiver Capability as of 31/12/04 STEP2 Direct Participants in 14 EU countries act as Entry Points to ensure country wide distribution of payments coming from STEP2

30. 30 ABEEBA Oct..2003 STEP2 features, benefits and participation High-level overview of EURO1 and STEP1 EBA history and background Overview STEP2 and SEPA

31. 31 ABEEBA Oct..2003 The Single Euro Payments Area ! Where do we have to go ?

32. 32 ABEEBA Oct..2003 Challenges and opportunities SEPA : a change of scale or changes of horizons ? En route to SEPA : which sort of business cases for abandoning domestic standards/infrastructures and creating new ones ? New infrastructures : the difficult balance between the need for consensus, the need for leadership and market driven consolidation. How equal are banks vis-à-vis - scale driven cost saving potentials ? - opportunities emerging from de-fragmentation and broadening business horizons ?

33. 33 ABEEBA Oct..2003 Step2 not only provides a solution for the future pan-European mass payments processing … STEP2 : a migration project … Step2 also offers a variety of paths to individual banks and bank communities for migrating their traffic to PEACH !

34. 34 ABEEBA Oct..2003 Core Market Practice: Common Standards MGS Type: MT103+ Amount : € 12.500 STP Beneficiary Account Identification: IBAN + BIC Guaranted execution timeframe Others... STEP2 and EPC Concentric Model ex. All the elements of the common standard code Maintanined, except the amount : € 250.000... ex. Amount : € 250.000 STP Beneficiary Account identification: BBAN (Clearing Code + Acc. number ex. RIB)...

35. 35 ABEEBA Oct..2003 Innovation and value for SEPA A new technology : InterAct and FileAct, SWIFT XML Standards for Bulk Payments A new business platform : a pan-European ACH supporting the new pan-European payment instruments A new customer proposition : low cost, secure and rapid payment services across Europe for retail customers STEP2 key features

36. 36 ABEEBA Oct..2003 «... the Pan-European Infrastructure WG should ensure that the following milestones are respected :... By mid-2003, the pan-European infrastructure should be operational for cross-border STP compliant credit transfers. By mid 2004, 50% of current cross-border credit transfers volumes should be processed on the pan-European infrastructure as well as, potentially, domestic payments from countries with no ACH infrastructure. By mid-2005, the pan-European infrastructure should accommodate new Euro direct debit schemes. By 2007, the agreed target service levels as defined should be met (e.g. same day settlement). » STEP2 and SEPA (Excerpts of S.E.P.A. Workshop report, March 2002) The next steps …

37. 37 ABEEBA Oct..2003 Different blocks … The EBA vision for settlement : indirect for processing: payment files, STP credit&debit direct single payments, same-day, STP and non-STP, credit&debit EURO1 STEP2 STEP1

38. 38 ABEEBA Oct..2003 EURO1 STEP2 STEP1 … one integrated offering The EBA vision

39. 39 ABEEBA Oct..2003 Direct settlement Indirect settlement Single payments Bulk payments A broadly based clearing and settlement services provider for processing single and bulk payments in euro open to all financial institutions in the EU The EBA Payments Processing Center for the SEPA The EBA vision … one integrated offering

40. 40 ABEEBA Oct..2003 The EBA Payments Processing Center www.abe.org