1. Serious about S€PA? Business Partner Forum Conor Devane
Dubai, May 21, 2008
Conor Devane

2. Agenda
Payments in the European Union
Payment Services Directive and SEPA
SEPA Standards
Certification
Impact on our customers
Impact on our business

3. Payments in the EU

4. Global Payment Transactions

5. EU-27 Payments Market

6. Market Concentration

7. Payment Services Directive and SEPA

8. European Payments Council
Multiple Initiatives with a Common Goal
SEPA Progress Report
Driving a single payment area for the euro zone
European Central Bank
Directorate General
For Competition
DG Internal Market
and Services
Payment Services Directive
Creating the legal framework for a single market
Retail Banking Sector Inquiry
Creating a truly open market at
all levels of the value chain
European Payments Council
SEPA Cards Framework
Developing the options, standards and implementing SEPA

9. Payment Services Directive (PSD)
PSD applies to any local currency in the EU27 – not just the euro
Has been approved by the EU Parliament
Transposition period to end by Nov 1st 2009
PSD status
To increase competition in the payment services market
To increase transparency in the information provided by banks and payment service providers
To introduce harmonised and guaranteed service levels
3 main goals
Charging principle
Elimination of value dating
Rights with respect to refunds for authorised and unauthorised transactions
Maximum execution time fixed at 1-day maximum from 2012
What’s new?
The PSD is a key enabler of SEPA. Together they will help to enhance Europe’s competitiveness 9 9

10. SEPA – the vision
Euro area
EU 27
EEA
Switzerland
Key:
SEPA will enable a single Euro payment service covering:
payments (credit transfers)
direct debits
cards
What SEPA aims to achieve:
Standardisation – Remove the technical and commercial barriers between current national payments markets
Full availability – Make the SEPA credit transfer and direct debit schemes available to all users
Universal access – Remove the technical barriers that prevent the full and widespread cross-border acceptance of cards
Reachability – Establish the conditions that allow all counterparties to be reached 10 10

11. How SEPA and the PSD differ in scope
Credit Trans.
Cards
Some Cash
Other
EU euro 13
EU non-
euro 14
EEA CH 15
currencies P S D
SEPA is for € only
SEPA…
PSD…
SEPA applies only to euros
Starts with Euro zone and extends to EU + EEA + Switzerland
Will include cash and electronic/mobile payments in time
Changes will need to be made to both the competitive bank-to-customer space and the bank-to-bank space
PSD covers all 15 EU currencies
Applies to EU and possibly to EEA (Iceland, Lichtenstein, Norway), if they opt in
Includes some cash and electronic/mobile payments
PSD is only in the competitive bank-to-customer space

12. SEPA Roadmap

13. SEPA Standards

14. Standardising for SEPA
SEPA Cards Framework (SCF)
The “Volume” – to complement the SCF
“ Payments and withdrawals with cards in SEPA: applicable standards and certification process”
Claude Brun
Norbert Bielefeld

15. SEPA Cards Framework
“The SCF spells out high level principles and rules which when implemented by banks, schemes and other stakeholders, will enable European customers to use general purpose cards to make payments and cash withdrawals in euro throughout the SEPA area with the same ease and convenience than they do in their home country”

16. Standardising for SEPA
Card-to-terminal domain (CIR - Common Implementation Recommendation)
Define application template for terminals for interaction with SCF compliant scheme’s cards
Discussion forum for the application of EMV specifications and user interface issues
Terminal-to-acquirer domain (EPAS consortium)
Define Core requirements for message exchanges between terminals and acquiring hosts to guarantee functional interoperability
Medium term: provide acquirers and terminals with detailed specifications to guarantee full interoperability between each acquirer and each acquiring host

17. Standardising for SEPA
Acquirer-to-issuer domain (EPC Expert Group)
Define minimum requirements for message exchanges between acquirers and issuers to guarantee functional interoperability
Medium term: define convergence path for multiple specifications, and alternative aligned to ISO CT and DD specifications
Certification / approval domain (CAS - Common Approval Scheme)
Focus on both cards and terminals, alignment with EMV and PCI PED global specifications
Establish a framework of security requirements to which SCF compliant schemes will comply
Establish a framework for certification / approval

18. Certification

19. Certification

20. “The Volume” The “Volume”
“Payments and withdrawals with cards in SEPA: applicable standards and certification process”
Scope, objectives of EPC work on standardization
Governance and standards maintenance aspects
Consultation and validation process
Intellectual property, copyright aspects
Detailed description of the scope (“cross domain matrix”)
Certification and type approval
The card-to-terminal space
The terminal-to-acquirer space
The acquirer-to-issuer space

21. Timelines

22. Impact on our Customers

23. Large banks are generally positive
Will be able to move outside domestic markets
Medium, small banks will suffer
May lose business from domestic subsidiaries of multinational corporations
New entrants will provide innovative services in competition or in cooperation with banks

24. Debit Schemes

25. Debit Schemes

26. Debit Card Rates

27. Credit Card Rates

28. EMV migration at POS

29. Processing Landscape
Netherlands

30. Acceleration of SEPA Battleground Processing Trends Acquisitions
Mergers
Alliances
SEPA Battleground
Quest for:
Larger volumes
Larger customer base
Extension of:
Value Chain
SEPA coverage

31. Processing Market Share

32. SEPA = “Sell €uropean Processsors to Americans”
SEPA Impact
First Model : American acquisitions
SEPA = “Sell €uropean Processsors to Americans”
Acquisitions
EPI
Delta Singular
Telecash
APSS
GZS
Polcard
Muzo
CardTech
Essentis
Alliances
First Data = Lloyds TSB/ABN Amro/BNL
Elavon = Citibank / Bank if Ireland / A & L /
Euronet = OMV

33. S€PA = “Save €uropean Processors from Americans”
SEPA Impact
Second Model : European acquisitions & mergers
S€PA = “Save €uropean Processors from Americans”
Acquisitions
Banksys, BCC by ATOS
GBC by SIA SSB
Mergers
TAI/Interpay (Equens)
PBS/BBS (Nets)
VOCA / Link
SIA / SSB
LSE / Borsa Italiana

34. S€PA = “Set up €uropean Processing Alliances”
SEPA Impact
Third Model : European aggregations & alliances
S€PA = “Set up €uropean Processing Alliances”
Alliances
EufiServ
Berlin Group
EAPS
Aggregations
SiNSYS
International payment card processor
created by 3 national processors, now
owned by SIA SSB and ATOS

35. Crucial questions How will interchange fees evolve?
Will the Euro Alliance attain critical mass?
What will banks do with their historic processors?
Which interbank processors will be sold or merged?
Will ACH and card processing merge?
Will we see the emergence of a pan-European processor?
How far will standardisation go?

36. And issuing?
Will the market become a defacto duopoly between Visa and Mastercard, or will a third “European” scheme emerge?
BNP Paribas, Société Générale, Deutsche Bank, Commerzbank, DZ Bank and Deutsche Postbank have “have begun talks about creating a European credit card scheme that would compete with MasterCard and Visa”
But is there a compelling business case?

37. Impact on POS

38. And for POS?

39. Impact on POS suppliers
National debit schemes will disappear
Local certifications will disappear
Barriers to entry based on local standards, local certifications will be removed
Cost of entry to European markets for competitors will be reduced

40. Impact on POS suppliers
Tenders will increasingly be Pan-European, starting with major retailers
Market for integrated solutions (e.g. Payware) and multinational “switches” will grow
The ability to respond in multiple countries will be critical
Low-cost hardware (Chinese, Indian) will compete more easily
Processors will become a bigger share of the market compared to banks

41. Questions?