World Savings Banks Institute (WSBI)European Savings Banks Group (ESBG)

World Savings Banks Institute (WSBI)European Savings Banks Group (ESBG)

Payments in the Americas 

Comparing Experiences: « PE-ACH »

Norbert BielefeldDeputy Director

Atlanta – 8 Oct. 2004

Foreword

Purpose of « Panel 2 »:

« …focus on the experiences of building cross-border exchanges in Asia and Europe, with particular emphasis on their lessons for the Americas…. »

Europe

The experience goes beyond « remittances », and is broader and deeper than « PE-ACH »

Agenda

A vision Defining SEPA How it is being built Baseline Dimensions, constraints Interim status Lessons for the Americas Remittances, more specifically

Imagine…

A geographical area… … where any customer could step onto any plane,

paying the same price, getting the same service, regardless of the destination,…

Or: …make and receive any phone call, regardless of the distance, with the same convenience, and at the same price,…

Or: …make and receive any payment with the same

convenience, and at the same price…

For payments…

Such an area will exist by 2010 at the latest In the Single Euro Payments Area (SEPA):

« Customers will be able to make and receive retail and commercial payments in euro with the same level of security, ease and convenience, than they do in their hometown »

Note: precise perimeter of « SEPA » is function of payment instrument considered (credit transfer, direct debit, cards, cash)

Can be: eurozone, EU, EU +EEA, +CH

How banks build SEPA

A phased programme, First to deliver pan-European instruments and

schemes, To be subsequently adopted by national systems, At a pace determined by communities and

supported by regulators, This reflects customer demand rather than a pure

« push » approach EPC (European Payments Council) schemes to be

attractive to operators, other market actors and their communities: market forces dictate the evolving landscape

The banks’ focus

Continuation of plans to establish a genuine euro-cash area

During next 2 years, formulation of 3 pan-European « schemes » (rule books with data formats, rules, liabilities,…) for pan-European:

- Credit transfers

- Direct debits

- Debit and credit cards For voluntary adoption by market operators, and

migration of national solution as decided by national communities, and required by customers

Delivery: 2008 - 2010

The baseline…

Retail payment transactions in the EU 25 (2002 data)Euro non-Euro

Year 2002 (millions) EU12 EU13 EU25

Population 308 147 455

Credit Transfers 12.517 4.198 16.715Direct Debits 10.200 2.833 13.033 57.8%Cheques 5.919 2.477 8.396

Debitcards 9.423 4.398 13.821Creditcards 2.045 2.184 4.229E-money 285 11 296 42.2%ATM 6.147 3.301 9.448

Total 46.536 19.402 65.938

Payment market-share 70.6% 29.4% 100%

  AT BE DE DK ES FI

  2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002

Population 8,1 8,1 10,3 10,3 82,3 82,5 5,4 5,4 40,3 40,5 5,2 5,2

Credit transfers 533 480 752 808 5545 5413 210 227 354 410 506 530

Direct debits 273 347 177 169 4682 4449 138 146 1154 1192 48 54

Cheques (+ bills of exchange) 10 7 60 29 320 150 48 42 281,6 259 1 1

Debit cards 106 141 463 538 1214 1375 453 492 340 612 291 362

Credit (+ delayed debit) cards 34 38 61 57 604 619 13 14 259 401 120 127

E-money 5 17 60 121 29,4 36 8 8 1 1 1 1

ATMs 107 110 221 237 1600,5 1621 nav nav 688 871 248 241

Total cashless transactions 1068 1140 1794 1959 13994 13663 870 929 3078 3746 1215 1316

Volume processed by retail IFTS 2 3 925 989 2198 2157 853 909 987 1064 372 433

% penetration 0,2% 0,3% 52% 50% 16% 16% 98% 98% 32% 28% 31% 33%

 

Country market share in SEPA-25 1,7% 1,7% 2,9% 3,0% 22,3% 20,7% 1,4% 1,4% 4,9% 5,7% 1,9% 2,0%

Country % of total EU-25 GDP 2,3% 2,3% 2,7% 2,7% 22,3% 22,1% 1,9% 1,9% 7,0% 7,3% 1,5% 1,5%

…is complex

  CY CZ EE HU LI LV

  2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002

Population 0,7 0,7 10,2 10,3 1,4 1,4 10,2 10,3 3,5 3,5 2,4 2,3

Credit transfers 3 5 691 503 39 45 134 132 30 35 57 63

Direct debits 7 7 200 200 5 5 47 47 1 1 0,1 0,1

Cheques (+ bills of exchange) 23 23 2 0,3 0,02 0,02 0,1 neg nav 0,02 0,1 0,06

Debit cards 3 4 27 41 23 34 128 148 10 16 nav nav

Credit (+ delayed debit) cards 8 10 nav nav nav nav 4 6 nav 0 nav nav

E-money nap 0 nav nav 0 0 0 0 1 2 0 0

ATMs 5 6 101 107 43 47 86 103 11 22 15 21

Total cashless transactions 49 55 1021 851 110 131 399 436 53 76 72 84

Volume processed by retail IFTS 32 34 260 290 25 15 140 154 10 12 14 16

% penetration 66% 62% 25% 34% 23% 11% 35% 35% 19% 16% 19% 19%

 

Country market share in SEPA-25 0,1% 0,1% 1,6% 1,3% 0,2% 0,2% 0,6% 0,7% 0,1% 0,1% 0,1% 0,1%

Country % of total EU-25 GDP 0,1% 0,1% 0,7% 0,8% 0,1% 0,1% 0,7% 0,7% 0,1% 0,2% 0,1% 0,1%

…very complex

And: Cross-Border = 1,2% And: Cross-Border = 1,2% (EU15, 2001)(EU15, 2001)

0.8

Cheques

Cross-border transactions

0.3%

Credit transfers

Card payments

16.5%

83.2%

62.4100% =Others**E-money

1.5%

Cash withdrawals

Direct debits

Domestic transactions*

0.2%

15.5%

28.1%

13.7%

19.5%

Cheques

21.4%

Credit transfers

Card payments

Card payments are by far the most frequently used means of payment for cross-border transactions

* Estimate based on 1999 figures, with a CAGR of 6% ** The "others" category include bills of exchange and other paper based

transactions Source: EFMA; SWIFT; TARGET; ECB statistics; McKinsey analysis

billion transactions

billion transactions 100% =

Dimensions, constraints

Multi-payment instrument approach: credit transfers, direct debits, debit/credit cards

Highly efficient, existing non-cash payment systems « cross-border » solutions in operation for over 15

years Any new solution to be full STP, end-to-end from the

beginning Profound re-engineering of payment systems to

ensue Standardization (different levels): significant work

item Technology is not a barrier There is no obvious business case!

E.g.: current structure for cardsE.g.: current structure for cards

Cardholder IssuerIssuer

ProcessorAcquirer

Processor MerchantAcquirerClearing

International SwitchInternational Switch

International SwitchInternational Switch

• Traditional POS

• Emerging M-V, TV commerce

• Magnetic strip card

• Chip cards

Country 1Country 1

Country 2Country 2

Country 3Country 3

ProceedsProceeds

Cards: medium term structureCards: medium term structure

Cardholders IssuerIssuer

ProcessingAcquirer

Processing MerchantsAcquirersClearing

• Existing products

• Chip cards

Country 1Country 1

Country 2Country 2

Country 3Country 3

ProceedsProceeds

• Digital Wallet

• Traditional POS

• TV commerce

• M commerce

• E commerce

PE-ACH

-settlement bank

-direct participant

-owner

-user

BANK B or

F.I. Grouping(with banking licence)

BANK C

BANK D

BANK E

BANK I

-settlement bank

-direct participant

-owner

-user

BANK F

BANK G

BANK H

BANK A

-non-settlement banks

-direct participants

settlement bankBANKs L,M,N

NCB

-settlement bank

-direct participant

-user

ACHTech. Facilitators

BANKs O,P,Q

Credit transfers: PE-ACH frameworkCredit transfers: PE-ACH framework-owner &/or user-direct participant

Core Market Practice:

CommonStandard

Code

ex.…...Amount : € 250.000STP Beneficiary Account Identification: BBAN (Clearing Code + Acc. number ex. RIB)…..

ex.MGS Type: MT103+Amount : € 12.500STP Beneficiary Account Identification: IBAN + BICGuaranteed Execution TimeframeOthers..

ex.All the elements of the Common standard Codemaintained except theAmount : € 250.000……...

Credit transfers going forwardCredit transfers going forward:: «Concentric Model»«Concentric Model»

An essential component

Pan-European settlement systems TARGET1: interlinking of national RTGS systems EBA Euro1: Lamfalussy-compliant net settlement

system (settling in TARGET) General Functional Specifications of TARGET2

debated and agreed (although this goes beyond retail and commercial payments)

Planned deployment of TARGET2 as Single Shared Platform: 2007

Interim status

Conventions for basic credit transfers (Credeuro) and their interbank handling (ICP) implemented, architecture for clearing defined (PE-ACH), 1st operator active (STEP2)

Cards: conditions for SEPA- wide issuing and acquiring,and dissociation of branding and processing, spelled out. Under implementation with schemes

Significant work underway in Card Fraud Prevention

A high level description of a pan European Direct Debit agreed

Conditions for re-engineering of cash handling and distribution spelled out

Lessons for the Americas?

(this is a quote from the programme!) What is comparable, and less so Scope, approach: priority to self-regulation? Going forward: need for catalyst, dialogue

What is comparable, and less so

Multi-country requirement Multi-currency Heterogeneous payment systems Political, society-level vision, ambition? Multi-country implementation: legislative,

regulatory, self-regulatory capabilities? Multi-payment instrument? End-to-end, full STP initiation and delivery? Cohabitation, or migration of national schemes?

Scope, approach

Pre-condition: remove any ambiguity about scope, objectives

Who are the drivers? Who are the stakeholders? Originators and beneficiaries: should be equal

partners Identifying and removing obstacles Making the most of existing systems Technology: an enabler, yet not a constraint

Going forward

« Public », « private »: what balance? Regulation can have perverse effects: lessons

from Regulation 2560/2001 There are business cases and business cases Structured dialogue: a necessity

Remittances: key hurdlesRemittances: key hurdles For « customers »

- Access to market information

- Access to banking services

- Access to transaction information

- Access to redress procedures

The macro-economic questions

- Untapped lever for economic development

- Potential feeder for criminal activities

- Unrecognized opportunity for social integration

Remittances: challenging Remittances: challenging regulatorsregulators

Should the remittance business be regulated?

Who should bear that burden (related costs)?

What balance of public and private initiatives to enhance conditions in the market?

How to foster competition, motivate financial institutions to play a more active role?

Should public intervention foster the infrastructure?

How to move away from cash (without putting the burden on remitters and their recipients)?

How to move beyond remittances?

The WSBI action plan in remittancesThe WSBI action plan in remittances

Contributing to formulation and implementation of policy: overseeing market structure evolution and monitoring performance, enhancing the legal and regulatory framework, setting standards and defining infrastructure, encouraging and facilitating

Motivating players: working closely with Members to identify and qualify opportunities, creating partnerships, setting best practice

Delivering the value: establishing a SLA framework as the benchmark, facilitating redress and dispute resolution, developing a toolkit for Members

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