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FEDERATION BANCAIRE DE L'UNION EUROPEENNEBANKING FEDERATION OF THE EUROPEAN UNION

BANKENVEREINIGUNG DER EUROPÄISCHEN UNION

EUROPEAN SAVINGS BANKS GROUPGROUPEMENT EUROPEEN DES CAISSES D’EPARGNE

UROPÄISCHE SPARKASSENVEREINIGUNG

EUROPEAN ASSOCIATION OF COOPERATIVE BANKSGROUPEMENT EUROPEEN DES BANQUES COOPERATIVES

EUROPÄISCHE VEREINIGUNG DER GENOSSENSCHAFTSBANKEN

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Payment systems: efficiency and fairness

Roadmap for the Single Euro Payment Area

European Parliamentary Financial Services Forum

Gerard HartsinkChairman European Payments CouncilBrussels, January 27, 2004

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Agenda

Legal and economic landscape

EPC governance framework

Progress for retail payments

Progress for large value payments

Conclusions

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Legal Landscape

Regulation 2560 (Dec 2001) on cross-border payments in Euro:Decision of the European Parliament and the EU Council Euroland = Domestic ConceptEuro: reality for 305 million Europeans in 12 countriesCards: 1-7-2002; credit transfers 1-7-2003

CommissionConsultative Communication December 2, 2003 « New Legal Framework

for Payments in the Internal Market »

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Cross-Border and Domestic Payment Transactions

* Estimate based on 1999 figures, with a CAGR of 6%Source: EFMA; SWIFT; TARGET; ECB statistics; McKinsey analysis – EU 15, 2001

Others 1.7%

Cash withdrawals

Direct debits

Domestic transactions*

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

Cheques

Cross-border transactions

0.3%

Credit transfers

Card payments

16.5%

83.2%

100% = 0.8 billion transactions100% = 62.4 billion transactions

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Retail Payments Transactions in the EU 15 (1)

AT BE DE DK ES FI FR GB GR IE IT LU NL PT SE TOTALPopulation 8.1 10.3 82.2 5.3 39.9 5.2 60.4 59.7 10.5 3.8 57.7 0.4 15.9 10.0 8.9 378.4Credit transfers 533 752 6958 210 354 503 2175 1931 5 38 1038 13 1183 45 697 16435Direct debits 273 177 5080 138 1154 48 2064 2152 6 50 611 4 874 119 98 12848Cheques 10 60 319 48 167 1 4339 2565 2 88 606 0.03 5 274 2 8486Debit cards 106 463 1213 453 340 275 3671 2999 1 43 423 13 1002 528 376 11906Credit cards 34 61 370 14 259 67 nav 1504 42 73 314 15 48 251 24 3076E-money 5 60 29 8 1 1 3 nav nap nap neg 1 31 3 2 144ATMs 107 221 1600 nav 688 248 1165 2193 159 140 562 6 450 363 335 8237Total cashless transactions 1068 1794 15569 871 2963 1143 13417 13344 215 432 3554 52 3593 1583 1534 61132

Average number non cash payments 131 174 189 164 74 219 222 223 20 114 62 130 225 158 172 162

Note: 2001 figures, not including cash transactions

Source: ECB Bluebook (Addendum, September 2003)

* non Euro countries

* * *

* * *

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Retail Payments Transactions in the EU 15 (2)

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Retail Payments Transactions in the EU 15 (3)

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EPC Governance Framework

EPC vision

EPC Charter principles

EPC Council structure

Dialogue with other SEPA stakeholders

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European Payments Council vision

March 2002: SEPA Workshop

White Paper: “Euroland: our Single Payment Area!”

« We, the European banks and Credit Sector Associations, Share the common vision that Euroland payments are domestic payments,

Join forces to implement this vision for the benefit of European customers, industry and banks, and accordingly,

Launch our Single Payment Area »

Major players of the European payments industry and a fair representation of smaller players (42 banks and 4 associations: EBF, EACB, ESBG, EBA)

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Some principles of the approved EPC Charter

The EPC = the « decision making body for the European payments industry »

Major players of the payments industry with a fair representation of the smaller players

Proper representation of banks of 10 acceding countriesThe European Credit, National Banking, and Payment

Associations should all be embedded to guarantee a proper preparation and a timely implementation of decisions

The EPC will give the strategic guidance to the standards process executed by ECBS, SWIFT, card companies, etc.

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3430545Total Euro countries

1__EBA56013,3UK

5945364Total

3__ECSAs150,9Denmark

160,65Switzerland191,5Sweden

10,250,075Iceland140,4Ireland

141Norway151,1Finland

10,70,05Cyprus1110,2Greece

10,40,03Malta181,1Austria

120,1Slovenia10,40,1Luxembourg

1100,4Hungary4163,6Netherlands

150,2Slovakia2101,8Belgium

1101,0Czech Republic2101,6Portugal

2390,9Poland3403,0Spain

140,1Lithuania4583,6Italy

120,1Latvia76013,4France

110,1Estonia78215,6Germany

MembersMillion inhab.

Billion trans.

MembersMillion inhab.

Billion trans.

•Seat numbers could be adjusted through « wild » cards•Market shares are validated by ESCB as TTP

Council Structure: country dimension DRAFT

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Dialogue with other SEPA Stakeholders (1)

Authorities

European Commission: PSMG meetings Bilateral meetings

European Parliament: EMAC hearings

Central banks (ECB and ESCB)

COGEPS meetings (co-operation model) Roles: catalyst role

oversight role regulator role operator role (settlement services)

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Relations with ECB (ESCB)

“The Eurosystem very much welcomes the decisions taken and general commitments made by the EPC”*

“In many cases the EPC has articulated political intentions, but concrete deadlines and milestones are still missing. The EPC needs to transform its objectives into a fully-fledged project with a sound plan and fixed deliverables. A convincing arrangement for the enforcement of EPC decisions needs to be developed and communicated to all banks and the general public.”*

Today: SEPA indicators for design and for implementation available.

* ECB: June 2003

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Dialogue with other Stakeholders

Banks’ customers - Treasurers: EACT (together with ECB)

- Retailers: Eurocommerce

- SME’s: UEAPME

- Consumers: BEUC

- Government treasurers: in pipeline

Key messages: - What do you expect from SEPA?

- What is our EPC vision?

- What is your and our progress so far?

- What are your top 10 concerns?

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Progress for retail payments

Challenges Credit Transfers Direct Debits Infrastructure(s) Cards Cash

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Challenges for Retail Payments

For existing (domestic) payment instruments:

- optimising processes of (for) existing

Euro payment instruments

- removal legal (reporting) obstacles

For new pan-Euro(pean) payment instruments:

- commitment to change national payment habits of all stakeholders?

- commitment on end-to-end standards?

- uniform legal environment?

- modernisation (simplification) regulatory

framework for Euroland (Europe)?

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Credit Transfers

Approved recommendations: IBAN (International Bank Account Number) Credeuro resolution ICP (Interbank Convention on Payments) Cross border cheque recommendation (Dec 2003) FATF (Financial Action Task Force) recommendation 7

In Pipeline:

Recommendations on several standards Recommendations on mobile payments

Remark: Implementation by banks and customers ECB report on standards: Q1/Q2, 2004

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Direct Debits

Approved recommendations: Pan-European Direct Debit scheme report (Dec 2003)

In Pipeline Final choice of model(s) Dialogue with stakeholders (also tax authorities)

Remark: Landwell report 2003 New Legal Framework for Payments (Dec 2003) Governments: launching customers

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Payment Systems require high initial investment their use is subject to large economies of scale effects

Number of existing systems

great potential for efficiency gains

Infrastructure: ECB position (1)

Source: ECB

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&

Domestic payment areas

Cross-border

payments

+

Efficientdomestic

infrastructure

Inefficientcross-border

infrastructure

Efficientpan-Europeaninfrastructure

High volume

Low cost

+

&

High service level

& Low prices

0-3

High volume

Low cost

+Low volume

High cost

+

&

Retail payments in euro

Infrastructure: ECB position (2)

Source: ECB

Low service level

& High prices

17-24

High service level

& Low prices

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Infrastructure: EPC position

Approved recommendations: PE-ACH (pan-European Automatic Clearing House) concept PE-ACH governance guiding principles Receiver capability of all banks

In Pipeline:Implementation of receiver capability by all banks

Remarks: PE-ACH = Step2 scheme of EBA Clearing Company EBA STEP2 : More than 1,100 direct and indirect

participants

: Operational since Q3 2003

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Cards

Approved recommendations:8 recommendations: standardisation, SEPA-compliant rules,

legal obstacles, data collection, implementation, etc.Recommendation on fighting and preventing fraude (Dec 2003)

In Pipeline:Dialogue with international and national schemes

Remarks:EPC cards paper for the market (www.europeanpaymentscouncil.org)ECB card report: Q2, 2004

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Cash

Approved positions and recommendations:ECB (ESCB) is partner9 Recommendations: joint cards and cash strategies, promotion

electronic products, standardisation (equipment), legal obstacles,

NCB functions, etc. Recommendation on cross border cash transportation (Dec 2003)Recommendation on NCB core functions (Dec 2003)

In Pipeline:Inventory national cash schemes

Remarks:Cash is most expensive payment instrument

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Progress for large value payments

Target 1

Target 2

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NCBNCBNCBNCB

NCBNCB

NCBNCB

NCBNCB

NCBNCB NCBNCB

NCBNCB

NCBNCB

NCBNCB

NCBNCB

NCBNCB

NCBNCBECBECB

NCBNCB

NCBNCB

Target (today)

TARGETTARGETInterlinkingInterlinking

NetworkNetwork

ILC

ILC

ILC

ILC

ILC

ILCILC

ILC

ILC

ILCILC

ILC

ILC

ILC

ILC

ILC

Source: ECB

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Target 2: ESCB approach

October 24, 2002:

Strategic Decision of Governance Council on

Multi platform system System for large value Euro payments Core service with options for NCB to provide additional

services Euro system wide price structure

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Target 2: EPC approach

Common position on Target user requirements Single integrated system Core functionalities Compliance with core principles BIS Service level improvement Timing project deliverables

Decisions ECB (ESCB) Q1 2004: Mono platform

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Conclusions

The EPC was able to re-establish the trust of the ECB and EC

in the payments industry

The ECB and the EC and other stakeholders (Corporates, retailers) expect deliverables with concrete deadlines and milestones

Key words for the future are: standardisation and consolidation for retail payment systems and for Target 2

Governments should remove legal obstacles a.s.a.p. and should become the launching customers (e.g. tax) for the new payment instruments for Euroland