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The PSD transposition in Europe

The PSD transposition in Europe

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The PSD transposition in Europe

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  1. The PSD transposition in Europe A collective nightmare or a dream that comes true ? Changes in the Payment Services Market Praha 23 September 2009

  2. Introduction PSD PSD Transposition PSD Transposition in Luxembourg SEPA and PSD Challenges and Changes Brave New World Agenda

  3. The PSD - cornerstone of an integrated European payments market Political and Economic objectives Retail Banking Retail Payments Electronic payment instruments Regulation Self-regulation SEPA Introduction (1)

  4. Luxembourg – a primary Number of banks 146 (08/2009) Number of Luxembourg banks 11 (08/2009) Sum of balance sheets 934.988 billion € (07/2009) Staff 26,870 (07/2009) Jobs in Luxembourg 332,759 (12/2008) Population (est.) 494,000 (08/2009) Introduction (2)

  5. ABBL – The Luxembourg Banks’ and Bankers’ Organisation (1) Professional organisation representing the majority of banks and financial intermediaries established in Luxembourg Several member types (universal banks, covered bonds issuing banks, public banks, PSF, financial service providers, ancillary service providers) Defending and fostering the professional interest of its members Voice of the whole sector on various matters in both national and international organisations Lobbying at national and international – prominently European - levels Members 130 Introduction (3)

  6. ABBL – The Luxembourg Banks’ and Bankers’ Organisation (2) Three-fold mission Service to members Strategic and technical input for the benefit of its members and the Luxembourg financial industry as a whole Acts as centre of competence and platform of exchange of ideas Professional recommendations and guidelines for its members Public relations Public relation Promotion of the financial sector in cooperation with the “Luxembourg for Finance” Agency Publication of opinion papers and proposals on legislation, taxation and banking regulation at national, European and international levels Employer representation Labour law Social security Collective bargaining agreement Introduction (4)

  7. ABBL – The Luxembourg Banks’ and Bankers’ Organisation (3) Field of Activities Accounting and Financial Reporting Financial Supervision Client protection Clusters Communication Financial markets & Services Legal & Tax Payment Systems and technology Social Affairs and employers’ representation Training Introduction (5)

  8. Payments in Luxembourg at a glance (Source ECB – 2007) Credit Transfers 60,0 millions Direct Debits 13,0 millions Cheques 0,25 millions Debit Cards (LU issued) 27,0 millions Credit Cards (LU issued) 17,8 millions e-Money transactions 2,4 millions Total 120,45 millions Introduction (6)

  9. Introduction PSD PSD Transposition PSD Transposition in Luxembourg SEPA and PSD Challenges and Changes Brave New World Agenda

  10. Political objectives (1) Lisbon summit March 2000 Make Europe the most dynamic and competitive economy by 2010 Strengthening the internal market by removing obstacles to trade in goods and services Developing efficient, cheap and secure (electronic) payments Setting up a “New Legal Framework” for all Payments in the internal market Create a single market for payment systems in which everybody will be able to make any payment as easily, safely, efficiently and inexpensively as within national borders, so that there are no obstacles to the free exchange of goods and services in the internal market > all payments are domestic PSD (1)

  11. Political objectives(2) The motivations European Payments market is mainly nationally organized Clearing and settlement systems (e.g. LIPS-Net) Direct debit systems (e.g. DOM) Card payment systems (e.g. bancomat) European Payments market is fragmented Many actors, many systems and standards Cross-border services may be offered but via complex and expensive interconnections High volumes : 231 billion transactions / 52 trillion € (2006) The “real” economy needs efficient, secure and low cost payment services PSD (2)

  12. Political objectives (3) The motivations Academic research has shown that Payment Service Users in competitive retail payment markets benefit from more choice quicker execution of payments greater efficiency The European Commission concluded that the harmonisation of retail payment instruments and the underlying standards is the precondition of overcoming the current shortcomings of the payments market The resulting pressure will lead to innovations and to the development of modern, convenient payments instruments and services meeting the PSU’s expectations E-payments, M-payments, card payments PSD (3)

  13. Political announcements of a coming “New Legal Framework” mobilised the banking sector in two ways Defending the sector’s interest in the formulation of the PSD proposal The “2560/2001 regulation trauma” led to a self-regulatory proactive based approach Commitment to create SEPA Cooperative space functioning in line with competition law High number of actors concerned : 8.000+ Setting up of a governance structure to lead the project : EPC - European Payments Council Well defined scope in line with political expectations : Focus on EURO transactions within electronic payment systems (CT/DD/cards) Project start and going live before transposition of the PSD PSD (4)

  14. SEPA and PSD materialise 2 complementary approaches SEPA is a Banking industry led project Collaboration to create a new single payments market Contradictory pressures DG Markt / DG Comp Seen by the banking sector as to meet political goals PSD - is a regulatory intervention by (European) public authorities Creation of legislation to force and to allow for change Supports the banking industry led SEPA project European Commission European Central Bank Euro System Seen by the public authorities as a market initiatives that fits into PSD PSD (5)

  15. PSD aims at competition, efficiency, innovation and customer protection Covers all electronic payment services Does not cover cash transactions and cheques Does not cover payment services associated with securities asset servicing Focuses on customer protection and covers the relationship between all providers PSD (6)

  16. PSD affects all market participants private bank customers, business and corporate customers financial institutions Banks e-money institutions Post office/giro institutions Payment institutions governments and local authorities merchants, card providers PSD (7)

  17. Benefits of the PSD(1) Customers or Payment Service Users harmonised customer protection and minimal service levels provisions detail the rights and obligations of Payment Service Providers specification of full transparency of conditions improved information to be provided to customers improved refund rights shortened execution times PSD (8)

  18. Benefits of the PSD(2) Payment Service Providers benefit from the creation of a uniform legal framework across EU/EEA and a level playing field support of new products SCT and SDD removes barriers of entry into new markets within EU/EEA Payment Institutions clear rules for new category of payment service provider PSD (9)

  19. Benefits of the PSD(3) Banks facing an investment challenge offering standardised terms and conditions at a pan-European level Developing new products and services which can be offered on a pan-European level Expanding into new markets without having to establish a physical presence PSD (10)

  20. PSD structure (1) Title 1 - Scope and negative scope Definitions Title 2 - Payment Service Providers, specifically regulatory regime for Payment institutions Registration and authorisation procedures Capital requirements Access to payment systems, Freedom to provide services in countries outside the home country Title 3 - Transparency of conditions and information requirements Single transactions Framework contracts PSD (11)

  21. PSD structure (2) Title 4 - Rights and obligations relating to the provision an the use of payment services Authorisation of payment transactions Unauthorised transactions transactions Refunds, refusals of payment orders Execution of payment transactions Title 5 - Implementation of measures and payments committee Title 6 Full harmonisation Directive Review of PSD in 11/2012, Transitional provisions Annex list of payment services covered by the Directive PSD (12)

  22. Introduction PSD PSD Transposition PSD Transposition in Luxembourg SEPA and PSD Challenges and Changes Brave New World Agenda

  23. Main Timeline The Payment Services Directive (PSD) provides a legal framework for (electronic) payment services in the internal market of the EU/EEA It is a directive aiming maximum harmonisation - allowing several MS options Adopted on 13 November 2007 Published in the OJ of the EU on 5 December 2007 Has to be adopted by 27 MS and will be adopted by the 3 EEA countries National legislations should come into force 1st November 2009 Some difficulties may arise in several countries High political pressure to meet this deadline PSD Transposition (1)

  24. The transposition process in the various MS Every MS has to apply its legislative process which may vary Implication of market participants Timeline of drafting of the national legislation depending on available resources and priorities Legislative bodies that take part in the process Timeline of the voting mechanisms Major events Financial turmoil and resulting economic crisis Legislative elections PSD Transposition (2)

  25. The initial aim of a harmonized is not fully reached as there are 23 MS options Micro-enterprise Leg-out transactions Surcharging Specific interpretation of payment account Limits for low-value or E-money payments Provision of information to the payer/payee on paper once a month for free There is a potential of 30 PSD versions PSD Transposition (3)

  26. PSD genesis Is the result of a long lasting (lobbying) exercise It is a compromise trying to marry the ideas and interest of the European Commission, the European Central Bank, the European Parliament, the Member States, the financial sector, the new entrants, the consumers’ organisations, the corporates’ organisations Initially known as the New Legal Framework for Payments The final text contains several unclarities The PSD being a maximum harmonisation directive, legislators in the MS are not entitled to “clarify” or “improve” the original text – a revision of the PSD will take place in 11/2012 Until then, only the Court of Justice of the EU is entitled to do so PSD Transposition (4)

  27. Before transposition a lot of questions and open points remain(ed) to be handled PSD Transposition WG (European Commission Level) Representatives of the MS bodies in charge of the transposition PSD Industry Expert Group (European Banking Federation) 2 other ECSA’s (Saving Banks and Cooperative Banks) and card payment schemes take/took part PSD Implementation Expert Group at MS’ level e.g. Banking associations PSD Transposition (5)

  28. To reap the full benefits of the PSD a common interpretation and implementation is needed EC (dialogue, FAQ) EC TWG Dialogue with regulators and legislators in each MS market At the European industry level clarification and best practice MS industry level additional clarification and best practice taken into account MS’s market specificities Avoid additional cost, interoperability issues and inter-bank conflicts PSD Transposition (6)

  29. The PSD Industry Expert Group (1) Legal and payments experts BE, CZ, DE, DK, ES, FI, FR, IT, LU, NL, SE, UK EPC MC, VISA EACB, EBF, ESBG 1st meeting in December 2007 Almost monthly meetings PSD Transposition (7)

  30. The PSD Industry Expert Group (2) Key objectives Overview of implementation issues in EU/EEA MS Prepare position papers for submission to the EC and the MS Transposition Working Group and follow-up on a European or individual MS basis Monitor the transposition process across the EU/EEA MS Develop where appropriate industry implementation guidance and market practice proposals to complement the production of PSD implementation at the level of the individual national banking communities and the EPC for the SEPA schemes Goal Promotion of a harmonised PSD implementation PSD Transposition (8)

  31. The PSD Industry Expert Group (3) Dialogue with EU Commission Member States’ PSD TWG Exchange of positions with the Commission Participation in the special stakeholders’ Day meting in November 2008 Several useful documents have been elaborated and made available High level guidance document containing practical implementation information This document has been presented to a broader public on 8 September 2009 PSD Transposition (9)

  32. The PSD EU Level Industry Guidance at a glance Introduction Scope and Definitions – key definitions Definition of a payment account Definition of a business day Swiss Franc issue Information Requirements – best practices Payment transaction processing –best practices Value dating Cash placement on payment account Full amount and charging options PSD Transposition (10)

  33. The transposition process in the various MS Status of the transposition process end of July (EC DG Makt) PSD transposed 8 MS (AT, BG, DE, DK, FR, HU, SI, UK) 1 EEA (NO) PSD to be transposed in September 2009 7 MS (CZ, IE, IT, LT, MT, PT, SK) 1 EEA (LI) PSD to be transposed in October 2009 10 MS (BE, CY, EE, ES, FI, LU, LV, NL, PL, RO) PSD to be transposed in November 2009 1 MS (EL) 1 EEA (IS) PSD to be transposed at a later date 1 MS (SE) PSD Transposition (11)

  34. The different timelines creates disadvantages Late certainty of requirements in order to prepare for compliance Implementation planning collides with end of year priorities Banks may only get ready on the draft text submitted to the parliament There is still a (minor) risk that the “roll-out” will be extended Some countries will have legislation in place before others and therefore the prospect of common single (Euro) Payments models and migration will decline PSD Transposition (12)

  35. Introduction PSD PSD Transposition PSD Transposition in Luxembourg SEPA and PSD Challenges and Changes Brave New World Agenda

  36. Transposition into Luxembourg Law (1) Ministry of Finance has the lead Ministry of Finance takes into account the provisions requested by the Ministry of Economy and foreign trade (Directorate ”Réglementation des marchés et de la consommation”) Specific law First reading done by Ministry of Finance chaired working group ABBL called in a WG « SEPA legal issue » ABBL represented the Luxembourg banking industry within the Ministry of Finance’s WG and the PSD Industry Expert Group PSD Transposition in Luxembourg(1)

  37. Transposition into Luxembourg Law(2) First reading finished before summer holidays 2008 A first version has been commented by ABBL and other stakeholders beginning of September 2008 Initially the draft bill was to be ratified by the Government Council end of September, beginning of October 2009, followed by its deposit at the parliament As the draft bill is a transposition of a rather technical directive, its adoption should have occurred before the parliament elections in June 2009 Council of Government’s approval was on 6 March 2009 Submission to the Parliament was on 18 March 2009 – (PL 6015) The newly elected Parliament will convene for its first session on 13 October 2009 There is virtually no time left for banks to implement last minutes changes voted on by Parliament. PSD Transposition in Luxembourg(2)

  38. Transposition into Luxembourg Law(3) In July ABBL conducted a consultation among its member regarding the transposition timeline A majority of banks have been in favour of postponing the new law until end of March 2010 Motivation customer information and updating of Terms & Conditions Implementation of “final” IT and business processes ABBL has been mandated to discuss this matter with the Government and the Parliament’s Committee in charge of the submitted draft law Unfortunately no contact could be made ABBL recommended that banks should get ready for the 1st November 2009 on basis of the draft law PSD Transposition in Luxembourg(3)

  39. Transposition into Luxembourg Law(4) Maximum harmonisation Directive Copy/Paste : no interpretation / no clarification made Luxembourg’s 23 options (major) Micro-enterprises not taken into account Provision of information on paper to the payee once a month for free is not supported Surcharging prohibited No support of leg-out transactions PSD Transposition in Luxembourg(4)

  40. Transposition into Luxembourg Law (5) Transposition accompanied by ABBL’s SEPA Legal Issues WG Discussion and position finding for ABBL members Input PSD, PL 6015 EC, Ministry of Finance, BCL and CSSF PSD IEG guidelines and analysis members’ input other organisations, experts – EBA, Ineum Consulting, Deloitte, A&M Output Avis on PL 6015 Industry guidance Common Communication document PSD Transposition in Luxembourg(5)

  41. Transposition into Luxembourg Law (6) Other regulations / changes Revised 2560 Regulation – should come into force on 1st November 2009 Bank Account mobility – Basic principles to be applied from 1st November 2009 onwards Take into account other regulations and rules 1781/2006 New NACHA rules Information/notification to customers What to communicate ? When to communicate ? Lead time ? PSD Transposition in Luxembourg (6)

  42. Introduction PSD PSD Transposition PSD Transposition in Luxembourg SEPA and PSD Challenges and Changes Brave New World Agenda

  43. Scope SEPA - single EURO payments area SEPA will be delivered as a priority within the Euro zone But outside the Euro zone, there will be opportunities to participate in Euro payment systems and communities will be able to adopt SEPA standards and practices to contribute to the single market for payment services Adoption by Iceland, Liechtenstein and Norway + Switzerland Services SCT SDD Card Payments SEPA and PSD(1)

  44. Self regulatory (EPC) Effective / target dates SCF 01/01/2008; SCT 28/01/2008; SDD 01/09/2009 EURO No limit on amount EU/EEA + CH Bank 2 Bank CT/DD/Card payments Not stating on rights and obligations of customers Standards for B2B msgs (M) and B2C msgs (Recommended) Alignment of SCT 3.2. Rulebook and SDD 3.1 Rulebook with PSD Regulatory (Directive) Effective date full force 01/11/2009 EURO and non-Euro currencies of the EU/EEA No limit on amount EU/EEA Payment Service user centric Card Payments/CT/DD/Cash deposits, Cash withdrawals, M- and e-payments Rights and obligations of Payment Service providers and customers Minimum information requirements Processing Time D+1 (2009) D+3 (till 2012 with agreement) +1 day when paper initiated SEPA and PSD (2)

  45. Introduction PSD PSD Transposition PSD Transposition in Luxembourg SEPA and PSD Challenges and Changes Brave New World Agenda

  46. The challenges are numerous Regulatory pressure PSD – hopefully transposed in an harmonized way and not in 30 different manners 2560/2001 revised (3665/2009) Bank account switching code Financial Crisis Demanding customers (private and corporates) Price / revenue erosion Pressure on spreads Challenges and Changes (1)

  47. The PSD will lead inevitably to a harmonised payments market in Europe – as wished by politics and welcomed by users Harmonised rules Harmonised standards Differentiation in the future will be more complex Maximisation of customer service (individuals and corporates) Product innovation Outstanding operational efficiency Harmonised standards leads to cost reductions Fewer standards to implement, to operate and to maintain Interoperability will lead to greater choices for banks Challenges and Changes (2)

  48. Banks have to find the right answer to the questions What kind of payment player do we want to be and how are we going to be up to task ? Capabilities IT infrastructures and business processes Do we fully control our payment business ? Measurement of the “real” costs of our payment services and their profitability Assessing the improvement of the payment systems efficiencies Will appearing Payment Institutions be a threat to my business ? Assessing the threat especially coming from hybrid payment institutions Fight ? Cooperate ? Challenges and Changes (3)

  49. Operational efficiency will be key as banks want to Drive costs down Develop new opportunities for new revenues Capable payment systems must be implemented despite budget constraints Tailored to the customers’ need Scalable Legacy systems Upgraded Replaced When replaced Inhouse Outsourced (Service center, Saas, Cloud computing) Outsourcing issues in a trusted world Regulation, SLA, security, operational risks Challenges and Changes (4)

  50. The PSD transposition and the SEPA implementation have additional impacts Customer expect greater transparency Customer want better communication Customer expect involvement in product design Banks have to acknowledge the limits of self-regulation Challenges and Changes (5)