On the road to a Single Euro Payments Area (SEPA)

2. On the road to a Single Euro Payments Area (SEPA) • AGENDA • An introduction to the Single Euro Payments Area • A practical example of implementation: the case of Spain

3. On the road to a Single Euro Payments Area (SEPA) What is SEPA? • The Single Euro Payments Area (SEPA) is amarket-driveninitiative seeking to establish acommon payments areain which consumers, companies and other economic actors will be able tomake and receive payments in euro,whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location.

4. On the road to a Single Euro Payments Area (SEPA) Is there really a need for SEPA? Euroland today Population: 315m Corporates: 17m Banks: 6/7k ACH Schemes: 11 Card Schemes: 14 POS: 5m ATMs: 253k Volume tr.: 50bn Integrated market for payment services in the euro area National/Local solutions Diversity of standards Lack of interoperability Non-unified legal framework

5. On the road to a Single Euro Payments Area (SEPA) Harmonisation as an endgame? • SEPA is all about: • Restructuring, harmonising and integrating retail payment systems across the Euro area • Enhancing competition between banks, service providers and vendors • Achieving a greater consolidation in the payments market • Promoting the use of more efficient electronic payments • Modernising the European payments landscape with improved service levels and customer-oriented products

6. On the road to a Single Euro Payments Area (SEPA) The stakeholders • An interaction is needed between:

7. On the road to a Single Euro Payments Area (SEPA) The building blocks • Evolution of non-cash payment instruments SEPA Credit Transfers SEPA Direct Debits Replacement strategy Adaptation strategy SEPA Card Payments Additional optional services (AOS) Wide range of product improvements and/or value added services with the ultimate purpose of making the payment itself or the process before and after a payment more efficient for customers

8. On the road to a Single Euro Payments Area (SEPA) The building blocks Processing infrastructures Full interoperability between infrastructures shall be achieved. Processing services will be offered on a competitive basis to any bank or card scheme provider. Access shall be free and open. Standards Harmonised rules and standards will be defined in the SEPA schemes. They will be generally separated from the processing infrastructures

9. On the road to a Single Euro Payments Area (SEPA) SEPA deliverables - SCT • SEPA Credit Transfers (SCT) • Core product with SEPA-wide reachability (basic, non-urgent transfers) • Full amount credited to the beneficiary’s account • No value limit at scheme level • Maximum settlement time 3 business days (*) • IBAN and BIC are used as identifiers Open issues • Priority credit transfer scheme with same day settlement • Alignment with PSD (max. execution times) • Customer-to-bank standards enabling full STP

10. On the road to a Single Euro Payments Area (SEPA) SEPA deliverables - SDD • SEPA Direct Debit (SDD) • Core product with SEPA-wide reachability • Recurrent and one-off payments • Mandate dematerialization • Maximum processing time 5 business days (first payment) and 2 business days (recurring payments) • IBAN and BIC are used as identifiers Open issues • Mandate handling is a sensitive issue • Peculiarities of B2B transactions • Reachability of all debtor banks

11. On the road to a Single Euro Payments Area (SEPA) SEPA deliverables – Card Payments • SEPA Cards Framework • High-level principles for issuers, acquirers, card schemes and operators • Scheme governance will be separated from underlying processing • Scheme interoperability (SEPA cards will be accepted all over the euro area) • Cardholders will have a common, consistent experience at POS and ATM in the euro area • Open and transparent pricing policies • EMV implementation (Chip and PIN) Open issues • Further work on standards • Consolidation trends

12. On the road to a Single Euro Payments Area (SEPA) SEPA deliverables – Infrastructures • SEPA Clearing and Settlement Infrastructures • Full interoperability between infrastructures through co-operation (technical and business requirements) • Different types of infrastructures are possible (e.g. PEACH, inter-group or bilateral arrangements) • Ability to process SEPA instruments (nationally -2008- and within the euro area -2010-) Open issues • Greater consolidation through competition (economies of scale and further cost reductions through modern technologies) • Readiness to cope with future developments (capability to process message standards)

13. On the road to a Single Euro Payments Area (SEPA) SEPA deliverables – Standards • SEPA Standards - Key features • Support end-to-end STP payments • Allow for simplification and value added services (customer domain) • Remain independent from infrastructures • Use open, more secure and common message standards (UNIFI ISO 20022 XML) • Compulsory in the bank-to-bank domain and recommended in the customer-to-bank domain

14. On the road to a Single Euro Payments Area (SEPA) SEPA Timeline Source: EPC

15. On the road to a Single Euro Payments Area (SEPA) A practical example of implementation • SEPA Migration Plan: Spain • SEPA objectives are common in the euro area but local conditions vary across countries • A tool is needed to translate those pan-European SEPA objectives into national goals • Local implementation will allow each bank and infrastructure provider to adapt its strategies and solutionsfor the gradual transition to a SEPA • NCBs/ECB should help smoothen the said implementation and monitor progress • The EPC should be made aware of each national banking community’s contribution to SEPA

16. On the road to a Single Euro Payments Area (SEPA) A practical example of implementation • Governance structure Payment Systems Working Group SEPA Observatory SEPA Migration Monitoring Committee Other Task Forces Ad-hoc SEPA Conferences

17. On the road to a Single Euro Payments Area (SEPA) A practical example of implementation Key issues • Pragmatic approach: first ensure short term deliverables but don’t forget long term goals • Initial mapping exercise: what are the currently available retail payment transactions in Spain? • Breakdown of retail payments: a.) instruments subject to migration and b.) instruments that will not be migrated in the first wave • A strategy and a timetable for migration was defined for each instrument. This strategy further foresees providing the necessary support to banking customers in the adoption of the new set of instruments • The national banking community is further committed with enlarging the types of transactions to be migrated and reviewing the current migration strategy

18. On the road to a Single Euro Payments Area (SEPA) A practical example of implementation • Migration of payment instruments Credit Transfers & Direct Debits • Gradual deployment of SEPA payment instruments from January 2008 • A critical mass of SEPA transactions shall be reached by end-2010 (i.e. 95% of credit transfers & almost 100% of direct debits) • Marginal legacy products will be subject to innovative ideas in a second wave approach • Customer acceptance and PSD transposition will be key to speeding up the migration path Card Payments • Co-branding with international card schemes is the preferred strategy in the short run • EMV deployment is currently under way and will be completed by Dec. 2010 • National schemes will need to change their operating rules and governance agreements to meet the goals of the SEPA Cards Framework

19. On the road to a Single Euro Payments Area (SEPA) A practical example of implementation Migration of infrastructures (SNCE) • Three-tiered strategy to cope with a new scenario: • Legacy products and non SEPA-compliant ones will be processed through traditional channels • New SEPA instruments used in transactions within Spain will fall under the scope of an updated payments platform (January 2008) • Cross-border SEPA-compliant operations will be channeled though an external provider/PE-ACH. Different options are currently under review

20. On the road to a Single Euro Payments Area (SEPA) Summary • Market-driven process that intends to harmonise and modernise cashless retail payment systems across the euro area • Credit transfers, direct debits and card payments constitute the primary focus of attention • Competition, co-operation, reachability and long-term consolidation are the ultimate cornerstones of the project • Establishing common standards and procedures becomes crucial to ensure interoperability and end-to-end security of payment transactions. • Each banking community will need to define its own migration plan to meet the deadlines of the SEPA project