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EUROPEAN PAYMENTS COUNCIL Towards our Single Payment Area FEDERATION BANCAIRE DE L'UNION EUROPEENNEBANKING FEDERATION OF THE EUROPEAN UNIONBANKENVEREINIGUNG DER EUROPÄISCHEN UNION EUROPEAN SAVINGS BANKS GROUPGROUPEMENT EUROPEEN DES CAISSES D’EPARGNEUROPÄISCHE SPARKASSENVEREINIGUNG EUROPEAN ASSOCIATION OF COOPERATIVE BANKSGROUPEMENT EUROPEEN DES BANQUES COOPERATIVESEUROPÄISCHE VEREINIGUNG DER GENOSSENSCHAFTSBANKEN O O O O O O O O O O O O O O O O O O O O I I O I O I I O I O I O I O I I I O I O I I O I O I O I O I EUROPEAN PAYMENTS COUNCIL Towards our Single Payment Area Payment systems: efficiency and fairnessRoadmap for the Single Euro Payment AreaEuropean Parliamentary Financial Services Forum Gerard Hartsink Chairman European Payments Council Brussels, January 27, 2004
Agenda • Legal and economic landscape • EPC governance framework • Progress for retail payments • Progress for large value payments • Conclusions
Legal Landscape • Regulation 2560 (Dec 2001) on cross-border payments in Euro: • Decision of the European Parliament and the EU Council • Euroland = Domestic Concept • Euro: reality for 305 million Europeans in 12 countries • Cards: 1-7-2002; credit transfers 1-7-2003 • Commission • Consultative Communication December 2, 2003 « New Legal Framework for Payments in the Internal Market »
Cross-border transactions Domestic transactions* 100% = 62.4 billion transactions 100% = 0.8 billion transactions 1.7% 0.3% Others Cheques Credit transfers 16.5% Direct debits 21.4% Card payments are by far the most frequently used means of payment for cross-border transactions Cheques 15.5% Credit transfers 28.1% 83.2% Card payments Cash withdrawals 13.7% Card payments 19.5% 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
Retail Payments Transactions in the EU 15 (1) * * * * * * Note: 2001 figures, not including cash transactions Source: ECB Bluebook (Addendum, September 2003) * non Euro countries
EPC Governance Framework • EPC vision • EPC Charter principles • EPC Council structure • Dialogue with other SEPA stakeholders
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)
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 countries • The 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.
Billion trans. Million inhab. Members Billion trans. Million inhab. Members Germany 15,6 82 7 Estonia 0,1 1 1 France 13,4 60 7 Latvia 0,1 2 1 Italy 3,6 58 4 Lithuania 0,1 4 1 Spain 3,0 40 3 Poland 0,9 39 2 Portugal 1,6 10 2 Czech Republic 1,0 10 1 Belgium 1,8 10 2 Slovakia 0,2 5 1 Netherlands 3,6 16 4 Hungary 0,4 10 1 Luxembourg 0,1 0,4 1 Slovenia 0,1 2 1 Austria 1,1 8 1 Malta 0,03 0,4 1 Greece 0,2 11 1 Cyprus 0,05 0,7 1 Finland 1,1 5 1 Norway 1 4 1 Ireland 0,4 4 1 Iceland 0,075 0,25 1 Sweden 1,5 9 1 Switzerland 0,65 6 1 Denmark 0,9 5 1 ECSAs _ _ 3 UK 13,3 60 5 EBA _ _ 1 Total 64 453 59 Total Euro countries 45 305 34 Council Structure: country dimension DRAFT • Seat numbers could be adjusted through « wild » cards • Market shares are validated by ESCB as TTP
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)
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
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?
Progress for retail payments • Challenges • Credit Transfers • Direct Debits • Infrastructure(s) • Cards • Cash
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)?
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
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
great potential for efficiency gains Infrastructure: ECB position (1) • Payment Systems • require high initial investment • their use is subject to large economies of scale effects • Number of existing systems Source: ECB
TODAY Infrastructure: ECB position (2) Retail payments in euro ECB's objective TOMORROW Domestic Cross-border + Single Euro Payments Area payment areas payments Efficient domestic infrastructure Inefficient cross-border infrastructure Efficient pan-European infrastructure + + + & High volume Low volume High volume & & Low cost High cost Low cost High service level & Low prices 0-3 Low service level & High prices 17-24 High service level & Low prices Source: ECB
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
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
Cash • Approved positions and recommendations: • ECB (ESCB) is partner • 9 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
Progress for large value payments • Target 1 • Target 2
Target (today) ECB NCB TARGET Interlinking Network NCB ILC ILC NCB ILC ILC NCB ILC NCB ILC NCB ILC NCB ILC NCB ILC NCB ILC NCB ILC NCB ILC ILC ILC NCB NCB ILC ILC NCB NCB Source: ECB
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
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
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