As of today, different types of payments coexist

Transcription

1 Introduction to SEPA Verena MICHEL 2002 IBM Corporation As of today, different types of payments coexist They facilitate and support the transactions executed by the different economic actors for the payment of the price of goods and services for the repayment of a debt. The payments can take different forms : - cash payment - payment using a specific payment media : cheque, card, transfer These payments represent very large volumes : e.g. 16 billion transactions = billion in France during electronic payment (prepaid electronic burse) 2

2 The European Central is driving the standardisation of payments through the Single Euro Payments Area (SEPA) initiative SEPA vision: citizens can make payments throughout the whole area from a single bank account, using a single set of payment instruments, as easily and as safely as in the national context today (ECB: Towards a Single Euro Payments Area, 3rd Progress Report, p4) Unique standard for electronic payment initiation and reconciliation (ECB: op cit, p5) By 2010 transformation of infrastructures fully underway either by conversion of national infrastructures into pan-european infrastructures (no parallel domestic and cross-border systems) or their elimination (Ms G. Tumpel-Gugerell, ECB Board Member, 09/2004) Directive proposal by the Commission on Payment Services in the Internal Market (New Legal Framework) issued 1 December 05: Member states shall require the payer s payment service provider to ensure that.the amount ordered is credited to the payee s account at the latest at the end of the first working day following the point in time of acceptance. However, up to 1 January may agree on a period no longer than 3 days For more information see : 3 EPCs vision of the Single Euro Payments Area SEPA will work as a single domestic payments market in which citizens and economic actors will be able to make payments as easily and inexpensively as in their hometown. This means a commitment of all involved parties, including users of payment services and supportive public authorities. It will also require the completion of the proposed Payment Services Directive, which is intended to provide a harmonised legal environment. Extract of the European Payment Council webpage 4

3 Extensive change across all participants EPC Define schemes and charging conventions Define PEACH framework Define and implement certification procedures 25 National ing / Payment Associations Decision and timetable / transition on adoption of SEPA-compliant schemes Decision on clearing infrastructures: fold into PEACH, merge, wind down Review legal / contractual frameworks Service providers, operators, etc Define role and services within and/or outside PEACH Transition to SEPA schemes: standards, operating procedures, access network(s) Merchants Changes to terminals 8,000 s Transition to SEPA schemes: standards, operating procedures, access network(s) Process changes Lower cost of transaction Customer education 2 million Corporate customers and government agencies Transition to SEPA schemes: standards, operating procedures Credit transfers (salary payment) Direct Debits (customer payments) Return messages Link to finance systems Review banking relationships outside home member state 5 Direct SEPA impacts the regulatory rules need to be harmonised 70% of the payments (percentage of the card payments, direct debits and credit transfers done in EURO) are concerned an important message transformation effort has to be delivered by all the economic actors, as EPC has defined standard message formats based on XML ISO at a first stage in the Euro zone (13 countries by January 1, 2008) at a second stage in the 25 European countries plus : Iceland, Liechtenstein, Norway and Switzerland le large majority of the banks declared their intention to comply with the SEPA rules and launch SEPA format transformation and payment system renewal projects by january 2008 The other industries and the administrations will also need to adapt their billing and payments systems to the SEPA formats 6

4 SEPA Timeline CT scheme DD scheme Cards framework framework Legal framework Security requirements Roll-out preparation Testing National products Sepa products Infra processes both Gradual market-driven migration 7 SEPA means new schemes and new processing infrastructures Different methodologies have been adopted for : 1. Credit Transfers and Direct Debits got new Electronic Transfer Schemes (ETS) Key deliverables : SCT and SDD Rulebooks which detail core and basic services to enable a common level of service to users in a predictable timeframe 2. Card payments will get their schemes adapted Key deliverable : SCF states how issuers, acquirers, card schemes and operators must adapt their current operations to comply to SEPA 8

5 SEPA Credit Transfer (SCT) processing In general no important difference to current transfer processing Not all types of existing credit transfers will be replaced by SCT. The actors need to ensure coexistence of the new with the existing schemas cf : Making SEPA a Reality, EPC version 1.3, page 39 The main required changes of the bank s processes are related to the coexistence of different schemas the SEPA payments must apply the SEPA schemas new / additional Clearing and Settlement actors are entering the market The format choice given to the customers for issuing their payment orders 9 SEPA Direct Debit (SDD) Processing Currently important differences exist between the countries related to the mandate processing The transposition of the Directive into country law is not completed (impacts cross country DD) The main changes of the bank s processes are related to : mandate handling process wich will need to be reviewed and evt. rebuilt different schemas might coexist for some time (country focused and cross country) Same clearing and settlement actors as SCT Same changes related to format and schema changes as SCT cf : Making SEPA a Reality, EPC version 1.3, page 40 10

6 SEPA Cards Framework Cards represent : 12 billion payment transactions and 6 billion cash withdrawal transactions per year done using 350 million cards in the Euro area The SCF defines a series of high level principles and rules which need to be applied in SEPA Removal of commercial, technical and legal barriers Migration to EMV certified terminals with PIN pads Transparent pricing Fraud prevention. Because of the technical complexity of the card systems and of the impact of SEPA has on this market (e.g.interchange fees) the definitive solutions to be implemented is still under investigation cf : Making SEPA a Reality, EPC version 1.3, page 45 Belgium and Finland decided to replace national scheme by EAPS (Euro Alliance of Payment Schemes) 11 Some new features are included in the new Electronic Transfer Schemes (ETS) Apply SEPA wide for euro initiated non urgent transfers or single and recurrent payments Account codes to be used are : BIC : Identifier (BIC 8 or BIC 11 to be used) IBAN account identifier Formats based on UNIFI (ISO 20022) XML standards Common character set rules Common rules for clearing and settlement Comprehensive rules for rejects and returns Ability to provide additional optional services Maximum time cycle : 3 days for SCT, 2 days for SDD (5 days for first payment set up) No value limit for SCTs 12

7 s need to transform their processes and systems and create value-added services Impact on retail business of banks Pressure from monolines will increase International players are aggressively building scale via acquisition (e.g. BNP Paribas bid for BNL in Italy) Innovative new services will be brought cross-border Increased competition for high-net-worth clients as new services launched aimed at residences abroad clientele Move to D+1, also for cross-border payments, versus D+2 or D+3 which are common today (proposed EU Payments Directive) Impact on payments will be significant a threat and an opportunity Global Corporations like Philips currently hold many accounts with local banks to facilitate payments to employees and local suppliers They will want to use one format to make payments across all geographies Going forward, they could close down out-of-home country accounts and push them to a large bank in home country or a foreign global bank Global banks like Citibank, HSBC, etc., are also targeting the small and medium corporations and are investing in payment engines which will serve both the large and SME corporation As a consequence, s will need to develop value-added services to compensate for profit erosion Pan European Clearing Houses (PE-ACH) are competing for market shares 13 A business process layer and a data model have been provided by EPC to enforce the standards (rulebooks) The Logical data model provides the correspondence between the Rulebooks and the UNIFI messages for : Customer to bank (C2B) space initiation phase of Credit Transfer or DD ireti to bank (B2B) space clearing and settlement phase Direct Debit collection Interbank Payment Dataset for SCT Status/return/reject events Attn : requires exact copy of all the attributes of the rejected, Dataset Reversal events Applicable only to SDD for reversal of the collection by the creditor to customer space (B2C) information on the collection or transfer information This information is delivered through : SDD Rulebook reference SCT Rulebook reference UNIFI message formats* ISO20022 element definition *UNIFI : Universal Financial Industry message scheme, published by ISO

8 Extract of the SCT Rulebook available at EPC: High level message usage and content for business users 15 Extract of the SCT Documentation available at Unifi 16

9 SEPA payment formats as of today pacs Payment Status Report pacs FI To FI Customer Direct Debit pacs Payment Return pacs FI To FI Payment Reversal pacs Financial Institution Credit Transfer pain Customer Credit Transfer Initiation Payment Status Report pain Customer Payment Reversal pain Customer Direct Debit Initiation 17 Scenario 1: Good Credit Transfer pain pacs pacs Beneficia ry standards under development Beneficia ry Scenario 2: Reject Credit Transfer at Scenario 3: Reject Credit Transfer at pacs Scenario 4: Return Credit Transfer pacs pacs Beneficia ry 18 Potential conversion to domestic or SWIFT format Figure 1 Credit Transfer Message Flow

10 Scenario 1: Good Direct Debit pain pacs pacs Standards under development Scenario 2: DD Rejected at Scenario 3: DD Rejected at pacs Scenario 4: DD Rejected at pacs pacs (refusal request) () Potential conversion to domestic or SWIFT format 19 Direct Debit Returns and Refunds Scenario 5: DD Returned at pacs pacs Scenario 6: DD Collection Refund for Disputed DD pacs pacs unspecified Scenario 7: DD Collection Refund for Unauthorized DD pacs pacs unspecified Scenario 8: DD Reversal pain pacs pacs Standards under development Potential conversion to domestic or SWIFT format Direct Debit Message Flow 20

11 For more information EPC : UNIFI formats : 21 The SEPA SEPA Data model* Has been defined as a 3 layer model : Business Process Layer Describes the business processes and communication needs (data sets and attributes) between parties. Defined in the SCT and in the SDD Rulebook which focus on the B2B space (only C2B minimum requirements are defined) Logical Data Layer Defines a solution which meets the business needs. Structures data in a data flow containing logical messages and complements the Rulebooks linking the data sets and attributes to the message formats and elements defined in the Physical Layer Physical Data Layer Provides the physical layer based on UNIFI Direct Debit and Credit Transfer XML standards based on UNIFI (ISO20022) XML and complemented by Implementation Guidelines Mandatory in the B2B space *Published by the EPC (Doc: EPC version 2.2, 13 December 2006) 22

12 The banks are rising to the challenge European Payments Council (EPC): Have published SEPA Cards Framework and Rule Books for SEPA Credit Transfers and SEPA Direct Debits, for final approval 1Q06 s will be ready to offer these services to customers by Jan 2008 For Jan 2010: confident that a critical mass will exist and that SEPA will be irreversible Italy, Spain and Luxemburg committed quickly to transition to SEPA standards EBA announces "Multi-purpose Pan-European Direct Debit service" (M-PEDD) with 59 banks, live mid-2007 European ACHs jostling for position Consolidation of infrastructures viewed as inevitable Preparation of a transition period of 4 to 5 years which implies the management of the coexistence of the existing systems with SEPA UK reacts launching UK Faster Payments initiative 23