Retail payment systems in the EU (Definitions, functions
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Transcript Retail payment systems in the EU (Definitions, functions
Role of the
Bundesbank
in
payment systems and future prospects
Dr. Hans-Jürgen Friederich
Head of department Payments, Account keeping,
Safe-custody Accounts and
Trade Settelement
Deutsche
Bundesbank
Payment Systems on the Threshold of EU
Budapest, 28 November 2002
Agenda
Deutsche
Bundesbank
Bundesbank in cashless payments
Role of the Bundesbank
Effects of the euro
The relationship with banks
Large-value payments
RTGSplus within TARGET
Challenges for TARGET
TARGET2 - Decision and future structure
Common shared platform - Benefits, principles, governance
Retail payments
Interbank clearing in Germany
RPS of the Bundesbank
EU price regulation
SEPA - View of the Bundesbank
Dr. Hans-Jürgen Friederich
2
Deutsche
Bundesbank
Role of the BBk in cashless payments
Providing interbank infrastructures for the banking industry
Individual payments (RTGSplus)
Retail payments (RPS)
Account holding (4.400 accounts)
Providing payment services for BBk customers
Governmental agencies (2.200 accounts)
Small-sized credit institutions (indirect access to interbank payment systems)
Correspondent banking activity
Commercial customers (until 2004)
Oversight of payment systems
Monitoring function concerning bank`s activities and own NCB systems
Not only smooth functions of payment systems, but also efficiency
Participation in payment system bodies: design of payment operation agreements (technical/organisational/legal basis of the German payment system)
Strategy: Co-operation instead of regulation
Active implementation of standards (being more than a „catalyst“)
= Own payment services set „benchmarks“ in efficiency
Dr. Hans-Jürgen Friederich
3
Deutsche
Bundesbank
The effects of the euro... on the Bundesbank
From a „monopoly“ towards a competitive scenario
Loss of the „home market/DM“ – advantage
Appearance of new systems (eg EBA)
Domestic markets are more and more influenced by the European dimension
Massive re-engineering of all systems
High demand on IT ressources
Chance for far-reaching system improvements (eg RTGSplus)
Making procedures more efficient
Implementation of international standards
New definition of the NCB role
Monetary policy: Loss of importance
High degree of payment policy coordination restricts NCB independence
Need for a higher transparency on Eurosystem level
Operational cooperation between NCBs will increase
Internal rationalisation (branches reduced by 50 %, staff by more than 10 %)
Dr. Hans-Jürgen Friederich
4
Deutsche
Bundesbank
The relationship with banks
Complaints about alleged „unfair NCB competition“
Increased degree of competition in the credit sector
Increased regulatory pressure by the Eurosystem
NCBs as „public“ service provider
Bigger banks increasingly try to integrate smaller banks
(= „bank of banks“-functionality by private credit institutions)
Solution for NCBs as operator of payment systems
Maximum transparency
Calculating prices on full-cost basis
Neutral and cautious policy: Security, Efficiency, Structural balance
Support of banking industry initiatives: co-operation with banks
Open and fair access also for smaller banks
Central banks = service provider for, not competitor of banks
Dr. Hans-Jürgen Friederich
5
RTGSplus - …within TARGET
Deutsche
Bundesbank
32
DK
BE
18
KRONOS
ELLIPS
TBF
186
SLBE
UK
CHAPS
euro
20
FR
ES
207
GR
HERMES
69 + x
RTGSplus
124
ELS
TOP
DE
TARGETInterlinking
NL
Total number of
participants = 1.569
PT
36
IRIS
IE
22
IT
681
BI-REL
SPGT
FI
2.266 ./. x
82
ARTIS
LIPS
ECB
EPM
LU
30
SE
ERIX
Dr. Hans-Jürgen Friederich
15
BOF
AT
43
15
6
RTGSplus - …within TARGET
Deutsche
Bundesbank
120.000
16.772
100.000
80.000
TG c.b.
TG domestic
60.000
107.468
40.000
20.000
6.098
1.854
3.434
8.774
3.391
6.465
8.462
1.648
10.111
31.105
9.355
2.175
15.541
4.761
1.156
390
460
40
562
3.403
1.049
1.202
1.022
299
1.042
2.506
288
31
117
0
AT
BE
DE
DK
ES
FI
FR
UK
GR
IE
IT
LU
Daily average of TARGET transactions (volume 01/02 - 10/02)
Dr. Hans-Jürgen Friederich
NL
PT
SE
ECB
TARGET cross-border
TARGETdomestic
7
vo
lu
m
e
pe
r
da
y
in
150.000
100.000
Start of EMU
Dr. Hans-Jürgen Friederich
* til 10/01 ELS
Ju
l
Au y
g
us
Se
t
pt
em
be
r
O
ct
ob
er
60.000
Ju
l
Au y
Se gu s
t
pt
em
b
O er
ct
N obe
ov
r
em
be
D
ec
em r
b
Ja er
nu
a
Fe ry
br
ua
ry
M
ar
ch
Ap
ril
M
ay
Ju
ne
30.000
Ju
l
Au y
g
us
Se
t
pt
em
be
r
O
ct
ob
N
ov e r
em
be
D
ec
em r
b
Ja er
nu
a
Fe ry
br
ua
ry
M
ar
ch
Ap
ril
M
ay
Ju
ne
Ju
l
Au y
g
us
Se
t
pt
em
b
O er
ct
ob
N
ov e r
em
D
ec b er
em
b
Ja er
nu
a
Fe ry
br
ua
ry
M
ar
ch
Ap
ril
M
ay
Ju
ne
(a
ve
ra
Ja g e
nu )
ar
y
Fe
br
ua
ry
M
ar
ch
Ap
ril
M
ay
Ju
ne
19
98
volume
Deutsche
Bundesbank
RTGSplus - …and other systems
volume per day (average)
EBA Euro1
140.000
130.000
120.000
110.000
RTGSplus*
90.000
80.000
70.000
EAF
50.000
40.000
TARGET cross-border
20.000
10.000
0
Removal of national
currencies
8
Challenges for TARGET –
What do banks expect?
Deutsche
Bundesbank
Optimising TARGET operations
Single technical interface
High level of cost effectiveness
Robust infrastructure: reliability, robustness, optimal back-up
Optimising payment business
Real-time information and interactive control
Flexible infrastructure for accessing information
Optimum connectivity to other infrastructures (CLS, Securities)
Optimising liquidity management
Efficient means for liquidity management
Visibility on queues of incoming payments
Built-in liquidity-saving elements to reduce liquidity needs
Facilitated mobilisation of collateral “inter-regionally“
Dr. Hans-Jürgen Friederich
Source: ZKA – Zentraler Kreditausschuss
9
RTGSplus – the design
Deutsche
Bundesbank
Credit
institution
Credit
institution
ESCB/
TARGET
SWIFT
FIN Y-Copy
TARGET
Interlinking
Payment
processing
BBk as
participant
SWIFTNet
Online
information
and
interactive
control (ICS)
RTGSplus accounts
(booking, liquidity keeping)
Dr. Hans-Jürgen Friederich
Clearstream
Eurex
Liquidity bridge
Home
account
10
Deutsche
Bundesbank
RTGSplus - Liquidity saving features
Liquidity is a value
Entry disposition: Consideration of bilateral offsetting payment flows
Highly advanced resolution of queues
Continous analysing of payments in queues
Event-oriented dissolution of the express queue
Continous dissolution of the limit queue (including
pending express payments)
Flexible use of algorithms through parametrisation
Result:
Realisation of bilateral and multilateral liquidity savings
Precise control of liquidity outflow via sender limits
Built-in incentive for early submission
Dr. Hans-Jürgen Friederich
11
RTGSplus - Sender limits
Deutsche
Bundesbank
Participant activity
Liquidity effect
No limiting
Unlimited use for express and
limit payments
Overall limit
Reserved liquidity for the
execution of express payments
Bilateral sender limit
Limited liquidity flow vis-à-vis
individual partners
Multilateral sender limit
Limited liquidity flow in the
multilateral clearing
Dr. Hans-Jürgen Friederich
12
Deutsche
Bundesbank
RTGSplus - Information and control system
Information and control system (ICS)
Payment information (summary/details)
Full queue transparency (inward/outward)
Limits
Queue management (payment type, order in
queues, revocation, time tags)
InterAct
S.W.I.F.T
HTML
XML
Euro1
Browse
VPN
Browse
Automated
Liquidity management
Routing and liquidity control
New
CHAPS
CLS
Dr. Hans-Jürgen Friederich
Total
Euro
liquidity
Euro
payments
Treasury
13
RTGSplus - Prices
Deutsche
Bundesbank
1,75 Euro
Fixed
costs
(per
item)
1 Euro
1,75 –
0,80
Other domestic
TARGET systems*
Non cost-covering
TG loss (overall) 2000:
app. 60 m euro
Fixed fees not included
Euro1
0,50 Euro
Fixed
costs
(per
item)
0,24 –
0,17
0,15 –
0,0425**
Dr. Hans-Jürgen Friederich
*prices in 7 RTGS systems (partly estimated)
14
** EBA/Euro1-Transaction fees (valid as of 2003)
Deutsche
Bundesbank
Challenges for TARGET
Prices
Cost-recovery
Cost-pressure
(esp. customer
payments)
Minimising
operational risk
9/11
Resiliance
Efficient backup procedures
Dr. Hans-Jürgen Friederich
Competition with
other infrastructures
CLS
Euro1
…
Removing
inefficiencies in
the European
liquidity
management
Improvements
in other systems
Settlement in
central bank
money
(„going hybrid“)
High dynamic in
payments
improvements
time-to-market
Offering top
features/quality
15
Deutsche
Bundesbank
TARGET2 – The dicision of the
Governing Council
TARGET2 = Multiple platform system (MPS)
Open approach: no de-jure or de-facto limits for TARGET payments
Introduction of a common shared platform
Voluntary use for all EU countries
Single shared component for three years*
TARGET2 = Stronger harmonisation
Single price structure (as of the start of TARGET2)
Based on the system with the minimum per item cost
(including a so-called public good factor)
Broadly harmonised core service
TARGET2 = Obligation to achieve cost-recovery
Full cost transparency across all TARGET-systems
Outphasing of subsidies in all systems within four years*
Dr. Hans-Jürgen Friederich
*beginning with the start of TARGET2-operations
16
Deutsche
Bundesbank
TARGET2 – The future structure
Challenge:
Cost recovery
Which system(s) will
survive?
Cloned
RTGS
Cloned
RTGS
Standalone
RTGS
Dr. Hans-Jürgen Friederich
Cloned
RTGS
Improved Interlinking
Shared
RTGS
platform*
Standalone
RTGS
Standalone
RTGS
*single sharable platform for 3 years
17
Deutsche
Bundesbank
TARGET2 – Benefits of a shared platform
Lower cost
Cost-covering price in Euro1: app. 21 cent
Realising economies-of-scale
Avoiding high investments esp. for smaller countries
Better service quality
All system features available for all participating NCBs/banks
Maximum transparency for all participating NCBs/banks
Offering top quality service levels
Lower operational risk = improved business contingency
procedures
Easy adaption to future requirements
„Pooling“ of scarce human and technical resources
Cost-effective and fast implementation of new features/techniques
High volume elasticity
Dr. Hans-Jürgen Friederich
18
Deutsche
Bundesbank
TARGET2 – Principles for a shared platform
„Neutrality“
„Shared utility concept“ - Common ownership
Co-operative governance
Indepedence from other central bank acitivities
Avoiding an over-loading of the common platfom
High degree of standardisation necessary
Local requirements: Task of individual NCBs
(Outside the common platform via home account)
Central platform = technical service provider
Face to the customer: Responsibility of the NCBs
Shared platforms only works in the background: only one
system for all NCBs
Highest level of confidentiality = „customised“ sharing by NCBs
Only one TARGET interlinking component for all NCBs
Dr. Hans-Jürgen Friederich
19
Deutsche
Bundesbank
An RTGS system as a shared utility
Credit
institution
(direct)
A
NCB1
Home
accounts
Correspondent
banking
module
Credit
institution
(indirect)
C
ESCB/
TARGET
Info and control
Credit
institution
(direct)
Monitoring
B
Monitoring/Admin.
Intraday accounts
Online
Payment
processing information and
control (ICS)
TARGET
Interlinking
Correspondent
banking
module** Home
accounts**
NCB2
Dr. Hans-Jürgen Friederich
**standard modules may be developped later
20
Deutsche
Bundesbank
Ancillary systems - in a shared utility
environment
Ancillary system 1
Internal cash accounts**
Ancillary system 2
Ancillary system 3
Opiton 3:
Settlement via home
accounts/national interface
Common
platform
Home accounts
Intraday accounts
NCB1
Standardised
Smooth transition
Individual
Dr. Hans-Jürgen Friederich
** outsourced central bank account or internal account prefunded in CMB
21
Deutsche
Bundesbank
Decentralised business functions
Business relations will remain at the NCBs
Customer contacts (different cultures/languages)
Monitoring of intraday accounts and traffic of “their“ customers
“Home accounts“ of their customers/non-standardised services
Monetary policy operations with their customers
“Client“-based monitoring system with maximum security
NCB has only access to data of its customers
NCB can only intervene if “own“ customer is concerned
IT just serves as a provider for certain technical functions
Technical administration is centralised
Dr. Hans-Jürgen Friederich
22
Deutsche
Bundesbank
Governance:
Relation between participanting NCBs
„One man – one vote principle“ applicable,
unless otherwise agreed
But diverging interests:
Small NCBs want the same influence like larger NCBs
Larger NCBs do not to be outvoted by smaller NCBs and
their banks
Solution:
Choice of common features: user-driven (+ minority rights)
Consensus decisions for fundamental questions among NCBs
(eg selection of the system)
Pay-as-you-use principle:
NCBs should only pay for features required by their banks
Possibly double-key voting
Dr. Hans-Jürgen Friederich
23
Connection of accession countries
Deutsche
Bundesbank
AC
bank
AC
bank
AC
bank
AC
bank
„Logica model“
„Present
model“
„SECB
model“
Cloned
RTGS
Standalone
RTGS
Common
corrspondent
(bank)
„Norway
model“
Dr. Hans-Jürgen Friederich
OutNCB
INRTGS
Common
platform
IN-NCB
AC
bank
Available as
of 2005
Correspondent
relation
24
Retail payments in Germany:
Interbank clearing
Deutsche
Bundesbank
Giro network
Partner
bank
Branch
Big bank*
Big bank
Credit
co-op.
Bank
Bilateral
clearing
RPS
Bundesbank
15 %
Bank
Settlement in central bank
money
Central
institutions
of the co-op.
banks
Credit
co-op.
Giro network
Central institution
of the
savings banks
Savings bank
or credit co-op.*
Savings
bank
Savings
bank
Dr. Hans-Jürgen Friederich
Giro network
* possibly with parts
of their business
25
BBk-RPS – Some figures
Deutsche
Bundesbank
Volume per day
Average working day:
8.5 mn transactions
Peak load: 23 mn transactions
Share of payment instruments:
Credit transfers: 1/3
Collection items: 2/3
Submission of payments
Via data media: 50 %
Via telecommunication: 50 %
Cheque truncation procedure
Share of cheque payments in DE:
less than 5 %
Dr. Hans-Jürgen Friederich
26
Deutsche
Bundesbank
RPS – New developments
Introduction of a new price model (07/2002)
Very low transaction fees for standard service
(0.015 euro for submissions via telecommunication)
Additional fees for additional services
(7.50 euro for submissions/delivery of data media)
Introduction of new technology (04/2002)
Additional transfer protocols
Implementation of IP technology (2003)
Implementation of SWIFT formats (for STEP2, 09/2003)
Extension of opening hours (03/2003)
Normal processing: 08.00 – 20.00/21.00 (output + settlement: t+1)
Morning processing: 20.00/21.00 – 06.00 h (output + settlement: t)
Dr. Hans-Jürgen Friederich
27
Deutsche
Bundesbank
EU - price regulation (I)
Domestic fee
=
For euro* payments
within the EU
Relation bank-customer,
no application to interbank
clearing systems
Requirement for
credit transfers:
IBAN + BIC
payment instrument/
amount
up to
12.500 Euro
from
12.500 Euro
to 50.000 Euro
Cross border fee
card
payments
01.07.2002
withdrawals
transfers
at cash points
01.07.2002
01.07.2003
electronic
purse
01.07.2002
01.01.2006
01.01.2006
01.01.2006
01.01.2006
Dr. Hans-Jürgen Friederich
*Application to EU non-euro currencies possible
28
EU price regulation (II)
Deutsche
Bundesbank
Costs for cross-border transactions
Interbank:
10 %
Internal cost:
90 %
Average cost of a cross-border transaction 2001
(Source: Association of German savings banks)
11.5 €
Paper-based
(with reporting +
customer service)
8.03 €
Paper-based
(with customer
service)
85 %
Dr. Hans-Jürgen Friederich
6.90 €
Paper-based
(without customer
service)
4.89 €
Paperless
15 %
29
EU price regulation (III)
Deutsche
Bundesbank
Leading to a level playing field…?
20
20
Prices for domestic credit transfers
18
16
14
12
Minimum
10
Maximum
8
7,3
6
Range of
prices for
c.b.-credit
transfers
in
Europe
6
4
3,5
4
3,4
2
0,2
0,5
0,5
0,2
0
D
FR
IT
PT
GB
BE
Dr. Hans-Jürgen Friederich
Source: Association of German savings banks
30
SEPA
Deutsche
Bundesbank
Stage 1:
As of 2002
Implementation of the
governing structure
Stage 2:
As of 2005
European agreeement
for credit transfers
Implementation of STP
standards
Definition of a European
direct debit procedure
Optimisation of
processes
IBAN in domestic
payments – full STP
chain
Code of conduct for
credit transfers
(CREDEuro)
Stage 3:
Until 201X
Removal of
domestic
payment systems
Harmonised data
formats for credit
transfers, direct debits
and card payments
Co-existence of new and
old structures
Dr. Hans-Jürgen Friederich
Source: BdB German banking association
31
Deutsche
Bundesbank
SEPA
View of the Bundesbank – New Standards
Domestic formats will survive in the medium-term,
but co-existence may be problematic
IBAN implementation in the German DTA-format without
severe modifications not possible
Discussion about the implementation of SWIFT formats in
German interbank clearing
Reluctance of smaller credit institutions (costs)
Waiting on the new SWIFT XML bulk payments
standard: A massiv increase of data volume?
European or global standards: The EDIFACT experience
Usage of the SWIFTNet FileAct also for domestic retail transactions?
Well proven domestic payment instruments vs.
European harmonisation on a lower level?
Will the German direct debit procedure survive in Europe?
Dr. Hans-Jürgen Friederich
32
Deutsche
Bundesbank
SEPA
View of the Bundesbank - Infrastructure
Bank
Branch
(direct)
Partnerbank
Bank
Bank
(direct)
STEP2
EBA
Bank
RPS
Bundesbank
ACH
Public
funds
Savings/
Cooperative banks*)
Border
Dr. Hans-Jürgen Friederich
33
Deutsche
Bundesbank
SEPA
View of the Bundesbank - Infrastructure
Support the EBA STEP2 initiative
No political acceptance for other solutions (eg a ACH linkage, retail-TARGET)
Concentration on one initiative useful (to achieve a critical mass)
BBk STEP2 settlement via TARGET (not Euro1)
Equal treatment within STEP2 (no special NCB status)
Policy issues
No competition, only complementary function
Operational involvement as basis for an active payment policy
Offering an indirect STEP2 participation for banks without alternative access
Direct participation may be to expansive (high investments)
Usage of the domestic RPS procedure (Economies of scale)
BBk as „preferred“ agent for incoming payments (if receiver is not adressable in STEP2)
Long-term effects
Domestic traffic in STEP2: smaller countries/coutries with no ACH/
countries with antiquated ACHs
STEP2 als central European clearing house?
Will alternative clearing procedures continue to exist (eg club-solutions)
Dr. Hans-Jürgen Friederich
34