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The SEPA framework and its implications
for retail and card payments
- A Central Bank perspective -
Johannes Priesemann / Carlo Martens
European Central Bank
Payment Systems Policy Division
4th Paysys Breakfast Conference
Frankfurter Hof, 28 March 2003
Overview
I.
Introduction: the Eurosytem’s objectives
II. Retail payments “yesterday”
III. The vision for “tomorrow”
IV. Specific issues concerning card payments
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 1
I. Introduction
4th Paysys Breakfast Conference
Frankfurter Hof, 28 March 2003
The statutory powers of the Eurosystem
• Article 105 (2) of the Treaty and Article 3 of the
Statute: the basic tasks of the ESCB include the
obligation “to promote the smooth functioning of payment
systems”.
• Article 22 of the Statute: “ The ECB and the NCBs
may provide facilities, and the ECB may make
regulations, to ensure efficient and sound clearing and
payment systems within the Community and with other
countries”
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 3
The objectives of payment systems policy
• Maintaining systemic stability
• Ensuring efficiency and reliability of payment
systems
• Maintaining public confidence in payment
systems, payment instruments and the currency
• Contributing to the protection of
transmission channel for monetary policy
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
the
Slide 4
Requirements for public confidence
• Safety
– no legal risks
– no operational risks
– no financial risks
• Efficiency
– transparent access conditions
– prompt and reliable settlement
– good value for money
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 5
II. Retail Payments “yesterday”
4th Paysys Breakfast Conference
Frankfurter Hof, 28 March 2003
The problem for retail payments
 Poor service level for cross-border payments in
terms of pricing and execution time.
 Despite introduction of the euro (in 1999), no
substantial progress.
 Problem even more visible with introduction of
banknotes and coins.
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
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The causes of the problem + ways to overcome
 Poor interface with clients.
 IPI / generic product.
 Internal costs within the
 Automation / STP.
 Insufficient (use of) European
 Implementation timetable.
 Problem of remuneration of
 MIF
banks.
standards.
beneficiary bank.
 Differences in legal /
regulatory environment.
 Lack of an appropriate
 Harmonised Balance of
Payments reporting.
 ACH-type solution.
interbank infrastructure.
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 8
Retail Payments:The runway to SEPA
 In its report “Towards an integrated
infrastructure for credit transfers in euro”
(November 2001), the ECB outlined how the
industry could progressively amalgamate (the
processing of) cross-border and domestic
credit transfers. It pointed out that
economies of scale could bring costs down
to a level below that of current domestic
processing.
 On 19 December 2001, the EU Parliament
and Council imposed equal charges for
cross-border and domestic payments in euro
through Regulation 2560. Banks quickly
realised that the Regulation “internalised”
the cost problem of the industry and that,
rather than just addressing it, they could
actually turn it into an opportunity.
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 9
III. The vision for tomorrow
4th Paysys Breakfast Conference
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Specific context of Euroland
 The historical experience is that the evolution of the
national payment systems have always been driven not
by competition alone, but also by co-operation and public
action.
 Co-operation among market participants has rarely
materialised unless the public authorities’ catalyst role
inspired and promoted it.
 While this has worked efficiently in one country, it may
become a problem in Euroland:
 Strong segmentation of financial infrastructures
 Strong interests in defending the status quo
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 11
Specific context of Euroland (II)
 The overall result of a single payment area is positive,
but there will indeed be losers:
 A single payment area will benefit all users,
 but only some providers
 In these circumstances ONLY great determination and/or
powerful initiatives by the authorities can promote the
requuired changes in the interest of end users.
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 12
The SEPA project
 In spring 2002 the banking
industry formed an industry
governance body called
the European Payments Council (EPC) and took the strategic
decision to develop a single payments area.
 The choice of a pan-European ACH (PE-ACH) as the main
infrastructure option for credit transfers to go live mid-2003 has
been confirmed.
 Work is being finalised on a convention (Credeuro) for basic,
reliable cross-border payments, processed straight through at low
cost and with fixed execution time.
 The EPC also set as an objective the development of a panEuropean direct debit scheme by mid-2005 that could also be
offered through PE-ACH.
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 13
The SEPA structure
EPC Plenary
Secretariat
Customer &
Business
Requirements
WG
End-to-end
STP WG
Infrastructure
WG
Coordination
Group
Cards WG
Credit
Transfer TF
Credit
Transfer TF
Business
Model TF
Business
Model TF
Direct Debit
TF
Direct Debit
TF
Governance
TF
Chip/Fraud
TF
Cash WG
P2P TF
Regulatory
Constraints
TF
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 14
Relationship between ECB and EPC
Co-operation model – Co-chairmanship
• EPC and ECB representatives to meet regularly in
COGEPS (3 to 4 times a year)
• ECB has an observer status in EPC Working Groups
(except Business & Customer Requirements WG)
• ECB representative participating in EPC Plenary
• Co-operation model with co-chairmanship (EPC/ECB)
of the COGEPS
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 15
Pan-European ACH
Preparing for success and avoiding pitfalls
 PE-ACH must be able to reach all banks in the euro area (and
possibly in the EU).
 From the outset, PE-ACH should be more attractive than (at
least) some of the existing domestic infrastructures.
 It cannot and should not be ruled out that more than one PEACH project is launched.
 National payment instruments and conventions should be
encouraged to integrate with those designed for SEPA.
 The real challenge is to achieve implementation by a
sufficiently large part of the industry.
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 16
IV. Specific issues for card payments
4th Paysys Breakfast Conference
Frankfurter Hof, 28 March 2003
The SEPA vision applied to card payments
The ultimate objective can be described as :
 In Euroland (or - even better - the EU)
 consumers use any card
 at any terminal (whether POS, ATM or at home)
 to pay under the same conditions
 as they can today at “domestic” level
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 18
Key tasks for all stakeholders
 Eurosystem
 Define minimum security objectives and/or standards
 Card schemes
 Develop and implement safe and efficient card transaction
technology according to these standards
 Issuers and acquirers
 “Recommend” sound practices for consumers and merchants
 EU Commission
 Harmonise consumer protection and criminal law
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 19
Obstacles for the realisation of this vision
 Lack of business development
 in terms of services
 E-purses
 P2P card payments
 in terms of acceptance
 Profitable value propositions to merchants
 No geographical limitations to acquiring
 Interoperability of terminals and cards
 Card fraud
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 20
Costs related to card fraud
 Card fraud is a business
 Cross-border transactions account for 5% of all transactions
 but for 90% of the fraud volume
 Total costs = fraud prevention + fraud compensation
 Fraud prevention = technical solution + sound practices
 Technical solution : searching for the optimal balance
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
Slide 21
Costs related to card fraud
Costs
Total fraud related costs
Fraud
prevention costs
Fraud compensation costs
Security target area
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Security level
Slide 22
The SEPA vision - closing remarks
The realisation of the SEPA vision requires co-operation
between all stakeholders
 The Eurosystem contributes to the realisation of SEPA as a
catalyst, a regulator and, if necessary, also as a service provider; the
Eurosystem promotes the dialogue between all stakeholders
 EU/Euroland wide standards, practices and infrastructures are
being developed
 National and international service providers react to this new
situation - the integration process is going on; the banking
sector has taken up the strategic challenge (EPC/SEPA)
 The transition of the payment infrastructure into one
SEPA will significantly improve its long-term collective use
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
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References / contact
• The ECB’s publications and consultations are available at its website www.ecb.int; those of
the Bank for International Settlements are available at www.bis.org.
• Report on electronic money, ECB, August 1998
• Improving cross-border retail payment services in the euro area - the Eurosystem’s view,
ECB, Sept. 1999
• Role of the Eurosystem in the field of payment systems oversight, ECB, June 2000
• Improving cross-border retail payment services - Progress report, ECB, September 2000
• Payment and securities settlement systems in the European Union, ECB, June 2001
(Addendum incorporating 2000 figures, July 2002)
• Towards an integrated infrastructure for credit transfers in euro, ECB, November 2001
• Consultation on electronic money security objectives, ECB, March 2002
• Oversight standards for retail payment systems in euro, ECB, July 2002
• Policy issues for central banks in retail payments, Bank for International Settlements,
September 2002
• E-payments in Europe - the Eurosystem’s perspective, ECB, September 2002
• Payment and securities settlement systems in accession countries, ECB, August 2002
•Contact: [email protected]
4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
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4th PaySys Breakfast Conference
Frankfurt, 28 March 2003
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