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Cooperation versus competition Trade offs in Payment Systems Henrik Parl Washington, 29 May 2007 World Bank payment system conference, Washington, 29 May 2007 1

Key message • It is virtually impossible to provide a global bank and remittance payment solution without a cooperative approach.

• Co-competition is the key to success • Commercial interest must be the key driver for system interoperability, not technology. Key ingredients: – Commercial framework – – Products & standards Reach World Bank payment system conference, Washington, 29 May 2007 2

60 connections in 49 countries AL AT * AU BA BE * BG BG BR CA CA CH * CV CN CZ DE * DK EG ES ES FI FR * GB * GB GR GR HR HU IE * IL IS * Posta Shqiptare sh.a.

BAWAG P.S.K.

ANZ Bank Nova Banka Financial Post Bulgarian Posts Finance Engineering Empresa Brasileira de Correios e Telégrafos ECT National Bank of Canada Canada Post Corporation PostFinance/Swiss Post Cape Verde Post China Post CSOB Deutsche Postbank Sydbank CIB (Egypt) S.A.E.

BBVA Correos y Telegrafos ING/Postbank (EUR transfers) La Banque Postale Alliance & Leicester Commercial Bank plc Visa Hellenic Post EFG Eurobank Ergasias Croatia Post Magyar Posta An Post Israel Postal Company Póstgíró IT * IT JP KR LU * LV MA MA MN NL * NO NZ PH PL PL PT * RO RO RS SE SI SK SN TG TH TR TN US US US Poste Italiane Banca Popolare di Sondrio Japan Post, Postal Savings Business Headquarters Korea Post EPT Luxembourg Latvia Post Banque Centrale Populaire Barid Al Maghrib XacBank ING/Postbank ING/Postbank (EUR & NOK transfers) ANZ National Bank Philippine Postal Corporation ING/Bank Sląski Polish Post CTT Correios de Portugal Banc Post Posta Romana Postal Savings Bank ING/Postbank (EUR & SEK transfers) Postna Banka Slovenije Postova Banka Postefinances Societe des Postes du Togo Thailand Post Co Turkish Post La Poste Tunisienne American Express Bank Deutsche Bank Federal Reserve Bank * Shareholder World Bank payment system conference, Washington, 29 May 2007 3

Monthly transactions 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 20 05 06 fo re ca st World Bank payment system conference, Washington, 29 May 2007 4

The new Eurogiro mission

Products Money Orders Credit transfers Card Payments Direct debits

Eurogiro is a commercial company that actively promotes and catalyzes bilateral and multilateral business opportunities among its

Connectivity Eurogiro SWIFT CUG Dedicated links Regions Alliances & Postal Members Alliances Banks Non Fin.Inst.

customers in retail financial services and wholesale banking worldwide with the aim to constantly add business value to the whole Eurogiro community

World Bank payment system conference, Washington, 29 May 2007 5

Eurogiro – providing interoperability

Gateway of business opportunities for Eurogiro members:

The Eurogiro SWIFTNet Closed User Group - Exchange transactions in FileAct format with any SWIFTNet member and any Eurogiro member on the same system; - Access from SWIFT system to (postal) members with ELS systems and access from ELS system to (banking) members with SWIFT system Eurogiro Select solution - Access for non-banks through dedicated network The Eurogiro/Visa solution - Receive payments from Visa card holders; additional volume and revenue to the Eurogiro members WSBI (Savingsbanks) co-operation on remittances World Bank payment system conference, Washington, 29 May 2007 6

Eurogiro – providing connectivity (cont.) The FED-Eurogiro Partnership - Incoming traffic (from potentially any US bank) with fee and foreign exchange income - Live in pilot phase. Eurogiro/Postal org. – The Eurogiro Cash International (ECI) - New revised two-day cash product mixing Track & Trace techniques and Eurogiro bulking principles - Can be exchanged electronically between the UPU/IFS network and the Eurogiro network Eurogiro/Western Union – Urgent Cash - Support from Eurogiro of the Urgent Cash product of Western Union - Option to connect to Western Union through the Eurogiro ELS interface - Nearly 30 Eurogiro members as Western Union agents and strong volume growth Multilateral settlement: ESSP and USSP World Bank payment system conference, Washington, 29 May 2007 7

Example 1: Low cost connectivity of non-banks

Member’s network

Host system Test system Hub

Eurogiro delivery

ELS Application Installations CD ELS Ver. x.x

Cisco 1721 VPN encryption Modem Prod. system PC terminals Multitech Modem for remote configuration Printer

Normally disconnected!

Eurogiro network

World Bank payment system conference, Washington, 29 May 2007 8

Example 2: linking postal and banking world

SWIFTNet Eurogiro CUG Eurogiro SWIFT Gateway Eurogiro Network Eurogiro is approved as a CUG administrator on SWIFTNet allowing SWIFT members to connect to Eurogiro using their SWIFTNet connection

World Bank payment system conference, Washington, 29 May 2007 9

Example 3: Dedicated link to US ACH FED

Valicert Nacha Settlement

Eurogiro Member

ELS 103-10

network

Forward advices for reconciliation. The EFI will reconcile with the received Nacha files and send MT910 Store Nacha files and transaction numbers

Nacha Nacha Nacha Nacha Nacha 103-10

World Bank payment system conference, Washington, 29 May 2007 ELS returns MT011. ELS part of EFI will reconcile with sent MT103-10 There is a 1-to-1 relation between Nacha file and MT103-10 10

UK Sender

Example 4: Links between card and bank world

Visa Direct 7 MT103-20 1 UK Bank DE-EUR GB-GBP Visa Direct Settlement Bank 2 Auth AFT+CFT 3 4 AFT VisaNet 6 CFT CFT 5 9 MT202 German Bank 10 MT910 EG Settlement Bank - ESSP German Beneficiary 8 MT103-20

World Bank payment system conference, Washington, 29 May 2007 11

e-banking customer Example 5: Links to remittance organisation Host ELS

Internet

PO PO PO Local screens ELS screens

Domestic CSC

Eurogiro interface

Eurogiro

PO PO  PO  World Bank payment system conference, Washington, 29 May 2007 PO 

WU database

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Example 6: Settlement interoperability Member A Member B EUR/USD payment instructions [Eurogiro Envelope, MT103] 1 2 Cover Message MT202 Debit advice MT900 Statements of account MT950 3 4 ESSP/USSP

A/C A D EUR/USD 1000

Credit advice MT910

A/C B C EUR/USD 1000

3 4 Statements of account MT950 World Bank payment system conference, Washington, 29 May 2007 13

Examples of key interoperability projects • SEPA – Cards & ATM’s – – Credit transfers Direct debits • Global Payment Framework (linking banks and ACH’s) • Asian regional ACH • SWIFT remittance standards project • BIS/WB remittance standards World Bank payment system conference, Washington, 29 May 2007 14

‘Co-competition’ could be solution • Co-operative space – Infrastructure & connectivity – – – Reach Products & standards (WB/BIS) Lobbying & compliance • Competitive space – Customers and fees – – Added value services Branding

No single organisation can cover first, intermediary and last mile for payments. With Co-competition can work together at the infrastructure level while still competing for the customer

World Bank payment system conference, Washington, 29 May 2007 15

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Any Questions World Bank payment system conference, Washington, 29 May 2007 16