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					The Eurosystem’s view on SEPA


    Francisco Tur Hartmann
       Market Infrastructure Division
          European Central Bank



              Sofia, 18 April 2007
                                        1
Current status, payment market


  A single currency, the euro, since 2002,
  but still:

  • National payment schemes
  • Diverging standards and practices
  • Competition mainly on national level



                                             2
Current status, payment market


This fragmentation means :
• Longer execution times for cross-border
  credit transfers,
• Only national direct debit schemes
• National debit cards are usually not
  accepted abroad, if not co-branded
• Lack of competition, consolidation and
  innovation

                                            3
Eurosystem’s vision for SEPA

In SEPA consumers, merchants and corporates
will be able to make payments throughout the
euro area:
• from a single bank account
• using a single set of payment instruments
• as easily and safely as in the national context
  today


                                                    4
Opportunities

SEPA is all about opportunities
 For merchants to negotiate better prices
 For corporates to save costs
 For banks to save costs & expand their business
 For consumers to simplify their euro payments


     But opportunities imply challenges!
                                                    5
SEPA and Bulgaria

SEPA is to be delivered with priority in euro area

However:
• The full scope is EUR payments within the EU
  (and even EEA and Switzerland)
• Bulgarian banks will become involved as from
  1 January 2008 for clients with intra-EU cross
  border payments

                                                     6
SEPA deliverables

 Two schemes

 • SEPA Credit Transfer
 • SEPA Direct Debit

 Two frameworks

 • SEPA Cards
 • Clearing & Settlement Mechanism / PE-ACH




                                              7
SEPA deliverables

 Future issues


 • Same-day credit transfer
 • Alternative mandate flow for direct debits
 • E-invoicing, e-reconciliation, etc.




                                                8
    SEPA Credit Transfer and Direct Debit


SEPA Credit Transfer
• Rulebook agreed, discussions on upgrade
• Being offered by 1 January 2008

SEPA Direct Debit
•   Most concrete example of SEPA instrument
•   Creditor Mandate Flow mandatory
•   Debtor mandate flow?
•   Impact of delay Payment Services Directive?

                                                  9
SEPA for Cards

SEPA for Cards will have to offer:
• That consumers can choose among competing card
  schemes: no pre-assigned priority in POS-terminals
• No obstacles for merchants to accept any payment
  card
• Competitive, reliable and cost-efficient card market
  (incl. service and infrastructure providers)
• Standardisation is key

         The Eurosystem expects at least one
        new European card scheme to emerge

                                                         10
Clearing and settlement mechanisms

Infrastructures must become SEPA compliant:
• be able to process SEPA payments
• provide euro area-wide reachability
• be transparent with regards to services & prices


   A market driven consolidation process will start,
     in which some infrastructures will disappear,
        but economies of scale will be achieved


                                                       11
Additional services

Additional optional services (AOS):
• Improved products, e.g. faster settlement
• Value-added services, e.g. e-invoicing & e-
  reconciliation

   AOS should be based on the SEPA schemes,
    should support the SEPA migration, but
          should not cause renewed
                fragmentation


                                                12
SEPA and Bulgaria

• Banks could offer (national, intra-EU cross border):
   – Credit transfers in EUR based on SEPA Credit transfer
   – Direct debits in EUR based on SEPA Direct debit, both to
     business clients (creditors) with cross border sales, as to
     consumers
• Banks could rethink their card issuing strategies
• Banks could be affected by increased competition
  within euro area / EU (e.g. acquiring, payments
  processing)



                                                                   13
Economic impact SEPA on banks
Short term
  •   Higher costs mainly due to coexistence of ‘old’
      and new SEPA schemes
  •   The total payments business revenue is neutral
  •   Minor cross-border competition
Longer term
  •   Decrease in revenues : growing cross-border
      competitive pressure
  •   Decrease in cost : cost savings, e.g. economies of
      scale
                                                           14
Proposed Directive on Payment Services


SEPA
• euro payments
• an inter bank framework


Payment services directive
• all EU currencies and all Member States
• The relationship between payment service
  providers and users
                                             15
Proposed Directive on Payment Services


Payment institutions (Title II)
• A new concept of payment service providers is
  introduced
• Restricted activity to only provide payment
  services and payment related services
• Lighter supervisory requirements
• Single passport


                                                  16
Proposed Directive on Payment Services


Information and contractual requirements
  (Title III)

• Information requirements
• Framework contracts and changes of conditions
• Derogation for micro payments




                                                  17
Proposed Directive on Payment Services

Rights and obligations (Title IV)
• Authorisation and acceptance of payment
  transactions
• User liability max EUR 150 (except when acting
  fraudulently or being gross negligent)
• Refund of an authorised payment transaction
• Fees (each party should bear its own fees)



                                                   18
Proposed Directive on Payment Services

Rights and obligations (Title IV)


• Execution time
• Liability provisions for non-execution or defective
  execution
• Dispute settlement




                                                        19
Conclusion
Next steps
• Finalization of national migration plans
• Establishment of scheme governance structure
• Transparency in Additional Optional Services
• Development of standards for cards
• Establishment of interoperable infrastructures
• Shorten the dual period!



                                                   20
Conclusion (2)

SEPA is unavoidable

• SEPA is the logical next step in the continuing
  European economic integration and completes the
  euro introduction in 1999 and 2002
• SEPA will enhance European competition, foster
  integration and consolidation and will drive
  innovation

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