Realisation of the Single Euro Payments Area in Finland

17.2.2010 Realisation of the Single Euro Payments Area in Finland SEPA Implementation and Migration Plan in Finland Version 4

Realisation of the Single Euro Payments Area in Finland SEPA Implementation and Migration Plan in Finland Version 4 Table of Contents 1 General... 5 2 Coverage of the plan... 6 3 SEPA organization in Finland... 7 4 Infrastructure and standards of payment transmission... 8 4.1 Clearing and settlement of payment transactions... 8 4.2 Standards applied to payments... 9 4.3 Bank connections... 9 5 Credit transfers... 10 5.1 Migration plan... 10 5.2 Implications for customers... 11 6 Direct debit... 13 6.1 Migration plan... 14 6.2 Implications for customers... 15 7 Payment cards... 16 7.1 Current situation... 16 7.1.1 6.1.1 Issuance of cards... 16 7.1.2 Acquiring of card transactions... 16 7.1.3 Cards for cash withdrawals from ATMs... 17 7.2 Migration plan... 17 7.2.1 Card issuers' point of view... 17 7.2.2 Point of view of banks and others accepting card transactions... 18 7.3 Implications for customers... 18 7.3.1 Implications for consumers as card users... 18 7.3.2 Implications for merchants as acceptors of card payments... 18 8 Cooperation with stakeholders and communication... 19 9 Implementation of the plan... 20 10 Terminology... 21 11 Parties participating in drafting the National SEPA Implementation and Migration plan... 23 1

Summary: REALISATION OF THE SINGLE EURO PAYMENTS AREA IN FINLAND European banks, the European Central Bank and national central banks, the European Commission and, via stakeholder forums, payment services users are creating an integrated payments area, known as the Single Euro Payments Area 1 ). The objective is for consumers, companies and organisations to be able to pay and receive payments in euro with the same conditions, rights and obligations regardless of whether the payment is domestic or a cross-border one. The objective is to create uniform procedures and a level of standards for core payment services. In addition to core services, banks may offer their customers various additional optional services if they wish to do so. In Finland, a national SEPA stakeholder forum was established at the beginning of 2009. The forum has made a strong contribution to the development and implementation of the migration plan Credit transfer SEPA credit transfer scheme was introduced in Finland on 28 January 2008. SEPA credit transfers may be used to make and receive payments throughout SEPA. The International Bank Account Number (IBAN) and the Bank Identifier Code (BIC) will be used to identify the customer and his or her bank, respectively, based on which the payment is transferred to the beneficiary. Ordinary payments, salaries, pensions and benefits may be paid as SEPA credit transfers within SEPA. Credit transfers include a reference number or message to identify the payment. Payment data is presented in the account statement, which now includes new data fields for the purpose of transmitting SEPA data from the payer to the beneficiary. Banks operating in Finland have complemented SEPA credit transfer with additional optional services in order to ensure the current Finnish service standards. The payer may combine several invoices and credit notes in a SEPA credit transfer. The actual payment date is also transmitted to the beneficiary. Banks operating in Finland have changed over to using a new international standard between banks and are also offering the new message standard for payment transmission between corporate customers and banks. The new ISO 20022 XML-based credit transfer standard will be adopted by 31 December 2010, at which time the current Finnish standards regarding payment data formats will be abandoned. Banks may nevertheless continue offering the existing domestic services as a special service until 31 October 2011. An international reference will be introduced alongside the Finnish reference number as of 1 December 2010. The Finnish barcode standard has also been updated in line with the IBAN number and international reference. For consumers, the implications of the introduction of SEPA credit transfer include the use of the IBAN account number format and the bank s BIC code in payments. In future, customers must always provide their account numbers in IBAN format. 1 SEPA includes the EU and EEA countries, Monaco and Switzerland, 32 countries in all. 2

In addition to the use of the IBAN and the BIC code, the implications for businesses include the adoption of a new credit transfer standard in the company s systems. IBAN and BIC must be provided on invoices and credit transfer forms as of 1 July 2010. Businesses are advised to prepare their own SEPA migration plans within the schedules provided. SEPA direct debit Domestic direct debit Payment cards Adoption of the uniform SEPA direct debit scheme has been possible for European banks since 1 November 2009. As a result of the relevant EU Regulation, banks operating in the euro area and offering domestic direct debit services must start offering SEPA Core Direct Debit to payer customers requiring such services by 1 November 2010. This also includes banks operating in Finland. The SEPA direct debit scheme includes a number of service modules. In addition to SEPA Core Direct Debit, the scheme includes a business-to-business direct debit service (SEPA B2B Direct Debit) and an electronic mandate service (emandate) which banks may offer to their payer and invoicer customers according to their own schedules. SEPA direct debit is particularly suitable for the collection of cross-border payments for which a corresponding service has not previously been available. The scheme also allows Finnish businesses operating in several countries to replace all of their different domestic direct debit solutions with SEPA direct debit. Finnish banks and large-scale invoicers have certain reservations concerning the suitability of SEPA direct debit as a replacement for Finnish direct debit services. Instead, they recommend replacing the Finnish direct debit scheme with services based on e- invoices and SEPA credit transfers. In Finland, the e-invoice is a rapidly developing service which is constantly being adopted by an increasing number of users. There is a strong European intent to promote the service. The e-invoice service is a viable automated payment service option for online bank customers and, in future, for all customers using existing direct debit services. The banks support the invoicing and payer customers transition to these services in accordance with the recommendations issued by public authorities. SEPA payment cards must enable the cardholder to use them for making payments on similar terms anywhere within SEPA and be acceptable to merchants throughout the euro area. However, merchants will independently decide which cards they will accept as a payment instrument. Banks have been issuing SEPA-compliant payment cards within the euro area since the beginning of 2008. Banks decide independently on the range of cards they will offer. The objective is for all cards issued by banks to be compatible throughout SEPA from the end of 2010 onwards, as well as the migration to chip cards being completed by this date. Consumers would then be able to use their cards for making purchases and withdrawing funds from ATMs throughout the euro area. 3

Act on payment services In accordance with the government proposal, the provisions laid down in Titles III and IV of the Directive (2007/64/EC) on payment services in the internal market will be incorporated into national legislation by means of the Act on Payment Services, which will enter into force on 1 May 2010. The Giro Transfer Act will be repealed by the Act on Payment Services. The Consumer Protection Act, the Communications Market Act, the Act on Certain Conditions of Securities and Currency Trading as well as Settlement Systems, the Personal Data Act, the Act on Certain Proceedings before the Market Court and the Act on Tax Collection will also be amended in connection with the entry into force of the Act on Payment Services. Payment services falling within the scope of application of the act include credit transfers, direct debits, debit and credit card payments and, in certain cases specified in the act, payments made by mobile phone. The act includes provisions concerning the obligation imposed on service providers to provide information to the payment service user, as well as provisions concerning amending and terminating a master agreement for payment services, initiation and execution of payment transactions as well as execution times, and the determination of value dates. The time period for executing cross-border credit transfers will be shortened, first to three working days and, as of the beginning of 2012, to one working day, which is a significant move forward. The act on payment services will also include provisions concerning the rights and obligations of payment service users and service providers with regard to the use of payment cards and other payment instruments. 4

REALISATION OF THE SINGLE EURO PAYMENTS AREA IN FINLAND SEPA IMPLEMENTATION AND MIGRATION PLAN IN FINLAND 1 General European banks, the European Central Bank and national central banks, the European Commission and, via stakeholder forums, payment services users are creating an integrated payments area, known as the Single Euro Payments Area (SEPA). The objective is for consumers, companies and organisations to be able to pay and receive payments in euro with the same conditions, rights and obligations regardless of whether the payment is domestic or a cross-border one. The objective is to create uniform procedures and a level of standards for core payment services. In addition to core services, banks may offer their customers various additional optional services if they wish to do so. The European Payments Council (EPC), a European cooperation forum between banks, has composed the rules and standards of SEPA for credit transfer and direct debit services. In addition, the EPC has composed the SEPA Cards Framework 2 for payment card services. The first SEPA core services were made available on 28 January 2008. Domestic payment services will be replaced with these new services within the transitional periods specified. This national SEPA migration plan describes the process of migration to the Single Euro Payments Area in Finland. The core group of the national SEPA forum, in cooperation with the banks, will update the national migration plan as required by the development of SEPA. The common principles of banks in the migration to SEPA are: - banks are committed to the introduction of services defined by the European Payments Council (EPC) in order to realise a Single Euro Payments Area - banks want to maintain the high quality of Finnish payment services Banks operating in Finland and the Federation of Finnish Financial Services participate in the various EPC forums with a view to protecting their interests and to advocating a more widespread application of proven service solutions. Each bank may provide SEPA credit transfer or SEPA direct debit services defined in the EPC in the manner it chooses to adopt, either in accordance with the uniform core service level or by offering their customers additional optional services specific to each bank or banking group. Each bank will adopt SEPA-compliant card products according to their own schedule. The Bank of Finland and the banks engaged in the Federation of Finnish Financial Services' payment service cooperation (hereinafter the banks ) will participate in the development of the European payment system. 2 SEPA Cards Framework, SCF. Adopted at the general meeting of the European Payments Council (EPC) in September 2005. 5

Legislation throughout SEPA will be harmonised with a view to promoting the formation of the Single Euro Payments Area. In Finland, the Act on Payment Services, which is based on the EU Payment Services Directive, will enter into force as of 1 May 2010 (government proposal). Following its entry into force, there will also be changes to both payment services and the general terms of payment transmission. 2 Coverage of the plan This migration plan covers the following services related to the introduction of the Single Euro Payments Area: - SEPA credit transfer - SEPA direct debit - SEPA payment card The migration plan covers plans for replacing corresponding domestic payment services with these new services within the transitional periods specified, as well as plans for the introduction of automated payment services based on e-invoices. The SEPA credit transfer scheme was introduced on 28 January 2008. It will replace the current Finnish services in the course of the transitional period. Chapter 4 describes the transitional stages relating to credit transfers. The existing domestic credit transfer format will no longer be used as standard after the end of 2010. SEPA direct debit has been available as a Europe-wide service since 1 November 2009. Banks operating in Finland will independently decide whether they will offer SEPA direct debit services to their customers. The European Commission has issued a regulation obliging all banks within the euro area (including banks operating in Finland) to provide payer customers with the option of using SEPA direct debit services by 1 November 2010. Banks operating in Finland recommend an automated payment service based on e-invoices and SEPA credit transfers, which would replace domestic direct debit schemes and be used alongside SEPA direct debit. Automated payment will be developed to suit the needs of all customer groups using the existing direct debit services. Both the European Commission and the European Central Bank are strongly encouraging the adoption of the e-invoice in Europe. Finland is also at the cutting edge in this aspect of new payment services. SEPA payment card services have been available since the beginning of 2008. POS terminals equipped with chip payment features should be introduced by the end of 2010. Banks operating in Finland aim to promote this development. In order to facilitate the smooth transition from current services to new Europe-wide services, transitional periods should be long enough but, due to the maintenance costs incurred by overlapping systems and services, they cannot be very long. This migration plan does not cover the replacement of cheques and banker s drafts with other methods of payment. 6

3 SEPA organization in Finland The preparations of banks operating in Finland for SEPA are coordinated in cooperation bodies of the Federation of Finnish Financial Services, with representatives from the banks and the Federation of Finnish Financial Services. Consideration of the views of stakeholders promotes the realisation of the Single Euro Payment Area as planned. The SEPA stakeholder forum and its core group play a central role in the Finnish SEPA organization. The SEPA forum convenes once or twice annually. Representatives from a wide range of parties with a significant role in the implementation of SEPA have been called to sit on the forum. The members represent public bodies, trade bodies, trade unions, other organizations, large corporations, small and medium enterprises, trade, software houses, POS terminal manufacturers, etc. Representatives from a number of member organisations of the SEPA stakeholder forum have been called to form a core group. The aim has been to establish an active monthly meeting of various stakeholder representatives committed to promoting SEPA through personal contribution. The core group of the SEPA stakeholder forum expresses its views on various SEPA issues and schedules. Matters are prepared by the Federation of Finnish Financial Services and discussed by its operating bodies. The Payment Systems Committee operates under the Federation of Finnish Financial Services as the decision-making body in issues between parties. The Payment Systems Subcommittee prepares joint issues and schedules. Individual matters are also prepared in projects and workgroups. Infrastructural changes needed for the transmission of SEPA transactions are implemented in the SEEBACH project, with representatives of all banks operating in Finland that are participating in the payment service cooperation, and the major Nordic banks. The Payment Cards Subcommittee discusses SEPA card issues. It keeps in touch with POS terminal manufacturers, authorities, and organisations involved with card payments. The Payment Cards Subcommittee monitors the standardisation of card payments conducted in the EPC Cards Working Group. The Bank of Finland provides support for the banks' preparations for SEPA in its overseer role at the regular meetings of the Payment Systems Steering Group (MJO), organised by the Bank of Finland. The Bank of Finland s representatives also chair the extensive SEPA stakeholder forum and its core group. 7

4 Infrastructure and standards of payment transmission 4.1 Clearing and settlement of payment transactions 8 From the point of view of European banks, one or more centralised Pan-European Automated Clearing Houses (PE-ACH) is needed to enable smooth payment transmission between all banks operating within the area. The banks that operate in Finland joined such a PE-ACH clearing house, the Euro Banking Association's (EBA Clearing) STEP2 SCT (SEPA Credit Transfer) system, to ensure the transmission of euro payments within SEPA and for cost-efficiency reasons. In addition to EBA Clearing, a number of other clearing centres in Europe manage the clearing and settlement of interbank payments. These clearing centres are either countryspecific or operate in a larger geographical area, and they may also offer other payment transmission services to their members. EBA Clearing has developed the STEP2 SCT service on the further initiative of banks operating in Finland. The aim has been to retain the service level of domestic payment transmission in Finland following the transition to SEPA. One such service is night-time payment clearing and settlement, which ensures that payments will also be transmitted quickly in the future. In practice, payments will arrive at the beneficiary s bank in the early hours of the banking day following the payment date. Transactions are settled within the European Central Bank's Target2 system between the banks' ECB accounts. The service was introduced in December 2008. Banks in other countries use this service for clearing and settlement of payments in the morning. Other banks can also join the night-time clearing and settlement service. EBA Clearing s STEP2 SCT service also supports other additional optional credit transfer services agreed on between banks operating in Finland, such as the transfer of Scandinavian characters, Finnish reference numbers, payment dates and additional specifications related to payments. Pan-European payment transaction clearing and settlement solutions will replace the clearing and settlement solutions currently used by banks operating in Finland in the course of the transitional period. With regard to credit transfers, the Finnish interbank payment system (PMJ) may be abandoned at the end of 2011 in accordance with the SEPA credit transfer migration plan. With regard to direct debit, PMJ will be abandoned when the domestic direct debit service is terminated. Transmission of national debit card transactions in the PMJ is decreasing in proportion to the increase in the use of international cards. In cooperation with EBA Clearing, banks operating in Finland are planning to replace the existing domestic urgent transfer transmission system with an additional optional service provided as part of EBA s STEP2 SCT service. The service may become available in the first half of 2011. Banks in other countries also have the opportunity to join EBA s urgent payment service. Furthermore, replacing the existing POPS (bank online urgent transfer and cheque transmission) system requires revising the clearing procedure applied to cheques and banker s drafts, as well as the replacement of these paper-based payment instruments with more efficient solutions.

With regard to SEPA direct debit, each bank decides independently on the clearing and settlement system it will use. 4.2 Standards applied to payments 4.3 Bank connections One of the aims of the development of the Single Euro Payments Area is to make it possible for customers and banks to apply the same standard, regardless of which bank is used or whether the payment is a domestic payment or made to another country within SEPA. In accordance with the EPC implementation guidelines, new ISO 20022 XML-based messages must be used in interbank SEPA credit transfer and SEPA direct debit transaction transmission. With regard to credit transfer and direct debit services and account reporting, national message standards will be replaced with ISO 20022 XML-based message standards for connections between corporate customers and banks. The introduction schedule for new messages is service and bank specific. For credit transfer payments, banks operating in Finland have cooperated to prepare a guide and examples of the implementation of the standard based on the EPC s recommendations. The ISO 20022 Payments guide will be updated as required. The 2009 update included harmonising the banks various application practices based on proposals made by customers and software houses. The guide will be published on the website of the Federation of Finnish Financial Services. As concerns account and transaction reporting for corporate customers, application guidelines were prepared for ISO 20022 messages in 2009 based on the EPC s recommendations. The joint application guidelines will be published on the website of the Federation of Finnish Financial Services in the first half of 2010. Banks implement account and transaction reporting messages in accordance with their own schedules. ISO 20022 account reporting messages will replace the existing Electronic Account Statement and Incoming Reference Payments standards within the next few years. However, not all European banks have committed to complying with the ISO 20022 XML payment standard, at least not at first. Most banks recommend or require replacing the current batch file transfer protocol (FTP) and security protocol (PATU) with more advanced and more secure services based on international standards. Web Services file transfer protocol descriptions are published on the website of the Federation of Finnish Financial Services. Key management related to security protocols using PKI (Public Key Infrastructure) certificates is bank specific. The banks inform their corporate customers and software houses engaged in developing payment-related systems of these services. 9

5 Credit transfers 5.1 Migration plan Credit transfers are the foundation of payment transmissions in Finland. Payments are transferred from the payer's account through the banks' own and interbank payment systems to the beneficiary's account. Various operational features have been developed in Finland for credit transfer products to make it easier for payers, beneficiaries and banks. These include reference numbers used in paying invoices and urgent transfers for quick transmission of funds. Banks have created customer standards that enable automatic processing of incoming payments to companies that receive payments. Standards have been agreed for account statements and reference payments, enabling their allocation to the corresponding invoices. Finland has been one of the pioneers in electronic payments. The share of electronic credit transfer transactions has been more than 95 % for a long time. Finnish banks have had a significant role in the development and automation of corporate payment traffic and financial management processes. The SEPA credit transfer scheme was introduced on 28 January 2008. Banks operating in Finland have complemented SEPA credit transfer with additional optional services in order to ensure the current Finnish service standards. The available additional optional services include: - Transmission of Scandinavian characters. - Transmission of the payment date to the beneficiary for the calculation of penalty interest. - Transmission of payment specification data to the beneficiary. The length of the data is 9 x 280 characters, compared with only 140 characters in SEPA credit transfers. This allows corporate customers to transmit payments of combined invoices or credit note specifications as one payment. Descriptions of additional optional services and a list of banks supporting them are published on the website of the Federation of Finnish Financial Services. As the existing domestic credit transfer standards will be abandoned, corporate customers need to introduce ISO 20022 XML-based SEPA credit transfers within the transitional schedule presented below. Transitional schedule for SEPA credit transfers: IBAN and BIC must be provided in invoices and credit transfer forms as of 1 July 2010. A new credit transfer guide is available on the website of the Federation of Finnish Financial Services. The transitional period for credit transfers ends on 31 December 2010, on which date the existing domestic payment data standards LM02, LM03, TS and LUM2 will cease to exist as standards. Within the period 1 January 2011 to 31 October 2011, banks and software houses may continue offering the services scheduled for termination as special services. 10

After 31 October 2011, banks will no longer accept payment data complying with existing standards. As of 1 November 2011, payment orders cannot be submitted without an IBAN account number. Transmission of payment transactions and recurring transactions transmitted according to existing standards in interbank payment traffic will end on 31 December 2011. In account reporting, use of the electronic account statement complying with the Finnish standard will continue until further notice. Banks are also developing account reporting based on the ISO 20022 XML standard. Most banks recommend or require that businesses also adopt the Web Services protocol and security protocol for submitting payment data to the bank. The international reference standard (ISO 11649) may be adopted for international and domestic invoices as of 1 December 2010. The existing domestic reference standard will remain in use also after the transitional period for SEPA credit transfers. Barcode versions, including the IBAN account number and domestic or international reference, will also be available as of 1 December 2010. 5.2 Implications for customers Since 28 January 2008, it has been possible to use SEPA credit transfers for making and receiving payments throughout SEPA. The customer and the bank are identified by the International Bank Account Number (IBAN) and the Bank Identifier Code (BIC). The payment is transmitted to the beneficiary on the basis of these when both the receiving and the sending banks are located in Finland or one of them is in another SEPA country. The transitional period for SEPA credit transfers is shown in section 4.1. For private customers, the principal consequence of the introduction of SEPA credit transfer is the use of the IBAN format and the bank s BIC code in payments. Furthermore, private customers must provide payers with their own account number in IBAN format and the BIC code of their own bank. This information can be found in the account statement or online bank. For businesses, SEPA credit transfer causes more extensive changes, as they will need to modify their own financial management systems, for example. IBAN account numbers The international IBAN account number format will replace the national account formation within domestic payment traffic during the transitional period. Invoicers are required to use the IBAN account number in invoices and credit transfer forms as of 1 July 2010. Updated Credit Transfer Guidelines were published on the website of the Federation of Finnish Financial Services in November 2009. The guidelines contain instructions for businesses concerning the incorporation of changes required by SEPA in credit transfer and invoice forms. IBAN account numbers will also need to be used in e-invoice data. 11

For domestic account numbers, banks offer their customers a conversion service from the domestic format to the IBAN format. Information on the services of each bank is available from the banks. Invoice payment service (credit transfer) The domestic credit transfer standards LM02, LM03 and LUM2 will be abandoned and SEPA credit transfer based on the ISO 20022 XML payment standard must be adopted. The updated ISO 20022 payments guide was published on the website of the Federation of Finnish Financial Services in December 2009. Recurring payments The domestic standard for recurring payments will be abandoned. In the future, salaries, pensions and benefits will be paid as SEPA credit transfers in compliance with the ISO 20022 payment standard. The additional code SALA will be used to differentiate between salaries, pensions and benefits and other SEPA credit transfers. Instead of the salary payment date, which was previously provided in the salary data, payment orders are to include the due date for salaries, pensions and benefits, which is the banking day preceding the salary payment date (the date on which the payer s account is debited). Payments are credited to the beneficiaries accounts on the following banking day regardless of which bank the beneficiary uses. Account and transaction reporting Minor amendments were made to the electronic bank statement standard on 28 January 2008 to make it SEPA-compliant. Customers have had the opportunity to adopt the amendment according to their own schedules. The amendments are available on the website of the Federation of Finnish Financial Services. The banks will develop account reporting based on the ISO 20022 XML standard on the basis of their own schedules. The banks joint standard implementation guidelines will be published on the website of the Federation of Finnish Financial Services. A separate notification will be made at a later date regarding the possible abolition of the existing electronic account statement. References Banks will continue transferring Finnish references even after the transitional period for SEPA credit transfers. With the new international reference standard (ISO 11649, RF reference), the advantages offered by reference payments will also be available in cross-border payments. In Finland, the international reference standard may be implemented for both domestic payments and cross-border invoices as of 1 December 2010. The international reference will replace the domestic reference within the next few years. A description of the structure of the new reference is available on the website of the Federation of Finnish Financial Services. Bank barcode There will also be changes to the domestic barcode. Two new versions of the bank barcode have been published. The new bank barcodes support the use of the IBAN and the international or domestic reference. The new versions may be introduced as of 1 December 2010. The new versions must be adopted by 31 October 2011. An updated Bank barcode guide is available on the website of the Federation of Finnish Financial Services. 12

File transfer and security protocols If a new file transfer and security protocol (Web Services and PKI services) is introduced between the customer and the bank, this requires changes to be made in the corporate customers systems. Web Services file transfer protocol descriptions are published on the website of the Federation of Finnish Financial Services. Security-related key management is specific to each bank. Banks operating in Finland and the Federation of Finnish Financial Services communicate actively with major software houses to ensure that these will be able to offer the new services to their corporate customers within the transition schedule. In connection with their contribution to the activities of the core group of the SEPA stakeholder forum, businesses have identified challenges related to the implementation of the Single Euro Payments Area. The banks operating in Finland aim to meet these challenges. Every effort will be made to minimise bank-specific deviations regarding the application of the SEPA payment standard. The ISO 20022 payments guide will be updated and the updated version will be published on the website of the Federation of Finnish Financial Services. Particular attention will be paid to communications with regard to the change concerning the due date of salaries and pensions. Although updating payment systems will generate expenses for businesses, the use of Europe-wide standards will simplify systems and increase competition in the long run. An effort will be made to increase awareness and to assist in planning for the necessary practical measures by means of concrete communications. The need for development with regard to increasing the specification data on invoices and credit notes has been identified and a solution is being sought. Banks will announce the status of their own SEPA capabilities on their websites, with a summary of the data being published on the website of the Federation of Finnish Financial Services. Specific information on SEPA Implementation and Migration Plan and schedule will be provided. The European Commission strongly supports a rapid transition and is investigating the possibility of setting a deadline for the termination of domestic services. Information on the benefits of the Single Euro Payments Area in the long run will be provided for the small and medium enterprise sector in particular. 6 Direct debit In the present Finnish direct debit service, the payer provides its bank with an authorisation or a mandate to effect certain payments by debiting the payer's account, on the basis of a debit request delivered by the creditor to the bank. Direct debit is suitable for paying regular invoices. These include telephone, electricity and newspaper subscription invoices and rents. The payer's bank debits the payer's account on the due date after first checking the existence of a direct debit mandate, and thereafter credits the payment to the creditor's account. 13

6.1 Migration plan Under the Act on Payment Services which enters into force on 1 May 2010, direct debit payers shall be entitled to request the refund of a paid direct debit amount within eight (8) weeks of the date of debit, provided that certain preconditions prescribed in the act are met. Direct debits are used relatively little in Finland. Direct debits are particularly used by older customers, whereas payment of invoices online is most common in all age groups. European banks have developed a uniform European SEPA direct debit service 3 for invoicers and payer customers. The SEPA direct debit scheme is different from the existing Finnish direct debit scheme. Under the SEPA direct debit scheme, the customer provides a mandate directly to the invoicer. The invoicer keeps the mandates on file and maintains a register of mandates. A mandate may also be provided for a non-recurring direct debit transaction. In SEPA Core Direct Debit, the payer may modify the mandate directly with the invoicer without the payer's bank being informed of this. Therefore, the payer's bank will not be able to verify the correctness of the mandate without additional checking. The payer is entitled to request a refund of the direct debit transaction within eight (8) weeks of the date of payment. The payer may request a refund of any transaction, regardless of the amount or the date of delivery of the advance notice. Banks operating in the euro area which have offered domestic direct debit services to their customers must be prepared to offer SEPA Core Direct Debit for payer customers by 1 November 2010. Each bank will decide independently whether it will also offer the service to invoicers. In the SEPA B2B Direct Debit service, even the payer is always a company. The payer also notifies its bank of the mandate it has provided for the invoicer. The payer s bank verifies the mandate data and compares them with the direct debit transaction data. The payer cannot request a refund for a paid direct debit transaction. Each bank will decide independently whether it will offer the SEPA B2B Direct Debit service to its customers. As a rule, SEPA direct debit service mandates are issued on paper. Payers also have the option of providing the mandate in electronic format on the invoicer s website, if the invoicer and its bank, as well as the payer s bank, offer the SEPA direct debit emandate service. Electronic mandates enhance the security of payments since, in the service, the payer s bank identifies the payer based on, for example, online banking passwords, and verifies the payer s right to use the account. The Finnish direct debit scheme will be discontinued as outlined in the migration plan. Businesses using the existing domestic direct debit service in invoicing must replace it with other solutions within the transitional period. Finnish banks recommend replacing the Finnish direct debit scheme with services based on e- invoices and SEPA credit transfers. E-invoice is a rapidly developing service in Finland. Similar services are not yet widely used elsewhere in Europe. The banks support invoicing and payer customers transition to these services. 3 SEPA Direct Debit 14

Several banks offer automated payment services based on e-invoices for their online customers. Banks are also developing a similar automated payment service, based on e-invoices and SEPA credit transfers, for customers without access to online banking. Each bank will independently decide whether it will offer this service. Banks and the authorities are jointly investigating the possibility of automatically converting authorisations provided under the Finnish direct debit scheme into automated e-invoice payment orders. The targeted schedule for discontinuing direct debit services is 31 December 2013. Final decisions concerning the transitional period will be taken in the autumn of 2010. More information on e-invoices is available at the website of the Federation of Finnish Financial Services at www.finvoice.info and at www.e-lasku.info. SEPA direct debit Banks which have offered domestic direct debit services are under an obligation to implement SEPA Core Direct Debit service for payers by 1 November 2010. Each bank will decide independently whether it will offer other SEPA direct debit services: Core Direct Debit for invoicers, SEPA B2B Direct Debit and emandate. The service concepts may be supplemented with bank-specific additional optional services in order to ensure sufficient risk management. Decisions on the provision of such additional optional services will be made on a bank-by-bank basis. Customers receive information on the banks services and rates through the banks own communication channels, e.g. the banks websites, online banks, bank branches and customer newsletters. SEPA direct debit is particularly suitable for the collection of cross-border payments for which a corresponding service has not previously been available. The scheme also allows Finnish businesses operating in several countries to replace all of their different domestic direct debit solutions with SEPA direct debit. 6.2 Implications for customers Services based on the e-invoice provide payer customers a service alternative to Finnish direct debit. As a method of payment, the automated e-invoice payment service is as smooth and easy as direct debit. The payer orders the bank to pay the invoicer s invoices as SEPA credit transfers by automatically debiting the payer s account. Payers with access to online banking can view the invoice data in advance. Payers also have the option of utilising e-invoices without using the automated payment service. In this case the payer separately approves each invoice for payment in the online bank. For customers without access to online banking services, the invoicer sends an advance notice or a copy of the e-invoice by mail or as otherwise agreed. Changes to the existing Finvoice forwarding service and notification service required by the automated payment service will be published on the website of the Federation of Finnish Financial Services in the spring of 2010. 15

E-invoices bring significant benefits for the invoicer as well. Systems will be simplified, incoming payments will be received as credit transfers with a reference, and it will not be necessary to send advance notices on paper to customers. This will generate cost savings for the company. The introduction of the SEPA Direct Debit scheme will require changes to the invoicing company's financial administration systems for purposes such as processing messages complying with the ISO 20022 standard and mandate administration. Banks operating in Finland have not jointly agreed on additional optional services or application guidelines; instead, each bank applies the EPC s rules and guidelines independently. In using SEPA direct debit, the customer may be confronted with problems relating to language if the other party is located elsewhere than in the customer s home country. The possibilities of the bank to help the customer in such clearing situations may be limited. 7 Payment cards 7.1 Current situation 7.1.1 Issuance of cards SEPA payment cards must enable the cardholder to use them for making payments on similar terms anywhere within SEPA and be acceptable to merchants throughout the euro area. However, merchants will independently decide which cards they will accept as a payment instrument. Finnish banks have been issuing SEPA-compliant payment cards since the beginning of 2008. Banks decide independently on the range of cards they will offer. The objective is that from the end of 2010 onwards, cards issued by banks may be used by consumers for making purchases and withdrawing funds from ATMs on similar terms throughout SEPA, irrespective of the location. At the end of 2009, there were approximately 6,2 million SEPA-compatible payment cards in Finland. Payment cards are an extremely popular method of payment in Finland. In practice, cards are the most widely used method of payment in the retail sector. In 2008, a total of 1.09 billion payments were made with payment cards in Finland, and the aggregate value of payment card transactions totalled EUR 39.6 billion. Banks operating in Finland issue account-based cards as well as credit and deferred debit cards for their customers. The number of general credit and deferred debit cards has increased, while the number of debit cards has remained at the previous level and even shows a slight downturn. Debit cards based on international card schemes have increased their share of all cards. 7.1.2 Acquiring of card transactions Banks issuing national debit cards act as acquirers of payment transactions made with domestic debit cards. Payment transactions made by international Visa and MasterCard are acquired, for example, by Luottokunta. With the progress of SEPA, it is to be expected that the offering of card transaction acquisition services will increase also in Finland. 16

7.1.3 Cards for cash withdrawals from ATMs 7.2 Migration plan All payment cards issued by banks operating in Finland enable withdrawal of cash from ATMs. In addition, cards for use in domestic ATMs only are still on the market. The number of ATM withdrawals has decreased annually, while the use of cards for making purchases has increased. In 2008, the number of cash withdrawals was 186 million. However, the aggregate value of cash withdrawals has remained stable within the past few years. In 2008, the aggregate value of cash withdrawals was EUR 16.6 billion. The SEPA Cards Framework (SCF) 4 issued by the European Payments Council (EPC) contains a key requirement that general purpose payment cards issued by banks must enable the cardholder to use them for making payments on similar terms anywhere in SEPA 5 and be acceptable to merchants throughout the euro area. Cards meeting these requirements are called SEPA cards in this plan. For acceptance of these cards, merchants need to have in place POS terminals compliant with the SCF requirements, referred to in this plan as SEPAcompliant POS terminals. According to the SCF requirements, banks were obligated to start issuing SCF-compliant cards to customers from the beginning of 2008 at the latest. This means that the cards will be acceptable by as many SEPA-compliant POS terminals as possible anywhere in SEPA. All SEPA cards will be equipped with an EMV chip 6 and payments within SEPA will be executed making use of chip features. The objective is to have a comprehensive network of SEPA-compliant POS terminals in place for merchants by the end of 2010, equipped with EMV chip payment features. Working together with their merchant customers, banks acquiring card transactions are seeking to achieve as high acceptability as possible for card schemes within SEPA as a whole. The usability of SEPA-compliant payment cards is already relatively good. In certain merchant segments, such as individual small shops or public services, these cards are still not accepted comprehensively. As regards these segments, banks and card transaction acquirers aim to ensure improved card validity. The goal is for the cards to be widely accepted by the end of 2010. 7.2.1 Card issuers' point of view Banks operating in Finland and issuing cards assume that international card schemes used by them will fulfil the SCF requirements in the future. Card issuers also monitor the market for potential launches of new card schemes. The transition to SCF-compliant cards will be implemented by means of bank-specific solutions in the course of the transitional period so that card payments may be made and accepted with a minimum of disruptions and as smoothly and extensively as possible. Each bank will decide to issue cards of one or more SEPA-compliant card schemes. Banks decide independently on the range of cards they will offer. 4 SEPA Cards Framework, SCF. Adopted at the general meeting of the European Payments Council (EPC) in September 2005. 5 SEPA refers here to EU Member States, as well as Iceland, Liechtenstein, Norway and Switzerland, where customers are able to make and receive card payments in euro. 6 EMV a payment card standard developed by MasterCard and Visa, required by SEPA. 17

7.2.2 Acquirer s point of view The aim of the banks is to ensure that the SCF-compliant card schemes they have in use will be fully accepted in domestic SEPA-compliant POS terminals. Merchants, however, independently determine which cards they will accept as a payment instrument. The banks will see to it that SEPA cards issued by them will be provided with comprehensive acquiring services in Finland either by themselves or by a selected third party. The banks will make independent business decisions on the card schemes for which they offer acquiring services. The banks or other acquirers of SEPA card transactions will offer merchants the possibility of accepting card payments under one or more SEPA-compliant card schemes. Acceptability in Finland cannot be guaranteed for SCF-compliant card schemes for which there is no issuer operating in Finland. The acceptability of such card schemes in Finland will depend on the measures taken by the card scheme issuer itself. Banks and other acquirers of card transactions aim to achieve comprehensive SEPA card introduction in Finland by the end of 2010. In Finland, merchants own the POS terminals they use; hence, they also independently determine the timetables and methods for introducing SEPA terminals. Therefore banks and other acquirers have limited possibilities to influence migration schedules. Consequently, banks cannot fully ensure that all merchants change over to using POS terminals that accept chip cards, in accordance with the migration schedule mentioned above. 7.3 Implications for customers 7.3.1 Implications for consumers as card users Cardholding customers of card issuing banks will feel the transition to SEPA-compliant payment cards when their cards are exchanged for new chip cards and when they accept card transactions with PIN code instead of signature. The acceptability of SEPA cards in Finland was fairly comprehensive at the end of 2009. In SEPA, the acceptability of payment cards complying with these SEPA specifications is estimated to correspond to the current level of acceptability of existing international payment cards. The objective is for SEPA cards to be accepted throughout the euro area as a whole by the end of 2010. The use of a SEPA card shows on the customer's account regardless of where in the euro area the card is used. 7.3.2 Implications for merchants as acceptors of card payments Each merchant will decide which cards he will accept as a payment instrument. The merchant will also choose the bank acquiring SEPA card transactions or another acquirer with whom it will sign an agreement on the acceptance of cards. In such agreements, the contracting parties 18

will agree on acceptable cards issued under card schemes, service terms and conditions and pricing, as well as other relevant matters. SEPA card schemes will be based on the EMV standard in respect of both cards and POS terminals. The aim is to ensure that acceptance of cards by merchants will be widely based on chip payment, both at home and within SEPA. This requires that merchant POS terminals and systems be updated to incorporate facilities for payment by chip cards. Payment guarantees provided for individual card schemes will be valid for SEPA cards. Harmonisation and standardisation will enable euro area merchants to accept cards as payment instruments on a wider basis and more efficiently than before. 8 Cooperation with stakeholders and communication The implementation of the Single Euro Payments Area cannot be achieved by banks alone. It requires close cooperation with stakeholders to ensure that the objectives can be achieved. According to the EPC's estimate, the most significant stakeholder groups are small and medium enterprises, heavy users of payment services and software providers. SEPA also has implications for consumer services. Banks are engaging in active cooperation with national stakeholders' representatives with regard to transition to SEPA in order to: - guarantee an open exchange of information even during the preparation phase for new services and throughout the transitional period; - promote the transition of all parties, such as the public sector, companies and consumers, to using SEPA services. In Finland, the Finnish SEPA stakeholder forum provides the cooperation framework for SEPA preparations. The forum core group meets almost monthly to discuss communications and matters relevant to the implementation of SEPA. The core group is composed of some 30 members representing businesses operating in various industrial sectors, trade, software houses and public administration as well as representatives of the Bank of Finland and the banks. Documents from SEPA stakeholder forum meetings and all of SEPA-related material jointly prepared by banks will be made available on the website of the Federation of Finnish Financial Services at www.fkl.fi. Organisations participating in the SEPA stakeholder forum will secure the commitment of their own organizations to the implementation of the migration plan and communicate, from their own point of view, the jointly agreed core and current messages to their members/organisation. In addition to the core group meetings, more comprehensive SEPA stakeholder forum meetings are arranged a few times each year, with a significantly larger number of participants. 19