Francisco Tur Hartmann, Payments & Market Infrastructure European Central Bank Retail payments accessibility The European experience Agent Banking: Expanding Access to Financial, Payment, and Remittance Services Impact Evaluation Brasilia, 13 March 2014
Rubric Overview 1 2 3 Agent banking and SEPA SEPA state of play EU legal framework for retail payments 4 Retail Payments Governance in Europe 5 Conclusions 2
Rubric 1 2 3 4 Agent banking and SEPA SEPA state of play EU legal framework for retail payments Retail Payments Governance in Europe 5 Conclusions 3
Rubric 1. Agent banking and SEPA Definition of agent banking Agent banking is the business of delivering payment and remittance services through agent-based models It involves cooperation between banks and non-bank agents, where the former provide services through the latter (e.g. retailers, post offices, pharmacies) It aims to overcome obstacles (e.g. poor infrastructure, limited competition, insufficient coverage) impairing the delivery of efficient and affordable services through traditional bank channels 4
Rubric 1. Agent banking and SEPA The Single Euro Payments Area SEPA comprises 34 countries: EU-28 + Iceland, Liechtenstein, Monaco, Norway, San Marino, Switzerland 522 million inhabitants (euro area 332 million), together making 86 billion payments (euro area: 60 billion) Around 9,300 institutions offer payment services All EU payments in euro are directly subject to SEPA provisions 5
Rubric 1. Agent banking and SEPA What benefits are expected of SEPA? Consumers, companies, merchants Can reach any account holder in SEPA easily & efficiently Have legal certainty on terms and conditions of payments Companies operating cross-border Can centralise their payment and liquidity management Banks, clearing & settlement infrastructures Can offer their services SEPA-wide Can reduce costs due to straight-through-processing Banks and non-bank service providers Can develop innovative services based on agreed standards, e.g. internet & mobile payments, e-invoicing 6
Rubric 1. Agent banking and SEPA What do agent banking and SEPA have in common? Shared objectives safe, efficient, accessible, affordable retail payments Common enabling factors safe and efficient clearing and settlement infrastructures interoperability adequate legal and regulatory framework balance between private and public sector initiative many players on the supply side of the market (banks and non-banks) need for involvement of stakeholders from both the supply and the demand side in the debate Agent banking and SEPA both contribute to financial inclusion, also leveraging technological advances 7
Rubric 1 2 3 4 Agent banking and SEPA SEPA state of play EU legal framework for retail payments Retail Payments Governance in Europe 5 Conclusions 8
Rubric 2. SEPA state of play Building blocks Agreed set of instruments Standardised infrastructure Harmonised business rules Legislation 9
Rubric 2. SEPA state of play SEPA Payment Instruments SEPA credit transfer SCT Provides customers with a single means of transferring funds, regardless of whether it s within a single country or cross-border SEPA direct debit SDD Makes it possible, for the first time, to charge directly an account in one European country for services provided by a company based in another EU regulation 260/12 sets the 1 Feb 2014 as the end date for euro area countries to migrate their credit transfers and direct debits to SEPA (2016 for non euro countries) SEPA for cards Will enable consumers to use the same cards they use in their own country for purchases everywhere in Europe more conveniently. For merchants, accepting cards will become easier and more attractive E-payments, m-payments and innovative payment solutions in general are expected to build on the existing SEPA instruments 10
Rubric 2. SEPA state of play SEPA Payment Instruments International Bank Account Number (IBAN) Business Identifier Code (BIC, to be phased out) ISO20022 XML EMV chip on all payment cards Functional and security standards for cards and terminals 11
Rubric 2. SEPA state of play Infrastructures in the euro area (excluding card and cheque clearing systems) PMJ ESTA IPCC&IRECC CEC STEP2 Equens RPS STEP.AT EURO SIPS CORE (STET) SEPA IKP SICOI (SIBS) SNCE (Iberpay) ICBPI BI-COMP Dias SIA BI-COMP JCC 12
Rubric 2. SEPA state of play How is SEPA affecting infrastructures? SEPA is pushing for changes in the organisation of clearing and settlement of retail payments in Europe Infrastructures represent an enabling factor for the realisation of SEPA Two main models: EACHA and STEP2 Increasing integration is expected, but it may take time: market-driven process heterogeneous starting points in different countries number of retail payment infrastructures expected to decrease as some reach the end of their investment cycle, provided that owners/participants might find equivalent/better solutions in the market migration to SEPA instruments The Eurosystem as a catalyst in retail payment infrastructures development promotes integration and interoperability 13
Rubric 2. SEPA state of play Two main models have developed on the market: 1. interoperability framework for SEPA-compliant payments processing by EACHA (European Automated Clearing House Association, 25 members) technical framework to facilitate the interoperability of infrastructures, particularly as regards message formats, message flows, routing provisions, network and connectivity provisions and the mechanism for the settlement of inter-ach transactions 2. clearing and settlement of SEPA payments in STEP2 retail payment infrastructures connected to STEP2 as technical facilitators to allow their participants to send and receive payments from STEP2 they need a direct participant (bank or central bank) in STEP2 to act as a settlement agent Both models should be able to deliver an efficient and competitive underlying infrastructure for retail payments 14
Rubric 2. SEPA state of play Eurosystem reference criteria for SEPA compliance of retail payment infrastructures Guidance to the market since 2008 (last update in 2013) 1. Processing of payments (according to Regulation (EC) No. 260/2012; compliance with EPC SEPA schemes, implementation guidelines); 2. Interoperability among infrastructures (establishing links for the exchange of SEPA payments); 3. Reachability (ability to send and receive payments to and from all SEPA scheme participants in the euro area); 4. Choice for SEPA scheme participants (transparency of services and pricing) 15
Rubric 1 2 3 4 Agent banking and SEPA SEPA state of play EU legal framework for retail payments Retail Payments Governance in Europe 5 Conclusions 16
Rubric 3. EU legal framework for retail payments Legal provisions in place Regulation 2560/2001 on cross-border payments in euro (replacing Regulation 924/2009) Eliminates the differences in charges for cross-border and national payments in euro Applies to payments in euro, in all EU Member States Principle: charges for payment transactions in euro have to be the same whether the payment is a national or cross-border payment Payment Services Directive 2007/64 (under review) Harmonised terms and conditions Harmonised transparency and information requirements New category of service providers: payment institutions Regulation 260/2012 establishing EU-wide requirements for credit transfers and direct debits in euro Sets end dates for migrating credit transfers and direct debits in euro Amendment proposal for euro area countries: transition phase ending on 1 August 2014 17
Rubric 3. EU legal framework for retail payments Legal provisions in the pipeline Payment Services Directive 2 (PSD2) Acknowledgement of Payment Account Access Services Incorporating one leg transactions Covering all currencies Regulation on Interchange Fees for Cards 0.2 % for debit cards, 0.3 % for credit cards Abolishment of scheme rules that are preventing cross-border issuing and acquiring Directive on Payment Accounts transparency and comparability of payment account fees, payment account switching and access to a basic payment account 18
Rubric 1 2 3 4 Agent banking and SEPA SEPA state of play EU legal framework for retail payments Retail Payments Governance in Europe 5 Conclusions 19
Rubric 4. Retail Payments Governance in Europe Possible governance approaches: Regulatory approach? Self-regulatory approach? Or a mix of both approaches? 20
Rubric 4. Retail Payments Governance in Europe To understand where we go, we need to see where we come from: Roots of the SEPA project: Regulation 2560/2001 (same charges for national and cross-border payments and cash withdrawals) strong call to the banking industry White Paper of the three European Banking Associations declaring their commitment to work for a single euro payments area set-up of the European Payments Council (EPC). From a situation where banks were pursuing their objectives in isolation to a situation of interbank cooperation in certain areas: an environment of self-regulatory governance with the EPC as the driver of the SEPA project for several years but 21
Rubric 4. Retail Payments Governance in Europe To understand where we go, we need to see where we come from: retail payments are vital for participating in the economic and social life: beyond the EPC (representing the supply side of the market), the demand side of the market should be actively involved. How: the SEPA Council Set-up in March 2010. Aim: an integrated euro retail payments market through the involvement of all parties and through consensus on the steps to be taken. Co-chaired by ECB and European Commission. Novelty element: its composition, i.e. payment service providers together with retailers, corporates, consumers, SMEs and public administrations & 4 Eurosystem NCBs on a rotating basis. 22
Rubric 4. Retail Payments Governance in Europe To understand where we go, we need to see where we come from: EPC produced the SCT and SDD rulebooks. Yet, at the moment of migration the self-regulatory approach reached its limits: demand and supply side could not migrate quickly enough on their own SEPA migration end-date regulation with the work of the market as basis. The SEPA Council s mandate required ECB and European Commission to evaluate the efficiency and functioning of the SEPA Council by the end of 2012 & concerns of stakeholders on the current set-up of SEPA governance 23
Rubric 4. Retail Payments Governance in Europe the Euro Retail Payments Board was created in December 2013 to replace the SEPA Council. Why? - Feb 2014: key milestone. But work is not over! - Migration: a solid base for further development and integration of retail payments in euro start of a new phase in the European retail payments integration process. - The need to address retail payment issues in their broadest sense at European level by means of a European dialogue between banks, other payment service providers and end-users of payment services goes beyond 1 February 2014! 24
Rubric 4. Retail Payments Governance in Europe Euro Retail Payments Board - Objective: contribute to the creation of an integrated, competitive, innovative and level-playing field market for euro retail payments in the EU. Wider mandate and clearer tasks in comparison to SEPA Council. - Composition: high-level representatives of the demand and supply side of the European market for retail payment services in euro. Extended membership in comparison to SEPA Council in order to capture a wider scope of end-users and new types of payment service providers. - Role of ECB and European Commission: ECB as chair European Commission as observer. 25
Rubric 4. Retail Payments Governance in Europe Euro Retail Payments Board - Powers: ERPB to act on its own initiative, but no formal powers to impose binding measures. Close involvement of the ECB (chair) and the European Commission (observer) to ensure that directions taken by the ERPB are not in conflict with the common European interest. - Work delivery: the ERPB will be an output-driven body. For the execution of its mandate, the ERPB may establish working groups for a limited period of time for dealing with specific work priorities. This feature introduces a substantial difference with respect to the SEPA Council. 26
Rubric 4. Retail Payments Governance in Europe Our guiding principles therefore remain: - A European dialogue approach between banks, other payment service providers and end-users of payment services; - An optimal mix between regulation and self-regulation. 27
Rubric 1 2 3 4 Agent banking and SEPA SEPA state of play EU legal framework for retail payments Retail Payments Governance in Europe 5 Conclusions 28
Rubric 5. Conclusions What difference has SEPA made so far for European citizens? Same fees for cross-border as for national payments 1 business day as maximum execution time for electronic payments across Europe A harmonised EU legal framework for retail payments SEPA credit transfer can be used since early 2008, SEPA direct debit since late 2009 + Increased security of payment cards: migration from magnetic stripe to chip cards + Start of a social dialogue - between users and providers - on retail payments in euro to directly include the customers perspective 29
Rubric 5. Conclusions SEPA for non-sepa countries The CPSS is carrying out analyses in the field of retail payments - also focusing on the role of non-banks - taking also into account the European experience Payments are becoming less local and more global and the ECB aims to ensure efficient and sound clearing and payment systems within the EU and with other countries SEPA TODAY GLOBAL BLUEPRINT FOR NON SEPA 30