The future of finance after SEPA

JWBK145-FM JWBK145-Skinner March 11, 2008 10:25 Char Count= The Future of Finance after SEPA i JWBK145-FM JWBK145-Skinner March 11, 2008 10:25 Char Count= For other titles in the Wiley Finance series please see www.wiley.com/finance ii JWBK145-FM JWBK145-Skinner March 11, 2008 10:25 Char Count= The Future of Finance after SEPA Edited by Chris Skinner iii JWBK145-FM JWBK145-Skinner Copyright C 2008 March 11, 2008 10:25 Char Count= John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (+44) 1243 779777 Email (for orders and customer service enquiries): cs-books@wiley.co.uk Visit our Home Page on www.wiley.com All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to permreq@wiley.co.uk, or faxed to (+44) 1243 770620 Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The Publisher is not associated with any product or vendor mentioned in this book This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the Publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought Please note that the views expressed in this book are those of the authors concerned, and not necessarily reflect the views of their institutions Other Wiley Editorial Offices John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA Wiley-VCH Verlag GmbH, Boschstr 12, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 42 McDougall Street, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 6045 Freemont Blvd, Mississauga, ONT, L5R 4J3, Canada Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books Library of Congress Cataloging-in-Publication Data The future of finance after SEPA / [edited by] Chris Skinner p cm – (Wiley finance series) Includes bibliographical references and index ISBN 978-0-470-98782-7 (cloth) Finance–European Union countries Payment–European Union countries Euro area I Skinner, Chris HG186.A2F88 2008 332.094–dc22 2008007636 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 978-0-470-98782-7 (HB) Typeset in 10/12pt Times by Aptara Inc., New Delhi, India Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production iv JWBK145-FM JWBK145-Skinner March 11, 2008 10:25 Char Count= Contents About the Editor About the Contributors Preface Acknowledgements ix xi xxiii xxv An Introduction to SEPA Chris Skinner, Chairman the Financial Services Club and Chief Executive, Balatro PART THE VIEWS OF THE ARCHITECTS The EPC and the Single Euro Payments Area (SEPA): It’s now up to the banks and their customers! Gerard Hartsink, the EPC 45 47 The economic impact of SEPA on Europe’s banks Heiko Schmiedel, the European Central Bank 55 The vision of a Single European Payments Market Eva King, the European Commission 59 Creating the Payment Services Directive for SEPA Sharon Bowles, Member of the European Parliament 65 PART 69 THE VIEWS OF THE PAYMENT PROCESSORS Was SEPA worth the effort after all? Geoffroy de Schrevel, SWIFT 71 Europe’s future payments infrastructures Daniel Szmukler, EBA CLEARING 77 Bilateral clearing likely to be dominant clearing method in SEPA Henrik Parl, Eurogiro 79 v JWBK145-FM JWBK145-Skinner vi March 11, 2008 10:25 Char Count= Contents Is listening to the regulator enough? Nick Senechal, VocaLink 85 The implications of SEPA to the Nordics Bodil Nelsson and Mats Wall´en, Bankgirocentralen BGC AB, Sweden 91 10 Eight Predictions for SEPA’s Impact on Payment Cards John Chaplin, First Data 99 11 SEPA and eCommerce – the Consumer is King Ren´e Pelegero, PayPal 107 PART 113 THE VIEWS OF THE BANKS 12 The Payment Services Directive a critical view Ruth Wandhăofer, Citi 115 13 SEPA – The Implications for banks Mark Hale, formerly Barclays Bank and now PricewaterhouseCoopers 119 14 Bring on the benefits, a SEPA success story James Barclay, JPMorgan Chase 129 15 The Impact of SEPA on the Irish Payments Industry Brenda O’Connell, Bank of Ireland 135 16 After 2010: Will the Customer become king? Harry Leinonen, the Bank of Finland 141 17 The implications of SEPA for e-invoicing Erkki Poutiainen, Nordea 151 18 Banking after SEPA: 2010 and beyond Daniele Danese, Banca Popolare di Verona 159 PART 165 THE VIEWS OF THE CORPORATES 19 SEPA: an introduction for corporates John Ryan, European Business School 167 20 SEPA: The Corporate Perspective Gianfranco Tabasso, EACT and Tom Buschman, TWIST 173 PART 185 THE VIEWS OF THE OBSERVERS OF SEPA 21 Will the promises of SEPA come true for corporates? Juergen Weiss, Gartner 187 JWBK145-FM JWBK145-Skinner March 11, 2008 10:25 Char Count= Contents vii 22 The Single European Payments Area – the user and supplier perspectives David Doyle, EU Policy Advisor on Financial Markets 191 23 SEPA – It’s Trench Warfare Ashley Dowson, the SEPA Consultancy 197 24 Payments Operations – Building to protect the franchise Robert Bradfield, Ernst & Young 201 25 SWIFT for Corporates, a channel to SEPA? Herv´e Postic, founder, UTSIT Paris 215 PART 219 THE VIEW OF THE IMPLEMENTERS OF SEPA 26 The most critical technologies for SEPA Neil Burton, IBM 221 27 Compliance: Friend or Foe? Sean Fitzgerald, Sentenial 227 28 SEPA: How the technology requirements for SEPA will help it evolve Jonathan Williams, Eiger 235 29 The relationship between SEPA and Anti-Money Laundering (AML) Anthony Kirby, Chair Reference Data Subject Group and Member of the Executive Committee, ISITC 245 30 SEPA and identity: are you who you say you are, and does it matter? John Bullard, IdenTrust 265 31 Why SEPA needs e-invoicing Bo Harald, TietoEnator 269 32 The technology standards required for SEPA Chris Pickles, BT 275 33 The most critical technologies for SEPA Richard Spong, Sterling Commerce 283 Appendix – Useful Resources 289 Glossary of Terms 291 Index 295 JWBK145-FM JWBK145-Skinner March 11, 2008 10:25 Char Count= About the Editor Chris Skinner CHRIS SKINNER is known worldwide as a leading commentator and strategist on the financial markets He works full-time as the Chief Executive of the think tank Balatro, as well as being the Chairman of the Financial Services Club and a co-founder of the website Shaping Tomorrow He writes a regular column in the Banker magazine, and blogs on the FinanSer and Finextra Chris is a regular key note speaker at the world’s largest financial services conferences including SWIFT’s SIBOS, BAI, IIR and the Financial Times and the author of several other books published by John Wiley, including The Future of Banking in a Globalised World and The Future of Investing in Europe’s Markets after MiFID ix JWBK145-FM JWBK145-Skinner March 11, 2008 10:25 Char Count= About the Contributors James Barclay James Barclay is Vice President for Industry Issues in the Treasury and Security Services team at JPMorgan Chase, joining in June 2007 In this role, he is jointly responsible for managing strategic regulatory issues across Europe, the Middle East and Africa The position also involves relationship management with industry bodies and market infrastructures James actively works with the European Commission’s informal e-invoicing Task Force and the Payment Systems Market Group and the EPC’s Programme Management Forum James has had extensive experience in both the payments and securities industries from operational delivery to strategic positioning and is regarded as an industry expert in the payments and infrastructure arena His experience at the EBA has given him a clear insight into the workings of industry bodies and the development of solutions requiring international agreement Based in Paris for the past 25 years, James brings the combination of his experience in the financial sector in Europe to the Global Industry Issues team at JPMorgan Chase Sharon Bowles After training for professional qualification with leading London firms, Sharon established a professional practice in 1981, which is now the Bowles Horton partnership Sharon became a Liberal Democrat Parliamentary Candidate in 1992 and became a Member of the European Parliament in May 2005, replacing Chris Huhne She is a full member of the Economic and Monetary Affairs committee and, as shadow rapporteur for ALDE, has been a key player in the Payment Services Directive (PSD) negotiations As rapporteur she is also leading for the Parliament on fiscal fraud and has recently been appointed shadow rapporteur on Solvency II Robert Bradfield Robert Bradfield is a Senior Manager with Ernst & Young, where he combines his extensive Financial Services knowledge and experience with Ernst & Young’s core capability around performance improvement to bring about business process transformations Prior to joining Ernst & Young, Robert was with LogicaCMG as deputy head of their UK Payments Practice, where he was engaged with both UK and European banks in the development and enhancement of their payments processing capabilities Robert’s career in Financial Services began in Eurobond sales and trading with Société Générale Strauss Turnbull After a decade with Société Générale, Robert moved to the supply xi JWBK145-FM JWBK145-Skinner xii March 11, 2008 10:25 Char Count= About the Contributors side of the Financial Markets and joined Unisys as a Solutions Director for their International Banking Services Centre John Bullard John is Gobal Ambassador for Iden Trust, having joined the company at its foundation in 1999 as Manging Director (Participant Relations), from Barclays who were one of the Founding Banking of Iden Trust At Barclays he enjoyed a career spanning some 20 years primarily focused around corporate and institutional relationship management during periods of change such as the ‘Big Bang’ opening up of Londons financial markets in the 1980’s He was worked on two separate occasions in the USA, once in San Francisco, and 10 years later in Barclays corporate banking operations on Wall Street In the latter part of his time at the bank, he held senior positions in the Services Business Division, and in Group Operational Risk with specific responsibilities around European banking legislation and eCommerce Neil Burton Neil Burton is a Solutions Executive in IBM’s Global Banking Solutions team, with responsibility for Payments His role is to identify matket opportunity, provide solution content and guidance to customers and colleagues He is an active participant in conferences and industry forums Neil holds a BA in Physics, an MBA and is Member of the Chartered Institute of Marketing Tom Buschman Tom Buschman is founder, chairman & CEO of the Transaction Workflow Innovation Standards Team (TWIST), a not-for-profit industry group of corporate treasures, fund managers, banks, system suppliers, electronic trading platform, market infrastructures and professional services firms Tom left Shell to dedicate his time to TWIST in May 2006, and the application of its standards Over a period of 15 years, Tom held various managerial finance positions for the Shell Group He was industry liaison and development manager for Shell’s corporate treasury after having been responsible for Shell’s central foreign exchange and money market activities Before coming to London in 1999, he worked for Shell’s Dutch Pension Fund and held several positions for Shell in Brazil Tom was also a fellow at the London School of Economics for innovation in financial markets The primary aim of TWIST is to develop new and rationalise existing XML standards that connect the financial and physical supply chains, releasing the enormous value locked up in disjointed paper-based processes TWIST has developed standards covering payments and cash management; financial supply chain areas including ordering, e-invoicing and financing; billing of bank services; opening and administration of bank accounts; and wholesale financial market transaction processing; all with in-built identity management and security John Chaplin John Chaplin is European Payments Adviser for First Data and liaises closely with the European Commission, European Central Bank and other regulatory authorities around SEPA’s issues as they relate to the cards industry John also leads First Data’s activities in support of banks as they seek to address the challenges and opportunities that SEPA will bring JWBK145-33 JWBK145-Skinner February 8, 2008 16:2 Char Count= The most critical technologies for SEPA 285 organisation, to those systems and processes that exchange data and transactions externally This may be with the organisation’s customers, its outsourced service providers, or with its payments and securities communities The case for a strategic approach to external data movement technologies at the edge of the financial services enterprise is particularly strong but, for the reasons previously described, the environment for efficient change management in this area is particularly weak All of this background conspires to make SEPA much more of a technical issue than it should be In Europe, compliance with the first phase of SEPA is the dominant current case for change at the edge of the financial enterprise It will not be the last as there is much more change to come as full SEPA comes into force For the European financial services community, the task of implementing SEPA presents a much greater pain than it should SEPA has been for a long time, some would argue for decades, an entirely predictable industry event True, it seems to have taken forever to nail down the political consensus between the European central banks and the regional regulators, and the common data standards that enable implementation On this latter area, the debate still continues as agreement has not been reached for some payment instruments and documents that are captured within the scope of SEPA You would think that this long lead time should have provided the banks with ample time to prepare appropriate technical solutions From the banking viewpoint, the first difficulty with SEPA is that it has no business sponsors in most of the Eurozone financial institutions that it affects This is because SEPA is fundamentally directed towards consumer protection For most banks, it does not increase their profits, nor does it reduce their costs or risks Instead, it introduces a compliance cost for which there is no revenue return Therefore, it is no big surprise that business professionals have deferred the decision to make the unavoidable spend for as long as they possibly could This has thereby contributed towards additional slippage in the overall SEPA roll-out programme SEPA compliance projects have not been strategically planned and, yet again like other preceding European financial community initiatives, have been rushed through as just-in-time damage limitation projects on the smallest budgets possible There are some exceptions The European financial services community contains a number of visionaries who are senior banking executives who accepted the inevitability of SEPA early on These visionaries look beyond SEPA’s initial operational inconvenience to the longer term opportunities for re-positioned industry activity in the post-SEPA European Economic Community The second difficulty with SEPA is that, just weeks before the start in January 2008, a number of operational logistics remained undefined, poorly-defined and speculative For example, SEPA clearing and settlement mechanisms were not agreed The Pan-European Automated Clearing Houses (PEACHs) were positioning themselves to provide this capability, but they did not know which banks would use which PE-ACH, nor did they know which would wholly or partially opt-out in favour of direct bilateral or multilateral settlement agreements The third difficulty is that the technologies that banks and other organisations need to deal with for SEPA are not just about complying with payments standards Certainly, depending upon their size and their merger history, banks may have two, 10, 20 or more payments processes that generate value transmissions and that will have to comply with SEPA standards That is a pain in terms of scheduling un-remunerative development priorities, deferring more profitable development initiatives, repetitive system adaptations and extensive testing Nevertheless, the deliverables of generating SEPA-compliant credit transfers and, in later phases, SEPA direct debits and other financial instruments, not amount to an unachievable JWBK145-33 JWBK145-Skinner 286 February 8, 2008 16:2 Char Count= The Future of Finance after SEPA science project The more serious technical problem arises from the changed revenue profile that SEPA will progressively enforce on community organisations It is these three difficulties that dictate the shape of the technology response to SEPA across the community The fundamental nature of previous changes in the European payments landscape is that they have dictated changes in community processes and technologies The difference with SEPA is that, unlike previous changes, some of its consequences are difficult or impossible to model or predict This is because it is driven by regulation, rather than by traditional market forces, and SEPA introduces a number of fundamental unknowns It is these unknowns that banking technology must address This results in a whole raft of strategic questions, of which the following are just a few examples: How we standardise our domestic and pan-European pricing policy for SEPA credit transfers against unknown competitor pricing policies? If it transpires that we cannot sustain a sufficiently remunerative SEPA payments service, we outsource our payments processing and, if so, all of it or part of it and who to? If we outsource, how we provide a robust and secure front-end service to our customers, who are already demanding faster payments and better process visibility? If payment processing still looks profitable, should we seek economies of scale by extending hosted services to other smaller banks and, if so, how many domains can we process in parallel and how scalable we need to be? If we are comfortable to continue independently processing SEPA credit transfers, how will SEPA direct debits and other later instruments affect our revenue profile? If SEPA traffic increases and scales in the future and proves to be detrimental to our capabilities, what options should we design into our strategy? If we decide to outsource, we cannot be locked into one external service provider, as others may compete to offer better performance or more favourable fees, so how we retain the ability to switch rapidly to alternative third parties? Which networks shall we connect over and which PEACH shall we connect to, and what if we want to change those selections? All of these questions involve issues of multi-enterprise data communications technology They are about moving transactions and associated service information between community enterprises who are collaborating in executing SEPA compliance Whatever the answers may be from the viewpoint of any one bank, they not imply that ripping out and replacing existing core system payments technologies is the answer for SEPA implementation Renewal of core systems invariably introduces many benefits but typically the cost is significant, and the internal enterprise integration overhead is very high Bear in mind that all of this is being performed just to achieve new compliance standards in a SEPA market which will deliver a minimal return on those investments It’s not only about direct costs The operational risk and project effort associated with replacement of each individually related system are very considerable, and most banks have many Furthermore, replacing existing hard to change technologies with updated, slightly less rigid, technologies, does not necessarily answer the clear strategic need for extreme processing agility at the edge of the enterprise This need extends across the entire SEPA financial services community, through 2010 and beyond For some years, industry analysts have been advocating the adoption of advanced business process integration technologies based upon a Service Oriented Architecture (SOA) These solutions address the complexities of multi-enterprise business collaboration and data movements JWBK145-33 JWBK145-Skinner February 8, 2008 16:2 Char Count= The most critical technologies for SEPA 287 between different and remote systems infrastructures They are the critical technical components for continuing operational agility in the SEPA community SOA is a best practice style for creating long-term sustainable business architectures It enables organisations to rapidly adapt their fixed operational infrastructures to changes in business, technology and legislative environments Its promise is business agility and process flexibility SOA is the answer to the technology need to managing increasing complexity with fewer resources, while the business is increasingly demanding faster response times and lower costs It is an architectural style that allows for a separation of process logic from the underlying systems, allowing for rapid re-use of business services which are defined with business semantics rather than technology syntaxes Ultimately, it allows technology to better align resources with business requirements, focusing more on information and less on technology This flexibility and agility will be critical to keep up with SEPA’s demands, especially where you have a fragmented business community at the edge of the enterprise The contention therefore is that SOA is the critical foundation for SEPA from a technology viewpoint In conclusion, there have been previous market events that presented opportunities for banks and financial institutions to deploy this type of approach to provide long lasting solutions to the continuing challenge of community connectivity If business sponsors had allowed the budget to accommodate this more sophisticated and strategic approaches earlier, then much of the cost of SEPA implementation might have been absorbed within those earlier more profitable projects As it is, technology teams have to go forward from where they are and the implementation of further tactical approaches is not the way to go, especially as SEPA will be a continuum rather than a one-off event The challenges presented by the changing composition and operations of the continually evolving European financial community can be met only by properly funded and comprehensive technology strategies It is time to learn the lesson, and get multi-enterprise financial data movement and management into the shape that the future demands JWBK145-GLO JWBK145-Skinner February 25, 2008 20:49 Char Count= The Future of Finance after SEPA Edited by Chris Skinner Copyright © 2008 John Wiley & Sons Ltd Glossary of Terms ACH AML AOS AP AR ATM BEI BIC CAST CBM CDD CMF CSSF DMF DPO DSO EACT EAPS EBA EC ECB ECON ECU EFTPOS EMEA EMV EPC EPM ERP ESCB EU Eurosystem Automated Clearing House Anti-Money Laundering Additional Optional Services Accounts Payable Accounts Receivable Automated Teller Machine Business Entity Identifier Bank Identification Code Corporate Action on Standards Components Business Model Customer Due Diligence Credit Mandate Flow Commission de Surveillance du Secteur Financier Debtor Mandate Flow Days Payable Outstanding Days Sales Outstanding European Associations of Corporate Treasurers Euro Alliance of Payment Schemes Euro Banking Association European Commission European Central Bank Economic and Monetary Affairs Committee of the European Parliament European Currency Unit Electronic Funds Transfer at Point of Sale Europe, Middle-East and Africa Europay MasterCard Visa, the chip standard for payment cards European Payments Council ECB’s Payment Mechanism Enterprise Resource Planning European System of Central Banks European Union The Central Bank System of the Euro Area 291 JWBK145-GLO JWBK145-Skinner 292 Eurozone FATF FSAP HKMA IBAN IBEI ICP IPR ISO KYC MAS MEP MiFID MLD MLRO MNC NCB NNA NTA OFAC PE-ACH PE-DD PEP POS PSP PSU RDUG RTGS SCF SCORE SCT SDD SECA SEPA SME SME SOA SSC SSP SSS STEP STP SWIFT TARGET TBG5 February 25, 2008 20:49 Char Count= The Future of Finance after SEPA The countries who use the euro as their national currency Financial Action Task Force, relates to AML Financial Services Action Plan Hong Kong Monetary Authority International Bank Account Number International Business Entity Identifier Interbank Charging Principles Intellectual Property Rights International Standards Organisation Know Your Client Monetary Authority of Singapore Member of the European Parliament Markets in Financial Instruments Directive (MiFID) Money Laundering Directive Money Laundering Reporting Officer Multi-National Corporation National Central Bank National Numbering Agency National Treasurers Association Office of Foreign Assets Control, part of the US Department of the Treasury Pan-European Automated Clearing House Pan-European Direct Debit Politically Exposed Person Point of Sale Payment Service Provider Payment Service User Reference Data User Group Real Time Gross Settlement SEPA Cards Framework Standardised Corporate Environment SEPA Credit Transfer SEPA Direct Debit SEPA Euro Cash Area Single European Payment Area Scheme Management Entity Small and Medium Enterprises Services Oriented Architecture Shared Service Centre Single Shared Platform Securities Settlement System Straight Through Euro Processing Straight Through Processing Society for Worldwide Interbank Financial Telecommunications Trans-European Automated Real-time Gross settlement Express Transfer International Trade & Business Processes Group Working Group (Finance Domain) JWBK145-GLO JWBK145-Skinner February 25, 2008 20:49 Char Count= Glossary of Terms TCO TDES TMS TWIST UCI UEI Total Cost of Ownership Triple Data Encryption Standard Treasury Management System Transaction Workflow Innovation Standards Team Unique Creditor Identifier Unique Entity Identifier 293 JWBK145-App JWBK145-Skinner February 26, 2008 14:54 Char Count= The Future of Finance after SEPA Edited by Chris Skinner Copyright © 2008 John Wiley & Sons Ltd Appendix – Useful Resources ECB Links to EU Country Implementation Plans http://www.ecb.int/paym/sepa/html/links.en.html ECB Publications on Payments and Securities http://www.ecb.int/pub/pub/paym/html/index.en.html ECB Update on TARGET2 Developments http://www.ecb.int/paym/target/target2/html/index.en.html EPC Publications http://www.europeanpaymentscouncil.eu/knowledge bank list.cfm?documents category=1 Euractiv Summary of the Single Payments Area http://www.euractiv.com/en/financial-services/single-payments-area/article-134975 Latest Developments http://www.ec.europa.eu/internal market/payments/framework/index en.htm Payment Services Directive, December 2005 – Frequently Asked Questions http://www.europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/461&format= HTML&aged=0&language=EN&guiLanguage=en Payment Services Directive, March 2007– Frequently Asked Questions http://www.europa.eu/rapid/pressReleasesAction.do?reference=MEMO/07/152&format= HTML&aged=0&language=EN&guiLanguage=en Regulation 2560/2001 – Frequently Asked Questions http://www.europa.eu/rapid/press ReleasesAction.do?reference=IP/02/941&format=HTML& aged=0&language=EN&guiLanguage=en 289 JWBK145-IND JWBK145-Skinner March 8, 2008 12:57 Char Count= The Future of Finance after SEPA Edited by Chris Skinner Copyright © 2008 John Wiley & Sons Ltd Index 24 society 86–87 2007 Kroll Global Fraud Report 245–246 2010 see post-2010 Accounts Payable (AP) 188 Accounts Receivable (AR) 188 ACH see Automated Clearing Houses acquisitions see mergers and acquisitions added value 57, 94, 162 Additional Optional Services (AOS) 63, 137 Aite Group 272 Anti-Money Laundering (AML) 245–263 any-format-in & any-format-out-service 271 AP see Accounts Payable AR see Accounts Receivable ATM withdrawal charge mandates 167 Austria 28 authentication technology 247 see also Bank Identification Code; fraud; identity Automated Clearing Houses (ACHs) 17, 18, 130, 171 see also Pan European-Automated Clearing Houses automated payment processing 25, 212 see also e-invoicing availability, Nordic countries 95 balance-related revenues 57 Baltic states 43–44 Banca Popolare di Verona perspective 159–163 bank accounts, adults without 138 Bank of America 272 bank–corporate relationships 193–195, 215 Bank of Finland 141–149 Bankgirocentralen BGC AB, Sweden perspective 91–98 Bank Identification Code (BIC) bank technologies 29–30 corporate–bank relationships 216 corporation acquisition/storage problems 180–181 database completion 169–170 definition 7–8 lower TCO 188 parity 240 bank products 131 banks see also individual banks Banca Popolare di Verona perspective 159–163 compliance strategies 228 concentration 161 deferred decisions to spend 285 exception fees 203–204 float revenues 204 infrastructures 12–24 interest margins 204–206 markets 24–30, 72, 120–121 mergers and acquisitions 27–29, 126, 198 mixed working groups 177–178 payment processing charges 202–203 perspectives 113–163 pricing 29, 182 product charges 203 relationships: Germany 188 risks 174–175 SEPA implications 119–127 shifting liabilities perspective 192 SPA benefits 4–5 standards 271–272, 276–277 SWIFT perspective 72–73 technology 29–30, 160, 221–226 two types 197–200 Barclays Bank 119–127 behaviours, suspicious 255 BEIs see Business Entity Identifiers 295 JWBK145-IND JWBK145-Skinner 296 March 8, 2008 12:57 Char Count= Index benchmarks, BISS Research 179 beneficial owner concept 248–251 benefits of SEPA 4–5, 53, 60, 80–82, 132 see also economic benefits Better Regulation benchmark 117–118 BIC see Bank Identification Code bilateral payment-processing 78, 79–83, 135–136 BISS Research benchmark template 179 BOP Reporting 181 bottlenecks 151–152, 153 Bretton Woods Accord 277 BT perspective 275–281 building-block approach 229 business case 122–123, 272–273 Business Entity definition 259 Business Entity Identifiers (BEIs) 250, 260, 262 business remodelling 210–211 business system vendors 96–97 capital requirements 65 cardholder not present (CNP) 87 card processing industry see also credit cards duty charges 138 EPC progress 49–50 National Card Processing Payment Schemes 19 payment processing advances 278 SEPA implications 19–21 cash centralization of management 189–190 EPC progress 50 hidden pricing 143 Irish transition to electronic 137–138 prepaid card alternatives 21–24 suspicious behaviours 255–256 CBM see Component Business Model CDD see Client/Customer Due Diligence process centralisation 62, 189–190, 207, 216 challenges to banks 2–3 change see also timescales banking market 123 bank opportunities 89 banks’ rationale 197–198 companies/persons 252 costs 208 initiatives portfolio 121–122 payment infrastructure as driver 79–80 charges 101, 138, 202–203 checking processes 251–253 cheques 16, 57, 169 Citi bank perspective 115–118 citizens clearing arrangements 135–136 Clearing and Settlement Mechanisms (CSM) 50, 76, 78, 80, 241 Client/Customer Due Diligence (CDD) process 249, 250, 251 client on-boarding 251 CMF see SEPA Credit Mandate Flow scheme CNP see cardholder not present coexistence scenario 56, 235 collaboration 283 Commission de Surveillance du Secteur Financier (CSSF) 253 commodity nature of payments 25–26 communication 51, 277–278 company change rates 252 competition Banca Popolare di Verona perspective 159 customer mobility 145 European payments market North:South divide 10 Irish attractive market 138–139 network structures to support 144 payment industry lack of 141–144 Payment Services Directive 67 quality improvement 60, 62–63 SEPA standards 281 transparent pricing 145 complementary products 142, 144 see also added value compliance checking processes 252–253 early SEPA stages 235 First Data perspective 104–105 PSD transcription into national law 222 Sentenial perspective 227–233 VocaLink perspective 85–89 Component Business Model (CBM) 223 concentration trend 78, 79, 96, 160, 161 consumer aspects 23, 107–111, 132 convergence 106, 266 conversion 235 coordination, central 62, 189–190, 207, 216 core business, payments status 72 core payment services 211–212 Corporate Action on Standards (CAST) 176 corporate–bank relationships 215–217 corporations Banca Popolare di Verona perspective 163 bank partnership opportunities 193–195 development involvement 175 EACT/TWIST perspective 173–184 identity authentication 267 JPMorgan Chase viewpoint 132 mixed working groups 177–178 SEPA implementation concerns 178–184 SPA benefits SWIFT 26 top ten problem issues 179–184 JWBK145-IND JWBK145-Skinner March 8, 2008 12:57 Char Count= Index views 165–217 VocaLink perspective 87–88 cost/benefit analysis 209–211 cost-driven payments service 207 costs banking inefficiencies 221 banks SEPA implementation 129 change 208 concentration effects 160 European banks 56 Germany 187–188 internal reduction 126 Nordic countries 93, 98 payments operations 56, 201–202 reduction 126, 231 savings 273 technology 146, 160 coverage areas Credeuro Convention of 2002 credit cards 19–21, 99, 102–104, 106 credit risk minimisation 242 credit transfers 32, 35, 41, 48–49, 57 see also cross-border payments critical milestones, SEPA cross-border online wallets 109–110 cross-border payments bank pricing 29 European 1–44 identity authentication 267 inefficiency 59 long-term industry changes 171 PSD ruling 192 Regulation (2560/2001/EC) 167 SEPA effects 195 SWIFT’s role 216–217 telex machines 277 cross-border technology integration 279 CSSF see Commission de Surveillance du Secteur Financier Customer Due Diligence (CDD) process 249, 250, 251 ‘customer is king’ 141–149 customers acceptance of SEPA 52 Banca Popolare di Verona perspective 163 banking market change 124–125 corporate customers’ viewpoint 165–217 information security 246 mobility and competition 145 observer perspective 191–195 on-boarding 254–255 PayPal 86 processing time expectations 212–213 remote identification 146–147 technology developments 276 297 D+1 processing 10, 40, 133, 204 data standards, parity 240 deadlines, PSD adoption 191 debit cards 19–21 see also SEPA Direct Debit scheme Debtor Mandate Flow (DMF) 179, 180 dedicated reference data fields 169 definitions 7–9, 235–236, 247–248, 266 deliverables 47–48, 51–52 delocalisation 161 Denmark 42–43 derogations 117 design process 51 Deutsche Bank 222 see also Germany development approaches 208–211 DG Competition group 100 direct debits see also SEPA Direct Debit scheme EPC progress 48–49 growth 57 Italy 9–10, 35–36 mandate renewal uncertainty 180 single scheme technology 241 Directive 77/780/EEC see First Money Laundering Directive Directive 89/646/EEC see Second Money Laundering Directive Directive 2005/60/EC see Third Money Laundering Directive distribution banks 170 DMF see Debtor Mandate Flow domestic technologies cross-border integration 279 drivers 79–80, 94, 198–199, 201 dual-currency strategy, UK 41 duopolies 99, 102, 103–104, 106 duty charges 138 E2E STP see End-to-End Straight Through Processing EACHA 81 EACT see European Association of Corporate Treasurers EAPS see Euro Alliance of Payment Schemes e-archives 147 Eastern Europe 43–44 EBA see Euro Banking Association ECB see European Central Bank eCommerce 107–111, 131 see also e-invoicing economic impact studies 55–58, 122–123 Economic and Monetary Union (EMU) economies of scale 171 EEI see European Electronic Invoicing taskforce efficiency 206–208, 221, 236, 241, 275 JWBK145-IND JWBK145-Skinner 298 March 8, 2008 12:57 Char Count= Index EIGER perspective 235–243 eight-pillar EPC strategy 168 e-invoicing automation 25, 88 EBA activities 156 economic impact study 56 EPC progress 51 Nordea perspective 151–157 Nordic countries 95 payment activation 88 post 2010 148 supply chain integration 154–155, 157 TietoEnator perspective 269–273 electronic mandating 137, 180 e-mails 147 EMU see Economic and Monetary Union endpoints 238–239 End-to-End Straight Through Processing (E2E STP) automated payment processing 212 banking history 277 ISO20022 standard 182–183 limited end-to-end risk 174, 175 long-term industry changes 171 Payment Services Directive 66 SEPA technology requirement 237–239 end-users 51, 73–75, 266 Enterprise Resource Planning (ERP) 74, 181, 182–183 entirety requirement 236, 237–239 EPC see European Payments Council equal pricing directive 167 Ernst & Young perspective 201–213 ERP see Enterprise Resource Planning the euro 5–6 Euro Alliance of Payment Schemes (EAPS) 20, 201 Euro Banking Association (EBA) 77–78, 156 Eurogiro perspective 79–83 Europe 3–11, 20–21, 154 see also European European Association of Corporate Treasurers (EACT) 273 banking standards 276 corporate perspective 173–184 global e-invoicing 155 SEPA National Migration Plans 174 stakeholder cooperation 177–178 European Central Bank (ECB) 122–123, 154, 270 progress reports 133 European Commission (EC) 59–63, 85–89, 155–156, 168, 270 European e-invoicing Steering Committee 177 European Electronic Invoicing (EEI) taskforce 270–271 European Monetary Union (EMU) 92 European Parliament 65–67 European Payments Council (EPC) cards progress 49–50 cash progress 50 clearing and settlement mechanisms progress 50 communication progress 51 corporate–bank relationships 215 creation 168 credit transfers progress 48–49 direct debits progress 48–49 eight-pillar strategy 168 end-user involvement progress 51 e-payments progress 51 EU objectives 79–80 m-payments progress 51 publications 48 Roadmap 2004-2010 47–48 SEPA definition 235–236 stakeholder cooperation 178 standards creation 61–62 voluntary regulations 154 European remote banking standards 160–161 European Union (EU) 6, 15 evolutionary compliance solutions 229 exception fees 203–204 execution revenues 202–203 exemption waiver 66 FaceBook 246 FATF see Financial Action Task Force fees see charges Financial Action Task Force (FATF) 247, 262 Financial Services Action Plan (FSAP) financial services industry 176, 194, 246 see also banks Finland 42–43, 141–149, 242–243 FIN-USE Expert Forum 194 First Data perspective 99–106 First Money Laundering Directive (MLD I) 249, 250 flexibility, compliance 229 ‘float’ 145, 204 formats 189, 222, 278–280 fragmented German banking market 28 France 2, 31–32 franchise protection 201–213 fraud 87, 110, 245–263 FSAP see Financial Services Action Plan funds available information 87–88 Gartner perspective 187–190 Germany 28, 33–34, 187–190 gift cards 23–24 Glass-Steagall Act (1999) 27 global situation 133–134 JWBK145-IND JWBK145-Skinner March 8, 2008 12:57 Char Count= Index gold-plating 117 governance 183, 194 government identity authentication 267 harmonisation 6, 133–134 Helsinki Manifesto 270 hidden pricing 143 high value clearing and settlement 12–14 history of banking standards 276–277 hub-and-spoke structure 78, 132, 155 IBAN see International Bank Account Number IBEI see International Business Identification IBM perspective 221–226 Iceland 42–43 ideal SEPA world scenario 56 identity authentication 146–147 definition 266 fraud 245 Iden Trust perspective 265–268 Know Your Client checks 251, 252 technology innovations 247 Iden Trust perspective 265–268 les images cheques 16 IMF see International Monetary Fund Impact Assessment 117, 118 implementer viewpoints 219–287 implications of SEPA 11–30 inclusion requirement 236–237 inefficiency, cross-border payments 59 inflation, EMU information, ‘perfect’ 275 information requirements 180 infrastructures see also bank infrastructures; payment processing infrastructures identity authentication 265–268 innovation enabler 151–152 National Card Processing Payment Schemes 19 payments harmonisation reusability 230–231 initiatives for change 121–122 innovation 85, 151–152, 155–156 instrumental support 211 see also technologies integration 147, 153–155, 247 interchange fees 106 interchange levels 101–102 interest margins 204–206 internal costs reduction 126 International Bank Account Number (IBAN) bank technologies 29–30 corporate–bank relationships 216 corporation acquisition/storage problems 180–181 definition 7–8 299 format use 280 implementation 169–170 lower TCO 188–189 parity 240 International Business Entity Identifier (IBEI) 280–281 International Business Identification (IBEI) 261 International Monetary Fund (IMF), fraud statistics 245 international-standard messages 279 Internet customer remote identification 146–147 delocalisation 161 open standards 278 SEPA publications 48 SEPA support 125 Investment Services Directive (ISD) 275 invoicing see e-invoicing; payment processing IPSO see Irish Payments Services Organisation Ireland 135–139, 267 Irish Payments Services Organisation (IPSO) 135 ISO7775 standard 278 ISO9362 standard 280 ISO13616 standard 280 ISO15022 standard 278 ISO16372 standard 280 ISO20022 standard bottleneck 153 e-invoicing 271–272 End-to-End Straight Through Processing 182–183 ERP suppliers 182–183 format adoption 279 IBM perspective 221, 224 importance 17–18 lower TCO 189 SWIFT 215, 217, 278 unresolved issues 176 ISO WG8 261 Italy 9–10, 34–36 Joint Money Laundering Steering Group (JMLSG) 258–259 JPMorgan Chase 129–134 just-in-time 285 knowledge exchange 92–93 Know Your Client (KYC) checks 251, 252, 268 Kroll Global Fraud Report (2007) 245–246 KYC see Know Your Client checks large banks 105 layering 247 leadership 133 legacy systems 241 liability 66, 192 JWBK145-IND JWBK145-Skinner 300 March 8, 2008 12:57 Char Count= Index Lisbon Agenda 4, 71, 72, 73, 99 localised specialists local payments, redundancy of 161 long-term aspects 171, 228 low value clearing and settlement 12, 14–17 M&A see mergers and acquisitions MA-CUGs see Member Administered Closed User Groups mandate renewals uncertainty 180 markets bank infrastructures 72 banking sector 24–30, 120–121 SCT as near term market demand driver 198–199 SEPA products 62 SWIFT perspective 75–76 Markets in Financial Instruments Directive (MiFID) 263, 275 Mastercard 20, 99, 102, 103–104, 106 Member Administered Closed User Groups (MA-CUGs) 26 merchants 5, 109–110 mergers and acquisitions (M&A) 27–29, 126, 198 message standard formats 278–280 Message Type (MT) formats 224 micro-enterprises 194 middle office capability 199 middleware-based enterprise architectures 223–224 MiFID see Markets in Financial Instruments Directive migration to SEPA 18, 129–130, 136–137 milestones 61–62 mixed working groups 177–178 MLD III see Third Money Laundering Directive MNCs see multi-national corporations mobile phone payments 110, 134, 147, 162, 226 mobility see customer mobility modular compliance solutions 229 money laundering 242, 245–263 money transmission 24, 255–256 see also cross-border payments; e-invoicing; payment processing monitoring 257 monopolies 142–143 Moore’s law 146 m-payments 51, 148 MT see Message Type formats multi-enterprise data communications technology 286 multi-national corporations (MNCs) 124 multiple constraints 236 multiple interpretations 240 multiple usages 268 national card acceptance charges 101 National Card Processing Payment Schemes 19, 21 national legislation 183, 222 nationally-based simple money remitters 66 National Migration Plans 174 national numbering agencies (NNAs) 261, 281 national processing companies 103 national SEPA implementations 135, 174, 175 National Treasurers Associations (NTAs) 180 natural monopolies 142–143 near-field-communication (NFC) 147 Netherlands 2, 37–39 networks 75–76, 142–143, 153 new entrants 123, 225, 232–233, 281 New Legal Framework for Payment Services Directive see Payment Services Directive next day (D 1) processing 10, 40, 133, 204 NFC see near-field-communication NNAs see national numbering agencies non-bank providers 10–11, 105 see also individual non-bank providers; new entrants non-cash transaction volumes 38 Nordea (Scandinavia) 27, 151–157 Nordic countries 42–43, 91–98, 269–273 North:South divide 10 Norway 42–43 NTAs see National Treasurers Associations observers of SEPA 185–217 Office of Foreign Assets Control 253 offshore accounts 256–257 online wallets 109–110 open ended time limit 66–67 open Internet standards 278 originator identification 280–281 outdated regulations 144 outsourcing 2, 197–200 overheads reduction 231 overseas activities 256–257 own processing banks 123 Pan European-Automated Clearing Houses (PE-ACHs) bank coordination lack 285 Bank of Ireland perspective 136 concentration 79 EBA perspective 77, 78 EPC progress 50 low-value cross-border euro payments 14, 16–17 market infrastructures 75 SEPA implications 25 Pan-European Direct Debiting (PEDD) scheme see SEPA Direct Debits JWBK145-IND JWBK145-Skinner March 8, 2008 12:57 Char Count= Index parity requirement 236, 240 PATRIOT Act (US) 245 payment institutions see non-bank payment providers payment processing see also End-to-End Straight Through Processing Baltic states 43–44 capabilities 103–104 Component Business Model 223 D 10, 40, 133, 204 evolution 141–144 finance industry threat 176 flow transparency 190 format discrepancies 189 France 31–32 franchise protection 201–213 Germany 33–34 infrastructures 6, 77–78 intra-organizational position 206–208 Italy 9–10, 34–36 JPMorgan Chase viewpoint 131–132 market inefficiency 59 Netherlands 37–39 new/standardised 88–89 Nordic countries 42–43 performance improvement 211–213 post-SEPA form 170 Spain 36–37 two types of banks 197–200 United Kingdom 39–42 payments activation 88 cards 99–106 channel services 211–212 confirmation 110 factories 189–190, 221–226 Payment Service Providers (PSPs) 116 Payment Services Directive (PSD) adoption deadline 191 Citi perspective 115–118 creation in European Parliament 65–67 definitions 116–117 details 9–11 EC perspective 61 EPC progress 52–53 First Data perspective 100 implementation 1–2 long-term industry changes 171 new entrants provision 225 technology standards 275–276 transposition into national law 183, 222 UK 40 pay or no-pay decisions 212 PayPal 86, 88–89, 107–111, 225–226 301 PEDD (Pan-European Direct Debiting) see SEPA Direct Debits PEPs see politically exposed persons ‘perfect information’ 275 performance improvement 211–213 placement (money laundering) 247 planning coordination technologies 283 politically exposed persons (PEPs) 253–254 political processes 65–67 poor-performing payments systems 202–203 positional advantages 161 post-2010 perspective 159–163 prepaid cards 21–24 prepaid cash wallets 162 pricing 143, 145, 167, 181–182 Proceeds of Crime Act (2002) 248 processing see payment processing process optimisation 209 process re-engineering 209–210 product charges 203 product development 94 product pricing 181–182 product support 211 Programme Europe 120 PSD see Payment Services Directive publications 48 public sector 125 quality improvement 60 Radio Frequency Identification (RFID) 147 Raiffeisen Bank (Austria) 28 railway systems analogy 265 rationale for change 197–198 RDUG see Reference Data User Group reachability 15, 76, 86 Real Time Gross Settlement (RTGS) systems 12, 13 real-time nostro services 25–26 real-time processing benefits 146 recipient identification 280–281 reconciliation rates 188 ‘Red Flags’ 246, 257 reduction 229, 231 reference data 169, 259–261 Reference Data User Group (RDUG) 259 regional transactional banks 123 Regulation 2560/2001/EC 73, 167 regulation see also Payment Services Directive Better Regulation benchmark 117–118 card payments 99–100 ECB papers viewpoint 130 First Data perspective 104–105 JPMorgan Chase viewpoint 133 outdated 144 JWBK145-IND JWBK145-Skinner 302 March 8, 2008 12:57 Char Count= Index regulation (Continued ) SWIFT perspective 71–72 VocaLink perspective 85–89 voluntary 154 renewals of direct debit mandates 180 restrictive aspects 151–152, 153 reusability 81, 230–231 revenue streams 162, 201–202, 204–206, 229–230 see also added value RFID see Radio Frequency Identification risk Anti-Money Laundering 245–263 money laundering/credit 242 reduction 231–232 SEPA-related for banks 174–175 types 231–232 Roadmap 2004-2010 47–48 RTGS see Real Time Gross Settlement rules-based approach 266–267 sanctions 253–254 Scandinavia 27 SCF see SEPA Cards Framework SCT see SEPA Credit Transfer SDD see SEPA Direct Debit scheme SECA see SEPA Euro Cash Area Framework Second Money Laundering Directive (MLD II) 250 secure interfaces 146 Securities markets 13 security 242, 245–263 see also fraud self-actualising consumers 86–87 self-assessment 179 self-regulation 104–105 selling products 95–96 Sentenial perspective 227–233 SEPA Cards Framework (SCF) 8, 20 SEPA Credit Mandate Flow (CMF) scheme 179 SEPA Credit Transfer (SCT) 8, 71, 137, 198–199, 222 SEPA Direct Debit (SDD) scheme corporates’ concerns 179–180 identity authentication 267 implementation 169 Irish transition to electronic 137, 138 limited adoption risk 174, 175 long-term industry changes 171 strategic market demand creation 199 SWIFT perspective 71 technological requirements 222 SEPA Euro Cash Area Framework (SECA) Service Oriented Architecture (SOA) 223–224, 286–287 shared service centres 221 short-term strategies 228 single customer view 212 Single International Payment Area (SIPA) 148 Single Payments Area (SPA) 3–11, 167 SIPA see Single International Payment Area skills reusability 230–231 Skype 246 small businesses see micro-enterprises small to medium Enterprises (SMEs) 74, 193–194 SMS messages see mobile telephones SOA see Service Oriented Architecture society 5, 94 Society for Worldwide Interbank Financial Telecommunication see SWIFT software 74, 75, 152, 175, 221, 224 sort codes 7–8 see also Bank Identification Code SPA see Single Payments Area Spain 36–37, 267 specialist vendors 232–233 stakeholders 173–184 standard gauge railway systems 265 standards see also individual standards; ISO20022 standard communication 277–278 core payment services 212 e-invoicing 271 European remote banking 160–161 global integration 134 JPMorgan Chase viewpoint post-2010 134 key areas 279–281 payment transactions within SEPA 61 proprietary replacement 160–161 technology 275–281 unresolved issues 176 statistics, fraud 245 Steering Committees 177 STEP2 system 14–15, 17, 132 Sterling Commerce perspective 283–287 Straight Through European Processing see STEP Straight Through Processing see End-to-End Straight Through Processing strategic alliances 96–97 strategic market demand creation 199 strategic planning 125 superbanks 161 supply chains banks 126–127 convergence 266 e-invoicing first steps 154–155 observer perspective 191–195 payment-processing outsourcing physical/financial integration 153 suspicious activity 249, 254–257 Sweden 42–43, 91–98 ... positioning for their future role in the supply chain of commerce For all of these reasons, this is why this book is titled The Future of Finance after SEPA, rather than the future of payments The contributors... Count= Preface The result I think is a strong and balanced view, a 360-degree view, of the future of banking, payments and commerce after SEPA In other words, the future of finance after SEPA I hope... Payments Area, the introduction of the euro and the activities that led up to the announcements of SEPA and the PSD The second section looks at the options presented to a bank as a result of the introduction