The PSD transposition in Europe

23 September 2009 1

The PSD transposition in Europe

A collective nightmare or a dream that comes true ?

Changes in the Payment Services Market

Praha

23 September 2009

23 September 2009 2

• Introduction

• PSD

• PSD Transposition

• PSD Transposition in Luxembourg

• SEPA and PSD

• Challenges and Changes

• Brave New World

Agenda

23 September 2009 3

• The PSD - cornerstone of an integrated European payments market

o Political and Economic objectiveso Retail Bankingo Retail Paymentso Electronic payment instrumentso Regulationo Self-regulationo SEPA

Introduction (1)

23 September 2009 4

• Luxembourg – a primary

o Number of banks 146 (08/2009)o Number of Luxembourg banks 11 (08/2009)o Sum of balance sheets 934.988 billion € (07/2009)o Staff 26,870 (07/2009)o Jobs in Luxembourg 332,759 (12/2008)o Population (est.) 494,000 (08/2009)

Introduction (2)

23 September 2009 5

• ABBL – The Luxembourg Banks’ and Bankers’ Organisation (1)

o Professional organisation representing the majority of banks and financial intermediaries established in Luxembourgo Several member types (universal banks, covered bonds issuing banks, public

banks, PSF, financial service providers, ancillary service providers)o Defending and fostering the professional interest of its memberso Voice of the whole sector on various matters in both national and

international organisationso Lobbying at national and international – prominently European - levels o Members 130

Introduction (3)

23 September 2009 6


o Three-fold mission1. Service to members

o Strategic and technical input for the benefit of its members and the Luxembourg financial industry as a whole

o Acts as centre of competence and platform of exchange of ideaso Professional recommendations and guidelines for its members

2. Public relationso Public relationo Promotion of the financial sector in cooperation with the “Luxembourg for Finance”

Agencyo Publication of opinion papers and proposals on legislation, taxation and banking

regulation at national, European and international levels3. Employer representation

o Labour lawo Social securityo Collective bargaining agreement

Introduction (4)

23 September 2009 7


o Field of Activities1. Accounting and Financial Reporting2. Financial Supervision3. Client protection4. Clusters5. Communication6. Financial markets & Services7. Legal & Tax8. Payment Systems and technology9. Social Affairs and employers’ representation10.Training

Introduction (5)

23 September 2009 8

• Payments in Luxembourg at a glance(Source ECB – 2007)

o Credit Transfers 60,0 millionso Direct Debits 13,0 millionso Cheques 0,25 millionso Debit Cards (LU issued) 27,0 millionso Credit Cards (LU issued) 17,8 millionso e-Money transactions 2,4 millions

o Total 120,45 millions

Introduction (6)

23 September 2009 9

• Introduction

• PSD



• SEPA and PSD


• Brave New World

Agenda

23 September 2009 10

• Political objectives (1)

o Lisbon summit March 2000o Make Europe the most dynamic and competitive economy by 2010

o Strengthening the internal market by removing obstacles to trade in goods and services

o Developing efficient, cheap and secure (electronic) paymentso Setting up a “New Legal Framework” for all Payments in the internal market

o Create a single market for payment systems in which everybody will be able to make any payment as easily, safely, efficiently and inexpensively as within national borders, so that there are no obstacles to the free exchange of goods and services in the internal market > all payments are domestic

PSD (1)



o The motivationso European Payments market is mainly nationally organized

o Clearing and settlement systems (e.g. LIPS-Net)o Direct debit systems (e.g. DOM)o Card payment systems (e.g. bancomat)

o European Payments market is fragmentedo Many actors, many systems and standards

o Cross-border services may be offered but via complex and expensive interconnections

o High volumes : 231 billion transactions / 52 trillion € (2006)o The “real” economy needs efficient, secure and low cost payment services

PSD (2)



o The motivationso Academic research has shown that Payment Service Users in competitive retail

payment markets benefit fromo more choiceo quicker execution of paymentso greater efficiency

o The European Commission concluded that the harmonisation of retail payment instruments and the underlying standards is the precondition of overcoming the current shortcomings of the payments market

o The resulting pressure will lead to innovations and to the development of modern, convenient payments instruments and services meeting the PSU’s expectations

o E-payments, M-payments, card payments

PSD (3)


• Political announcements of a coming “New Legal Framework” mobilised the banking sector in two ways

• Defending the sector’s interest in the formulation of the PSD proposal• The “2560/2001 regulation trauma” led to a self-regulatory proactive based approach

– Commitment to create SEPA

– Cooperative space functioning in line with competition law

– High number of actors concerned : 8.000+

– Setting up of a governance structure to lead the project : EPC - European Payments Council

– Well defined scope in line with political expectations : Focus on EURO transactions within electronic payment systems (CT/DD/cards)

– Project start and going live before transposition of the PSD

PSD (4)


• SEPA and PSD materialise 2 complementary approacheso SEPA is a Banking industry led project

o Collaboration to create a new single payments marketo Contradictory pressures DG Markt / DG Compo Seen by the banking sector as to meet political goals

o PSD - is a regulatory intervention by (European) public authoritieso Creation of legislation to force and to allow for changeo Supports the banking industry led SEPA project

o European Commissiono European Central Banko Euro System

o Seen by the public authorities as a market initiatives that fits into PSD

PSD (5)


• PSD aims at competition, efficiency, innovation and customer protection o Covers all electronic payment serviceso Does not cover cash transactions and chequeso Does not cover payment services associated with securities asset

servicingo Focuses on customer protection and covers the relationship between all

providers

PSD (6)


• PSD affects all market participantso private bank customers, o business and corporate customerso financial institutionso Bankso e-money institutionso Post office/giro institutionso Payment institutionso governments and local authoritieso merchants,o card providers

PSD (7)


• Benefits of the PSD (1)

o Customers or Payment Service Userso harmonised customer protection and minimal service levelso provisions detail the rights and obligations of Payment Service Providerso specification of full transparency of conditionso improved information to be provided to customerso improved refund rightso shortened execution times

PSD (8)



o Payment Service Providerso benefit from the creation of a uniform legal framework across EU/EEA and a

level playing fieldo support of new products SCT and SDDo removes barriers of entry into new markets within EU/EEA

o Payment Institutionso clear rules for new category of payment service provider

PSD (9)



o Bankso facing an investment challengeo offering standardised terms and conditions at a pan-European levelo Developing new products and services which can be offered on a pan-

European levelo Expanding into new markets without having to establish a physical presence

PSD (10)


o PSD structure (1)

o Title 1 - Scope and negative scopeo Definitions

o Title 2 - Payment Service Providers, specifically regulatory regime for Payment institutionso Registration and authorisation procedureso Capital requirementso Access to payment systems,o Freedom to provide services in countries outside the home country

o Title 3 - Transparency of conditions and information requirementso Single transactionso Framework contracts

PSD (11)


• PSD structure (2)

o Title 4 - Rights and obligations relating to the provision an the use of payment serviceso Authorisation of payment transactionso Unauthorised transactions transactionso Refunds, refusals of payment orderso Execution of payment transactions

o Title 5 - Implementation of measures and payments committeeo Title 6

o Full harmonisation Directiveo Review of PSD in 11/2012,o Transitional provisions

o Annexo list of payment services covered by the Directive

PSD (12)


• Introduction

• PSD



• SEPA and PSD


• Brave New World

Agenda


• Main Timelineo The Payment Services Directive (PSD) provides a legal framework for

(electronic) payment services in the internal market of the EU/EEAo It is a directive aiming maximum harmonisation - allowing several MS

optionso Adopted on 13 November 2007o Published in the OJ of the EU on 5 December 2007o Has to be adopted by 27 MS and will be adopted by the 3 EEA countrieso National legislations should come into force 1st November 2009o Some difficulties may arise in several countrieso High political pressure to meet this deadline

PSD Transposition (1)


• The transposition process in the various MSo Every MS has to apply its legislative process which may vary

o Implication of market participantso Timeline of drafting of the national legislation depending on available resources

and prioritieso Legislative bodies that take part in the processo Timeline of the voting mechanismso Major events

o Financial turmoil and resulting economic crisiso Legislative elections



• The initial aim of a harmonized is not fully reached as there are 23 MS optionso Micro-enterpriseo Leg-out transactionso Surchargingo Specific interpretation of payment accounto Limits for low-value or E-money paymentso Provision of information to the payer/payee on paper once a month for free

• There is a potential of 30 PSD versions



• PSD genesiso Is the result of a long lasting (lobbying) exerciseo It is a compromise trying to marry the ideas and interest of the European

Commission, the European Central Bank, the European Parliament, the Member States, the financial sector, the new entrants, the consumers’ organisations, the corporates’ organisations

o Initially known as the New Legal Framework for Paymentso The final text contains several unclaritieso The PSD being a maximum harmonisation directive, legislators in the MS

are not entitled to “clarify” or “improve” the original text – a revision of the PSD will take place in 11/2012

o Until then, only the Court of Justice of the EU is entitled to do so



• Before transposition a lot of questions and open points remain(ed) to be handledo PSD Transposition WG (European Commission Level)

Representatives of the MS bodies in charge of the transposition

o PSD Industry Expert Group (European Banking Federation)

2 other ECSA’s (Saving Banks and Cooperative Banks) and card payment schemes take/took part

o PSD Implementation Expert Group at MS’ level

e.g. Banking associations



• To reap the full benefits of the PSD a common interpretation and implementation is needed o EC (dialogue, FAQ)o EC TWGo Dialogue with regulators and legislators in each MS marketo At the European industry level clarification and best practiceo MS industry level additional clarification and best practice taken into account

MS’s market specificitieso Avoid additional cost, interoperability issues and inter-bank conflicts



• The PSD Industry Expert Group (1)

o Legal and payments expertso BE, CZ, DE, DK, ES, FI, FR, IT, LU, NL, SE, UKo EPCo MC, VISAo EACB, EBF, ESBG

o 1st meeting in December 2007o Almost monthly meetings




o Key objectiveso Overview of implementation issues in EU/EEA MSo Prepare position papers for submission to the EC and the MS Transposition Working Group and follow-up

on a European or individual MS basiso Monitor the transposition process across the EU/EEA MSo Develop where appropriate industry implementation guidance and market practice proposals to

complement the production of PSD implementation at the level of the individual national banking communities and the EPC for the SEPA schemes

o Goalo Promotion of a harmonised PSD implementation




o Dialogue with o EU Commissiono Member States’ PSD TWG

o Exchange of positions with the Commissiono Participation in the special stakeholders’ Day meting in November 2008o Several useful documents have been elaborated and made availableo High level guidance document containing practical implementation informationo This document has been presented to a broader public on 8 September 2009



• The PSD EU Level Industry Guidance at a glanceo Introductiono Scope and Definitions – key definitions

o Definition of a payment accounto Definition of a business dayo Swiss Franc issue

o Information Requirements – best practiceso Payment transaction processing –best practices

o Value datingo Cash placement on payment accounto Full amount and charging options



• The transposition process in the various MSo Status of the transposition process end of July (EC DG Makt)

o PSD transposedo 8 MS (AT, BG, DE, DK, FR, HU, SI, UK)o 1 EEA (NO)

o PSD to be transposed in September 2009o 7 MS (CZ, IE, IT, LT, MT, PT, SK)o 1 EEA (LI)

o PSD to be transposed in October 2009o 10 MS (BE, CY, EE, ES, FI, LU, LV, NL, PL, RO)

o PSD to be transposed in November 2009o 1 MS (EL)o 1 EEA (IS)

o PSD to be transposed at a later dateo 1 MS (SE)



• The different timelines creates disadvantageso Late certainty of requirements in order to prepare for complianceo Implementation planning collides with end of year prioritieso Banks may only get ready on the draft text submitted to the parliamento There is still a (minor) risk that the “roll-out” will be extendedo Some countries will have legislation in place before others and therefore the prospect of common

single (Euro) Payments models and migration will decline



• Introduction

• PSD



• SEPA and PSD


• Brave New World

Agenda


• Transposition into Luxembourg Law (1)

o Ministry of Finance has the leado Ministry of Finance takes into account the provisions requested by the Ministry of Economy and

foreign trade (Directorate ”Réglementation des marchés et de la consommation”)o Specific lawo First reading done by Ministry of Finance chaired working groupo ABBL called in a WG « SEPA legal issue »o ABBL represented the Luxembourg banking industry within the Ministry of Finance’s WG and the PSD

Industry Expert Group

PSD Transposition in Luxembourg (1)



o First reading finished before summer holidays 2008o A first version has been commented by ABBL and other stakeholders beginning of September 2008o Initially the draft bill was to be ratified by the Government Council end of September, beginning of

October 2009, followed by its deposit at the parliamento As the draft bill is a transposition of a rather technical directive, its adoption should have occurred

before the parliament elections in June 2009o Council of Government’s approval was on 6 March 2009o Submission to the Parliament was on 18 March 2009 – (PL 6015)o The newly elected Parliament will convene for its first session on 13 October 2009o There is virtually no time left for banks to implement last minutes changes voted on by Parliament.




o In July ABBL conducted a consultation among its member regarding the transposition timelineo A majority of banks have been in favour of postponing the new law until end of March 2010o Motivation

o customer information and updating of Terms & Conditionso Implementation of “final” IT and business processes

o ABBL has been mandated to discuss this matter with the Government and the Parliament’s Committee in charge of the submitted draft law

o Unfortunately no contact could be made

o ABBL recommended that banks should get ready for the 1st November 2009 on basis of the draft law




o Maximum harmonisation Directiveo Copy/Paste : no interpretation / no clarification made

o Luxembourg’s 23 options (major)o Micro-enterprises not taken into accounto Provision of information on paper to the payee once a month for free is not supportedo Surcharging prohibitedo No support of leg-out transactions




o Transposition accompanied by ABBL’s SEPA Legal Issues WGo Discussion and position finding for ABBL memberso Input

o PSD, PL 6015o EC, Ministry of Finance, BCL and CSSFo PSD IEG guidelines and analysiso members’ inputo other organisations, experts – EBA, Ineum Consulting, Deloitte, A&M

o Outputo Avis on PL 6015o Industry guidanceo Common Communication document




o Other regulations / changeso Revised 2560 Regulation – should come into force on 1st November 2009o Bank Account mobility – Basic principles to be applied from 1st November 2009 onwardso Take into account other regulations and rules

o 1781/2006o New NACHA rules

o Information/notification to customerso What to communicate ?o When to communicate ?o Lead time ?



• Introduction

• PSD



• SEPA and PSD


• Brave New World

Agenda


• Scopeo SEPA - single EURO payments areao SEPA will be delivered as a priority within the Euro zoneo But outside the Euro zone, there will be opportunities to participate in Euro payment

systems and communities will be able to adopt SEPA standards and practices to contribute to the single market for payment services

o Adoption by Iceland, Liechtenstein and Norway + Switzerlando Services

o SCTo SDDo Card Payments

SEPA and PSD (1)


1. Self regulatory (EPC)2. Effective / target dates

SCF 01/01/2008; SCT 28/01/2008; SDD 01/09/2009

3. EURO4. No limit on amount5. EU/EEA + CH6. Bank 2 Bank7. CT/DD/Card payments

1. Not stating on rights and obligations of customers

2. Standards for B2B msgs (M) and B2C msgs (Recommended)

3. Alignment of SCT 3.2. Rulebook and SDD 3.1 Rulebook with PSD

1. Regulatory (Directive)2. Effective date

full force 01/11/2009

3. EURO and non-Euro currencies of the EU/EEA4. No limit on amount5. EU/EEA6. Payment Service user centric7. Card Payments/CT/DD/Cash deposits, Cash

withdrawals, M- and e-payments8. Rights and obligations of Payment Service

providers and customers9. Minimum information requirements10. Processing Time

– D+1 (2009)– D+3 (till 2012 with agreement)– +1 day when paper initiated

SEPA and PSD (2)


• Introduction

• PSD



• SEPA and PSD


• Brave New World

Agenda


• The challenges are numerouso Regulatory pressure

o PSD – hopefully transposed in an harmonized way and not in 30 different mannerso 2560/2001 revised (3665/2009)o Bank account switching code

o Financial Crisiso Demanding customers (private and corporates)o Price / revenue erosiono Pressure on spreads

Challenges and Changes (1)


• The PSD will lead inevitably to a harmonised payments market in Europe – as wished by politics and welcomed by userso Harmonised ruleso Harmonised standardso Differentiation in the future will be more complex

o Maximisation of customer service (individuals and corporates) o Product innovationo Outstanding operational efficiency

o Harmonised standards leads to cost reductionso Fewer standards to implement, to operate and to maintaino Interoperability will lead to greater choices for banks



• Banks have to find the right answer to the questionso What kind of payment player do we want to be and how are we going to be up to task ?

o Capabilitieso IT infrastructures and business processes

o Do we fully control our payment business ?o Measurement of the “real” costs of our payment services and their profitabilityo Assessing the improvement of the payment systems efficiencies

o Will appearing Payment Institutions be a threat to my business ?o Assessing the threat especially coming from hybrid payment institutionso Fight ?o Cooperate ?



• Operational efficiency will be key as banks want too Drive costs downo Develop new opportunities for new revenueso Capable payment systems must be implemented despite budget constraints

o Tailored to the customers’ needo Scalableo Legacy systems

o Upgradedo Replaced

o When replacedo Inhouseo Outsourced (Service center, Saas, Cloud computing)

o Outsourcing issues in a trusted worldo Regulation, SLA, security, operational risks



• The PSD transposition and the SEPA implementation have additional impactso Customer expect greater transparencyo Customer want better communicationo Customer expect involvement in product design o Banks have to acknowledge the limits of self-regulation



• Introduction

• PSD



• SEPA and PSD


• Brave New World

Agenda


• SEPA and PSD complianceo A dream ? o A nightmare?

• SEPA and PSD compliance : a lot of work has to be done• Project with legal, compliance and operational facets• Impact assessment of PSD on existing bank processes and determine how to fill the gap• Communication of the changes to come to the customer base

• “Time is running out” !

Brave new world ?


• Contactso Marc HEMMERLINGo Phone +352-463660-1o Email [email protected]

Thank You For Your Attention

The PSD transposition in Europe

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