EuropEan paymEnts BaromEtEr

thE nExt paymEnts rEvolution in EuropE. who will BE thE winnErs?

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CsC in touCh with CurrEnt trEnDs

Within the framework of its I.D.E.A.S programme (Inspiration, Debate, Executive, Annual Surveys). CSC carries out a number of “barometers” every year to analyse trends and perspectives from key roles within the boardroom (human resources, finance, IT, procurement…) at the European level. Each of these studies, carried out with the assistance of independent survey institutions (IFOP and TNS Sofres), involve the participation of hundreds of managers from the largest businesses and public administrations in Europe. The results of these studies are revealed during high level events, organized in different European cities (Paris, Madrid, Barcelona, Milan, Brussels, Lisbon, etc.), and are also relayed by partners from the media (Les Echos, La Tribune, Expansion, Liaisons Sociales, Il Sole 24 ORE, etc.) and from academia (universities and elite schools).

Opinions expressed by contributors are their own. Reproduction in whole or in part without written permission is strictly prohibited.

© Copyright CSC 2010. All rights reserved.

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TABLE OF CONTENTS

summary11 PAgE 9

10. REguLATORy AND LEgAL CONTExT. TOWARD A SINgLE EuRO PAyMENT AREA 12. RESuLTS. 5 MAjOR LESSONS LEARNED 16. SEPA, ThE PSD AND TEChNOLOgICAL ChANgES. ROuTES OF TRANSFORMATION

tEstimonials12 PAgE 19

21. SEPA TODAy... AND TOMORROW? 22. Philippe Citerne. Former chief operating officer - Société générale 26. Gilbert Ernst. Director and Member of the Executive Committee - State and Savings Bank, Luxembourg (Banque et Caisse d’Epargne de l’Etat - BCEE) 28. Elizabeth Fraser. head of European Developments - uK Payments Council 30. Josef Gilger. head of Competence Centre Payments & Swift - hypoVereinsbank 32. Herve Sitruk. Consultant - Mansit SAS 34. Marc Temmerman. Executive Vice-President - Visa Europe

37. WhICh STRATEgIES WILL BANKS DEPLOy? 38. Willy Dubost. Payments Department Manager - BNP Paribas 42. Enrique Barthe. Systems Business Development and Innovation Director - BBVA 44. Marc Carlos. Director, Payment Systems and Services - Crédit Agricole S.A. 46. Zélia Livramento. Director, Payment Systems - Caixa geral de Depositos (CgD) 48. Robert o Santos. Director of Business Development and Financial Control, Payments division - Banco Santander 50. Luca Vanini. head of group Payments Development - unicredit 52. Paolo Zanchi. head of e-money services, encashment and payments - Banca Monte dei Paschi di Siena

55. ThE SERVICES OF TOMORROW 56. Philippe Lemoine. CEO - LaSer 60. Daniela Manuello. Marketing Director - PosteMobile 62. Emmanuel Petit. Président et Directeur général - Mastercard France 64. Gilles Sabatier. Banking & Insurance Market Director - Orange Business Services

tns soFrEs rEsults13 PAgE 67

EFma rEsults14 PAgE 83

paymEnts: a stratEgiC ChallEngE For CsC anD its CliEnts15 PAgE 93

96. ThE CONTExT OF ThE PAyMENTS MARKET IS EVOLVINg RAPIDLy 98. CSC, WORLDWIDE PRESENCE, IN-DEPTh ExPERTISE

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thE CsC-EFma paymEnts BaromEtEr aims to assEss thE pErCEptions oF EuropEan Banks anD CompaniEs oF thE potEntial impaCt oF thE singlE Euro paymEnts arEa (sEpa) anD thE paymEnt sErviCEs DirECtivE (psD) on thE paymEnts markEt, as wEll as thE lEvEl oF prEparation oF thE main playErs For thEsE DEvElopmEnts.

EuropEan paymEntsBaromEtEr ThE FirST EurOpEAN SurvEy ON ThE impACT OF SEpA ANd ThE pSd

APPRoACH AnD METHoDoLoGy

This is the first European survey measuring the impact of SEPA and the PSD. The survey was carried out in collaboration with the market research firm TNS Sofres and the European Financial Marketing Association (Efma) on a sample composed of roughly 100 decision makers in European banks and companies and roughly 100 member banks from more than twenty European countries.

The questions that CSC and Efma sought to answer, drawn from responses to the TNS Sofres and Efma surveys, are the following:

• Will SEPA and the PSD lead to harmonisation of European national regulations and to the elimination of national barriers to payments markets?

• What will be the impact of SEPA and the PSD on the future roles of the key players in the payments market, such as banks and credit institutions, payment institutions, retail and distribution companies, etc? Will these two developments produce the expected effects?

• What will be the reaction of various players to SEPA and the PSD? Will they anticipate these changes? Or will they wait for these changes to take shape before investing?

• What changes will SEPA and the PSD bring about in terms of payment services, projects, etc.?

TWo SuRVEyS Run in PARALLEL

To get a global picture, the TNS Sofres and Efma surveys were conducted simultaneously, with specific methods and corroborating questions.

• The TNS Sofres survey was carried out by interview; • The Efma survey was carried out by way of an online

questionnaire on the Efma website.

The questions focused on two types of impact:

• The strategic impact of SEPA and the PSD on European integration and on the payments market;

• The operational impact of SEPA and the PSD on the development of current and future payment instruments, and on the market in general.

TWo DiSTinCT METHoDoLoGiES

TnS Sofres survey

Approximately one hundred decision makers in banks and companies from eight European countries (Belgium, France, germany, Italy, Luxembourg, Portugal, Spain and uK) were interviewed:

• For banks, individuals were categorised according to their job functions for banking and means of payment: business line, back office and information technology.

• For companies, companies were categorised into the following groups: retail and distribution companies; central or local administration; large public or semi-public financial institutions; large companies; and SMEs.

Efma survey

Approximately one hundred member banks from twenty European countries took part, represented by individuals holding thirty six different job titles, of which the most common were commercial, marketing and back office positions.

The responses from these two surveys revealed significant and convergent trends.

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1 thE nExt paymEnts rEvolution in EuropE.who will BE thE winnErs? summary

EurOpEAN pAymENTS BArOmETEr

SummAry

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THE SinGLE EuRo PAyMEnTS AREA (SEPA) iS A uniFiED EuRoPEAn PAyMEnT AREA iMPLEMEnTED By THE MEMBER STATES oF THE EuRoPEAn PAyMEnTS CounCiL (EPC). THE inTEnT iS To HARMoniSE ALL MEAnS oF MAkinG FinAnCiAL TRAnSFERS (inCLuDinG PAyMEnTS, WiTHDRAWALS, BAnk CARD TRAnSACTionS, ETC.), in EuRo (AS LEGAL TEnDER), BETWEEn MEMBER STATES.

REguLATORy AND LEgAL CONTExT

towarD a singlE Euro paymEnt arEa

THE GoALS oF SEPA

harmonisation of payment systems in the European union relies on the Single Euro Payments Area (SEPA), whose purpose is to create a single payment area in euro, and on the Payment Services Directive (PSD), which provides the necessary legal framework for SEPA, establishing the new relationships between banks and their clients. The European Payments Council (EPC) has defined three pan-European payment instruments within the SEPA framework that must eventually replace equivalent national payment instruments: • SEPA Credit Transfer (SCT), launched in France on

january 28th, 2009; • SEPA Direct Debit (SDD), implemented in some

European countries since the PSD came into force on November 1st, 2009, while other countries – such as France – have postponed its implementation by one year;

• A payment card which corresponds to European debit and credit cards and which is the product of a philosophy different from that which created SCT and SDD. The system of payment by SEPA card must fit within the European framework defined by the EPC (called the SEPA Card Framework or SCF) to enable the user to make payments and withdraw cash under the same conditions (in terms of technology, fees and security) throughout the SEPA area.

THE PSD, iTS oBJECTiVE AnD iTS SCoPE

The Payment Services Directive (PSD) was adopted by the European Parliament on April 24th, 2007. It applies to all payments (except payments in cash or paper instruments) in all currencies within the European Economic Area (with the exception of Switzerland). The PSD aims to strengthen the rights of users of payment services (notably consumers), to increase competition, and to reduce the price of payment transactions. This directive applies to six categories of payment services player, including one new non-bank player: the so-called payment institution, with its less burdensome status and with strictly defined limits on the scope of its activities.

oBJECTiVES: SiMPLER, SAFER, MoRE EuRoPEAn

As far as the European Commission is concerned, the expected gains from SEPA and the PSD would be numerous: • For companies: a decrease in payment services prices;

gains in productivity; economies of scale; improved European integration; and the development of the European market as the result of easier cross-border operations.

• For companies in the retail sector: increased security of card payments.

• For individuals: improved payment card acceptance by businesses throughout the SEPA area; increased competition among European service providers; management of all SEPA operations from a single account; and guaranteed rights throughout the entire SEPA area.

• For banks: the streamlining of transactions at European level and the opportunity to develop value added services for their customers throughout the entire SEPA area.

Europe, however, is a complex payment area, leading some to refer to the European ‘patchwork’ of payments, where each domestic market reflects the history and culture of the country. Some consider that these ambitious goals will take a long time to achieve, and that even with the euro, the creation of this new European payment area remains a considerable challenge. .

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RESuLTS

major lEssons 5lEarnED

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THE TWo EnGinES DRiVinG THE HARMoniSATion oF EuRoPEAn PAyMEnT SySTEMS, SEPA AnD PSD, WERE DESiGnED FoR THE BEnEFiT oF ConSuMERS AnD CoMPAniES. THE PRoMoTERS oF THE PRoJECT AiM To CREATE A EuRoPEAn PAyMEnT AREA By HARMoniSinG nATionAL REGuLATionS, DiVERSiFyinG THE PAyMEnT SERViCES MARkET By inTRoDuCinG MoRE PLAyERS in ADDiTion To BAnkS AnD CREDiT inSTiTuTionS, STiMuLATinG CoMPETiTion BETWEEn PLAyERS AnD REDuCinG THE PRiCE oF TRAnSACTionS. iT iS inTERESTinG To noTE THAT THE RESuLTS oF THE SuRVEy inDiCATE THAT, ConTRARy To ExPECTATionS, BAnkS AnD THE nEW PAyMEnT inSTiTuTionS WiLL PRoFiT THE MoST.

1. pErCEpTiONS BAnkS AnD BuSinESSES: DiFFEREnT PERCEPTionS

The two surveys show that a significant gap exists between what banks and companies believe will be the impact of the two European harmonisation initiatives.

Beyond their divergent motivations and interests, it is clearly apparent that banks have generally taken action in response to SEPA and the PSD while companies have done less; much remains to be done in terms of disseminating information and raising awareness.

This partially explains the differences in their respective visions. A large majority of banks envisage SEPA and the PSD having a strong strategic and operational impact, while only one third of European businesses hold the same view, and it is in fact precisely these companies that have sought to keep abreast of developments.

2. pLAyErS PAyMEnTS MARkET: BAnkS ConVinCED oF THEiR MiSSion, BuSinESSES STAnDinG By

The majority of European banks and companies believe that these developments will lead to regulatory harmonisation but not to complete market unification, leaving national markets intact. They show some scepticism towards the actual impact of SEPA and its benefits. Companies appear to be particularly sceptical even though they, along with consumers, should be the principal beneficiaries.

ThreequartersofEuropeanbanksandtwothirdsofcompanies consider that these changes will not call into question the role of banks in the payments market, and even consider that these changes will strengthen their role. The same is true for national and international systems in place (ACh and PE-AChs respectively), as well as for large retail and distribution companies. The opinions of banks and companies differ to a greater extent regarding other players in the market, notably the new payment institutions, the national and international card schemes, private operators and software and systems

integration services providers. Banks have probably attached more importance to the emergence of new competitors, facilitated by SEPA and the PSD.

Close to half of European banks expect strong competition from payment institutions and anticipate the market share of international card schemes, in particular, will grow. A majority of banks also expect a more important role will be played by private operators and software and systems integration services providers.

Banks and companies are divided on the future of AChs and PE-AChs in particular, and of the role to be played by retail and distribution companies. Companies believe these will play a larger role in the payments market than banks do.

Finally, forty-three percent of banks envisage a decline in the importance of national card schemes while forty percent anticipate their importance will grow.

On most issues, the opinions expressed by companies are the opposite of those expressed by banks!

Companies had a decidedly more conservative outlook, envisaging few major changes. With the exception of some (very) large companies which make extensive use of payment/remittance services, they often adopt a ‘wait and see’ attitude.

3. TrANSACTiONS STABLE TRAnSACTion VoLuMES

All respondents seem to consider that SEPA and the PSD will have no direct impact on transaction volumes and that growth in volume depends much more on growth of European trade. Their opinion and reasoning also applies to card transactions.

Nevertheless, within the global volume of transactions, banks forecast a continued decrease in volume for some means of payment (cheques) and a decrease in domestic means of payment in favour of new SEPA instruments. In addition, banks are anticipating significant growth in cross­border payments and remote bank payments/services, as

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well as growth in revenues and a progressive unification of the European market.

Companies share banks’ expectations for remote banking payments/services. They are however somewhat less enthusiastic than banks regarding the increased role of SEPA payment systems. Neither banks nor companies see significant changes ahead in the field of cash management.

Respondents from different countries share the same opinions regarding remote banking and new payment instruments, but opinions differed on other issues.

4. BuSiNESS mOdELS inCREASED BAnkinG FEES ExPECTED By BuSinESSES

Even if it is not explicit in banks' responses, it is clear that the harmonisation of payments and the prices decreases induced by SEPA will have an impact on the business models for transfers (as a result of SCT), for withdrawals (as a result of SDD), and for bank cards. The impact will vary for each market depending on the regulatory context of the country and the type of business model that was in place.

Even if banks anticipate a drop in revenues from a decrease in volume of legacy payment systems (cheques and current transfers), they foresee an increase in revenues from new means of payment, card issuance and cross­border flows. This is in all likelihood attributable to the overall increase in volumes and the new services which will be built around the means of payment that eventually remain.

In any case, a major overhaul of business models and a quest for replacement revenues generated by new payment service offerings (and/or transformation of current payment services) are to be expected. The fact that some banks also expect growth in revenues from payment terminal management and cash management is more surprising. These developments could, however, be the result of a significant increase in cross-border transactions driven by SEPA and the PSD.

The banks acknowledge that the emergence of new players, in particular payment institutions, will intensify price-based competition.

Curiously, banks anticipate such a strong decrease in prices that it is necessary to distinguish between the price of increasingly automated transactions (interoperability) which will fall, whereas value added payment services will generate replacement revenues and result in an overall increase in bank revenues.

This explains why half of the companies surveyed anticipate an overall increase in payment services prices. The other half hope - though without really believing

it – that transaction prices will remain stable or may even decrease as a result of the combined effects of harmonisation and unification of the market, and heightened competition (the famous ‘level playing field' advocated widely by European authorities) driven by SEPA and the PSD.

5. iNvESTmENTS BAnkS WiLLinG To inVEST To GuARAnTEE A HiGH SERViCE LEVEL

Banks acknowledge that beyond the probable decrease in the price of basic transactions, the arrival of new players will help to develop the range of services on offer and improve the quality of those services.

The need for operational excellence combined with the overhauling of business models, will doubtless set in motion fundamental transformations which will necessitate significant modifications to operational procedures as well as major investments.

however, only a small portion of respondents seems to recognise this fact, and to have understood the true extent of the transformation of the European payments market and the investments that will be necessary.

The investmentswill in particularbe in future-safepayment systems, that is to say SEPA instruments (of which only the purely regulatory characteristics are beginning to emerge today), cross-border payments, remote payments, mobile payments and, in general, the services related to means of payment. Services and infrastructure linked to electronic payments will receive a large share of investments. The same holds true for security, credit and operational risk management and the fight against fraud.

In contrast to banks, the majority of companies have adopted a ‘wait and see’ attitude. Only a third of respondents are committed to taking the new European payments area into account. Most companies acknowledge – without having become actively involved in the matter – that some (in all likelihood significant) investments will have to be made. however, companies are apparently waiting for banks to make the job easier, although probably at additional cost to them.

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DiFFEREnT CounTRiES, DiFFEREnT PoinTS oF ViEW

THE PoinTS oF ViEW oF BAnkS AnD CoMPAniES DiFFER ConSiDERABLy FRoM onE CounTRy To AnoTHER, REFLECTinG THE TRADiTionAL SCHiSMS WiTHin THE EuRoPEAn PAyMEnTS AREA.

The uk is the only country in which a quarter of respondents anticipates that SEPA and the PSD will not have any impact on the payments market, and expects European diversity will remain, possibly for a long time. Half of respondents expect, however, harmonisation of regulations without integration of national markets. This position is foreseeable in so far as the uk is not part of the eurozone and is traditionally Eurosceptic. nevertheless, a quarter of respondents envisage strong integration of national markets in Europe, demonstrating that a minority in the British market believe in the effects of SEPA and the PSD.

in Germany and especially in Spain, respondents do not anticipate strong European integration and expect even less in terms of the integration of national markets. Both countries do, however, envisage harmonisation of regulations. Spain in particular demonstrates a wait and see attitude and scepticism as regards the benefits of SEPA. The same is true for Germany albeit to a lesser extent.

More than two thirds of respondents in the netherlands, Luxembourg and italy, and one hundred percent of respondents in Belgium, anticipate a strong or very strong impact of SEPA and the PSD

on harmonisation of regulations, the integration of national markets, and shifts in the positions and roles of various players in the payments market. These responses confirm the anticipation and dynamism of northern European countries and demonstrate somewhat unexpectedly the mobilisation of italy. Finally, France has taken something of a middle ground:

• Two thirds of respondents were highly sceptical about the impact of SEPA beyond the harmonisation of regulations;

• A minority of respondents believes there will be strong or very strong market integration and considerable change in the positions and roles of players in the payments market.

The responses from the Central and Eastern European countries surveyed confirm the expectations of the core European states as regards the impact of SEPA and the PSD. However, these countries do not share the same views of what the impact will be on the players in the payments market. This divergence is explained by the differences in maturity of payment systems in the various markets.

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SEPA, ThE PSD AND TEChNOLOgICAL ChANgES

routEs oF transFormation

BAnkS AnD CoMPAniES ARE inTEnSiFyinG THEiR EFFoRTS in THE AREA oF REMoTE PAyMEnT (ViA THE inTERnET) AnD on DEVELoPMEnTS in MoBiLE PAyMEnTS, ConTACTLESS PAyMEnT AnD PREPAyMEnT. TECHnoLoGiCAL innoVATion FACiLiTATES AnD EnCouRAGES EVoLuTion ToWARDS A ViRTuAL EuRoPE AnD THE RiSE oF nEW MoDES oF PAyMEnT. in THE LonG TERM, EuRoPEAn inTEGRATion oF PAyMEnT SySTEMS CouLD LARGELy BE THE RESuLT oF THE onGoinG DEVELoPMEnT oF REMoTE AnD MoBiLE PHonE PAyMEnTS.

PREPARinG FoR CHAnGE

Overall, banks are closely involved in the implementation of new payment instruments, in particular SEPA direct debit (SDD), the new framework for consumer protection and the PSD. Banks also envisage developing of cross­border acquisition services. They have moved quickly on implementing global standards for interbank flows. however, they do not hold the view that an overhaul of cash management is necessary, a complex domain in Europe and for which visibility is still limited.

Most often, banks stress regulatory compliance and only rarely see the need to overhaul their offerings.

Concerned by the outlook for game-changing transformation of payments systems, banks are willing to invest (to varying extents, depending on their size and current markets) in order to avoid losing ground to new non-bank competitors. In general, at this stage investments are being made in defensive projects focused on regulatory issues rather than in offensive and innovative projects such as new business models and services. A few bank and non-bank players are the exception, having laid the first significant foundations of a medium-term strategic vision.

Companies seem less involved in SEPA and the PSD, and have mobilised less, except in the area of e-commerce. Curiously, companies do not seem very interested in the potential that SEPA and the PSD hold for payment and collection centres, not only in terms of harmonisation of

transfers but also SDD withdrawals. The same is true for the opportunities for the development of cash management. Again, these responses can be explained by a lack of information and proactivity as regards SEPA and the PSD on behalf of many companies.

For banks, the management of SDD mandates was an issue in 2009 and 2010 outside of France, and an issue for 2010 and 2011 in France, while companies are talking about 2011 and 2012.

On the other hand, banks and companies are intensifying their efforts in the area of remote payment (via the internet) and on developments in mobile payments, contactless payment and prepayment.

Several large European banks have begun to align their product and service offerings with the needs of business (as determined by payment centres), and have begun to develop European and even international service platforms. Even though the majority of banks still consider it important to develop these platforms in-house, the proportion that believe in common platforms and outsourcing commodity processes to a private operator is growing (twenty-five percent of respondents).

Areas requiring technological development, ranked by priority, are: SEPA adaptations, including bank cards, and for creditors management of mandates, mass SCT, development of e-commerce for companies, bank/ company interoperability and the development of EBICS/

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SWIFTNet, and management of mandates for debtor banks (in the B2C space). In some countries (such as germany) and for certain players, depending on market practices, SDD in B2B is a high priority.

THE RiSE oF ELECTRoniC MonEy

Technological innovation facilitates and encourages evolution towards a virtual Europe and the rise of new modes of payment. In the long term, European integration of payment systems could largely be the result of the ongoing development of remote and mobile phone payments.

The TNS Sofres and Efma surveys demonstrate that banks and companies anticipate the growth of e-money.

until now, banks have not seemed in a hurry to implement these service offerings. According to the Efma, the mobile phone was not perceived as a tool for securing new customers; a ‘wait-and see’ attitude was prevalent among banks, which preferred to prioritise the development of internet banking.

Internet use and mobile technologies are becoming mature. All large banks offer internet based payment services, the use of which has now become widespread. Now, in addition to remote payment, banks are encouraging contactless payment and prepayment. Banks are expecting strong growth in these means of payment and thus attach

considerable importance to the development of new international standards for payment flows.

All players in the payments market expect a strong increase in mobile phone payments, given the interest shown by consumers. Some telephone operators estimate that use of this means of payment by their customers could exceed ninety percent. Many consumers don’t consider passing their mobiles in front of a reader to pay for small purchases (metro tickets, groceries, car park fees, etc.) to be an innovation because it comes so naturally to them.

Although mobile phone payments may replace cash transactions (which are costly for banks), they threaten revenues generated by bank cards, which is a very popular product in Europe. Defining the model for revenue sharing between banks and mobile telephone operators is therefore a very sensitive issue.

When mobile telephone operators and banks finally do reach an agreement – which is the case in France – the volume of mobile payments should then expand rapidly.

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2 thE nExt paymEnts rEvolution in EuropE.who will BE thE winnErs? tEstimonials

EurOpEAN pAymENTS BArOmETEr

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TESTiMoniALS

sEpa toDay...anD tomorrow? Much has already been written about the implementation of SEPA, and certain points remain the subject of lively debate. Where do we stand today? What are the critical issues that still have to be resolved? And what will be the consequences? Six insiders familiar with the dossier address these questions and provide an overview of what might change in concrete terms on the European payments scene.

"SEPA, a solution still looking for a problem…"

PHiLiPPE CiTERnE Former chief operating officer - Société Générale Former president of the payment systems steering committee - French Banking Federation (Fédération Bancaire Française)

"Changes, yes – "Toward a harmonised Europe." but no Big Bang."

ELiZABETH FRASER head of European Developments GiLBERT ERnST uk Payments Council Director and Member of the Executive Committee

State and Savings Bank, Luxembourg (Banque et Caisse d’Epargne de l’Etat - BCEE)

"SEPA is the future.... since, as "The European payments area is everyone knows, payment makes an idea that has come a long way the world go round." in twenty years…but has yet to

be finalised." JoSEF GiLGER head of Competence Center Payments & Swift HERVE SiTRuk HypoVereinsbank Consultant

Mansit SAS

"SEPA will offer a safe, standardised and competitive environment."

MARC TEMMERMAn Executive Vice-President Visa Europe

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"sEpa, a solution still looking For a proBlEm… "

TESTiMoniALS

philippE CitErnEFORMER ChIEF OPERATINg OFFICER SoCiéTé GénéRALE FORMER PRESIDENT OF ThE PAyMENT SySTEMS STEERINg COMMITTEE FREnCH BAnkinG FEDERATion (FéDéRATion BAnCAiRE FRAnçAiSE)

you HAVE FoLLoWED THE CouRSE oF SEPA SinCE iT STARTED. TAkinG A BRoAD ViEW, HoW Do you EVALuATE THE PRoGRESS MADE in THE PAST yEARS?

The matter was approached in the wrong way from the beginning. It all started in Brussels with the intent to reduce the cost of cross-border transactions. There was clearly work to be done: with locally focused payment systems, cross-border payments were costly for banks and expensive for customers. however, one minor consideration remains: in France, cross-border payments represent only 5% of financial flows. The idea was then that by making all domestic payments homogeneous, by definition, cross-border payments would cease to be a problem. Rather than moving the stool, let’s move the whole piano! And bit by bit SEPA was presented as the logical consequence of the move to the euro, whereas the problem of payments systems is much more complex.

in WHiCH WAyS ARE PAyMEnT SySTEMS CoMPLEx SERViCES?

They imply a high level of trust between debtors, creditors and banks, taking into account the credit risk and risk of fraud involved. For centuries banks and their customers have managed these problems in a variety of legal environments and different behaviours in terms of means of payment. The germans prefer to pay in cash with larger bank notes which French businesses refuse to accept; the French are avid users of cheques which are free of charge. The simplest problem of the conversion to the euro as legal tender was above all a logistical one: making bank notes available. The real difficulty is to implement non-cash payment systems at a European level. In the case of SEPA, the opposite analysis was made, which may even be its downfall.

BuT THE PSD HAS HARMoniSED REGuLATionS…

That was done in a somewhat hurried fashion after having defined two products, whereas that should clearly have been the starting point. It now remains to verify in practice that these rules are identical in every country and that in every country the means of recourse are the same, and not almost thirty different

cases. In matters of payments, fraud and money laundering, the devil is in the details. This verification will take a great deal of time. Add to this the fact that the European Commission continues to think that payments can be entrusted to companies that are not recognised as banks and subject to very little regulation. The very cautious attitude taken by certain consumer protection associations in countries where existing guarantees and legal systems are very solid is thus highly understandable.

WHAT iS THE SiTuATion ToDAy?

We’re in a strange situation. According to the Commission, the use of SEPA products should enable colossal saving. The Commission also asserts that the legal environment will be harmonised and consumers will thus have nothing to fear. you can lead a horse to water, but you can’t make it drink – SEPA instruments are only being used sporadically. Today, confronted by the failure of the launch, Brussels intends to make the use of these supposedly beneficial products obligatory by a specific date in order to force the adaptation thereof, as opposed to gradually phasing them in as was originally planned.

WHAT ARE THE PoSiTionS oF THE VARiouS PLAyERS in THE CuRREnT DiSCuSSionS?

Several major operators (in the retail, petrochemical and telecom sectors, for instance) have an economic interest in having access to efficient “payments factories”. Many consumers however do not trust withdrawals from their accounts made by non-bank enterprises based in countries with legal systems they judge to be less safe than their domestic market. And many banks don’t know whether they will be able to make the major investments required. The majority of other players, predominantly businesses, do not understand why they should invest in the burdensome redesign of their internal systems in the absence of clear benefits in these times of crisis. In the language of Brussels, most parties involved have yet to present their ‘business case for SEPA’, and furthermore the Commission is refusing to validate a coherent set of principles to govern fees…

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"thErE arE rEgulatory DEvElopmEnts unDErway that arE lEaDing to thE risE oF truly EuropEan Banks within thE EurozonE, aCtivE in rEtail Banking in sEvEral CountriEs."

BASiCALLy you’RE SAyinG iT’S DouBLE oR noTHinG. WHAT HAS To BE DonE ToDAy To MAkE SEPA A REALiTy?

Over the long term, everyone agrees on the need for the rise of European payment systems, some of which will probably use new techniques. But the problem is not to laboriously design one or two means of payment. The only viable approach is to think in terms of payment systems. It’s thus appropriate to clarify the long-term characteristics of a European payment system. In this context, let’s try to envisage a state-of-the-art European payment card suitable for a continent which invented the chip card, but which risks losing its pride of place in this domain, and having to resign itself to a non-European oligopoly (in this regard, we can ask ourselves today whether the originally European approach taken to the gSM standard has thus been validated). Let’s also think about technologically innovative European payment systems (again, take the example of the gSM). These would be projects for Europe worthy of the Lisbon Treaty.

When speaking of double or nothing, ‘nothing’ means taking a coercive approach which seeks to impose products that are not bought, and to continue along the current path. ‘Double’ on the other hand means recognising the error in the initial approach combined with project management that would doom any undertaking to failure. It’s necessary to take the time to define ambitious, long-term objectives for a European payments system. A project should then be launched and managed professionally (business case, programming, alternative solutions, milestones, etc.), with robust governance and a focus on sustainability. This certainly implies a greater role for central banks, whose expertise in the matter is both extremely longstanding and natural. We should of course also define the rules to govern fees, such that the various players can determine their position, while at the same time finding pragmatic ad hoc solutions for cross­border payments and for high volumes of withdrawals by limiting things to the eurozone at first.

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The best analysis of the current situation with SEPA was made by the European authorities in November 2009 when comparing the launch of the SEPA products to that of the Cutty Sark in 1869, the best clipper ship ever built, and given its performance, destined to transporting tea. however in addition to its technical excellence, it is worth remembering that the cost of building the ship ruined the shipyard, and that during its maiden voyage it lost its rudder and was roundly beaten by an existing ship (the Thermopylae wasn’t invented just like that…). Furthermore, the Suez Canal was opened in the same period in parallel with the development of steam propulsion. The Cutty Sark had to be rapidly withdrawn from tea transport as it was no longer competitive. There too, the amount of time spent on the business case was clearly insufficient. We may not be at that stage yet, but the example given by the European authorities certainly gives pause for thought.

AT A MoRE GEnERAL LEVEL, WHiCH MAJoR DEVELoPMEnTS Do you ExPECT in THE WoRLD oF BAnkinG?

There are regulatory developments underway that are leading to the rise of truly European banks within the eurozone, active in retail banking in several countries; at least two such institutions can already be found in this category. They are of course interested in centralising the management of payments. Assessing the actions of these players and the progress of SEPA is a question akin to that of which comes first, the chicken or the egg? And it is by providing a general long-term framework for payments in Europe that progress will be made, rather than by imposing one or two more or less viable products here and there.

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"ChangEs, yEs – But no Big Bang."

TESTiMoniALS

gilBErt Ernst DIRECTOR AND MEMBER OF ThE ExECuTIVE COMMITTEE

STATE AnD SAVinGS BAnk, LuxEMBouRG (BAnquE ET CAiSSE D’EPARGnE DE L’ETAT - BCEE)

LuxEMBouRG iS APPAREnTLy AHEAD in TERMS oF THE iMPLEMEnTATion oF SEPA?

Being a small country has advantages and disadvantages. Our cost per transaction is high if we stay in a domestic system with insufficient critical mass, which sometimes makes it necessary to migrate to more global standard systems. We were forerunners when it came to widespread implementation of IBAN and BIC, in 2004, with a single structure for both domestic and cross­border operations. In 2005, we made the EMV card standard the norm, and in 2006 we migrated our entire national clearing house system to STEP2, a PEACh solution managed by EBA. Today 90% of the payments made in Luxembourg comply with the SCT standard – versus only 6.2% in Europe.

WHAT ABouT WiTHDRAWALS AnD THE SEPA CARD?

Both these paths are scattered with pitfalls. A deadline of November 2010 was set for SDD, but taking into account the numerous local particularities (especially where mandate management is concerned) I doubt it will be respected.

And as for cards, numerous countries have debit card systems that function well, such as Bancomat in Luxembourg. Will we abandon our system in 2012 for an international or European standard? At this time no standard is the clear leader. We may decide to keep our system, by making it SEPA compatible.

WHAT iS THE GREATEST CHALLEnGE you ARE FACinG AT THiS TiME?

On the one hand, a regulatory challenge which consists of striking the right balance between competition and transparency. On the other, a fair balance and peaceful coexistence between market forces and regulatory bodies which is indispensable. The parties involved all need each other if SEPA is to become a reality. For example, the new European union commissioner has set the deadline of 2012 for widespread implementation

of SCT and SDD. I think this is overambitious. It would be better to explain to those involved the advantages of payments harmonisation, then draw up a strict but realistic timetable and move forward. That’s the challenge, in essence: do it!

WiLL THE CHAnGES CuRREnTLy unDERWAy MoDiFy THE WAy in WHiCH PLAyERS in THE BAnkinG SECToR inTERACT?

There will be changes, yes – but not major disruption. Banks will have to coexist with many new players (such as Paypal and others), but they have many strengths to draw upon. Businesses will benefit from this increased competition, multinationals in particular, as it will facilitate their cash management operations. As regards local businesses and individuals, they will benefit from increased transparency and lower costs in the market.

WHiCH oTHER CHAnGES Do you ExPECT?

There will clearly be increased impetus for the development of e-banking. Security is still a challenge for large sums, but clients are beginning to become accustomed to online services, and e-invoicing in particular looks set to enjoy a bright future.

In addition, our Scandinavian colleagues are quick to point out that SDD instruments are somewhat obsolete, having already been overtaken by electronic payments. however, I don’t think that SDD will be replaced in a ‘Big Bang’ manner; the two systems will doubtless coexist for some time yet. Whatever happens, the EPC will almost certainly have to take electronic payments increasingly into account in its thinking.

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"towarD a harmonisED EuropE."

TESTiMoniALS

ElizaBEth FrasEr hEAD OF EuROPEAN DEVELOPMENTS uk PAyMEnTS CounCiL

WHAT ARE THE kEy CHALLEnGES RELATED To THE iMPLEMEnTATion oF THE PSD AnD SEPA?

SEPA underpins the European Commission’s vision of a Single Market, requiring a harmonisation of euro payment systems (scheme rules, procedures and standards) across Europe and, ultimately, the closure of domestic euro retail schemes. yet the existence of SEPA does not drive an intra-Europe demand for goods and services, it simply facilitates payment on a pan-European basis. New SEPA payment schemes have been developed via a consensus approach through the European Payments Council. From an implementation perspective, that inevitably means that payment service providers and end users must accept change and compromise – something which is never easy. Two years after the launch of the SEPA Credit Transfer Scheme, only about 6% of euro credit transfers have migrated. The industry and a number of stakeholders are now calling for the Commission to set a SEPA migration end date through a binding Regulation, something which the regulator is investigating.

PSD was a challenge in that it is a maximum harmonisation directive, yet contains many Member State derogations. This meant that the industry really had to work together, and with their respective finance ministries, to ensure that it was implemented across the EEA in as consistent a way as possible.

WHAT WiLL BE THE PRoBABLE DiRECT AnD inDiRECT iMPACT on PAyMEnT METHoDS in THE MARkET?

SEPA defines an integrated euro payments market so, from a eurozone perspective, current domestic retail payments will migrate to the SEPA Schemes. What we are already seeing, even with the SEPA Schemes, is that different ‘flavours’ are emerging. For example, in addition to the Core SEPA Direct Debit Scheme, the EPC has also developed a Business-to-Business Scheme and a Fixed Amount Scheme to suit specific customer requirements. For end users, larger corporates should find it easier to operate on a pan-European basis and to rationalise their cash management and card acceptance arrangements. It will be simpler for individuals working or studying abroad, or maintaining an overseas property, to transfer of funds between countries, while business travellers

and holiday makers should see their cards even more widely accepted. From a uK perspective, we have also been looking at whether elements of the SEPA Schemes should be adopted domestically.

WHAT WiLL BE THE PRoBABLE DEVELoPMEnTS in THE CoMPETiTiVE LAnDSCAPE?

The PSD aims to encourage non-banks to enter the payments market so this should mean more innovation and choice for consumers.

WHAT WiLL BE THE PRoBABLE ConSEquEnCES oF THE MARkET BEinG oPEnED uP To nEW PLAyERS?

greater competition, leading to niche developments and a need for players to differentiate themselves via value­added services and innovative solutions. This should mean more choice for end users.

WHAT WiLL BE THE iMPACT oF SEPA on BuSinESS MoDELS?

Corporates and small businesses can rethink their business models by considering opportunities for expanding into a wider European market.

WHAT oTHER CHAnGES Do you ExPECT (in TERMS oF TECHnoLoGy, CAPABiLiTiES, ETC.)?

Weexpecttheretobeacontinuedfocusoninteroperability and the adoption of global, open messaging standards. Other regions across the globe are picking up on the SEPA concept. For example, the International Payments Framework (IPF) Association is currently in the process of finalising the IPF Credit Transfer Rulebook (based on the SEPA Credit Transfer Rulebook and Implementation guidelines) and has established mapping rules between SEPA Credit Transfers and dollar credit transfers used in the uS.

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"sEpa is thE FuturE.... sinCE, as EvEryonE knows, paymEnt makEs thE worlD go rounD."

TESTiMoniALS

josEF gilgEr hEAD OF COMPETENCE CENTER PAyMENTS & SWIFT HyPoVEREinSBAnk

WHy SEPA in REGARDS To A kEy FinAnCiAL PLAyER SuCH AS HyPoVEREinSBAnk?

hypoVereinsbank ingermany, ispartofuniCredit.Thismeans we share common streams but as, with all national banks, we still have our own products, processes and providers. And this is normal, since Europe is made up of separate countries, with distinct laws, different systems for legal reporting and distinct national banking licences etc.

Europe is not operating in a unified banking system such as the united States for example. So there is no central regulation for banks for the time being. Payment however, which is only a small part of banking, is another issue. And SEPA is actually a payment scheme developed by banks in answer to a requirement by the European government. The goal is to have one integrated financial market in Europe... since, as everyone knows, payment makes the world go round.

So SEPA STEMS FRoM A Eu GoVERnMEnT REquEST... DiD BAnkS RuSH To DEVELoP THiS nEW PAyMEnT SCHEME?

Not at first. In fact they stalled quite a bit until faced with the possibility of a government regulation if nothing was developed. At which point, as banks, we finally did it on our own, implementing a SEPA scheme to be able to supplement the national payment scheme. This initiative was further enabled by the Payment Service Directive, which set up a common legal framework, not only as regards to Payment, butalsopertainingtoapanEuropeanapproachtocustomers.

WHAT iS THE STATuS ToDAy FoR BAnkS REGARDinG SEPA?

The issue is out of our hands at this point and, at least for major banks such as ours, we are in a waiting mode. We have put in place a SEPA compliant system which is already processing all existing SEPA products. however we cannot switch off the old legacy system until a European regulation, which should be published this coming September, gives an end date to switch off all national payment systems. Targeted dates are 2012 or 2014...

AnD in THE MEAn TiME?

As banks, we are continuing to prepare for this date, building functions, products and services that will be enabled by a pan-European system. yet at this point in time, it is a parallel process, since we are still working with old schemes that date back some 40 years! Outside of the banking system,

SEPA won't really create huge advantages for the private person. For corporations however, it will be a major leap. Take a company like Vodaphone which today has 5 to 10 banks in each country to handle its payments. With SEPA, they will be able to have just one payment hub and process their payments through only a few banks across all of Europe. And they will be playing the competition saying “We have 5 billion transactions, what's your price?” Another example is the Eu Commission, which only uses 4 banks today, as compared to 17 banks in the previous years! One of the 4 banks is uniCredit!

WHAT WiLL BE THE iMPACT oF SEPA on THE BAnkinG SCEnE?

It will change the world's banking landscape, making it harder for small banks and more competitive for the larger entities. Some will lose transaction volumes, some will gain, which is all in line with the European Parliament's will to have more competition. Already the PSD (Payment Service Directive) has changed the rules of the payment game. In the scope of the national direct debit scheme, prices for direct debit throughout Europe can range from zero, ie free, to up to 9 Euros for the same product and service which is rated differently depending on the country. With SEPA Credit Transfer, the system will be homogenized. And this is currently creating pressure in countries who have to change their process and IT infrastructure to fit the system.

So as I said, the banking landscape is going to change, with different processes and different earnings. Companies at this point in time are defining their strategy in this matter. Do they want to to invest in the change process, outsource it to specialized players, or in some cases, keep the infrastructure in place and find partners to do the conversion to the SEPA scheme.

WHAT iS THE ouTLook FoR A BAnk SuCH AS HyPoVEREinSBAnk?

For us, as for the rest of uniCredit group banks, SEPA represents a range of opportunities. The big advantage of a group like ours is that we can play on all fronts, with large infrastructures for handling big payments which are sent to main hubs, while maintaining close local ties through our account managers to meet customer needs in terms of credit services, security services etc.. And we have built a completely new, streamlined system, with a whole new engine, which is ready for implementation. So it will be easy for us to switch and the sooner the better. What is expensive, is to produce with parallel systems as we are doing today.

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"thE EuropEan paymEnts arEa is an iDEa that has ComE a long way in twEnty yEars…But has yEt to BE FinalisED."

TESTiMoniALS

hErvE sitruk CONSuLTANT MAnSiT SAS

you HAVE CLoSELy FoLLoWED DEVELoPMEnTS in THE ConTExT oF A EuRoPEAn PAyMEnTS AREA SinCE THE BEGinninG oF THE 90S. THE iDEA HAS CoME A LonG WAy in TWEnTy yEARS …

The idea of a unified market goes back to the beginning of the 90s. In 1994, I drafted an initial report on payment systems in Europe, for the Banque de France, with the help of the European Commission and other central banks. It was the first of its kind, and led to the creation of the ECB’s “Blue Book”. I highlighted that Europe was a patchwork of payment systems, that certain countries such as France and germany were completely out of alignment with each other, for both cultural and technical reasons, and that the conversion to the euro wouldn’t change anything since it’s only a unit of denomination. After the success of the euro, in 2002, Brussels warned banks that they needed to start working on a European payments area. So the banks created the EPC, developed new payment instruments and drew up rules… But they were to a certain extent driving blind, given numerous and constantly fluctuating goals: a single market had to be created, standards had to developed, consumer rights had to be protected, all this in addition to running the business, increasing competition, overseeing the rise of a European payment card player, and driving technological progress, in particular in terms of the internet and mobile payments. And it’s still going on, since there is now talk of e-SEPA…

HoW WouLD you SuMMARiSE THE CuRREnT SiTuATion?

Eight years have passed since the launch of SEPA and the creation of the EPC, with much work done by the EPC, many debates, one directive and three European payment instruments. But the project is gigantic… And there is no project manager, no financing and no detailed planning, in particular in the area of bank cards! The PSD is an essential response but SEPA will not be able to truly develop as long as the underlying business model has not been fixed. And the new Commissioner, Mr. Barnier, cannot fail to see that the new SEPA payment instruments are only being used to a very limited extent. he seems to have decided to fix a deadline for making them widespread. The date 2012 has been mentioned: this may be reasonable for payments, although the level of preparation among industry players, including public administrations, is still low. however this deadline seems unrealistic as regards debits and above all cards, given that the diversity of technical standards among the member states is so great!

WHAT WouLD BE A REASonABLE DEADLinE in youR oPinion?

Let’s take the most complex subject: cards. We are still in the process of implementing technical standardisation; this will take (at least) until 2012. But to roll out this standard on a widespread basis, by adapting systems and adapting or changing all the terminals, will take eight to ten years! So we might have completed the process by roughly 2020. That seems a very long time, but it’s not abnormal in the payments sector. It took 20 years to implement the euro. And bank cards, launched at the end of the 60s, only came into widespread use in Europe in the 90s, and the chip card then took another 20 years to spread throughout Europe – a process which still isn’t completely finished.

WHAT iS youR AnALySiS oF THE PoSiTionS oF THE VARiouS PLAyERS?

The banks see one major advantage of SEPA, the opening up of a pan-European market. At the same time, they are anticipating the cash management needs of their major clients but are seeking to protect their revenues. Large corporations do not seem to have mobilised to a great extent, with the exception of the retail sector which is seeking to increase its bargaining power versus the banks and interchange commissions. however, the majority are little prepared for SEPA. They are waiting for all the financial and technological aspects to be fixed before investing, such that there is no choice and that there is an end date. And let’s not forget another major player: the public administrations. Public authorities could drive the sector forward by adopting SEPA products. however, this is currently not sufficiently the case in Europe. Consumers are not really driving SEPA forward either; even though they will benefit from the new regulations, which are very favourable for them, and from reduced costs, they feel trepidation regarding the proliferation of rules that may ensue.

Do you THink SEPA HAS A CHAnCE oF SuCCEEDinG?

yes! A unified payments area is after all being created, with commonregulations.Whatremainstobefoundisaconductor to lead the orchestra, detailed and realistic planning and operational momentum involving the mobilisation of all players, not just banks. These elements are exactly what made the euro a success! Finally, a suitable financial driver is required for the banks. At the moment, interchange commissions are financing the investments in payments infrastructure and providing the economic rationale for progress; care should be taken not to disrupt this…

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"sEpa will oFFEr a saFE, stanDarDisED anD CompEtitivE EnvironmEnt."

TESTiMoniALS

marC tEmmErman ExECuTIVE VICE-PRESIDENT ViSA EuRoPE

WHAT ARE THE CHALLEnGES AnD THE DiRECT ConSEquEnCES oF PuTTinG SEPA in PLACE?

This is a compliance exercise, which means it is obviously complex to put in place. It requires doing away with rules, technologies, processes that have been in place for years. And that can be a reason for stalling for those who are reticent to change. But at the end of the day, it’s about more competition and increased services. Take for example, bank transfers… up till now, financial institutions had to go through a national Automated Clearing house (ACh) for their financial transactions. With SEPA, a competitive environment will be created, since banks will be able to use any ACh in Europe.

WHAT iS THE STATuS ToDAy?

There are three main workflows determined by the European Payments Council (EPC), to establish rules for payment instruments regarding credit transfers, direct debits and card payments. A SEPA Credit Transfers Rules Book has been published, to which all banks must comply<, Today only 5% of credit transfers are executed according to the SCF rules. In terms of direct debits, today, there is no direct way for example, for a Belgium resident to pay utility bills for his house in France from his Belgian bank account. This will be made possible once the SEPA Direct Debit has been implemented. The timeline for implementation could be dictated by Eu legislation, possibly covering both initiatives, but there is no doubt, that in a number of years, national credit transfers and direct debits systems, will have been replaced with pan European SEPA payment instruments.

As for card payments, a SEPA card framework has been put in place that banks have to comply with in order to harmonise processes. But more importantly, magnetic stripe cards are to be systematically replaced by chip technology only. This means that Europe would become the first region in the world with a fully secure card environment, taking the lead of a worldwide trend that spreads from Canada, to South America, to Asia and Australia… with the topic increasingly discussed in the uS.

Also, a lot of work is being done to standardise more components in card transactions. In the current system, a terminal vendor must get a certification from a body in each country. Tomorrow, with a harmonised system across borders, the vendor will only need certification from one SEPA approved certification body.

HoW WiLL SEPA iMPACT BuSinESS AnD DoES THiS MEAn THE MARkET WiLL BE oPEn To nEW PLAyERS?

As I said, SEPA will definitely bring more competition since the national walls will have been removed to make way for a truly open European market. Already, standardisation has been finalised for credit transfers paving the way for the development of cross border competition.

Does this mean more players? That is not the prime effect. I would speak more in terms of opportunities, of diversification and growing new business… There are new opportunities also for increased service at better cost, with banks, for example who will find themselves with more choice when selecting providers throughout Europe. Large pan-European financial institutions, which today are dealing with some 20 different operators, will be able to ask for the best proposal from a much wider group of providers…

To SuM iT uP in A nuTSHELL, WHAT iS youR ViSion oF SEPA ToDAy?

SEPA is a major work in progress and if you take the image of the glass half empty or the glass half full, I’d definitely opt for the glass half full. Because in the long run, SEPA will offer a secure, standardised, competitive environment from which industry and stakeholders will all benefit.

And in response to those who are voicing criticism in this transition period, I would refer to the deregulation of the telecom industry. Far from destroying it, it created a new momentum and look at the result today! I believe SEPA will have the same effect. If it seems slow going, you must bear in mind the overall scope: It’s a feat in itself to have over 30 countries who have agreed to undertake such in­depth transformation of their payment processes. It’s a first of its kind in the world!

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TESTiMoniALS

whiCh stratEgiEs will Banks DEploy? The banks have worked the hardest to pave the way for SEPA and the new European payment instruments. But what exactly is the position of the banks? how are they anticipating the new business models that SEPA may give rise to? Seven bankers share their analysis, looking beyond SEPA to shed light on the future of the payments industry – in some cases the very near future, including the arrival of contactless payments.

"Contactless payment cards or M-payments: who knows which Europeans will prefer?"

WiLLy DuBoST Payments Department Manager BnP Paribas Retail Banking France

"Contactless payments will "Payments are a universal undoubtedly play a major role over service." the medium term."

MARC CARLoS EnRiquE BARTHE Director, Payment Systems and Services Systems Business Development and Innovation Crédit Agricole S.A. Director BBVA

"opening the market to new "The crisis is affecting the whole players will amongst others of the payments sector due to a promote cost reductions." fall in household consumption."

RoBERTo SAnToS ZéLiA LiVRAMEnTo Director of Business Development and Financial Director, Payment Systems Control, Payments division Caixa Geral de Depositos (CGD) Banco Santander

"The majority of potential new "As far as new operators entering entrants will be interested primarily the market is concerned, the in customer management rather outcome is by no means certain." than flows." PAoLo ZAnCHi LuCA VAnini (uniCREDiT) head of e-money services, encashment and head of group Payments Development payments

Banca Monte dei Paschi di Siena unicredit

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"ContaCtlEss paymEnt CarDs or m-paymEnts: who knows whiCh EuropEans will prEFEr?"

TESTiMoniALS

willy DuBost PAyMENTS DEPARTMENT MANAgER BnP PARiBAS RETAiL BAnkinG FRAnCE

WHAT ARE THE MAin CHAnGES unDERWAy in THE WoRLD oF PAyMEnT SySTEMS?

Since the invention of the chip card forty years ago, we have seen numerous technological developments, each bringing increased security. Today we’re witnessing genuine revolutions. The first is technological, with new forms of contactless payment and NFC (Near Field Communication) technology: uSB keys, contactless cards, mobile payments by telephone… Soon this will in turn trigger a revolution in user behaviour: think of P-to-P (person to person), which will allow you for example to pay your plumber as soon as he finishes the job. Add to this a marketing revolution characterised by resolutely one-to-one marketing and new services built around payments – loyalty or coupon programmes, for instance.

WHiCH RoLE iS BnP PARiBAS PLAyinG in THESE VARiouS REVoLuTionS?

BNP Paribas was the driving force behind the creation of AEPM (Association Européenne Payez Mobile), which brings together banks and telephony operators to define the mobile payment architecture of tomorrow. In this context, we have actively participated in two pilot projects running since the end of 2007 in Caen and Strasbourg – and we will of course be part of the project starting soon in Nice.

A word of caution nonetheless: we’re not just testing new technologies for the fun of it; we’re acting first and foremost in our role as bankers! Our mission is above all to respond to the needs of our clients in a secure payments environment.

iS THERE REAL DEMAnD FoR ConTACTLESS PAyMEnT ToDAy?

In certain customer segments, the demand is undeniable. Accustomed to mobile telephony and contactless cards for public transport, younger consumers are attracted to these technologies to accelerate transactions. This is particularly true for small amounts (less than EuR 20­25) for which the customer doesn’t have to input a PIN code - in the systems that we have implemented.

European harmonisation, which we’re working on with AEPM, should contribute to the expansion of this market. English banks are leading the way in this area in the uK, as is Visa (which already has 6 million contactless cards in the field), which should make the Olympics in London in 2012 an enormous showcase for this new offering.

WHAT’S MiSSinG ToDAy THAT iS nEEDED To MAkE THiS oFFERinG A REALiTy THRouGHouT EuRoPE?

Several matters remain to be addressed. Firstly, there was the challenge of regulation at European level. This took time, but was essential to guarantee optimal security. Other countries (such as japan, India and certain African nations) have definitely made more rapid progress, but their systems will not be able to meet European requirements.

Secondly, we still need to finalise certain contractual aspects with operators regarding the allocation of responsibility and financial flows. In this context there are some very operational questions for customers: if I want a telephone with an NFC chip, where can I buy one? From my operator or from my bank? And if I lose my telephone, how can I be sure that the chip will be disabled for both communication and for payment? These are the types of issues the upcoming pilot projects will enable us to resolve.

WHiCH ConCLuSionS HAVE you DRAWn FRoM THE MoBiLE PAyMEnT PiLoT PRoJECTS in CAEn AnD STRASBouRG?

We definitely consider Caen and Strasbourg to be very successful. We equipped 1,000 test customers with NFC telephones and 200 businesses with dedicated terminals. Customers have become very attached to their telephones despite their lesser ergonomics (the telephones provided were prototypes). The businesses were also satisfied with the benefits of the pilot projects, in particular in terms of payment of small amounts – benefits which contactless payment should continue to increase. We still have work to do in this area. Very soon we will move into an expansion phase with large scale testing in the city of Nice.

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"who will BE thE winnEr? thE Company aBlE to proposE an appropriatE sErviCE oFFEring, at an aCCEptaBlE priCE, without making thE CliEnt ExpEriEnCE morE CompliCatED than it is toDay."

WHAT’S GoinG To HAPPEn in niCE?

On May 21st the operation “Nice, NFC City” will start. 3,000 telephones will be put into circulation and will function in the city’s stores but also on public transport and in museums. Contactless cards will also be offered to the inhabitants of Nice and contactless terminals will be deployed within numerous local businesses. All the banks will take part in the project, with different offerings in terms of products, services and prices. As for us, we’ll be testing two offerings: one with a mobile phone (highly ergonomic), the other with a contactless payment card.

The Nice pilot programme will allow us to test our customers’ appetite for various offerings and to observe new behaviours – of customers, but also of businesses and operators. It’s extremely exciting!

WiTH THE nEW EuRoPEAn REGuLATionS, Do you ExPECT nEW PLAyERS To ARRiVE on THE PAyMEnTS MARkET?

It’s already happening! It’s being led by the large retail banks which have already launched their contactless offerings – which is entirely normal, given that this is a universal interbank technology.

WHo WiLL Win THE uPCoMinG BATTLE FoR THE ConTACTLESS SPACE?

The company that will be able to offer its customers (both people and businesses) a suitable service at an acceptable price – and that will ensure the customer’s life is not more complex than it is today. The security of the system on the one hand, and the customer experience on the other: those are the fundamentals of the business.

It’s also worth noting that even though Europe has harmonised its legislation, the same will probably not hold true for usage habits. The Nordic countries have been accustomed to mobile telephones for a long time already and will doubtless prefer mobile payments; other countries will probably have a predilection for payment cards. It’s difficult to predict what customers will prefer – but we’ll find out soon enough!

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"ContaCtlEss paymEnts, anD morE spECiFiCally thosE maDE By moBilE phonE, will unDouBtEDly play a major rolE ovEr thE mEDium tErm."

TESTiMoniALS

EnriquE BarthE SySTEMS BuSINESS DEVELOPMENT AND INNOVATION DIRECTOR BBVA

WHAT ARE THE MAin CHALLEnGES To BE FACED in RELATion To THE iMPLEMEnTATion oF THE PAyMEnT SERViCES DiRECTiVE (PSD) AnD SEPA?

First of all, the modifications to the systems, processes and customer management practices are being made by financial institutions during a time of great economic uncertainty. Secondly, and of equal importance, the need to ensure that consumers fully understand the changes to commonly used payment instruments and how to use the instruments themselves.

HoW WiLL THESE MoDiFiED MEAnS oF PAyMEnT AFFECT THE MARkET, BoTH DiRECTLy AnD inDiRECTLy?

Thatwill toa largeextentdependonthepracticalapplication of the law. In theory, a single payment area should promote greater competition and should thus broaden the use of these means of payment while decreasing the use of cash. This would be very beneficial in terms of administrative costs and also in terms of the reduction of under-the-table transactions in certain geographic areas.

The indirect impact of the law may, however, be just the opposite: by differentiating discount rates and enabling businesses to transfer the cost of payments made with a bank card to the end customer, this could, paradoxically, result in a situation where consumers choose to use cash in order to pay a lesser amount for the same product. The law would then be promoting the use of cash (along with the administrative costs that cash entails) over the use of bank cards. This will be examined in greater detail when we discuss how the law will be applied to business transactions.

HoW Do you BELiEVE THAT THiS WiLL EFFECT CoMPETiTion?

There will definitely be consolidation of players and possibly the creation of new European payment systems. This will stimulate greater competition, greater innovation, and new value-added services for customers who use these means of payment: in short, greater competitivenessataEuropean level.

in youR oPinion, WHAT WiLL BE THE ConSEquEnCES oF oPEninG uP THE MARkET To nEW PLAyERS?

It is very likely that newcomers to the payment service industry will arrive on the scene, this being one of the objectives of implementing SEPA and the PSD. Some of

these new players will focus on remote (internet) payments, others will utilise new technologies and formats closely linked to mobile telephony, and others will draw on their current client base or current commercial offering, as may be the case with telecommunications companies. It is quite possible that alliances will form between traditional financial intermediaries and these newcomers, who will combine their technological and business capabilities to better serve the customers who use these methods of payment.

WHAT WiLL THE iMPACT oF SEPA BE on BuSinESS MoDELS?

I’m going to respond to this question with regard to cards, rather than in terms of bank transfers sent or received. The drop in interchange rates is already a given, the migration to EMV chip cards has already begun, and the differentiation of discount rates, within a business, according to transaction type has already been approved. This will result in less income for banks, greater competition in merchant account fees and, above all, require a huge investment in order to adapt technology (cards and merchant networks) to the established EMV standard. This model poses a risk to certain business models such as "monoliners," institutions that focus mainly on the issuing of cards with little infrastructure to support innovation and a weak physical business network. Other multi-product institutions that are equipped with business networks will also see a decrease in income, but they can take advantage of the technological evolution to invest in innovation and new value-added services that could balance out the fall in earnings over the medium term.

WHAT oTHER CHAnGES Do you SEE in THE nEAR FuTuRE? (in TERMS oF TECHnoLoGy, CAPABiLiTiES, ETC.)

Aside from the investments required of the financial institutions, as already pointed out, I believe that there will major opportunities for innovation. Contactless payments and payments via mobile phone in particular will definitely serve as a common means of payment in the not-too­distant future. Integrating a bank card into a mobile phone would open up endless possibilities for customers: they could view their balance or transactions, request financing for a purchase in real time, earn loyalty programme rewards that are redeemable directly through their mobile phone and much more. We will see a major revolution in payment methods and behaviours over the next few years. At first these will not be large-scale changes, but they will be felt strongly in certain market segments.

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"paymEnts arE a univErsal sErviCE. "

TESTiMoniALS

marC Carlos DIRECTOR, PAyMENT SySTEMS AND SERVICES CRéDiT AGRiCoLE S.A.

WHAT iS youR CuRREnT AnALySiS oF THE iMPLEMEnTATion oF SEPA AnD THE PSD?

Banks have committed themselves to considerable investments to integrate new SEPA compliant means of payment into their information systems. As the PSD has created further obligations, for both national and SEPA compliant payment systems, the banks have tried to convince their clients to migrate quickly – but have met with resistance from national markets, and the important thing now is that the deadline for completion of the migration be set! Only then will all the players involved be able to organise themselves appropriately.

ARE PAyMEnTS inSTiTuTionS A THREAT FoR BAnkS?

The intent behind the PSD is without doubt to stimulate competition, but the activities it foresees for payments institutions are still limited. In France, if I’m not mistaken, only two licenses have been granted under specific conditions. That said, upon closer examination it becomes apparent that competition already exists: Carrefour is now issuing a card that is compliant with only the Mastercard rules, whereas it makes use of the Carte Bancaire (national bank card association) infrastructure.

WiLL WE SEE THE APPEARAnCE oF nEW BuSinESS MoDELS?

It’soneof thechallengesat this time –with inthebackground the question of interchange commissions. When you make a payment, you are implicitly giving a double mandate – to your bank, and to that of the seller. This operation has a cost (which includes fraud detection) that has to be covered. It remains to be determined what a fair division of value consists of. Will this be decided by the market, or fixed by a regulator? The second solution seems more equitable in my opinion. Because payments are a universal service, there is no reason for a small bank to pay more than a large one.

WHAT oTHER DEVELoPMEnTS ARE CHARACTERiSinG THE PAyMEnTS SECToR?

The potential of both remote banking and electronic business is still enormous. Recall that technology available today makes it possible to imagine means of payment that are independent of the channel used – be it internet, telephone or card. A sort of universal payment instrument, as it were! It’s also worth noting what is happening on certain internet sites: using virtual currency (such as the “Q-Coin” in China), two people can trade physical goods. We haven’t yet assessed all the consequences of these phenomena. What are the business models that underpin these transactions? how can the risk of fraud be monitored? What will happen if one of these sites, having “captured” millions of users, suddenly decides to increase the payment commissions it charges?

until now, Europe has focused its attention on traditional means of payment. A lot of work will need to be done on these new means of payment, both to make them secure and to drive forward business models that will have become inevitable.

WHAT ARE THE MAJoR CHALLEnGES FoR THE MonTHS AHEAD?

Europe has formed a SEPA committee to manage the entire project. It’s an important initiative: there is indeed a lack of real governance, which is needed to decide which aspects will be regulated and which left to competition between players, and to put pressure on the latter to make progress. The first priority is for this committee to be put in place and to get to work quickly.

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"opEning thE markEt to nEw playErs will amongst othErs promotE Cost rEDuCtions."

TESTiMoniALS

zélia livramEnto DIRECTOR, PAyMENT SySTEMS CAixA GERAL DE DEPoSiToS (CGD)

WHAT ARE THE kEy CHALLEnGES RELATED To THE iMPLEMEnTATion oF THE PSD AnD SEPA?

The Payment Services Directive (PSD) provides the legal foundation for the internal market regarding Payments and the Single European Payment Area (SEPA), and is based upon three central pillars: enhancing competition, increasing transparency and ensuring a common level of consumer/ customer protection.

In general, the key challenges are the introduction of a new licensing regime to encourage non-banks to enter the payments market, common rules regarding access to payment systemsandcommonmaximumliabilityprovisions for users of payment services in the interests of consumer protection. Other challenges include setting common standards for terms and conditions and post-transaction information, with a focus on high levels of transparency and encouraging the adoption of more efficient payment types.

WHAT WiLL BE THE PRoBABLE DiRECT AnD inDiRECT iMPACT on PAyMEnT METHoDS in THE MARkET?

The primary direct impact concerns the harmonisation of the European payment market; the main indirect impact is linked to the substantial investments required on behalf of payment service providers. SEPA will work as a single domestic payments market in which citizens and financial intermediaries will be able to make international payments inside European union (Eu) as easily and inexpensively as in their home country. In addition, SEPA is expected to foster greater transparency and competition which will result in a cheaper and more efficient payment system in Europe.

Duringtheso-calledmigrationperiodduringwhichtraditional payment methods will slowly be phased out, all participating countries will implement their national migration plans for moving away from the current domestic payment products. In my opinion, it should be possible to reach a critical mass in terms of SEPA transaction volumes by 2011.

WHAT WiLL BE THE PRoBABLE DEVELoPMEnTS in THE CoMPETiTiVE LAnDSCAPE?

The developments to be expected will be related to strong competition between current and new players as they attempt to capitalise upon opportunities to the greatest possible extent and gain maximum advantage in this new

market environment. This increased competition will in general provide a significant boost to the convergence of the various procedures and cultures within a single internal market, and will in particular result in a harmonised payments landscape. The contours of this landscape are becoming clearer as we progress, yet several more years of hard work will be required from all stakeholders before this ambition becomes a reality.

WHAT WiLL BE THE PRoBABLE ConSEquEnCES oF THE MARkET BEinG oPEnED uP To nEW PLAyERS?

Opening the market to new players will amongst others promote cost reductions (namely for end-users); potentially erode the profitability of some players (namely banks); drive new strategic approaches to SEPA by the various players; stimulate the creation of more efficient payment methods; generate qualitative and quantitative benefits for end-users; and, above all, enhance competition and increase transparency.

WHAT WiLL BE THE iMPACT oF SEPA on BuSinESS MoDELS?

The increased convergence and competition driven by SEPA will, by definition, create new opportunities and result in the redesign of many processes in various markets. It will thus have a major impact on current business models. We have already begun to observe the initial changes these things imply.

WHAT oTHER CHAnGES Do you ExPECT (in TERMS oF TECHnoLoGy, CAPABiLiTiES, ETC.)?

First and foremost, a change in attitude, moving from a passive to a proactive approach on behalf of all those involved. Secondly, a growing sense of urgency surrounding SEPA among businesses throughout Europe. All stakeholders can and should play a role in this – regulators, payment service providers, and private and public sector organisations as the predominant users of payment services

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"thE Crisis is aFFECting thE wholE oF thE paymEnts sECtor DuE to a Fall in housEholD Consumption."

TESTiMoniALS

roBErto santos DIRECTOR OF BuSINESS DEVELOPMENT AND FINANCIAL CONTROL, PAyMENTS DIVISION BAnCo SAnTAnDER

WHAT ARE THE MAin CHALLEnGES To BE FACED in RELATion To THE iMPLEMEnTATion oF SEPA AnD THE PSD?

I believe there are two key challenges. Firstly, bringing all credit cards in line with the EMV standard and, secondly, adapting operational aspects and technologies to the new standards, along with all the publicity and changes to contract terms and conditions that are going to be needed as regards the customers.

HoW WiLL THESE MEAnS oF PAyMEnT AFFECT THE MARkET, BoTH DiRECTLy AnD inDiRECTLy?

If you mean, will the current role of cards, TPVs and cash registers change, then no, I don’t think there will be any significant changes in the medium-term. Further along there may be a gradual move away from having cash in cash registers and toward card payments. This will be made possible on the one hand by the increased security offered by current legislation and technology and, on the other hand, by the arrival of new, younger users willing to use electronic means of payment.

in youR oPinion, WHAT WiLL BE THE ConSEquEnCES oF oPEninG uP THE MARkET To nEW PLAyERS?

I believe that other than movements by some companies as described above, the impact will be very limited. The experience of specialist players - known as monoliners - in Spain has clearly revealed the huge entry barriers faced by businesses that are tied in to the banking network. We must also take into account the fact that, unlike other countries, we do not have a good credit bureau which greatly restricts the attractiveness of the Spanish market for new players. Only if a company has a good client base, and some technological or commercial connection that allows them to enter the payments sector, do things potentially become more interesting.

WHAT WiLL BE THE iMPACT oF SEPA uPon BuSinESS MoDELS?

In general, all regulatory changes in the sector - both past and future - are aimed more at businesses and consumers rather than being designed for the benefit of the industry

as a whole. Introducing new standards tends to result in a fall in revenues (due to lower interchange fees or the partial erosion of certain fees established by the Payment Services Directive), or in the need to make certain investments (as was the case for the EMV standard). This will mean some business models will no longer be able to function independently and will instead be merged with the rest of the banking network. For example, debit will become an increasingly necessary, although not necessarily profitable, part of the retail banking sector. As regards credit cards, in time there will be greater need to rely on revolving credit lines and the sale of other related products and/or services in order to maintain profitability.

FRoM A LEGAL PERSPECTiVE, WHAT oTHER ADVAnTAGES DoES THE PAyMEnT SERViCES DiRECTiVE oFFER in ADDiTion To GREATER SECuRiTy FoR uSERS?

Without doubt, taking inspiration from the focus of the European Directive, the main benefit is greater customer protection and security. however, I understand that it will also make the European landscape more uniform as regards the rules of the game and the type of players that can play, making it slightly easier to access new markets and emulate the commercial offerings of competitors.

FinALLy, HoW HAS THE EConoMiC CRiSiS AFFECTED THE PAyMEnT SERViCES MARkET? Do WE nEED To TAkE SPECiFiC MEASuRES?

The crisis is affecting the whole of the payments sector due to a fall in household consumption. Even though there is still an attempt to increase credit card penetration, the reality is that market growth has historically been closely connected to an increase in gDP and consumption - and in times of crisis or recession, people buy a lot less. At the same time, the credit sector in particular has also been affected by the gloom that tends to prevail in periods when there are high levels of unemployment, as is the case now.

I believe that Spanish regulation and its policy of making provisions for insolvency is sufficiently conservative to cope with any impact that the economic crisis could have on the payments sector.

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"thE majority oF potEntial nEw Entrants will BE intErEstED primarily in CustomEr managEmEnt rathEr than Flows."

TESTiMoniALS

luCa vanini hEAD OF gROuP PAyMENTS DEVELOPMENT uniCREDiT

HoW iS THE PAyMEnT SySTEMS MARkET in iTALy BEinG SHAPED?

The scenario is undoubtedly complex, particularly in a context like the current one, where the economic slowdown and the collapse in interest rates have already had a major impact on banks’ operating margins. It’s likely that in the near future banks will react differently, depending on their customer base. On the one hand, it will be difficult for retail banks, which represent the majority of Italian banks, to find new revenue streams; they will thus be encouraged to realise efficiency gains by outsourcing payment system processes and skills to specialised players, such as those already very well established in the English-speaking world. In fact, in our country cooperative banks already operate in this way. On the other hand, corporate banks will find themselves operating in more a limited competitive space and will therefore focus on the creation of higher value services capable of attracting their own customers and building loyalty. I believe that in Italy, the real challenge will be linked precisely to the ability to combine these two seemingly incompatible aspects: maintaining solid internal know-how whilst externalising the operational activities linked to payment systems.

HoW Do you SEE THE EnTRy oF nEW PLAyERS quALiFiED To oPERATE in THE PAyMEnT SySTEMS MARkET?

It’s difficult to say exactly what will happen in the short term in our country. While in the more mature markets certain phenomena such as telecoms-managed mobile payments are almost fully established, the situation appears much more fragmented in Italy. undoubtedly there are a few players who are evaluating the opportunity to enter the field. These are companies with millions of customers or tens of thousands of branches nationwide. But setting up a non-banking payments institution is certainly not a simple operation and, in some ways, it’s still difficult to imagine. It’s more probable, rather, that in the near future new organisations will be set up and work in synergy with the banks, which are currently still in a unique position given

their specific and well-consolidated skills and know-how. In fact, I believe that the majority of potential new entrants will be more interested in acquiring and managing customers, as opposed to flows.

WHAT iMPACT WiLL SEPA AnD THE PSD HAVE on BAnkS’ BuSinESS MoDELS?

On the one hand, Italian banks are still struggling to understand the real economic effect of the new regulations. In many cases, they possess an excellent knowledge of the main revenue drivers but do not have an equally incisive command of those relating to costs. In contrast, I can say that in our case the changes underway and the relative impact on results have been analysed extremely carefully for a long time and at all levels, thanks to a system for rigorously monitoring KPIs already implemented 7 years ago. On the other hand, for banks watching individual profitability parameters, both the PSD and SEPA, and even the economic crisis, can significantly boost development of added value services, and not only at national level.

WHAT oTHER CHALLEnGES ARE you ExPECTinG FoR youR CoMPAny in TERMS oF TECHnoLoGiES, BuSinESS MoDELS AnD STRATEGiES?

uniCredit is already a major multinational group. Sixty percent of the payments that we manage already occur within SEPA, therefore the impact of the new regulations is undoubtedly very large. We continue to pay considerable attention to transnational services and to our proprietary services, which are distinctive compared to what the other banks offer. Furthermore, we are focused on improving our understanding of the actual needs and purchasing behaviours of our customers, aiming for greater integration of the various products, with the goal of offering them the maximum value. Lastly, the engineering of cross-selling represents a very important component of our activities, as is the case in many sectors, not only in the banking world.

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"as Far as nEw opErators EntEring thE markEt is ConCErnED, thE outComE is By no mEans CErtain."

TESTiMoniALS

paolo zanChi hEAD OF E-MONEy SERVICES, ENCAShMENT AND PAyMENTS BAnCA MonTE DEi PASCHi Di SiEnA

in youR oPinion, WHAT ARE THE MAin CHALLEnGES THAT BAnkS ARE FACinG AS A RESuLT oF THE iMPLEMEnTATion oF SEPA AnD THE PSD?

With regard to the PSD it’s clear that the new regulations require banks to make a series of changes to their systems and operations, and thus also to the organisation of their institutions’ activities. Compliance with the new rules regarding deadlines, method of execution, tracing of operations and filing of effective information all have an impact on the key procedures of banks’ information systems, which leads to numerous obligations and requires significant investment.

At the same time, market harmonisation in Europe and the introduction of new rules may lead to an increase in competitive pressure and a reduction in profits and margins for banks.

In effect, it seems obvious that the challenge will lie in knowing how to deal with the increase in costs while leveraging operational efficiencies and defining new offering models in order to seize opportunities in the market and find new sources of business.

On the other hand, the introduction of SEPA presents a different scenario. In this case it’s necessary to evolve gradually, ensuring the continuity and quality of present services. The introduction of new products transforms the domestic market – previously seen at a strictly local level – by enlarging it to a European scale. This obviously leads to new competitive dynamics that force us to confront foreign operators and review commercial strategies, and also to extend what were previously purely geographic boundaries.

WHAT iMPACT Do you FoRESEE FoR EnD CuSToMERS?

SEPA and the PSD were created with the objective of making services more efficient and more uniform at European level, so customers will certainly see a positive impact once the system is operative.

however, the introduction of new rules also leads to changes in the current methods of operation and products offered, and customers will have to get used to them.

Encashment and payment services in Italy are, in fact, generallymorecomplexandstructuredthanthoseofother European countries and therefore as a consequence of alignment of offerings, we may lose some characteristics typical of the present domestic market in some cases.

Thanks to the introduction of AOS (Additional Optional Services) it will be possible to offer the same level of services that is currently offered, in particular in the encashment sector, by integrating the basic schemes of SEPA with value added functions that are coherent with European objectives and with the rules defined by the EPC (European Payment Council).

The new scenario, which anticipates new and more efficient processes and rules, could significantly alter certain customer behaviours, driving them towards payment methods other than cash or traditional products such as cheques, which are still widely used in Italy when compared to the average data from other European countries.

WHAT WiLL BE THE ConSEquEnCES oF MARkET EnTRy oF nEW PLAyERS?

As I said, we will certainly see an increase in competition at European level as a consequence of more open markets, and the entry of new non-bank players that are regulated by the PSD. This trend could lead to better focus in business and to the development of new models and solutions aimed at retaining customers, concentrating on value added service offerings and upselling opportunities. With regard to the new players, today’s playing field is not yet defined, and a lot will depend on the strategic decisions of the various potential players (e.g. telecom operators, retailers and others) to apply a cooperative model rather than a competitive model within the banking system, with the aim of increasing the benefits for the end user.

WHAT oTHER CHAnGES SHouLD WE ExPECT, FoR ExAMPLE in TERMS oF nEW TECHnoLoGiES AnD CoMPETEnCiES?

The new technologies (mobile, contactless, and remote payments, NFC, etc.) can certainly help the development and use of encashment and payment services. Initiatives in this field are already underway and pilot projects have been set up in various areas.

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TESTiMoniALS

thE sErviCEs oF tomorrow The implementation of SEPA and the PSD should favour the emergence of new industry players… But which ones? And what will be their strategy? One thing is certain: the current convergence of regulatory and technological developments could change the rules of the game for the entire sector. Retailers, operators and specialised payments services providers are jockeying for position, and looking to what lies on the horizon and beyond...

"These regulatory changes are coming at a time when technological developments can reshape the payments value chain."

PHiLiPPE LEMoinE CEO LaSer

"We embrace everything which our mobile telephones into "This trend will soon transform

facilitates competition and the electronic money management growth of issuers’ activities." centres..." EMMAnuEL PETiT DAniELA MAnuELLo CEO Marketing Director Mastercard France PosteMobile

"A business model which remains to be determined."

GiLLES SABATiER Banking & Insurance Market orange Business Services

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"thEsE rEgulatory ChangEs arE Coming at a timE whEn tEChnologiCal DEvElopmEnts Can rEshapE thE paymEnts valuE Chain."

TESTiMoniALS

philippE lEmoinE CEO LASER

WHAT Do you THink oF THE CuRREnT DEVELoPMEnTS in THE WoRLD oF PAyMEnTS?

Ensuring the interoperability of means of payment in Europe has been necessary since the implementation of a single currency. The challenges however go far beyond merely governing operations within the eurozone. These regulatory changes are coming at a time when the magnitude of technological developments is such that they can cause disruption within the payments value chain, by having an impact upon network architectures, transaction processes and even the nature of terminals themselves.

WHiCH DEVELoPMEnTS Do you MEAn in PARTiCuLAR?

There are three primary developments. The first is that of open, internet enabled technologies. They change our approach to cost models – to say nothing of the corresponding security issues. Secondly, for certain countries European harmonisation will stimulate among others changes in habits. For instance, widespread use of electronic payments and debits, which are still relatively uncommon in germany for example. Lastly, there will be a shift in all countries from plastic money to electronic money. What we call “cards” today may well be completely dematerialised as a result of functionality integrated into mobile telephones. And SEPA will have to regulate the harmonious functioning of all this innovation.

WHiCH STRATEGiES WiLL DiFFEREnT MARkET PLAyERS DEPLoy in THiS ConTExT?

Among the most deeply involved are the network and technical solution providers. As for the heavyweights, the players from the banking sector will have to redefine their processes and plot a course between threats and opportunities in an environment full of uncertainty – take for example the “European bank card” recently called for by Commissioner Barnier to compete against the offerings of Visa and Mastercard. Businesses will also need to adapt their strategies, in particular those in the retail sector that are directly in the line of fire.

WHAT iS youR AnALySiS oF THE RELATionSHiP BETWEEn BAnkS AnD BuSinESS in THE RETAiL SECToR?

Oh, retailers are past masters at this game! There hasn’t been a technological development since the 1960s that didn’t result in conflict with the banking sector: about interchange commissions, about the EMV standard… Each time there’s a lot of sabre rattling in public, and meanwhile matters are settled behind the scenes. It’s a question of bargaining power. That said, however, a new element may be at play this time: in a more competitive environment with more options on offer, consumer opinion will carry increasing weight. The battle for the payments market will also be fought with marketing.

AnD HoW DoES LASER FiT inTo ALL THiS?

We’re one of the largest private label credit and payment card operators in Europe. In line with our mission, we bring innovation to all transaction processes. We are above all a partner for retailers, and we support their strategies for value creation based on customer relationship development. Certain retailers partner with banks, others prefer to distance themselves from them; given that LaSer is owned 50-50 by the galeries Lafayette and BNP Paribas, we support them either way! It’s not a political decision. In fact, everything depends on the level of maturity of the retailer in question and the challenges they are facing.

in ConCRETE TERMS, WHAT ARE THE THREATS AnD oPPoRTuniTiES RETAiLERS ARE FACinG ToDAy?

We’re working on three scenarios. The first is defensive: which services provided by private label cards today might be provided by traditional bank cards tomorrow? The second is offensive: it consists of analysing the opportunities thatwill ariseasaresultof thedisappearance of certain particularities at national level (similar to what happened in France in 2007 when co-branded cards were authorised) and the large scale integration of the European banking space with that of the rest of the world.

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"inCrEasED CompEtition mEans ConsumErs havE morE ChoiCEs anD thus grEatEr Bargaining powEr. thE BattlE For suprEmaCy in thE paymEnts sECtor will also BE Fought with thE hElp oF markEting."

The third scenario we’re thinking of is innovation – which takes very different directions depending on the players involved. For instance, once Microsoft, google or Apple have standards on which to base themselves, they are capable of deploying their own innovations very rapidly. In this context we’ll try to stay close to these fast movers. however, we’ll remain complementary to players from the banking sector. We’re not going to compete with Visa and Mastercard!

WHAT STREnGTHS CAn RETAiLERS DRAW uPon in THE BATTLE FoR THE PAyMEnTS MARkET?

The retail sector has seen its capability for action grow considerably in the course of the past few years. The major retailers have been able to extend their scope of activity from the “now” by building relationships with their clients that last over time, by thinking of their customer base in terms of flows and networks rather than merely catchment areas and territories. One of the corollaries of this change of approach is that they are also starting to build more solid relationships with their suppliers.

Another development is sociological: it has been observed that although people trust organisations less and less, the loss of trust in retailers is less than that in all other institutional players.

CAn RETAiLERS REALLy EnCRoACH uPon BAnkS’ TERRiToRy?

Of course! Look at Tesco in the uK. Over the past ten years, Tesco (the fourth largest retailer worldwide and second ranked by profit) has built its success by investing in the customer relationship. using IT they have acquired detailed insight into the behaviour of their customers, which has enabled them to resist the arrival of Wal-Mart in the uK by adapting their offering, pricing policy and merchandising.

Bit by bit, Tesco has developed internet access, telephony, financial and banking services. The latter were initially provided in partnership with Royal Bank of Scotland; now Tesco Personal Finance is competing with banks for deposits – and is more familiar than any bank with the needs and habits of their customers! It’s worth bearing in mind that SEPA is coming at a moment when the entire European retail sector has got its eyes locked on Tesco.

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"this trEnD will soon transForm our moBilE tElEphonEs into ElECtroniC monEy managEmEnt CEntrEs, sECurE anD Easily aCCEssiBlE anytimE, anywhErE."

TESTiMoniALS

DaniEla manuEllo MARKETINg DIRECTOR PoSTEMoBiLE

WHAT ARE THE PRinCiPAL CHALLEnGES LinkED To SEPA AnD THE PSD?

The first challenge is linked mainly to the opening of the financial services market to players other than banks and traditional credit institutions. This inevitably implies an acceleration in the competitive dynamics and changes to the market structure — until now, almost an oligopoly — where new players will appear, some of them from other countries. In this context individual organisations will excel if they are able to structure themselves effectively and efficiently, both in terms of the value added services offered and technological infrastructure.

SEPA, on the other hand, will represent an important testing ground, especially for the integration of different business models, processes and behaviours. The introduction of chip cards will allow storage of a much greater quantity of data compared to what is possible using normal banking standards and will also progressively enable contactless payment, which will inevitably lead to these cards being used for micropayments. It’s easy to imagine how this capability can influence the behaviour of end users, by simplifying access to products and services and creating new relationships. This scenario will force operators to be innovative, not only in defining services and operations, but also in terms of their ability to build a system capable of satisfying all the players involved.

WHAT WiLL BE THE iMPACT, EiTHER DiRECT oR inDiRECT, oF THE “nEW” PAyMEnT SySTEMS on THE MARkET?

The synergies created by the two regulatory initiatives, SEPA and the PSD, will make the use of electronic means of payment (e-wallets and cards) more widespread, increase the level of security for transactions and increase the average time funds are available on current accounts.

The increase in competition will certainly drive a natural reduction in fees and will, to some extent, erode the customer base. This will force all operators to find and implement new business models that increase both the volume and the quality of services offered in order to maintain sustainable profitability.

As far as end users are concerned, it is probable that they won’t simply use the services offered by a single operator, but will choose several according to specific customer

benefits. In Italy, the number of SIM cards is almost double the number of inhabitants and many customers use cards from different operators depending on their needs and the cheapest fees. With regard to payments we can also foresee the birth of “multi-accounts,” leading customers to deal with multiple institutions, subscribing to different services and using them on the basis of the specific value offered and the relative price.

AnD WHAT ABouT youR BuSinESS MoDEL?

In Italy, PosteMobile represents a unique case. We’re the number one Italian virtual mobile network operator in terms of customers, with around 1.3 million active SIM cards.

The mission and the positioning our company, which is an integralpartofgruppoPoste Italiane,allowustosignificantly influence the development of an entire country’s economic system, not only as a supplier of telecommunication services and payment systems, but especially as a player that reduces the digital divide and as a facilitator of all the innovative processes that can improve citizens’ lives and boost companies’ effectiveness. The market demands simple, quick and secure payment services. In this sense, PosteMobile can offer state of the art solutions, and up to four different e-wallets, in an integrated manner while guaranteeing the highest security standards.

WHAT oTHER CHAnGES Do you FoRESEE in THE nEAR FuTuRE in TERMS oF DEVELoPMEnTS in TECHnoLoGy AnD CoMPETEnCiES?

We’re facing a trend that will transform our mobile phones into instruments for managing e-wallets simply, safely and effectively, anytime and anywhere. We’ll certainly see the development of new vertical competencies and observe knowledge and functionality sharing phenomena between structures with different business cultures and backgrounds. This is exactly what’s happening within our group, where the know-how of a national postal operator (Poste Italiane) is combined with the financial expertise of BancoPosta and delivered into in the hands of the customer using the technologically advanced network of PosteMobile, providing access to financial and postal services, anywhere at any time.

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62

"wE EmBraCE EvErything whiCh FaCilitatEs CompEtition anD thE growth oF issuErs’ aCtivitiEs."

TESTiMoniALS

EmmanuEl pEtit CEO MASTERCARD FRAnCE

HoW DoES THE iMPLEMEnTATion oF SEPA inSPiRE you?

It’s not so much a revolution as a slow evolution. Many of our partners have been preparing for this moment for a long time. We also anticipated the coming of this European space, as it were. With 303 million cards in Europe, Maestro is the first large scale SEPA product. Our infrastructure and acceptance network operates in the same way throughout Europe and meets SEPA requirements.

HoW iS MASTERCARD PoSiTionED in TERMS oF THE CHAnGES CuRREnTLy unDERWAy?

We are above all facilitators. As such, we embrace everything which facilitates competition and operations for issuers – whether they are traditional banks or new players from sectors such as retail, online banking or e-commerce.

WHiCH RoLE WiLL PAyMEnT SERViCES PRoViDERS PLAy, in youR oPinion?

I think that banks, which have the capabilities required to run large scale projects efficiently and which have standardised their back office operations, will continue to play a key role. Payment services providers will be able to build strong positions in certain market segments on the basis of sound business models, robust competences and well-targeted offerings – that’s what Aqoba intends to do with its co-branding and loyalty programmes. But they will doubtlessly remain niche players.

WHAT Do you THink ARE THE MAin CHALLEnGES FoR THE yEARS AHEAD?

The greatest one will be contactless payment – by card or mobile phone. Mastercard is the leader in France in this field, with the PayPass solution which is the spearhead of our development programme. We will of course be taking part in the large scale pilot programmes in Nice and beyond. We also launched a project in Paris in cooperation with Banque Postale and RATP: contactless payment will in essence be the ideal solution for all travellers that currently purchase tickets from machines.

WHAT ELSE iS on THE HoRiZon?

We have put innovation at the core of our business. Debit and credit cards are an interesting example. The MasterCard “Double Action” card, developed by Crédit Agricole, or the S2P card (from Carrefour) allows customers to choose between debit or credit functionality.

Another example is co-branding programmes. We have demonstrated our card know-how in the Mozaïc M6 cards for young people from Crédit Agricole, ISIC from LCL for students and Sirène from SBE for military reserve personnel, to name but a few. The potential market is significant – again, however, we do not believe in a revolution that will sweep aside everything else! The key element in this area is the specific added value for the customer, which must create a strong affinity and deliver real and personalised benefits.

So AT LAST THESE innoVATionS ARE PuTTinG THE CuSToMER BACk in PRiDE oF PLACE …

The banks have always put the customer at the centre of their product offerings. Thanks to harmonisation, which everyone will benefit from, and greater choice as a result of competition, SEPA is giving consumers more power and ensuring they are the focus of our clients’ attention more than ever before.

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"a BusinEss moDEl whiCh rEmains to BE DEtErminED."

TESTiMoniALS

gillEs saBatiEr BANKINg & INSuRANCE MARKET DIRECTOR. oRAnGE BuSinESS SERViCES

ChristophE BEauvais MARKETINg DIRECTOR PAyMENTS. oRAnGE BuSinESS SERViCES

mung-ki woo DIRECTOR MOBILE PAyMENT SERVICES. oRAnGE

WHAT iS youR AnALySiS oF THE DEVELoPMEnTS in THE WoRLD oF PAyMEnTS?

gilles Sabatier: We have in fact observed three disruptions. The first concerns the changes in consumer behaviour brought about by Web 2.0. The second is technological, caused by NFC and dematerialisation, which in turn trigger new behaviours: facilitation of withdrawals, growth in the volume of micropayments, etc. The regulatory ecosystem of SEPA coupled with the arrival of payment services providers constitutes the third disruption. The combination of these things will change our daily lives, with new mobile interfaces between our private environment and the services environment.

HoW Do you SEE youR oWn PoSiTion in THiS ConTExT?

Christophe Beauvais: Our role is to guide our clients through the technological disruption currently underway, by offering tools and services that will be compatible and make it possible to turn regulatory developments into competitive advantage. In concrete terms, for example, when we manage the transition from x25 networks to IP, we enable clients to use SEPA compliant tools to do what they did previously in the “old world” (payments, e-commerce, ETEBAC transfers, etc.). And we will continue to innovate, as we have in the past with co-branded pre-paid cards, the virtual dynamic card and contactless payment cards, for example.

WiLL THE REGuLAToRy DEVELoPMEnTS unDERWAy, in PARTiCuLAR THE nEW STATuS oF PAyMEnT SERViCES PRoViDER, CHAnGE THE WAy in WHiCH MARkET PLAyERS inTERACT?

Mung-Ki Woo: With SEPA and the new Payment Services Directive, numerous new players should enter the payments market - in the uK roughly fifty license

applications for payment services providers have already been submitted! The other primary phenomenon will be the arrival of online players on the scene – and especially the major American players. In addition to Paypal, Apple, google and even Facebook are developing their own payment solutions.

iS oRAnGE EnViSAGinG BECoMinG A PAyMEnT SERViCES PRoViDER?

M-K. W and C.B.: Orange Business Services focuses above all on businesses and banks. In terms of our activities as a telecom operator serving the public at large, we’re preparing for the arrival of contactless mobile payment systems – but the payment service itself will be provided by the banks. We’re seeking to help our partners, the banks and businesses, secure the benefits offered by this new technology.

WHAT iS youR oPinion oF THE MoBiLE PAyMEnT SERViCES TESTinG BEinG ConDuCTED in niCE? WHiCH SERViCES CAn WE EnViSAGE oVER THE LonG TERM?

M-K. W: The project being run in Nice is a sort of dress rehearsal. For several years we have been working with banks and public transport operators to define a service that responds to latent customer needs. Nice will allow us to fine tune the last details prior to large scale deployment.

The service for purchasing tickets on public transport is one of the most eagerly awaited. As for other services, the only limit is imagination. In japan, where half the population is equipped with contactless mobiles, 80 services are already available. From tickets, to your library card, to access control and loyalty programmes – whichever cards or paper tickets are in your pocket today can be transferred onto your mobile.

65

66

67

3 thE nExt paymEnts rEvolution EurOpEAN pAymENTS BArOmETEr

in EuropE.who will BE thE winnErs?

tns soFrEs rEsults

TARGET AnD SAMPLE

Structure of sample: banks and companies

Banks: 42 participants

France 14 %

Luxembourg

12 %

Italie 17 %

UK

19 %

Espagne 19 %

Belgique 5 %

Allemagne

14 %

Luxembourg

France

Italy

uK

Spain

germany

Belgium

Companies: 53 participants

Lux embourembourgLux g

France

15 %

6 %

Italie

15 %

UK 15 %

Espagne

19 %

Portugal

7 %

Belgique

8 %

Allemagne

France

Italy

uK

Spain

Portugal

germany

Belgium

15 %

68

es A

ens de paiement

EuROPEAN PAyMENTS BAROMETER

StruCture of Sample: funCtionS of partiCipantS

Banks:

Manager, payment systems administrationResponsable de la monétique ou des moyens de paiement côté Métier

Manager, payment systems back office

Responsable de la Monétique ou des moyens de paiement côté Métier

Responsable des Back Offices moy ens de paiementManager, payment systems IS

Responsable des Back offices Moy

Responsable de la monétique ou des moyens de paiement côté informatique

Other

Responsable de la Monétiqe ou des moyens de paiement côté informatique

Autr esutr

29 %

17 %

10 %

44 %

Companies:

11 %

23 %

19 %

34 %

13 %

Grand commerce et distribution

Administration centralisée ou décentralisée

Grand organisme financier public ou parapublic

Grandes entreprise

PME

grand commerce et distribution

Administration centralisée ou décentralisée

grand organisme financier public ou parapublic

grandes entreprises

PME

Retail and distribution

Central or local administration

Large public or semi-public financial institution

Large companies

SMEs

69

iMPACT oF THE PAyMEnT SERViCES DiRECTiVE (PSD) on THE MARkET The majority of European players in the payment services industry, such as banks and businesses, believe that the directive will harmonise national regulations but will not eliminate national market barriers.

The TNS Sofres and Efma surveys both confirmed this belief amongst banks. Only 1/3 of participants believe the directive will lead to unification of national markets.

A significant percentage of companies - almost a quarter of the sample - even believe that European diversity will endure. Companies are much more conservative in their opinions. Are they all well informed and aware of the impact of the PSD and SEPA?

GloBal impaCt of the pSD

Weak: European diversity will continue to exist for a long time Medium: the PSD will enable regulatory harmonisation, but markets will remain national Strong: the PSD will unify national markets and payment services at European level. Very strong: the PSD will change the importance and role of various payment service providers No response given

5 % 4 %

23 %

48 %

33 %

50 %

30 %

45 %

25 %

17 %

4 %

7 %

0 %

4 %

7 %

TNS - Banques

Efma - Banques

TNS - Entreprises

TNS – Banks

EFMA – Banks

TNS – Companies

Weak Medium Strong Very Strong No response Faible Moyenne Fort Très fort NSP given

70

EuROPEAN PAyMENTS BAROMETER

iMPACT oF THE PSD on MARkET PLAyERS

Banks and businesses share the same point of view on the future role of banks, of international and domestic automated clearing houses (ACh) and large sales and distribution companies. however, their opinions diverge regarding other market players, in particular private operators and computer services companies, payment institutions and both international and national card schemes.

This difference is certainly due to the fact that banks are very attuned to the highly probable arrival of new competitors seeking to seize the opportunities offered by SEPA and the PSD. This outcome is consistent with the desire of European authorities to 'level the playing field' by eliminating national barriers to competition. Few companies, in contrast, seem preoccupied by the subject.

(SiGnifiCant or very SiGnifiCant) ChanGeS in the role of variouS playerS

Banks:

Private operators or software and systems Les opérateurs privés ou SSII

integration service providers

Les autres établissements de paiement Other payment services providers

Les schemes internationaux International systems

Les schemes nationauxNational systems

Banks and credit institutions Les banques et établissements de crédit

International ACh Les ACH internationaux

Retail and distribution companies Le grand commerce et la distribution

National ACh Les ACH nationaux

Companies:

52 %

48 %

45 %

43 %

33 %

29 %

26 %

19 %

Banks and credit institution Les banques et établissements de crédit

International automated clearing houses (ACh) Les ACH internationaux

Retail and distribution companies Le grand commerce et la distribution

Other payment services providers Les autres établissements de paiement

National automated clearing houses (ACh) Les ACH nationaux

71

32 %

30 %

25 %

21 %

21 %

15 %

13 %

11 %

International systems Les schemes internationaux

Private operators or software and systems Les opérateurs privés ou SSII integration service providers

National schemes Les schemes nationaux

CHAnGES in TRAnSACTion VoLuMES oVER 5 yEARS

Again, companies appear to be more conservative than banks, the majority of which often anticipate large or very large changes. Banks and businesses agree that remote banking services and remote payment services will evolve the most, but their opinions diverged beyond that.

As regards new payment instruments and cross-border cash flows, banks are integrating innovation well and believe that there will be an increase in volume. This is not the case for businesses even though they are supposed to be the main beneficiaries.

For payments by card, almost half of the banks and businesses foresee no change. For other payment instruments, companies foresee only very little change. half of banks anticipate the development of cash management, while companies anticipate stabilisation and are far less inclined to foresee any development in cash management.

The TNS Sofres and Efma surveys confirm the responses of banks regarding remote banking services, remote payment transactions and new payment instruments. In contrast, the two surveys highlight differences in opinion between France and other European countries.

(StronG anD very StronG) Growth in tranSaCtion volumeS over 5 yearS

TNS Sofres:

69 %Remote payment transactionsLes transactions de paiement à distance 64 %

67 %Remote banking services (via the internet)Les services de banque à distance… 57 %

67 %New instruments (SCT, SDD))Les nouveaux instruments (SCT- SDD 36 %

60 %Cross-border flowsFlux transfrontières 28 %

48 %Payment terminal managementLa gestion des terminaux de paiement 38 %

45 %Cash managementLe cash management 28 %

40 %Payment account managementLa gestion du compte de paiement 28 %

36 %CardsLes cartes 28 %

17 %Acquisition of domestic flowsL'acquisition de flux domestiques 17 %

0 %Les chèques ou autres Dans les banquesBanksCheques or other domestic instruments 9 %instruments nationaux

Dans les entreprisesCompanies

72

EuROPEAN PAyMENTS BAROMETER

Efma:

Remote payment transactions

Remote banking services

New instruments

Acquisition of cross-border flows

Cash management

Payment terminal management

Card withdrawals from other establishments

Payment account management

Card issuance

Withdrawal terminal management

Acquisition of domestic flows

Checks or other domestic instruments

63%

59%

56%

34%

31%

19%

26%

20%

17%

16%

11%

1%

CompanieS' expeCtation of ChanGeS in the followinG CateGorieS:

Strong MMedium Weak NRFort oyen Faible NSP

43 % 42 % 42 %

40 %

36 % 36 % 34 % 34 %

30 %

28 %

25 %

21 % 21 % 19 %

15 %

13 %

9 %

6 % 6 %

2 %

SEPA Credit SEPA Direct EMV cards New consumer CashLe SCT Le SDD Les cartes EM Le nouveau cadre Le cashTransfer (SCT) Debit (SDD) protection managementmanagementde protection

frameworkdes consommateurs

73

CHAnGES in BAnk REVEnuES oVER 5 yEARS

It is clear that banks expect a decrease in revenues from current instruments and business models (legacy payment systems); this expectation is strong for cheques and domestic operations, and less or not at all for bank cards.

By anticipating strong growth in revenues from new payment instruments (SCT, SDD) and some growth in cross­border transactions, banks seem to indicate that replacement revenue - derived not from transactions but from services - will have more than a compensatory effect on the expected decrease in transaction prices that will result from the combined influence of European harmonisation and heightened competition.

The expectation of little impact on cash management is equally surprising, even though within the SEPA context, this should contribute to a decrease in bank revenues; again, the belief is that replacement revenues generated by value added services will compensate.

ChanGeS in Bank revenueS over 5 yearS

New instruments (SCT, SDD) Nouveaux instruments (SCT, SDD)

Card issuance Emissions de cartes

Acquisition of cross-border flows Acquisition de flux transfrontièress

Payment account management Gestion du compte de paiement

Cash management Cash management

36 % Payment terminal management 50 % Gestion des terminaux de paiement

5 %

29 % Card withdrawals from other establishments 50 % Retraits de cartes déplacés

12 % Accroissement growth 14 % No impactPeu d’impact

43 % Acquisition of domestic flows Acquisition de flux domestiques Decrease 26 % Réduction

0 % 7 % Cheques or other domestic instruments Chèques et autres instruments nationaux

79 %

60 % 33 %

5 %

45 %

40 % 10 %

45 %

33 % 7 %

36 % 26 %

31 %

36 % 26 % 26 %

74

EuROPEAN PAyMENTS BAROMETER

CHAnGES in MERCHAnT ACCounT FEES oVER 5 yEARS

Again, businesses are much more conservative in their outlook than banks which are anticipating changes. half of companies expect a stabilisation of merchant account fees for almost all instruments.

Far fewer expect to benefit from the impact of the PSD on fees for European operations. It seems clear that companies, either because of a lack of information or superficial analysis, do not truly believe in the benefits of the SEPA.

ChanGeS in merChant aCCount feeS over 5 yearS

36 % 30 %New instruments (SCT, SDD))Nouveaux instruments (SCT, SDD

28 %

32 % 21 %Cheques or other domestic instrumentsLes chèques ou autres instruments nationaux

45 %

26 % 43 %Remittance of cross-border flowsLa remise de flux transfrontières

19 %

25 % 38 %Payment terminal managementLa gestion des terminaux de paiement

34 %

25 % 42 %Payment account managementLa gestion du compte de paiement

32 %

23 % Cards 42 %Les cartes

32 %

23 % Cash management 40 %Le cash management

32 %

Accroissementgrowth Peu d’impactNo impact RéductionDecrease

13 % Remittance of domestic flows 57 %La remise de flux domestiques

19 %

75

CHAnGES in MERCHAnT SPEnDinG AT BAnkS oVER 5 yEARS

The responses closely follow expectations in terms of revenue development. Banks anticipate a decrease in spending on cheques and domestic operations. They foresee no change in the level of investment in e-banking.

One third of banks acknowledge an increase in merchant spending related to the new instruments (SCT, SDD) and to cross-border operations. This seems to indicate that only a level regulatory playing field is being taken into account and that the work on new business models, new offerings and the necessary overhaul of processes has yet to be taken into account.

36 % New instruments (SCT, SDD) 33 % Nouveaux instruments (SCT, SDD)

24 %

36 % Cross-border flows 24 % Acquisition de flux transfrontières

26 %

31 % Payment account management 26 % Gestion du compte de paiement

33 %

26 % Accroissement growth 29 % Cash management Cash management

31 % Peu d’impactNo impact 24 % Decrease Réduction Payment terminal management 33 % Gestion des terminaux de paiement

31 %

21 % Card issuance 48 % Emissions de cartes

24 %

14 % Cheques or other domestic instruments 14 % Chèques et autres instruments nationaux

57 %

14 % Card withdrawals from other establishments 45 % Retraits de cartes déplacés

33 %

5 % Acquisition of domestic flows 40 % Acquisition de flux domestiques

38 %

76

EuROPEAN PAyMENTS BAROMETER

CHAnGES in THE nATuRE oF PAyMEnT SERViCES FoLLoWinG THE CREATion oF PAyMEnT SERViCES PRoViDERS

Conscious of the commoditisation of the execution of transactions and the decrease in prices (and revenues) expected for basic services, the banks are committing themselves like never before to improving quality of service and creating added value, in anticipation of and preparation for competition with other payment services providers.

The banks do not foresee differentiation on the basis of price (this in all likelihood refers to the price of basic services without added value).

Companies expect considerable improvements in quality and service levels, but combined with a strong price increase (in all likelihood the total cost per transaction, value added included).

While banking players have largely measured the challenges concerning European interoperability and 'reachability,' the subject is far from the preoccupations of 2/3 of businesses.

expeCteD (StronG anD very StronG) Growth in CharaCteriStiCS of payment ServiCeS followinG the Creation of payment ServiCeS proviDerS

European interoperability Interopérabilité européenne

Quality of services Qualité des services

Valeur ajoutée aux services Added value to payment services de paiement

Cost of services Coût des services

Dans les banques

Dans les entreprises

64 %

38 %

57 %

49 %

55 %

47 %

31 %

81 %

Banks Companies

77

CHAnGES in FunCTionALiTy oF BAnk PAyMEnTSERViCES FoLLoWinG THE CREATion oF PAyMEnT SERViCE PRoViDERS

Banks consider the arrival of new competition from payment services providers will lead them to enrich their service offerings considerably.

The most sensitive payments and issues are ranked by order of sensitivity: electronic payment services (internet or mobile telephone), cross-border services, and reinforcing both the fight against fraud and risk management.

Decrease NRNo impact Accroissement Peu d’impact Réduction NSPgrowth

90 %

79 %

64 %

48 %

36 %

26 %

14 % 12 %

7 % 7 % 5 % 5 %

2 % 2 % 2 % 0 %

New cross-border New electronic Fight against fraud Payment or Nouveaux services Nouveaux services Lutte contre Risques de paiementservices payments (via the credit risks transfrontières de paiement électronique la fraude ou de crédit

internet or mobile (sur internet ou sur mobile) telephone)

78

63 %

59 %

56 %

34 %

31 %

26 %

19 %

11 %

17 %

EuROPEAN PAyMENTS BAROMETER

CHAnGES in THE uSE oF TECHnoLoGiCAL innoVATion oVER 5 yEARS

Banks and businesses anticipate growth in mobile telephone payments and some growth in electronic payments and e-money on the Internet. however, banks also foresee strong growth in ‘contactless’ payments and to a lesser extent in prepayment. These results were confirmed by the Efma survey on banks.

(StronG anD very StronG) Growth in uSe of teChnoloGiCal innovation over 5 yearS

TNS Sofres:

Le paiement mobile 74 %

58 %

Mobile payment

La monnaie électroniqueElectronic payment via the internet sur internet

60 %

68 %

Le sans-contact 55 %

28 %

Contactless payment

Le prépaiement 50 %

23 %

Prepayment

38 % Le p rte monnaiEuroopean e-walleet

électronique européen 34 %

Dans les banquesFor Banks Dans les entreprisesFor Companies

Efma:

79

Prepayment

European e-Walet

E-money on the Internet

Contactless payment

Mobile payment 60 %

49 %

46 %

29 %

29 %

European e-wallet

AREAS REquiRinG TECHnoLoGiCAL DEVELoPMEnTRELATED To SEPA AnD To THE PSD

half of banks feel very affected by SEPA and have taken the necessary steps in every area in which they anticipate considerable change, including the implementation of international standards for interbank flows.

Banks believe that SDD, a truly new payment instrument, should be the focus of their attention. In contrast, they have paid far less attention to overhauling cash management, whose complexity in Europe is dissuasive for many.

Companies do not feel affected by SEPA and the PSD and have taken far fewer steps in anticipation of changes, except in the area of e-commerce. Companies do not feel affected by SDD nor by cash management in Europe. For those companies that plan on implementing one or the other, the majority plan on taking action in 2011.

It also seems that company responses overall translate into a considerable lack of information and mobilisation as regards the implications of SEPA and the PSD.

priority of teChniCal ChanGeS Driven By Sepa

Adapting formats for transfers, Adaptation des formats des virements, withdrawals and standing orders des prélèvements et domiciliation

57 %

52 %

28 %

50 %

42 %

50 %

34 %

48 %

Mass SCT SCT de masse

Developing e-commerce Développement du e-commerce

Bank-business interoperability Interapérobilité banque-entreprise

EBICS/SWIFTNet EBICS / SWIFTNet

Gestion des mandats

Dans les banques

Dans les entreprises

48 %

19 %

For Banks For Companies

Mandate management

80

Dans les entreprises

Dans les banques

Oui Non

En 2011

EuROPEAN PAyMENTS BAROMETER

projeCtS for implementation of SDD

If yes, deadline?

64 % 62 %

In 2010 En 2010

56 %

26 %

Dans les banquesFor Banks Dans les entreprises For Companies 22 %

In 2011 En 2011

26 % 26 %

In 2012

50 %

En 2012

Oui NonNoyes

14 %

7 %

projeCtS to overhaul CaSh manaGement

If yes, deadline?

68 %

In 2010 48 % En 2010

For Banks

For Companies

In 2011

yes No

31 % 32 %

54 %

For Banks Dans les banques

Dans les entreprises For Companies

35 %

For Banks Dans les banques

Dans les entreprises For Companies

38 %

41 %

81

82

83

4 thE nExt paymEnts rEvolution EurOpEAN pAymENTS BArOmETEr

in EuropE.who will BE thE winnErs?

EFma rEsults

TARGET AnD SAMPLE

This survey was conducted via online questionnaire on the Efma website. 70 responses were received from 21 European countries. The structure of the sample and response method call for greater prudence when drawing conclusions.

half of the sample is composed of countries from the 1st European circle France, Italy, Belgium, germany, the uK and the Netherlands. The other half of the responses come from countries in which the payments industry is less mature:

• The 2nd European circle (Northern Europe and Central Europe). • The 3rd European circle (former Eastern Bloc countries and new entrants).

however, this survey does reflect certain conclusions that can be drawn from the TNS Sofres survey. And on other points, it reflects the geographic makeup of the sample.

84

EuROPEAN PAyMENTS BAROMETER

CHALLEnGES AnD PRioRiTiES RELATED To THE iMPLEMEnTATion oF THE PSD AnD SEPA

Almost all respondents think that the PSD will have an impact on the payments services sector (and 47% think the impact will even be very significant).

50% of respondents indicate that the PSD will harmonise national regulations, but without changing markets which will initially remain national. Less than a third of respondents expect the integration of national markets. Less than 20% expect major changes in the roles and positions of the various players in the payments industry.

The same trend is to be seen here as in the TNS Sofres survey, whereas the sample is not the same.

in your opinion, to what extent will the pSD impaCt payment ServiCeS?

Not very much: European diversity will continue to exist for a long time. Somewhat: the PSD will enable regulatory harmonisation, but markets will remain national. A lot: the PSD will unify national markets and payment services at European level. Radically: the PSD will change the importance and role of various payment service providers.

Radically

A lot

Somewhat

Not very much 4%

50%

30%

17%

85

86

iMPACT oF THE PSD on THE RoLES oF PLAyERS

What is comparable between the Efma and TNS Sofres surveys: • As regards banks, 53% expect that major changes will follow the emergence of new payments institutions. • Over 40% also expect an increase in the importance of clearing platforms (international AChs) and over 30% expect

an increase in the importance of international card schemes. however, contrary to the TNS Sofres survey: • The Efma survey does not indicate an expected increased importance of software and systems integration providers,

services providers and private operators. This can doubtless be explained by the less important position these players hold in the countries in the sample (for example, the major software and systems integration providers have a less strong presence than in Western Europe).

• This sample does not expect the role of banks to gain in importance, unlike that of card schemes and domestic AChs. This emphasises the trend (which also appeared in the TNS Sofres survey) of a similar impact of the PSD on the role of banks.

• It should also be noted that 33% of respondents expect the retail sector to play a larger role.

in your opinion will it inCreaSe the role of the followinG playerS in the payment Chain?

Domestic ACHs

Banks and credit establishments

Domestic schemes

Private operators or computer services companies

International schemes

Big business and distribution

International ACHs

Other payment establisments 10%

53%

41%

33%

31%

2%

20%

13%

9%

1%

9%

EuROPEAN PAyMENTS BAROMETER

iMPACT oF THE PSD on TRAnSACTion VoLuMES

here again almost the same results are found regarding growth in transaction volumes as in the TNS Sofres survey, albeit with different scores: • Both surveys returned concurrent results showing that respondents have a great deal of faith in remote payments

and remote banking, and also in new payment instruments. As regards SDD, 60% of banks have a project underway. • however, scores are lower in the Efma survey as regards cross-border acquisition and cash management. As

regards cash management, 60% banks do not have a project underway. • Another surprise: over one third of respondents do not have a plan for the implementation of SDD. Only 24%

envisage implementing it in 2011! Within the geographic zone of the Efma survey: • The degree of maturity of the payments industry is less in a certain number of countries and “technological leaps”

are easier to make. • The same is true for the position of cross-border flows and cash management, which are mainly areas dominated

by the large Western European banks.

in you opinion, will volumeS of the followinG ServiCeS inCreaSe over the next five yearS?

Remote payment transactions

Remote banking services

New instruments

Acquisition of cross-border flows

Cash management

Payment terminal management

Card withdrawals from other establishments

Payment account management

Card issuance

Withdrawal terminal management

Acquisition of domestic flows

Checks or other domestic instrumentsCheques or other domestic instruments

63%

59%

56%

34%

31%

19%

26%

20%

17%

16%

11%

1%

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Do you have planS to introDuCe SDD?

CaSh manaGement : Do you have planS to reDeSiGn your offer?

If yes, deadline?

If yes, deadline?

NoYes

62 %

64 %

In 2011

In 2010

In 2009 38%

38%

24%

NoYes

39 %

61 %

In 2012

In 2011

In 2010

In 2009 11 %

54 %

32 %

7 %

EuROPEAN PAyMENTS BAROMETER

iMPACT oF THE PSD on REVEnuES

• Respondents mainly perceive (47%) the emergence of new payment instruments as a new source of revenues. They also apparently see cards, cash management and cross-border flows as elements that can contribute to their revenue growth (according to 30% of respondents).

• Virtually the same results as regards growth of new instruments as for the TNS Sofres survey. • Much lower scores in the Efma survey for revenues generated by cross-border acquisition, cash management, card

issuing or payment accounts. • The difference between the two surveys is consistent with the responses regarding growth in transaction volumes

mentioned previously.

in your opinion, in the next five yearS, how will the pSD anD Sepa impaCt the eConomiC moDel of the payment ServiCeS you offer or are GoinG to offer?

Sales related to payment services

New instruments

Acquisition of cross-border flows

Cash management

Card issuance

Payment account management

Payment terminal management

Card withdrawals from other establishments

Acquisition of domestic flows

Checks or other domestic instruments

47%

31%

30%

23%

21%

23%

16%

11%

4%

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TECHnoLoGiCAL innoVATion

Similarly to the TNS Sofres survey, this survey highlights the expectation of strong growth in mobile payments, contactless payments and e-money on the internet.

On the other hand, respondents do not seem to have a great deal of faith in prepayment and the European e-wallet The results are similar to the conclusions from the TNS Sofres survey.

in your opinion, over the next five yearS, how will the DireCtive anD Sepa impaCt future teChnoloGiCal innovationS in payment ServiCeS?

Prepayment

European e-wallet

E-money on the internet

Contactless payment

International standards

Mobile payment 60%

31%

53%

49%

46%

23%

29%

11%

29%

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5 EurOpEAN pAymENTS BArOmETEr thE nExt paymEnts

rEvolution in EuropE.who will BE thE winnErs?

paymEnts: a stratEgiC ChallEngE For CsC anD its CliEnts

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paymEnts: a stratEgiCChallEngEFor CsC anD its CliEnts

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the payments landscape in europe is being transformed, which will over time result in far reaching changes not only for private individuals but also businesses, the public sector, financial institutions and infrastructure operators.

assisting its clients throughout this crucial, multi year transformation process is a strategic challenge for CSC.

THE ConTExT oF THE

paymEntsmarkEt IS EVOLVINg RAPIDLy

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At a regional level, all payments systems competences are integrated in order to realise synergies in the following areas:

• Maximising the value of expertise and best practices

• knowledge sharing on assignments and projects

• Specialised training • Market and regulatory monitoring • information system solutions • Participation in industry events,

publication of press articles, carrying out of surveys and studies

THE CATALySTS oF CHAnGE

Since the implementation of Target 2, the first stage in the further development of the payments market in Europe, numerous regulatory, legislative and technological changes have taken place or will take place at an accelerated rate, among others: • Regulatory developments linked to SEPA; • The new European legislation applicable to payment

services, the PSD; • Measures taken to combat money laundering; • The unifi and BIC/Iban standards, the use of the

xML format and the planned replacement of legacy communication protocols by new ones, such as Ebics and Swift.

ALL PLAyERS ARE inVoLVED, AnD nEW PLAyERS ARE EMERGinG

On the one hand the public sector, businesses and financial institutions are all having to take on new roles – for example, responsibilities as creditors under the SDD scheme – and thus respond to new needs. On the other there are opportunities to be seized – in terms of new offerings and markets. New business models are appearing.

In the area of electronic payments, the consolidation of payment systems in the shape of standard platforms is intensifying, cross-border activity is increasing and new products and services, such as mobile payments, are emerging.

Lastly, payments market infrastructures (such as Equans, Stet, Voca, etc.) are also being affected by these changes in their operating context.

At the same time, the PSD (which will have a major impact) will necessitate significant efforts on behalf of players in terms of making their offerings and processes compliant, and will usher in greater competition by creating a new type of European entity, the ‘payments institution’.

CSC has examined the scope of these strategic challenges and is putting at the disposal of its clients – the public sector, businesses, financial institutions, infrastructure operators and payments services providers – a “PAyMENTS” service offering, which draws heavily upon its traditional services:

• Consulting • Business Solutions • Outsourcing

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Consulting

Regardless of whether it involves facing a changed environment or transforming a constraint into a competitive, commercial or financial opportunity, all players are being confronted with multiple challenges. The position of each player in terms of new roles and obligations, creating value for clients, generating replacement revenues to compensate for lost business, cost savings and risk management - these are all areas in which we can assist our clients. We can help them in many ways, for example:

• (Re)defining business models; • Designing and launching new products and services; • Providing competitive intelligence, evaluating

consolidation opportunities, resource strategies and insourcing and outsourcing options;

• Assisting in the design of consolidated platforms – “payments factories”;

• Overhauling operating models, processes and the organisation;

• Drawing up development roadmaps, aligning information systems and IT resources with operations;

• Managing the portfolio of programmes and projects.

These are among others the types of assignments taken on by the CSC Consulting team in the areas of electronic payments, payment systems and cash management.

BusinEss solutions Whether it involves information systems alignment, scaling up and standardising an electronic payments system, making a legacy payments platform SEPA compliant or overhauling a cash management system, CSC brings its in­depth experience of a broad range of areas into play. here are just a few examples:

• Alignment of the information system roadmap with that of operations;

• Design and adaptation of the information systems architecture (planning, roadmap, EAI, SOA);

• Solution selection; • Large scale programme management • Integration and customisation of solutions, either off­

the-shelf (ACI Worldwide or Wincor) or proprietary (CSC Sepa DDWay, CSC Mandateway, or CAMS for electronic back office payment systems);

• Delivery of turnkey solutions, including corresponding knowledge transfer;

• Development of specific solutions, portals, collaborative and decision support systems;

• Change management.

With a strong track record of managing complex and ambitious programmes, CSC puts its experience to work for its clients in a field in which, in Europe, most of the major transformation projects are still to come. It is this experience which allows CSC to make strong commitments to its clients when circumstances require it.

Some exemples:

• Evaluation of the impact of the PSD on offerings and processes

• Feasibility study for a “SAE global” solution • Setting up of a “payments factory” • Planning of the convergence banking

platforms • overhaul of a cash management system

Some exemples:

• Managing a major programme for the integration of a new electronic payment solution for a network bank

• implementation and large scale integration of the standard DDWay (SDD) solution within several large banks

• Custom SCT development for a major retail bank • implementation of the CAMS ii solution to create

a system for cross-border acquisition of electronic payments

• Development management for a leading edge European payments system

CSC, worlDwiDE prEsEnCE, in-DEpth ExpErtisE

At a global level, CSC is a major software provider, in particular in the insurance, banking and payments sectors:

• GraphTalk A.i.A is a global reference in the life insurance sector and is used by the largest industry players such as AxA, Aegon, and many others;

• CAMS ii* is a global back office system for acquisition/issuance of electronic payments, used in the uSA by Mastercard and in Europe by Barclaycard, SSB/Sinsys and others;

• For legacy payment systems and single­platform SEPA systems, CSC offers two solutions: DDWay and Payment Transaction System (PTS), for mainframe and mid-range deployment respectively;

• For SEPA, our offering is rounded out with MandateWay, the European solution for mandate management.

*over 400 client references

Some examples:

• information system infrastructure management: - Renault, - Royal Mail (uk), - British Aerospace, - Caceis Banque.

• Payment application portfolio management for several large banks

• Database management for BPo

outsourCing

The quest for critical mass and the lowest unit cost; European consolidation; assisting businesses in moving toward payment and collection centres; the creation of shared service centres – these are all major trends affecting the emergence of a European payments services sector. Some players will respond by setting up “payments factories” while others will choose to outsource these operations.

In both cases, CSC (a leading player in the field of software and systems integration services) offers the following outsourcing services:

• Information systems infrastructure management; • Application portfolio management; • Process management (Business Process Outsourcing

- BPO).

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ABouT CSC

The mission of CSC is to be a global leader in providing technology enabled business solutions and services.

With the broadest range of capabilities, CSC offers clients the solutions they need to manage complexity, focus on core businesses, collaborate with partners and clients, and improve operations.

CSC makes a special point of understanding its clients and provides experts with real-world experience to work with them. CSC is vendor-independent, delivering solutions that best meet each client’s unique requirements.

For more than 50 years, clients in industries and governments worldwide have trusted CSC with their business process and information systems outsourcing, systems integration and consulting needs.

The company trades on the New york Stock Exchange under the symbol “CSC”.

EuropEanpaymEntsBaromEtEr ThE FirST EurOpEAN SurvEy ON ThE impACT OF SEpA ANd ThE pSd

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EuropEanpaymEntsBaromEtEr ThE FirST EurOpEAN SurvEy ON ThE impACT OF SEpA ANd ThE pSd

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EuROPEAN PAyMENTS BAROMETER

thE nExt paymEnts rEvolution in EuropE – who will BE thE winnErs?

At a time when the harmonisation of means of payment in Europe is becoming a reality, banks and businesses will soon benefit from a Single Euro Payments Area (SEPA) which will change the rules of the game. They will also be confronted with the rise of new players and have to integrate increasingly rapid and inevitable technological developments.

Consumers, businesses, banks, payments institutions who will be the winners? To gain insight into the changes currently underway in the payments industry, CSC is publishing the first European Barometer which assesses the impact of SEPA and the Payments Services Directive (PSD), in cooperation with TnS Sofres and Efma.

The results of this executive Barometer are put into perspective by a series of interviews with the leaders of major players from the European payments industy:

Philipe Citerne | SoCiéTé GénéRALE (Ancien directeur général) Willy Dubost | BnP PARiBAS Philippe Lemoine | LASER Enrique Barthe | BBVA Marc Carlos | CRéDiT AGRiCoLE S.A. Gilbert Ernst | BAnquE ET CAiSSE D’EPARGnE DE L’ETAT (BCEE) Elizabeth Fraser | uk PAyMEnTS CounCiL Josef Gilger | HyPoVEREinSBAnk Zélia Livramento | CAixA GERAL DE DEPoSiToS (CGD) Daniela Manuello | PoSTEMoBiLE Emmanuel Petit | MASTERCARD FRAnCE Gilles Sabbatier, Mun ki Wu, Christophe Beauvais | oRAnGE BuSinESS SERViCES Roberto Santos | BAnCo SAnTAnDER Herve Sitruk | MAnSiT SAS Marc Temmermans | ViSA EuRoPE Luca Vanini | uniCREDiT Paolo Zanchi | BAnCA MonTE DEi PASCHi Di SiEnA