Business Banking

1
Business Banking
Single Euro Payments Area
(SEPA) SEPA will allow payments to be made
throughout the whole SEPA area, from a single
bank account, using a single set of payment
instruments, as easily and safely as is the case
in any of the individual SEPA countries today.

2
Agenda SEPA Demystified

• Rationale
• SEPA
• Value at Stake
• European Industry Response
• A Portfolio of Schemes
• PL Impact
• Non-SEPA / US Bank implications
• A Clear Roadmap
• Nay Sayers Wrong
• Take-aways

3
This is the SEPA rationale

• Political Reasons
• Treaty of Rome
• EMU
• Lisbon Programme

• Supply Chain Reasons
• BRICs
• Customer mobility
• Economic migrants

• Market Reasons
• Globalisation
• Information Communication Technology
• Price divergence

• Economic Reasons
• Legal
• Liquidity
• Efficiency

4
This is the Single Euro Payment Area
SEPA is 29 Countries European
Union European Economic Area Switzerland

5
There is significant value at stake
Moving the industrys cost base to even 20 above
the best European performer would increase
banking profit by 10Bn.

• Payments costs accounts for 2-3 of EU GDP, 35
  of bank costs
• Charges to merchants for cards up to 5
• Cost of late payments to corporates 50Bn
• Inability to integrate payments and billing
  systems 50-100Bn
• 10 increase in electronic payments increases GDP
  by 0.5

The implications of SEPA on the revenue pool
profile of the European banking industry will
squeeze out 9Bn of revenues.
Sources, EPC, EC, McKinsey
6
This is the European industrys response

• Self-Regulation of the European banking industry
• Pan-European credit transfer and direct debit
  payment schemes
• Pan-European debit and credit card acquiring and
  clearing
• Efficient euro cash distribution and management
• Efficient payment clearing through one or more
  PE-ACHes
• Standardisation of electronic payments
• Market led bank innovation and infrastructure
  consolidation

7
SEPA Banks will be served by a comprehensive
portfolio of schemes
Euro
Sterling
High
TARGET (Eurosystem)
CHAPS (CHAPS Co)
Cost Risk
PRIORITY (EBA)
Faster (Voca/LINK)
SCT / SDD (EPC)
BACS (Voca)
Low
Urgent
Urgent
Non-Urgent
Immediate
Immediate
Non-Urgent
Relative size of demand
Business Need
8
The PL impact will be determined by a banks
response
Value added services, Cross-Border debit
interchange, Larger customer base, White Labelling
Transaction Prices, Account Net Margin Interest,
Account Fees, Fewer Accounts, Reduction in Float
Revenue
Increased customer protection, Cost of
regulation, Reduction of national scale
Reduced cost of clearing, Removal of repair
costs, Reduced footprint
Costs
Cost Income Ratio Impact
9
What does it mean for a US / non-SEPA Bank

• SEPA applies to payments to / from accounts
  domiciled in SEPA
• US banks operating outside SEPA will see no
  change
• SEPA offers a broader and deeper transactional
  pool
• Customers operating in SEPA will review their
  existing arrangements
• More regulation exported to non-SEPA countries
• US banks therefore need to think about
• a SEPA footprint, or
• an entry point correspondent, and
• changed MNC requirements / expectations.

10
EPC Road Map / SEPA Road Map is public and it is
clear
2005
2006
2007
2010
2008
1
2
A
B
C
Scheme Specification
Bank Development and Implementation
Customer Migration
Launch
Technical Standards
Clearing and Settlement Development and
Implementation
Clearing and Settlement Rationalisation
Customer Development and Implementation
3

• Milestones
• SEPA instruments available to citizens (and
  corporations)
• Critical mass of transactions migrated, so SEPA
  is irreversible
• Reduction in inter-bank clearing and settlement
  complexity and cost

11
The nay sayers are wrong
SEPA dates are unrealistic there is no way to
get 7,000 banks to convert
But

• The EPC represents a significant market share
• The Public Authorities will act Incentives
• EPC banks have committed
• ACHes will respond in order to seek to avoid
  extinction

Customers wont bear the pain of upgrading their
systems and processes

• SEPA delivers significant customer benefits
• They have already started Vodaphone
• They do! euro, CHIP/PIN, BACSTEL-IP

But
12
You should remember 4 points from today

• SEPA will happen
• SEPA will begin with three core instruments
• Direct Debit
• Credit transfer
• Debit Cards
• Banking will lose, some banks will win
• By delivering on SEPA, banking is delivering on
  the needs of its customers (interoperability,
  standards, transparency, cost)