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  • 1. EuropEan paymEnts BaromEtErthE nExt paymEntsrEvolution in EuropE.who will BE thE winnErs?
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  • 3. CsC in touCh with CurrEnt trEnDsWithin 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 theboardroom (human resources, finance, IT, procurement…) at the Europeanlevel. Each of these studies, carried out with the assistance of independentsurvey institutions (IFOP and TNS Sofres), involve the participationof hundreds of managers from the largest businesses and publicadministrations in Europe. The results of these studies are revealed duringhigh level events, organized in different European cities (Paris, Madrid,Barcelona, Milan, Brussels, Lisbon, etc.), and are also relayed by partnersfrom 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. 3
  • 4. TABLE OF CONTENTS 1 summary 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 2 1 tEstimonials 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 3 1 tns soFrEs rEsults PAgE 67 4 1 EFma rEsults PAgE 83 5 1 paymEnts: a stratEgiC ChallEngE For CsC anD its CliEnts PAgE 93 96. ThE CONTExT OF ThE PAyMENTS MARKET IS EVOLVINg RAPIDLy 98. CSC, WORLDWIDE PRESENCE, IN-DEPTh ExPERTISE5
  • 5. 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.6
  • 6. EuropEan paymEntsBaromEtErThE FirST EurOpEAN SurvEy ON ThE impACT OF SEpA ANd ThE pSdAPPRoACH AnD METHoDoLoGy TWo SuRVEyS Run in PARALLELThis is the first European survey measuring the impact To get a global picture, the TNS Sofres and Efma surveysof SEPA and the PSD. The survey was carried out in were conducted simultaneously, with specific methodscollaboration with the market research firm TNS Sofres and corroborating questions.and the European Financial Marketing Association(Efma) on a sample composed of roughly 100 decision • The TNS Sofres survey was carried out by interview;makers in European banks and companies and roughly • The Efma survey was carried out by way of an online100 member banks from more than twenty European questionnaire on the Efma website.countries. The questions focused on two types of impact:The questions that CSC and Efma sought to answer,drawn from responses to the TNS Sofres and Efma • The strategic impact of SEPA and the PSD onsurveys, are the following: European integration and on the payments market; • The operational impact of SEPA and the PSD on• Will SEPA and the PSD lead to harmonisation of the development of current and future payment European national regulations and to the elimination instruments, and on the market in general. 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 TWo DiSTinCT METHoDoLoGiES institutions, retail and distribution companies, etc? TnS Sofres survey Will these two developments produce the expected effects? Approximately one hundred decision makers in banks• What will be the reaction of various players to SEPA and companies from eight European countries (Belgium, and the PSD? Will they anticipate these changes? Or France, germany, Italy, Luxembourg, Portugal, Spain and will they wait for these changes to take shape before uK) were interviewed: investing?• What changes will SEPA and the PSD bring about in • For banks, individuals were categorised according terms of payment services, projects, etc.? 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. 7
  • 7. 8
  • 8. 1thE nExt paymEntsrEvolution in EuropE. EurOpEAN pAymENTS BArOmETErwho will BE summarythE winnErs? 9
  • 9. SummAry REguLATORy AND LEgAL CONTExT towarD a singlE Euro paymEnt arEa 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.10
  • 10. THE GoALS oF SEPA THE PSD, iTS oBJECTiVE AnD iTS SCoPEharmonisation of payment systems in the European union The Payment Services Directive (PSD) was adopted by therelies on the Single Euro Payments Area (SEPA), whose European Parliament on April 24th, 2007. It applies to allpurpose is to create a single payment area in euro, and on payments (except payments in cash or paper instruments)the Payment Services Directive (PSD), which provides the in all currencies within the European Economic Area (withnecessary legal framework for SEPA, establishing the new the exception of Switzerland). The PSD aims to strengthenrelationships between banks and their clients. the rights of users of payment services (notably consumers),The European Payments Council (EPC) has defined three to increase competition, and to reduce the price of paymentpan-European payment instruments within the SEPA transactions.framework that must eventually replace equivalent national This directive applies to six categories of payment servicespayment instruments: player, including one new non-bank player: the so-called• SEPA Credit Transfer (SCT), launched in France on payment institution, with its less burdensome status and with january 28th, 2009; strictly defined limits on the scope of its activities.• 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 oBJECTiVES: SiMPLER, SAFER, MoRE EuRoPEAn year;• A payment card which corresponds to European As far as the European Commission is concerned, the expected debit and credit cards and which is the product of a gains from SEPA and the PSD would be numerous: philosophy different from that which created SCT and • For companies: a decrease in payment services prices; SDD. The system of payment by SEPA card must fit gains in productivity; economies of scale; improved within the European framework defined by the EPC European integration; and the development of the (called the SEPA Card Framework or SCF) to enable European market as the result of easier cross-border the user to make payments and withdraw cash under operations. the same conditions (in terms of technology, fees and • For companies in the retail sector: increased security of security) throughout the SEPA area. 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. . 11
  • 11. 5 RESuLTS major lEssons lEarnED12
  • 12. THE TWo EnGinES DRiVinG THE HARMoniSATion oF EuRoPEAn PAyMEnT SySTEMS, SEPA AnD PSD, WEREDESiGnED FoR THE BEnEFiT oF ConSuMERS AnD CoMPAniES. THE PRoMoTERS oF THE PRoJECT AiM ToCREATE A EuRoPEAn PAyMEnT AREA By HARMoniSinG nATionAL REGuLATionS, DiVERSiFyinG THE PAyMEnTSERViCES MARkET By inTRoDuCinG MoRE PLAyERS in ADDiTion To BAnkS AnD CREDiT inSTiTuTionS,STiMuLATinG CoMPETiTion BETWEEn PLAyERS AnD REDuCinG THE PRiCE oF TRAnSACTionS. iT iSinTERESTinG To noTE THAT THE RESuLTS oF THE SuRVEy inDiCATE THAT, ConTRARy To ExPECTATionS,BAnkS AnD THE nEW PAyMEnT inSTiTuTionS WiLL PRoFiT THE MoST.1. pErCEpTiONSBAnkS AnD BuSinESSES: integration services providers. Banks have probably attached more importance to the emergence of new competitors, facilitated by SEPA and the PSD.DiFFEREnT PERCEPTionS Close to half of European banks expect strong competitionThe two surveys show that a significant gap exists between from payment institutions and anticipate the market share ofwhat banks and companies believe will be the impact of the international card schemes, in particular, will grow. A majoritytwo European harmonisation initiatives. of banks also expect a more important role will be played by private operators and software and systems integrationBeyond their divergent motivations and interests, it is clearly services providers.apparent that banks have generally taken action in responseto SEPA and the PSD while companies have done less; much Banks and companies are divided on the future of AChs andremains to be done in terms of disseminating information and PE-AChs in particular, and of the role to be played by retailraising awareness. and distribution companies. Companies believe these will play a larger role in the payments market than banks do.This partially explains the differences in their respectivevisions. A large majority of banks envisage SEPA and the PSD Finally, forty-three percent of banks envisage a decline inhaving a strong strategic and operational impact, while only the importance of national card schemes while forty percentone third of European businesses hold the same view, and it anticipate their importance will grow.is in fact precisely these companies that have sought to keepabreast of developments. On most issues, the opinions expressed by companies are the opposite of those expressed by banks! Companies had a decidedly more conservative outlook,2. pLAyErSPAyMEnTS MARkET: BAnkS ConVinCED oF 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 andTHEiR MiSSion, BuSinESSES STAnDinG By see’ attitude.The majority of European banks and companies believe thatthese developments will lead to regulatory harmonisation butnot to complete market unification, leaving national marketsintact. They show some scepticism towards the actual impactof SEPA and its benefits. Companies appear to be particularly 3. TrANSACTiONS STABLE TRAnSACTion VoLuMESsceptical even though they, along with consumers, should bethe principal beneficiaries. All respondents seem to consider that SEPA and the PSD will have no direct impact on transaction volumes andThreequartersofEuropeanbanksandtwothirdsofcompanies that growth in volume depends much more on growth ofconsider that these changes will not call into question the European trade. Their opinion and reasoning also appliesrole of banks in the payments market, and even consider to card transactions.that these changes will strengthen their role. The same is truefor national and international systems in place (ACh and PE- Nevertheless, within the global volume of transactions,AChs respectively), as well as for large retail and distribution banks forecast a continued decrease in volume for somecompanies. The opinions of banks and companies differ to a means of payment (cheques) and a decrease in domesticgreater extent regarding other players in the market, notably means of payment in favour of new SEPA instruments. Inthe new payment institutions, the national and international addition, banks are anticipating significant growth in cross­card schemes, private operators and software and systems border payments and remote bank payments/services, as 13
  • 13. well as growth in revenues and a progressive unification of it – that transaction prices will remain stable or may the European market. even decrease as a result of the combined effects of harmonisation and unification of the market, and Companies share banks’ expectations for remote banking heightened competition (the famous ‘level playing field payments/services. They are however somewhat less advocated widely by European authorities) driven by enthusiastic than banks regarding the increased role of SEPA and the PSD. 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. 5. iNvESTmENTS BAnkS WiLLinG To inVEST To GuARAnTEE A HiGH SERViCE LEVEL 4. BuSiNESS mOdELS inCREASED BAnkinG FEES ExPECTED By 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 BuSinESSES improve the quality of those services. Even if it is not explicit in banks responses, it is clear that The need for operational excellence combined with the harmonisation of payments and the prices decreases the overhauling of business models, will doubtless induced by SEPA will have an impact on the business set in motion fundamental transformations which will models for transfers (as a result of SCT), for withdrawals necessitate significant modifications to operational (as a result of SDD), and for bank cards. The impact will procedures as well as major investments. vary for each market depending on the regulatory context of the country and the type of business model that was however, only a small portion of respondents seems in place. to recognise this fact, and to have understood the true extent of the transformation of the European payments Even if banks anticipate a drop in revenues from a decrease market and the investments that will be necessary. in volume of legacy payment systems (cheques and current transfers), they foresee an increase in revenues The investments will in particular be in future-safe payment from new means of payment, card issuance and cross­ systems, that is to say SEPA instruments (of which only the border flows. This is in all likelihood attributable to the purely regulatory characteristics are beginning to emerge overall increase in volumes and the new services which today), cross-border payments, remote payments, mobile will be built around the means of payment that eventually payments and, in general, the services related to means of remain. payment. Services and infrastructure linked to electronic payments will receive a large share of investments. The In any case, a major overhaul of business models and same holds true for security, credit and operational risk a quest for replacement revenues generated by new management and the fight against fraud. payment service offerings (and/or transformation of current payment services) are to be expected. In contrast to banks, the majority of companies The fact that some banks also expect growth in have adopted a ‘wait and see’ attitude. Only a third revenues from payment terminal management and cash of respondents are committed to taking the new management is more surprising. These developments European payments area into account. Most companies could, however, be the result of a significant increase in acknowledge – without having become actively involved cross-border transactions driven by SEPA and the PSD. in the matter – that some (in all likelihood significant) investments will have to be made. however, companies The banks acknowledge that the emergence of new are apparently waiting for banks to make the job easier, players, in particular payment institutions, will intensify although probably at additional cost to them. 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 believing14
  • 14. 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 on harmonisation of regulations, the integration of respondents anticipates that SEPA and the PSD will not national markets, and shifts in the positions and roles have any impact on the payments market, and expects of various players in the payments market. These European diversity will remain, possibly for a long time. responses confirm the anticipation and dynamism Half of respondents expect, however, harmonisation of northern European countries and demonstrate of regulations without integration of national markets. somewhat unexpectedly the mobilisation of italy. This position is foreseeable in so far as the uk is not Finally, France has taken something of a middle part of the eurozone and is traditionally Eurosceptic. ground: nevertheless, a quarter of respondents envisage strong integration of national markets in Europe, • Two thirds of respondents were highly demonstrating that a minority in the British market sceptical about the impact of SEPA beyond the believe in the effects of SEPA and the PSD. harmonisation of regulations; • A minority of respondents believes there will in Germany and especially in Spain, respondents be strong or very strong market integration and do not anticipate strong European integration and considerable change in the positions and roles expect even less in terms of the integration of national of players in the payments market. markets. Both countries do, however, envisage harmonisation of regulations. Spain in particular The responses from the Central and Eastern European demonstrates a ‘wait and see’ attitude and scepticism countries surveyed confirm the expectations of the as regards the benefits of SEPA. The same is true for core European states as regards the impact of SEPA Germany albeit to a lesser extent. and the PSD. However, these countries do not share the same views of what the impact will be on the players in More than two thirds of respondents in the the payments market. This divergence is explained by netherlands, Luxembourg and italy, and one hundred the differences in maturity of payment systems in the percent of respondents in Belgium, anticipate a various markets. strong or very strong impact of SEPA and the PSD 15
  • 15. 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 transfers but also SDD withdrawals. The same is true for the opportunities for the development of cash management. Overall, banks are closely involved in the implementation Again, these responses can be explained by a lack of of new payment instruments, in particular SEPA direct information and proactivity as regards SEPA and the PSD debit (SDD), the new framework for consumer protection on behalf of many companies. and the PSD. Banks also envisage developing of cross­ border acquisition services. They have moved quickly For banks, the management of SDD mandates was an issue on implementing global standards for interbank flows. in 2009 and 2010 outside of France, and an issue for 2010 however, they do not hold the view that an overhaul of cash and 2011 in France, while companies are talking about 2011 management is necessary, a complex domain in Europe and 2012. and for which visibility is still limited. On the other hand, banks and companies are intensifying Most often, banks stress regulatory compliance and only their efforts in the area of remote payment (via the internet) rarely see the need to overhaul their offerings. and on developments in mobile payments, contactless payment and prepayment. Concerned by the outlook for game-changing transformation of payments systems, banks are willing Several large European banks have begun to align their to invest (to varying extents, depending on their size and product and service offerings with the needs of business current markets) in order to avoid losing ground to new (as determined by payment centres), and have begun to non-bank competitors. In general, at this stage investments develop European and even international service platforms. are being made in defensive projects focused on regulatory Even though the majority of banks still consider it important issues rather than in offensive and innovative projects such to develop these platforms in-house, the proportion that as new business models and services. A few bank and believe in common platforms and outsourcing commodity non-bank players are the exception, having laid the first processes to a private operator is growing (twenty-five significant foundations of a medium-term strategic vision. percent of respondents). Companies seem less involved in SEPA and the PSD, and Areas requiring technological development, ranked by have mobilised less, except in the area of e-commerce. priority, are: SEPA adaptations, including bank cards, Curiously, companies do not seem very interested in the and for creditors management of mandates, mass SCT, potential that SEPA and the PSD hold for payment and development of e-commerce for companies, bank/ collection centres, not only in terms of harmonisation of company interoperability and the development of EBICS/16
  • 16. SWIFTNet, and management of mandates for debtor banks considerable importance to the development of new(in the B2C space). In some countries (such as germany) international standards for payment flows.and for certain players, depending on market practices,SDD in B2B is a high priority. 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 exceedTHE RiSE oF ELECTRoniC MonEy ninety percent. Many consumers don’t consider passing their mobiles in front of a reader to pay for small purchasesTechnological innovation facilitates and encourages (metro tickets, groceries, car park fees, etc.) to be anevolution towards a virtual Europe and the rise of new innovation because it comes so naturally to them.modes of payment. In the long term, European integration ofpayment systems could largely be the result of the ongoing Although mobile phone payments may replace cashdevelopment of remote and mobile phone payments. transactions (which are costly for banks), they threaten revenues generated by bank cards, which is a very popularThe TNS Sofres and Efma surveys demonstrate that banks product in Europe. Defining the model for revenue sharingand companies anticipate the growth of e-money. between banks and mobile telephone operators is therefore a very sensitive issue.until now, banks have not seemed in a hurry to implementthese service offerings. According to the Efma, the mobile When mobile telephone operators and banks finally dophone was not perceived as a tool for securing new reach an agreement – which is the case in France – thecustomers; a ‘wait-and see’ attitude was prevalent among volume of mobile payments should then expand rapidly.banks, which preferred to prioritise the development ofinternet banking.Internet use and mobile technologies are becoming mature.All large banks offer internet based payment services, theuse of which has now become widespread. Now, in additionto remote payment, banks are encouraging contactlesspayment and prepayment. Banks are expecting stronggrowth in these means of payment and thus attach 17
  • 17. 18
  • 18. 2thE nExt paymEntsrEvolution in EuropE. EurOpEAN pAymENTS BArOmETErwho will BE tEstimonialsthE winnErs? 19
  • 19. 20
  • 20. TESTiMoniALSsEpa toDay...anD tomorrow?Much has already been written about the implementation of SEPA, and certain points remain thesubject of lively debate. Where do we stand today? What are the critical issues that still have tobe resolved? And what will be the consequences? Six insiders familiar with the dossier addressthese questions and provide an overview of what might change in concrete terms on the Europeanpayments 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 GiLBERT ERnST head of European Developments Director and Member of the Executive Committee uk Payments Council 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 21
  • 21. "sEpa, a solutionstill looking For aproBlEm… "22
  • 22. TESTiMoniALSphilippE CitErnEFORMER ChIEF OPERATINg OFFICERSoCiéTé GénéRALEFORMER PRESIDENT OF ThE PAyMENT SySTEMS STEERINg COMMITTEEFREnCH BAnkinG FEDERATion (FéDéRATion BAnCAiRE FRAnçAiSE)you HAVE FoLLoWED THE CouRSE oF cases. In matters of payments, fraud and moneySEPA SinCE iT STARTED. TAkinG A BRoAD laundering, the devil is in the details. This verificationViEW, HoW Do you EVALuATE THE will take a great deal of time. Add to this the factPRoGRESS MADE in THE PAST yEARS? that the European Commission continues to think that payments can be entrusted to companies thatThe matter was approached in the wrong way from are not recognised as banks and subject to very littlethe beginning. It all started in Brussels with the intent regulation. The very cautious attitude taken by certainto reduce the cost of cross-border transactions. There consumer protection associations in countries wherewas clearly work to be done: with locally focused existing guarantees and legal systems are very solid ispayment systems, cross-border payments were costly thus highly understandable.for banks and expensive for customers. however, oneminor consideration remains: in France, cross-border WHAT iS THE SiTuATion ToDAy?payments represent only 5% of financial flows. Theidea was then that by making all domestic payments We’re in a strange situation. According to thehomogeneous, by definition, cross-border payments Commission, the use of SEPA products should enablewould cease to be a problem. Rather than moving the colossal saving. The Commission also asserts that thestool, let’s move the whole piano! And bit by bit SEPA legal environment will be harmonised and consumerswas presented as the logical consequence of the move will thus have nothing to fear. you can lead a horse toto the euro, whereas the problem of payments systems water, but you can’t make it drink – SEPA instrumentsis much more complex. are only being used sporadically. Today, confronted by the failure of the launch, Brussels intends to make thein WHiCH WAyS ARE PAyMEnT SySTEMS use of these supposedly beneficial products obligatoryCoMPLEx SERViCES? by a specific date in order to force the adaptation thereof, as opposed to gradually phasing them in asThey imply a high level of trust between debtors, was originally planned.creditors and banks, taking into account the credit riskand risk of fraud involved. For centuries banks and their WHAT ARE THE PoSiTionS oF THEcustomers have managed these problems in a variety VARiouS PLAyERS in THE CuRREnTof legal environments and different behaviours in terms DiSCuSSionS?of means of payment. The germans prefer to pay incash with larger bank notes which French businesses Several major operators (in the retail, petrochemicalrefuse to accept; the French are avid users of cheques and telecom sectors, for instance) have an economicwhich are free of charge. The simplest problem of the interest in having access to efficient “paymentsconversion to the euro as legal tender was above all factories”. Many consumers however do not trusta logistical one: making bank notes available. The real withdrawals from their accounts made by non-bankdifficulty is to implement non-cash payment systems enterprises based in countries with legal systems theyat a European level. In the case of SEPA, the opposite judge to be less safe than their domestic market. Andanalysis was made, which may even be its downfall. many banks don’t know whether they will be able to make the major investments required. The majorityBuT THE PSD HAS HARMoniSED of other players, predominantly businesses, do notREGuLATionS… understand why they should invest in the burdensome redesign of their internal systems in the absence ofThat was done in a somewhat hurried fashion after clear benefits in these times of crisis. In the languagehaving defined two products, whereas that should of Brussels, most parties involved have yet to presentclearly have been the starting point. It now remains their ‘business case for SEPA’, and furthermore theto verify in practice that these rules are identical in Commission is refusing to validate a coherent set ofevery country and that in every country the means of principles to govern fees…recourse are the same, and not almost thirty different 23
  • 23. "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 When speaking of double or nothing, ‘nothing’ means noTHinG. WHAT HAS To BE DonE ToDAy taking a coercive approach which seeks to impose To MAkE SEPA A REALiTy? products that are not bought, and to continue along the current path. ‘Double’ on the other hand means Over the long term, everyone agrees on the need for the recognising the error in the initial approach combined rise of European payment systems, some of which will with project management that would doom any probably use new techniques. But the problem is not to undertaking to failure. It’s necessary to take the laboriously design one or two means of payment. The only time to define ambitious, long-term objectives for a viable approach is to think in terms of payment systems. European payments system. A project should then be It’s thus appropriate to clarify the long-term characteristics launched and managed professionally (business case, of a European payment system. In this context, let’s try programming, alternative solutions, milestones, etc.), to envisage a state-of-the-art European payment card with robust governance and a focus on sustainability. suitable for a continent which invented the chip card, but This certainly implies a greater role for central banks, which risks losing its pride of place in this domain, and whose expertise in the matter is both extremely having to resign itself to a non-European oligopoly (in this longstanding and natural. We should of course also regard, we can ask ourselves today whether the originally define the rules to govern fees, such that the various European approach taken to the gSM standard has thus players can determine their position, while at the same been validated). Let’s also think about technologically time finding pragmatic ad hoc solutions for cross­ innovative European payment systems (again, take the border payments and for high volumes of withdrawals example of the gSM). These would be projects for Europe by limiting things to the eurozone at first. worthy of the Lisbon Treaty.24
  • 24. The best analysis of the current situation with SEPA AT A MoRE GEnERAL LEVEL, WHiCH MAJoRwas made by the European authorities in November DEVELoPMEnTS Do you ExPECT in THE2009 when comparing the launch of the SEPA products WoRLD oF BAnkinG?to that of the Cutty Sark in 1869, the best clipper shipever built, and given its performance, destined totransporting tea. however in addition to its technicalexcellence, it is worth remembering that the cost of There are regulatory developments underway that arebuilding the ship ruined the shipyard, and that during leading to the rise of truly European banks within theits maiden voyage it lost its rudder and was roundly eurozone, active in retail banking in several countries; atbeaten by an existing ship (the Thermopylae wasn’t least two such institutions can already be found in thisinvented just like that…). Furthermore, the Suez Canal category. They are of course interested in centralisingwas opened in the same period in parallel with the the management of payments. Assessing the actions ofdevelopment of steam propulsion. The Cutty Sark had these players and the progress of SEPA is a questionto be rapidly withdrawn from tea transport as it was akin to that of which comes first, the chicken or the egg?no longer competitive. There too, the amount of time And it is by providing a general long-term frameworkspent on the business case was clearly insufficient. for payments in Europe that progress will be made,We may not be at that stage yet, but the example rather than by imposing one or two more or less viablegiven by the European authorities certainly gives products here and there.pause for thought. 25
  • 25. "ChangEs, yEs –But no Big Bang."26
  • 26. TESTiMoniALSgilBErt ErnstDIRECTOR AND MEMBER OF ThE ExECuTIVE COMMITTEESTATE AnD SAVinGS BAnk, LuxEMBouRG(BAnquE ET CAiSSE D’EPARGnE DE L’ETAT - BCEE)LuxEMBouRG iS APPAREnTLy AHEAD in of SCT and SDD. I think this is overambitious. It wouldTERMS oF THE iMPLEMEnTATion oF SEPA? 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!Being a small country has advantages and disadvantages.Our cost per transaction is high if we stay in a domestic WiLL THE CHAnGES CuRREnTLy unDERWAysystem with insufficient critical mass, which sometimes MoDiFy THE WAy in WHiCH PLAyERS inmakes it necessary to migrate to more global standard THE BAnkinG SECToR inTERACT?systems. We were forerunners when it came towidespread implementation of IBAN and BIC, in 2004, There will be changes, yes – but not major disruption.with a single structure for both domestic and cross­ Banks will have to coexist with many new players (suchborder operations. In 2005, we made the EMV card as Paypal and others), but they have many strengths tostandard the norm, and in 2006 we migrated our entire draw upon. Businesses will benefit from this increasednational clearing house system to STEP2, a PEACh competition, multinationals in particular, as it willsolution managed by EBA. Today 90% of the payments facilitate their cash management operations. As regardsmade in Luxembourg comply with the SCT standard – local businesses and individuals, they will benefit fromversus only 6.2% in Europe. increased transparency and lower costs in the market.WHAT ABouT WiTHDRAWALS AnD THE WHiCH oTHER CHAnGES Do you ExPECT?SEPA CARD? There will clearly be increased impetus for theBoth these paths are scattered with pitfalls. A deadline development of e-banking. Security is still a challengeof November 2010 was set for SDD, but taking into for large sums, but clients are beginning to becomeaccount the numerous local particularities (especially accustomed to online services, and e-invoicing inwhere mandate management is concerned) I doubt it particular looks set to enjoy a bright future.will be respected. In addition, our Scandinavian colleagues are quick toAnd as for cards, numerous countries have debit point out that SDD instruments are somewhat obsolete,card systems that function well, such as Bancomat in having already been overtaken by electronic payments.Luxembourg. Will we abandon our system in 2012 for however, I don’t think that SDD will be replaced in a ‘Bigan international or European standard? At this time no Bang’ manner; the two systems will doubtless coexist forstandard is the clear leader. We may decide to keep our some time yet. Whatever happens, the EPC will almostsystem, by making it SEPA compatible. certainly have to take electronic payments increasingly into account in its thinking.WHAT iS THE GREATEST CHALLEnGE youARE FACinG AT THiS TiME?On the one hand, a regulatory challenge which consistsof striking the right balance between competition andtransparency. On the other, a fair balance and peacefulcoexistence between market forces and regulatorybodies which is indispensable. The parties involvedall need each other if SEPA is to become a reality. Forexample, the new European union commissioner hasset the deadline of 2012 for widespread implementation 27
  • 27. "towarD aharmonisED EuropE."28
  • 28. TESTiMoniALSElizaBEth FrasErhEAD OF EuROPEAN DEVELOPMENTSuk PAyMEnTS CounCiLWHAT ARE THE kEy CHALLEnGES RELATED and holiday makers should see their cards even moreTo THE iMPLEMEnTATion oF THE PSD AnD widely accepted. From a uK perspective, we have alsoSEPA? been looking at whether elements of the SEPA Schemes should be adopted domestically.SEPA underpins the European Commission’s vision of aSingle Market, requiring a harmonisation of euro payment WHAT WiLL BE THE PRoBABLEsystems (scheme rules, procedures and standards) across DEVELoPMEnTS in THE CoMPETiTiVEEurope and, ultimately, the closure of domestic euro retail LAnDSCAPE?schemes. yet the existence of SEPA does not drive anintra-Europe demand for goods and services, it simply The PSD aims to encourage non-banks to enter thefacilitates payment on a pan-European basis. New SEPA payments market so this should mean more innovationpayment schemes have been developed via a consensus and choice for consumers.approach through the European Payments Council. From WHAT WiLL BE THE PRoBABLEan implementation perspective, that inevitably means that ConSEquEnCES oF THE MARkET BEinGpayment service providers and end users must accept oPEnED uP To nEW PLAyERS?change and compromise – something which is never easy.Two years after the launch of the SEPA Credit Transfer greater competition, leading to niche developments andScheme, only about 6% of euro credit transfers have a need for players to differentiate themselves via value­migrated. The industry and a number of stakeholders are added services and innovative solutions. This shouldnow calling for the Commission to set a SEPA migration mean more choice for end users.end date through a binding Regulation, something whichthe regulator is investigating. WHAT WiLL BE THE iMPACT oF SEPA on BuSinESS MoDELS?PSD was a challenge in that it is a maximum harmonisationdirective, yet contains many Member State derogations. Corporates and small businesses can rethink their businessThis meant that the industry really had to work together, models by considering opportunities for expanding into aand with their respective finance ministries, to ensure that wider European market.it was implemented across the EEA in as consistent a wayas possible. WHAT oTHER CHAnGES Do you ExPECT (in TERMS oF TECHnoLoGy, CAPABiLiTiES,WHAT WiLL BE THE PRoBABLE DiRECT AnD ETC.)?inDiRECT iMPACT on PAyMEnT METHoDS inTHE MARkET? We expect there to be a continued focus on interoperability and the adoption of global, open messaging standards.SEPA defines an integrated euro payments market so, Other regions across the globe are picking up on thefrom a eurozone perspective, current domestic retail SEPA concept. For example, the International Paymentspayments will migrate to the SEPA Schemes. What we Framework (IPF) Association is currently in the processare already seeing, even with the SEPA Schemes, is that of finalising the IPF Credit Transfer Rulebook (based ondifferent ‘flavours’ are emerging. For example, in addition the SEPA Credit Transfer Rulebook and Implementationto the Core SEPA Direct Debit Scheme, the EPC has also guidelines) and has established mapping rules betweendeveloped a Business-to-Business Scheme and a Fixed SEPA Credit Transfers and dollar credit transfers used inAmount Scheme to suit specific customer requirements. the uS.For end users, larger corporates should find it easier tooperate on a pan-European basis and to rationalise theircash management and card acceptance arrangements.It will be simpler for individuals working or studyingabroad, or maintaining an overseas property, to transferof funds between countries, while business travellers 29
  • 29. "sEpa is thE FuturE.... sinCE, asEvEryonE knows, paymEnt makEsthE worlD go rounD."30
  • 30. TESTiMoniALSjosEF gilgErhEAD OF COMPETENCE CENTER PAyMENTS & SWIFTHyPoVEREinSBAnkWHy SEPA in REGARDS To A kEy FinAnCiAL SEPA wont really create huge advantages for the privatePLAyER SuCH AS HyPoVEREinSBAnk? person. For corporations however, it will be a major leap. Take a company like Vodaphone which today has 5 to 10hypoVereinsbank in germany, is part of uniCredit. This means banks in each country to handle its payments. With SEPA,we share common streams but as, with all national banks, we they will be able to have just one payment hub and processstill have our own products, processes and providers. And their payments through only a few banks across all of Europe.this is normal, since Europe is made up of separate countries, And they will be playing the competition saying “We havewith distinct laws, different systems for legal reporting and 5 billion transactions, whats your price?” Another exampledistinct national banking licences etc. is the Eu Commission, which only uses 4 banks today, as compared to 17 banks in the previous years! One of the 4Europe is not operating in a unified banking system such banks is uniCredit!as the united States for example. So there is no centralregulation for banks for the time being. Payment however, WHAT WiLL BE THE iMPACT oF SEPA on THEwhich is only a small part of banking, is another issue. And BAnkinG SCEnE?SEPA is actually a payment scheme developed by banks inanswer to a requirement by the European government. The It will change the worlds banking landscape, making itgoal is to have one integrated financial market in Europe... harder for small banks and more competitive for the largersince, as everyone knows, payment makes the world go entities. Some will lose transaction volumes, some will gain,round. which is all in line with the European Parliaments will to have more competition. Already the PSD (Payment ServiceSo SEPA STEMS FRoM A Eu GoVERnMEnT Directive) has changed the rules of the payment game. InREquEST... DiD BAnkS RuSH To DEVELoP THiS the scope of the national direct debit scheme, prices fornEW PAyMEnT SCHEME? direct debit throughout Europe can range from zero, ie free, to up to 9 Euros for the same product and service whichNot at first. In fact they stalled quite a bit until faced with is rated differently depending on the country. With SEPAthe possibility of a government regulation if nothing was Credit Transfer, the system will be homogenized. And this isdeveloped. At which point, as banks, we finally did it on our currently creating pressure in countries who have to changeown, implementing a SEPA scheme to be able to supplement their process and IT infrastructure to fit the system.the national payment scheme. This initiative was furtherenabled by the Payment Service Directive, which set up a So as I said, the banking landscape is going to change, withcommon legal framework, not only as regards to Payment, different processes and different earnings. Companies at thisbut also pertaining to a pan European approach to customers. point in time are defining their strategy in this matter. Do they want to to invest in the change process, outsource it toWHAT iS THE STATuS ToDAy FoR BAnkS specialized players, or in some cases, keep the infrastructureREGARDinG SEPA? in place and find partners to do the conversion to the SEPA scheme.The issue is out of our hands at this point and, at least formajor banks such as ours, we are in a waiting mode. We WHAT iS THE ouTLook FoR A BAnk SuCH AShave put in place a SEPA compliant system which is already HyPoVEREinSBAnk?processing all existing SEPA products. however we cannotswitch off the old legacy system until a European regulation, For us, as for the rest of uniCredit group banks, SEPAwhich should be published this coming September, gives an represents a range of opportunities. The big advantage of aend date to switch off all national payment systems. Targeted group like ours is that we can play on all fronts, with largedates are 2012 or 2014... infrastructures for handling big payments which are sent to main hubs, while maintaining close local ties throughAnD in THE MEAn TiME? our account managers to meet customer needs in terms of credit services, security services etc.. And we have builtAs banks, we are continuing to prepare for this date, building a completely new, streamlined system, with a whole newfunctions, products and services that will be enabled by a engine, which is ready for implementation. So it will be easypan-European system. yet at this point in time, it is a parallel for us to switch and the sooner the better. What is expensive,process, since we are still working with old schemes that is to produce with parallel systems as we are doing today.date back some 40 years! Outside of the banking system, 31
  • 31. "thE EuropEan paymEnts arEa isan iDEa that has ComE a long wayin twEnty yEars…But has yEt toBE FinalisED."32
  • 32. TESTiMoniALShErvE sitruk CONSuLTANTMAnSiT SASyou HAVE CLoSELy FoLLoWED WHAT WouLD BE A REASonABLE DEADLinEDEVELoPMEnTS in THE ConTExT oF A in youR oPinion?EuRoPEAn PAyMEnTS AREA SinCE THEBEGinninG oF THE 90S. THE iDEA HAS CoME Let’s take the most complex subject: cards. We are still inA LonG WAy in TWEnTy yEARS … the process of implementing technical standardisation; this will take (at least) until 2012. But to roll out this standardThe idea of a unified market goes back to the beginning on a widespread basis, by adapting systems and adaptingof the 90s. In 1994, I drafted an initial report on payment or changing all the terminals, will take eight to ten years!systems in Europe, for the Banque de France, with the help So we might have completed the process by roughly 2020.of the European Commission and other central banks. It That seems a very long time, but it’s not abnormal in thewas the first of its kind, and led to the creation of the ECB’s payments sector. It took 20 years to implement the euro.“Blue Book”. I highlighted that Europe was a patchwork of And bank cards, launched at the end of the 60s, only camepayment systems, that certain countries such as France into widespread use in Europe in the 90s, and the chip cardand germany were completely out of alignment with each then took another 20 years to spread throughout Europe –other, for both cultural and technical reasons, and that the a process which still isn’t completely finished.conversion to the euro wouldn’t change anything since it’sonly a unit of denomination. After the success of the euro, WHAT iS youR AnALySiS oF THE PoSiTionSin 2002, Brussels warned banks that they needed to start oF THE VARiouS PLAyERS?working on a European payments area. So the banks created The banks see one major advantage of SEPA, the openingthe EPC, developed new payment instruments and drew up up of a pan-European market. At the same time, they arerules… But they were to a certain extent driving blind, given anticipating the cash management needs of their majornumerous and constantly fluctuating goals: a single market clients but are seeking to protect their revenues. Largehad to be created, standards had to developed, consumer corporations do not seem to have mobilised to a greatrights had to be protected, all this in addition to running extent, with the exception of the retail sector which isthe business, increasing competition, overseeing the rise of seeking to increase its bargaining power versus the banksa European payment card player, and driving technological and interchange commissions. however, the majorityprogress, in particular in terms of the internet and mobile are little prepared for SEPA. They are waiting for all thepayments. And it’s still going on, since there is now talk of financial and technological aspects to be fixed beforee-SEPA… investing, such that there is no choice and that there is anHoW WouLD you SuMMARiSE THE CuRREnT end date. And let’s not forget another major player: theSiTuATion? public administrations. Public authorities could drive the sector forward by adopting SEPA products. however, this isEight years have passed since the launch of SEPA and the currently not sufficiently the case in Europe. Consumers arecreation of the EPC, with much work done by the EPC, not really driving SEPA forward either; even though they willmany debates, one directive and three European payment benefit from the new regulations, which are very favourableinstruments. But the project is gigantic… And there is no for them, and from reduced costs, they feel trepidationproject manager, no financing and no detailed planning, in regarding the proliferation of rules that may ensue.particular in the area of bank cards! The PSD is an essentialresponse but SEPA will not be able to truly develop as long Do you THink SEPA HAS A CHAnCE oFas the underlying business model has not been fixed. And SuCCEEDinG?the new Commissioner, Mr. Barnier, cannot fail to see that yes! A unified payments area is after all being created, withthe new SEPA payment instruments are only being used common regulations. What remains to be found is a conductorto a very limited extent. he seems to have decided to fix a to lead the orchestra, detailed and realistic planning anddeadline for making them widespread. The date 2012 has operational momentum involving the mobilisation of allbeen mentioned: this may be reasonable for payments, players, not just banks. These elements are exactly whatalthough the level of preparation among industry players, made the euro a success! Finally, a suitable financial driverincluding public administrations, is still low. however this is required for the banks. At the moment, interchangedeadline seems unrealistic as regards debits and above all commissions are financing the investments in paymentscards, given that the diversity of technical standards among infrastructure and providing the economic rationale forthe member states is so great! progress; care should be taken not to disrupt this… 33
  • 33. "sEpa will oFFEr asaFE, stanDarDisED anDCompEtitivE EnvironmEnt."34
  • 34. TESTiMoniALSmarC tEmmErmanExECuTIVE VICE-PRESIDENTViSA EuRoPEWHAT ARE THE CHALLEnGES AnD THE DiRECT HoW WiLL SEPA iMPACT BuSinESS AnD DoESConSEquEnCES oF PuTTinG SEPA in PLACE? THiS MEAn THE MARkET WiLL BE oPEn To nEW PLAyERS?This is a compliance exercise, which means it is obviouslycomplex to put in place. It requires doing away with rules, As I said, SEPA will definitely bring more competition sincetechnologies, processes that have been in place for years. the national walls will have been removed to make way forAnd that can be a reason for stalling for those who are a truly open European market. Already, standardisation hasreticent to change. But at the end of the day, it’s about more been finalised for credit transfers paving the way for thecompetition and increased services. Take for example, bank development of cross border competition.transfers… up till now, financial institutions had to go througha national Automated Clearing house (ACh) for their financial Does this mean more players? That is not the prime effect. Itransactions. With SEPA, a competitive environment will be would speak more in terms of opportunities, of diversificationcreated, since banks will be able to use any ACh in Europe. and growing new business… There are new opportunities also for increased service at better cost, with banks, for exampleWHAT iS THE STATuS ToDAy? who will find themselves with more choice when selecting providers throughout Europe. Large pan-European financialThere are three main workflows determined by the European institutions, which today are dealing with some 20 differentPayments Council (EPC), to establish rules for payment operators, will be able to ask for the best proposal from ainstruments regarding credit transfers, direct debits and card much wider group of providers…payments. A SEPA Credit Transfers Rules Book has beenpublished, to which all banks must comply<, Today only 5% To SuM iT uP in A nuTSHELL, WHAT iS youRof credit transfers are executed according to the SCF rules. ViSion oF SEPA ToDAy?In terms of direct debits, today, there is no direct way forexample, for a Belgium resident to pay utility bills for his house SEPA is a major work in progress and if you take thein France from his Belgian bank account. This will be made image of the glass half empty or the glass half full, I’dpossible once the SEPA Direct Debit has been implemented. definitely opt for the glass half full. Because in the longThe timeline for implementation could be dictated by Eu run, SEPA will offer a secure, standardised, competitivelegislation, possibly covering both initiatives, but there is no environment from which industry and stakeholders willdoubt, that in a number of years, national credit transfers all benefit.and direct debits systems, will have been replaced with pan And in response to those who are voicing criticism in thisEuropean SEPA payment instruments. transition period, I would refer to the deregulation of theAs for card payments, a SEPA card framework has been put telecom industry. Far from destroying it, it created a newin place that banks have to comply with in order to harmonise momentum and look at the result today! I believe SEPAprocesses. But more importantly, magnetic stripe cards are will have the same effect. If it seems slow going, you mustto be systematically replaced by chip technology only. This bear in mind the overall scope: It’s a feat in itself to havemeans that Europe would become the first region in the world over 30 countries who have agreed to undertake such in­with a fully secure card environment, taking the lead of a depth transformation of their payment processes. It’s aworldwide trend that spreads from Canada, to South America, first of its kind in the world!to Asia and Australia… with the topic increasingly discussed inthe uS.Also, a lot of work is being done to standardise morecomponents in card transactions. In the current system,a terminal vendor must get a certification from a body ineach country. Tomorrow, with a harmonised system acrossborders, the vendor will only need certification from one SEPAapproved certification body. 35
  • 35. 36
  • 36. TESTiMoniALSwhiChstratEgiEs willBanks DEploy?The banks have worked the hardest to pave the way for SEPA and the new European paymentinstruments. But what exactly is the position of the banks? how are they anticipating the newbusiness models that SEPA may give rise to? Seven bankers share their analysis, looking beyondSEPA 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." ZéLiA LiVRAMEnTo RoBERTo SAnToS Director, Payment Systems Director of Business Development and Financial Caixa Geral de Depositos (CGD) Control, Payments division 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 unicredit Banca Monte dei Paschi di Siena 37
  • 37. "ContaCtlEss paymEntCarDs or m-paymEnts:who knows whiChEuropEans willprEFEr?"38
  • 38. TESTiMoniALSwilly DuBostPAyMENTS DEPARTMENT MANAgERBnP PARiBAS RETAiL BAnkinG FRAnCEWHAT ARE THE MAin CHAnGES unDERWAy European harmonisation, which we’re working on within THE WoRLD oF PAyMEnT SySTEMS? AEPM, should contribute to the expansion of this market. English banks are leading the way in this area in the uK,Since the invention of the chip card forty years ago, we as is Visa (which already has 6 million contactless cardshave seen numerous technological developments, each in the field), which should make the Olympics in Londonbringing increased security. Today we’re witnessing in 2012 an enormous showcase for this new offering.genuine revolutions. The first is technological, with newforms of contactless payment and NFC (Near Field WHAT’S MiSSinG ToDAy THAT iS nEEDEDCommunication) technology: uSB keys, contactless To MAkE THiS oFFERinG A REALiTycards, mobile payments by telephone… Soon this will THRouGHouT EuRoPE?in turn trigger a revolution in user behaviour: think ofP-to-P (person to person), which will allow you for Several matters remain to be addressed. Firstly, thereexample to pay your plumber as soon as he finishes the was the challenge of regulation at European level.job. Add to this a marketing revolution characterised by This took time, but was essential to guarantee optimalresolutely one-to-one marketing and new services built security. Other countries (such as japan, India andaround payments – loyalty or coupon programmes, for certain African nations) have definitely made more rapidinstance. progress, but their systems will not be able to meet European requirements.WHiCH RoLE iS BnP PARiBAS PLAyinG inTHESE VARiouS REVoLuTionS? Secondly, we still need to finalise certain contractual aspects with operators regarding the allocation ofBNP Paribas was the driving force behind the creation responsibility and financial flows. In this context thereof AEPM (Association Européenne Payez Mobile), which are some very operational questions for customers: ifbrings together banks and telephony operators to I want a telephone with an NFC chip, where can I buydefine the mobile payment architecture of tomorrow. In one? From my operator or from my bank? And if I losethis context, we have actively participated in two pilot my telephone, how can I be sure that the chip will beprojects running since the end of 2007 in Caen and disabled for both communication and for payment?Strasbourg – and we will of course be part of the project These are the types of issues the upcoming pilot projectsstarting soon in Nice. will enable us to resolve.A word of caution nonetheless: we’re not just testing WHiCH ConCLuSionS HAVE you DRAWnnew technologies for the fun of it; we’re acting first and FRoM THE MoBiLE PAyMEnT PiLoTforemost in our role as bankers! Our mission is above PRoJECTS in CAEn AnD STRASBouRG?all to respond to the needs of our clients in a securepayments environment. We definitely consider Caen and Strasbourg to be very successful. We equipped 1,000 test customers withiS THERE REAL DEMAnD FoR ConTACTLESS NFC telephones and 200 businesses with dedicatedPAyMEnT ToDAy? terminals. Customers have become very attached to their telephones despite their lesser ergonomics (theIn certain customer segments, the demand is undeniable. telephones provided were prototypes). The businessesAccustomed to mobile telephony and contactless cards were also satisfied with the benefits of the pilot projects,for public transport, younger consumers are attracted in particular in terms of payment of small amounts –to these technologies to accelerate transactions. This is benefits which contactless payment should continue toparticularly true for small amounts (less than EuR 20­ increase. We still have work to do in this area. Very soon25) for which the customer doesn’t have to input a PIN we will move into an expansion phase with large scalecode - in the systems that we have implemented. testing in the city of Nice. 39
  • 39. "who will BE WHAT’S GoinG To HAPPEn in niCE? thE winnEr? thE On May 21st the operation “Nice, NFC City” will start. 3,000 telephones will be put into circulation and will Company aBlE function in the city’s stores but also on public transport and in museums. Contactless cards will also be offered to proposE an to the inhabitants of Nice and contactless terminals will be deployed within numerous local businesses. All appropriatE the banks will take part in the project, with different offerings in terms of products, services and prices. As sErviCE oFFEring, for us, we’ll be testing two offerings: one with a mobile phone (highly ergonomic), the other with a contactless at an aCCEptaBlE payment card. priCE, without The Nice pilot programme will allow us to test our customers’ appetite for various offerings and to observe making thE CliEnt new behaviours – of customers, but also of businesses and operators. It’s extremely exciting! ExpEriEnCE morE WiTH THE nEW EuRoPEAn REGuLATionS, Do you ExPECT nEW PLAyERS To ARRiVE CompliCatED on THE PAyMEnTS MARkET? than it is toDay." 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!40
  • 40. 41
  • 41. "ContaCtlEss paymEnts, anDmorE spECiFiCally thosEmaDE By moBilE phonE, willunDouBtEDly play a majorrolE ovEr thE mEDium tErm."42
  • 42. TESTiMoniALSEnriquE BarthESySTEMS BuSINESS DEVELOPMENT AND INNOVATIONDIRECTORBBVAWHAT ARE THE MAin CHALLEnGES To BE these new players will focus on remote (internet) payments,FACED in RELATion To THE iMPLEMEnTATion others will utilise new technologies and formats closelyoF THE PAyMEnT SERViCES DiRECTiVE (PSD) linked to mobile telephony, and others will draw on theirAnD SEPA? current client base or current commercial offering, as may be the case with telecommunications companies. It is quiteFirst of all, the modifications to the systems, processes possible that alliances will form between traditional financialand customer management practices are being made intermediaries and these newcomers, who will combineby financial institutions during a time of great economic their technological and business capabilities to better serveuncertainty. Secondly, and of equal importance, the need the customers who use these methods of payment.to ensure that consumers fully understand the changes tocommonly used payment instruments and how to use the WHAT WiLL THE iMPACT oF SEPA BE oninstruments themselves. BuSinESS MoDELS?HoW WiLL THESE MoDiFiED MEAnS oF I’m going to respond to this question with regard to cards,PAyMEnT AFFECT THE MARkET, BoTH rather than in terms of bank transfers sent or received. TheDiRECTLy AnD inDiRECTLy? drop in interchange rates is already a given, the migration to EMV chip cards has already begun, and the differentiationThat will to a large extent depend on the practical application of discount rates, within a business, according to transactionof the law. In theory, a single payment area should promote type has already been approved. This will result in lessgreater competition and should thus broaden the use of income for banks, greater competition in merchant accountthese means of payment while decreasing the use of cash. fees and, above all, require a huge investment in order toThis would be very beneficial in terms of administrative adapt technology (cards and merchant networks) to thecosts and also in terms of the reduction of under-the-table established EMV standard. This model poses a risk to certaintransactions in certain geographic areas. business models such as "monoliners," institutions that focus mainly on the issuing of cards with little infrastructureThe indirect impact of the law may, however, be just the to support innovation and a weak physical businessopposite: by differentiating discount rates and enabling network. Other multi-product institutions that are equippedbusinesses to transfer the cost of payments made with a with business networks will also see a decrease in income,bank card to the end customer, this could, paradoxically, but they can take advantage of the technological evolutionresult in a situation where consumers choose to use cash to invest in innovation and new value-added services thatin order to pay a lesser amount for the same product. The could balance out the fall in earnings over the medium term.law would then be promoting the use of cash (along withthe administrative costs that cash entails) over the use of WHAT oTHER CHAnGES Do you SEE in THEbank cards. This will be examined in greater detail when we nEAR FuTuRE? (in TERMS oF TECHnoLoGy,discuss how the law will be applied to business transactions. CAPABiLiTiES, ETC.)HoW Do you BELiEVE THAT THiS WiLL Aside from the investments required of the financialEFFECT CoMPETiTion? institutions, as already pointed out, I believe that there will major opportunities for innovation. Contactless paymentsThere will definitely be consolidation of players and possibly and payments via mobile phone in particular will definitelythe creation of new European payment systems. This will serve as a common means of payment in the not-too­stimulate greater competition, greater innovation, and new distant future. Integrating a bank card into a mobile phonevalue-added services for customers who use these means of would open up endless possibilities for customers: theypayment: in short, greater competitiveness at a European level. could view their balance or transactions, request financing for a purchase in real time, earn loyalty programme rewardsin youR oPinion, WHAT WiLL BE THE that are redeemable directly through their mobile phoneConSEquEnCES oF oPEninG uP THE MARkET and much more. We will see a major revolution in paymentTo nEW PLAyERS? methods and behaviours over the next few years. At firstIt is very likely that newcomers to the payment service these will not be large-scale changes, but they will be feltindustry will arrive on the scene, this being one of the strongly in certain market segments.objectives of implementing SEPA and the PSD. Some of 43
  • 43. "paymEnts arE aunivErsal sErviCE. "44
  • 44. TESTiMoniALSmarC CarlosDIRECTOR, PAyMENT SySTEMS AND SERVICESCRéDiT AGRiCoLE S.A.WHAT iS youR CuRREnT AnALySiS oF THE WHAT oTHER DEVELoPMEnTS AREiMPLEMEnTATion oF SEPA AnD THE PSD? CHARACTERiSinG THE PAyMEnTS SECToR?Banks have committed themselves to considerable The potential of both remote banking and electronicinvestments to integrate new SEPA compliant means of business is still enormous. Recall that technology availablepayment into their information systems. As the PSD has today makes it possible to imagine means of paymentcreated further obligations, for both national and SEPA that are independent of the channel used – be it internet,compliant payment systems, the banks have tried to telephone or card. A sort of universal payment instrument,convince their clients to migrate quickly – but have met with as it were! It’s also worth noting what is happening onresistance from national markets, and the important thing certain internet sites: using virtual currency (such as thenow is that the deadline for completion of the migration “Q-Coin” in China), two people can trade physical goods.be set! Only then will all the players involved be able to We haven’t yet assessed all the consequences of theseorganise themselves appropriately. phenomena. What are the business models that underpin these transactions? how can the risk of fraud be monitored?ARE PAyMEnTS inSTiTuTionS A THREAT FoR What will happen if one of these sites, having “captured”BAnkS? millions of users, suddenly decides to increase the payment commissions it charges?The intent behind the PSD is without doubt to stimulatecompetition, but the activities it foresees for payments until now, Europe has focused its attention on traditionalinstitutions are still limited. In France, if I’m not mistaken, means of payment. A lot of work will need to be done ononly two licenses have been granted under specific these new means of payment, both to make them secureconditions. That said, upon closer examination it becomes and to drive forward business models that will have becomeapparent that competition already exists: Carrefour is now inevitable.issuing a card that is compliant with only the Mastercardrules, whereas it makes use of the Carte Bancaire (national WHAT ARE THE MAJoR CHALLEnGES FoR THEbank card association) infrastructure. MonTHS AHEAD?WiLL WE SEE THE APPEARAnCE oF nEW Europe has formed a SEPA committee to manage the entireBuSinESS MoDELS? project. It’s an important initiative: there is indeed a lack of real governance, which is needed to decide which aspectsIt’s one of the challenges at this time – with in the background will be regulated and which left to competition betweenthe question of interchange commissions. When you make players, and to put pressure on the latter to make progress.a payment, you are implicitly giving a double mandate – to The first priority is for this committee to be put in place andyour bank, and to that of the seller. This operation has a cost to get to work quickly.(which includes fraud detection) that has to be covered.It remains to be determined what a fair division of valueconsists of. Will this be decided by the market, or fixed bya regulator? The second solution seems more equitable inmy opinion. Because payments are a universal service, thereis no reason for a small bank to pay more than a large one. 45
  • 45. "opEning thE markEt to nEwplayErs will amongst othErspromotE Cost rEDuCtions."46
  • 46. TESTiMoniALSzélia livramEnto DIRECTOR, PAyMENT SySTEMSCAixA GERAL DE DEPoSiToS (CGD)WHAT ARE THE kEy CHALLEnGES RELATED market environment. This increased competition will inTo THE iMPLEMEnTATion oF THE PSD AnD general provide a significant boost to the convergence ofSEPA? the various procedures and cultures within a single internal market, and will in particular result in a harmonisedThe Payment Services Directive (PSD) provides the legal payments landscape. The contours of this landscape arefoundation for the internal market regarding Payments and becoming clearer as we progress, yet several more yearsthe Single European Payment Area (SEPA), and is based of hard work will be required from all stakeholders beforeupon three central pillars: enhancing competition, increasing this ambition becomes a reality.transparency and ensuring a common level of consumer/customer protection. WHAT WiLL BE THE PRoBABLE ConSEquEnCES oF THE MARkET BEinGIn general, the key challenges are the introduction of a oPEnED uP To nEW PLAyERS?new licensing regime to encourage non-banks to enterthe payments market, common rules regarding access to Opening the market to new players will amongst otherspayment systems and common maximum liability provisions promote cost reductions (namely for end-users);for users of payment services in the interests of consumer potentially erode the profitability of some playersprotection. Other challenges include setting common (namely banks); drive new strategic approaches tostandards for terms and conditions and post-transaction SEPA by the various players; stimulate the creation ofinformation, with a focus on high levels of transparency and more efficient payment methods; generate qualitativeencouraging the adoption of more efficient payment types. and quantitative benefits for end-users; and, above all, enhance competition and increase transparency.WHAT WiLL BE THE PRoBABLE DiRECT AnDinDiRECT iMPACT on PAyMEnT METHoDS in WHAT WiLL BE THE iMPACT oF SEPA onTHE MARkET? BuSinESS MoDELS?The primary direct impact concerns the harmonisation of The increased convergence and competition driventhe European payment market; the main indirect impact by SEPA will, by definition, create new opportunitiesis linked to the substantial investments required on behalf and result in the redesign of many processes in variousof payment service providers. SEPA will work as a single markets. It will thus have a major impact on currentdomestic payments market in which citizens and financial business models. We have already begun to observe theintermediaries will be able to make international payments initial changes these things imply.inside European union (Eu) as easily and inexpensively as intheir home country. In addition, SEPA is expected to foster WHAT oTHER CHAnGES Do you ExPECTgreater transparency and competition which will result in a (in TERMS oF TECHnoLoGy, CAPABiLiTiES,cheaper and more efficient payment system in Europe. ETC.)?During the so-called migration period during which traditional First and foremost, a change in attitude, moving frompayment methods will slowly be phased out, all participating a passive to a proactive approach on behalf of allcountries will implement their national migration plans for those involved. Secondly, a growing sense of urgencymoving away from the current domestic payment products. surrounding SEPA among businesses throughout Europe.In my opinion, it should be possible to reach a critical mass in All stakeholders can and should play a role in this –terms of SEPA transaction volumes by 2011. regulators, payment service providers, and private and public sector organisations as the predominant users ofWHAT WiLL BE THE PRoBABLE payment servicesDEVELoPMEnTS in THE CoMPETiTiVELAnDSCAPE?The developments to be expected will be related to strongcompetition between current and new players as theyattempt to capitalise upon opportunities to the greatestpossible extent and gain maximum advantage in this new 47
  • 47. "thE Crisis is aFFECting thE wholEoF thE paymEnts sECtor DuE to aFall in housEholD Consumption."48
  • 48. TESTiMoniALSroBErto santosDIRECTOR OF BuSINESS DEVELOPMENT AND FINANCIALCONTROL, PAyMENTS DIVISIONBAnCo SAnTAnDERWHAT ARE THE MAin CHALLEnGES To BE as a whole. Introducing new standards tends to result in aFACED in RELATion To THE iMPLEMEnTATion fall in revenues (due to lower interchange fees or the partialoF SEPA AnD THE PSD? erosion of certain fees established by the Payment Services Directive), or in the need to make certain investmentsI believe there are two key challenges. Firstly, bringing all (as was the case for the EMV standard). This will meancredit cards in line with the EMV standard and, secondly, some business models will no longer be able to functionadapting operational aspects and technologies to the independently and will instead be merged with the rest ofnew standards, along with all the publicity and changes to the banking network. For example, debit will become ancontract terms and conditions that are going to be needed increasingly necessary, although not necessarily profitable,as regards the customers. part of the retail banking sector. As regards credit cards, in time there will be greater need to rely on revolving creditHoW WiLL THESE MEAnS oF PAyMEnT lines and the sale of other related products and/or servicesAFFECT THE MARkET, BoTH DiRECTLy AnD in order to maintain profitability.inDiRECTLy? FRoM A LEGAL PERSPECTiVE, WHAT oTHERIf you mean, will the current role of cards, TPVs and cash ADVAnTAGES DoES THE PAyMEnT SERViCESregisters change, then no, I don’t think there will be any DiRECTiVE oFFER in ADDiTion To GREATERsignificant changes in the medium-term. Further along SECuRiTy FoR uSERS?there may be a gradual move away from having cash incash registers and toward card payments. This will be made Without doubt, taking inspiration from the focus of thepossible on the one hand by the increased security offered European Directive, the main benefit is greater customerby current legislation and technology and, on the other protection and security. however, I understand that it willhand, by the arrival of new, younger users willing to use also make the European landscape more uniform as regardselectronic means of payment. the rules of the game and the type of players that can play, making it slightly easier to access new markets and emulatein youR oPinion, WHAT WiLL BE THE the commercial offerings of competitors.ConSEquEnCES oF oPEninG uP THE MARkETTo nEW PLAyERS? FinALLy, HoW HAS THE EConoMiC CRiSiS AFFECTED THE PAyMEnT SERViCES MARkET?I believe that other than movements by some companies Do WE nEED To TAkE SPECiFiC MEASuRES?as described above, the impact will be very limited. Theexperience of specialist players - known as monoliners - in The crisis is affecting the whole of the payments sector dueSpain has clearly revealed the huge entry barriers faced by to a fall in household consumption. Even though there is stillbusinesses that are tied in to the banking network. We must an attempt to increase credit card penetration, the reality isalso take into account the fact that, unlike other countries, that market growth has historically been closely connectedwe do not have a good credit bureau which greatly restricts to an increase in gDP and consumption - and in times ofthe attractiveness of the Spanish market for new players. crisis or recession, people buy a lot less. At the same time,Only if a company has a good client base, and some the credit sector in particular has also been affected by thetechnological or commercial connection that allows them gloom that tends to prevail in periods when there are highto enter the payments sector, do things potentially become levels of unemployment, as is the case now.more interesting. I believe that Spanish regulation and its policy of makingWHAT WiLL BE THE iMPACT oF SEPA uPon provisions for insolvency is sufficiently conservative to copeBuSinESS MoDELS? with any impact that the economic crisis could have on the payments sector.In general, all regulatory changes in the sector - both pastand future - are aimed more at businesses and consumersrather than being designed for the benefit of the industry 49
  • 49. "thE majority oF potEntial nEwEntrants will BE intErEstEDprimarily in CustomErmanagEmEnt rathEr than Flows."50
  • 50. TESTiMoniALSluCa vaninihEAD OF gROuP PAyMENTS DEVELOPMENTuniCREDiTHoW iS THE PAyMEnT SySTEMS MARkET in their specific and well-consolidated skills and know-how. IniTALy BEinG SHAPED? fact, I believe that the majority of potential new entrants will be more interested in acquiring and managing customers,The scenario is undoubtedly complex, particularly in a as opposed to flows.context like the current one, where the economic slowdownand the collapse in interest rates have already had a major WHAT iMPACT WiLL SEPA AnD THE PSD HAVEimpact on banks’ operating margins. It’s likely that in the on BAnkS’ BuSinESS MoDELS?near future banks will react differently, depending on theircustomer base. On the one hand, it will be difficult for retail On the one hand, Italian banks are still struggling tobanks, which represent the majority of Italian banks, to understand the real economic effect of the new regulations.find new revenue streams; they will thus be encouraged In many cases, they possess an excellent knowledge of theto realise efficiency gains by outsourcing payment system main revenue drivers but do not have an equally incisiveprocesses and skills to specialised players, such as those command of those relating to costs. In contrast, I can sayalready very well established in the English-speaking world. that in our case the changes underway and the relativeIn fact, in our country cooperative banks already operate impact on results have been analysed extremely carefullyin this way. On the other hand, corporate banks will find for a long time and at all levels, thanks to a system forthemselves operating in more a limited competitive space rigorously monitoring KPIs already implemented 7 yearsand will therefore focus on the creation of higher value ago. On the other hand, for banks watching individualservices capable of attracting their own customers and profitability parameters, both the PSD and SEPA, and evenbuilding loyalty. I believe that in Italy, the real challenge the economic crisis, can significantly boost development ofwill be linked precisely to the ability to combine these two added value services, and not only at national level.seemingly incompatible aspects: maintaining solid internal WHAT oTHER CHALLEnGES ARE youknow-how whilst externalising the operational activities ExPECTinG FoR youR CoMPAny in TERMSlinked to payment systems. oF TECHnoLoGiES, BuSinESS MoDELS AnDHoW Do you SEE THE EnTRy oF nEW STRATEGiES?PLAyERS quALiFiED To oPERATE in THE uniCredit is already a major multinational group. SixtyPAyMEnT SySTEMS MARkET? percent of the payments that we manage already occurIt’s difficult to say exactly what will happen in the short within SEPA, therefore the impact of the new regulations isterm in our country. While in the more mature markets undoubtedly very large. We continue to pay considerablecertain phenomena such as telecoms-managed mobile attention to transnational services and to our proprietarypayments are almost fully established, the situation appears services, which are distinctive compared to what the othermuch more fragmented in Italy. undoubtedly there are a banks offer. Furthermore, we are focused on improvingfew players who are evaluating the opportunity to enter our understanding of the actual needs and purchasingthe field. These are companies with millions of customers behaviours of our customers, aiming for greater integrationor tens of thousands of branches nationwide. But setting of the various products, with the goal of offering them theup a non-banking payments institution is certainly not maximum value. Lastly, the engineering of cross-sellinga simple operation and, in some ways, it’s still difficult to represents a very important component of our activities, asimagine. It’s more probable, rather, that in the near future is the case in many sectors, not only in the banking world.new organisations will be set up and work in synergy withthe banks, which are currently still in a unique position given 51
  • 51. "as Far as nEw opEratorsEntEring thE markEt isConCErnED, thE outComE is Byno mEans CErtain."52
  • 52. TESTiMoniALSpaolo zanChihEAD OF E-MONEy SERVICES, ENCAShMENT AND PAyMENTSBAnCA MonTE DEi PASCHi Di SiEnAin youR oPinion, WHAT ARE THE MAin Encashment and payment services in Italy are, in fact,CHALLEnGES THAT BAnkS ARE FACinG AS A generally more complex and structured than those of otherRESuLT oF THE iMPLEMEnTATion oF SEPA European countries and therefore as a consequence ofAnD THE PSD? alignment of offerings, we may lose some characteristics typical of the present domestic market in some cases.With regard to the PSD it’s clear that the new regulationsrequire banks to make a series of changes to their systems Thanks to the introduction of AOS (Additional Optionaland operations, and thus also to the organisation of their Services) it will be possible to offer the same level ofinstitutions’ activities. Compliance with the new rules services that is currently offered, in particular in theregarding deadlines, method of execution, tracing of encashment sector, by integrating the basic schemes ofoperations and filing of effective information all have SEPA with value added functions that are coherent withan impact on the key procedures of banks’ information European objectives and with the rules defined by thesystems, which leads to numerous obligations and requires EPC (European Payment Council).significant investment. The new scenario, which anticipates new and moreAt the same time, market harmonisation in Europe and efficient processes and rules, could significantly alterthe introduction of new rules may lead to an increase in certain customer behaviours, driving them towardscompetitive pressure and a reduction in profits and margins payment methods other than cash or traditionalfor banks. products such as cheques, which are still widely used in Italy when compared to the average data from otherIn effect, it seems obvious that the challenge will lie in European countries.knowing how to deal with the increase in costs whileleveraging operational efficiencies and defining new WHAT WiLL BE THE ConSEquEnCES oFoffering models in order to seize opportunities in the market MARkET EnTRy oF nEW PLAyERS?and find new sources of business. As I said, we will certainly see an increase in competitionOn the other hand, the introduction of SEPA presents at European level as a consequence of more opena different scenario. In this case it’s necessary to evolve markets, and the entry of new non-bank players thatgradually, ensuring the continuity and quality of present are regulated by the PSD. This trend could lead toservices. The introduction of new products transforms better focus in business and to the development of newthe domestic market – previously seen at a strictly models and solutions aimed at retaining customers,local level – by enlarging it to a European scale. This concentrating on value added service offerings andobviously leads to new competitive dynamics that force upselling opportunities. With regard to the newus to confront foreign operators and review commercial players, today’s playing field is not yet defined, and astrategies, and also to extend what were previously lot will depend on the strategic decisions of the variouspurely geographic boundaries. potential players (e.g. telecom operators, retailers and others) to apply a cooperative model rather than aWHAT iMPACT Do you FoRESEE FoR EnD competitive model within the banking system, with theCuSToMERS? aim of increasing the benefits for the end user.SEPA and the PSD were created with the objective of WHAT oTHER CHAnGES SHouLD WEmaking services more efficient and more uniform at ExPECT, FoR ExAMPLE in TERMS oF nEWEuropean level, so customers will certainly see a positive TECHnoLoGiES AnD CoMPETEnCiES?impact once the system is operative. The new technologies (mobile, contactless, and remotehowever, the introduction of new rules also leads to payments, NFC, etc.) can certainly help the developmentchanges in the current methods of operation and and use of encashment and payment services. Initiatives inproducts offered, and customers will have to get used this field are already underway and pilot projects have beento them. set up in various areas. 53
  • 53. 54
  • 54. TESTiMoniALSthE sErviCEs oF tomorrowThe 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 convergenceof regulatory and technological developments could change the rules of the game for the entiresector. 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 "This trend will soon transform "We embrace everything which our mobile telephones into 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 55
  • 55. "thEsE rEgulatory ChangEsarE Coming at a timE whEntEChnologiCal DEvElopmEntsCan rEshapE thE paymEntsvaluE Chain."56
  • 56. TESTiMoniALSphilippE lEmoinECEOLASERWHAT Do you THink oF THE CuRREnTDEVELoPMEnTS in THE WoRLD oFPAyMEnTS? WHAT iS youR AnALySiS oF THE RELATionSHiP BETWEEn BAnkS AnDEnsuring the interoperability of means of payment in BuSinESS in THE RETAiL SECToR?Europe has been necessary since the implementation ofa single currency. The challenges however go far beyond Oh, retailers are past masters at this game! There hasn’tmerely governing operations within the eurozone. These been a technological development since the 1960s thatregulatory changes are coming at a time when the didn’t result in conflict with the banking sector: aboutmagnitude of technological developments is such that interchange commissions, about the EMV standard… Eachthey can cause disruption within the payments value time there’s a lot of sabre rattling in public, and meanwhilechain, by having an impact upon network architectures, matters are settled behind the scenes. It’s a question oftransaction processes and even the nature of terminals bargaining power. That said, however, a new element maythemselves. be at play this time: in a more competitive environment with more options on offer, consumer opinion will carryWHiCH DEVELoPMEnTS Do you MEAn in increasing weight. The battle for the payments marketPARTiCuLAR? will also be fought with marketing.There are three primary developments. The first is that AnD HoW DoES LASER FiT inTo ALL THiS?of open, internet enabled technologies. They changeour approach to cost models – to say nothing of the We’re one of the largest private label credit and paymentcorresponding security issues. Secondly, for certain card operators in Europe. In line with our mission,countries European harmonisation will stimulate among we bring innovation to all transaction processes. Weothers changes in habits. For instance, widespread use of are above all a partner for retailers, and we supportelectronic payments and debits, which are still relatively their strategies for value creation based on customeruncommon in germany for example. Lastly, there will be relationship development. Certain retailers partner witha shift in all countries from plastic money to electronic banks, others prefer to distance themselves from them;money. What we call “cards” today may well be completely given that LaSer is owned 50-50 by the galeries Lafayettedematerialised as a result of functionality integrated into and BNP Paribas, we support them either way! It’s not amobile telephones. And SEPA will have to regulate the political decision. In fact, everything depends on the levelharmonious functioning of all this innovation. of maturity of the retailer in question and the challenges they are facing.WHiCH STRATEGiES WiLL DiFFEREnTMARkET PLAyERS DEPLoy in THiS ConTExT? in ConCRETE TERMS, WHAT ARE THE THREATS AnD oPPoRTuniTiES RETAiLERSAmong the most deeply involved are the network and ARE FACinG ToDAy?technical solution providers. As for the heavyweights,the players from the banking sector will have to redefine We’re working on three scenarios. The first is defensive:their processes and plot a course between threats and which services provided by private label cards todayopportunities in an environment full of uncertainty – take might be provided by traditional bank cards tomorrow?for example the “European bank card” recently called The second is offensive: it consists of analysing thefor by Commissioner Barnier to compete against the opportunities that will arise as a result of the disappearanceofferings of Visa and Mastercard. Businesses will also of certain particularities at national level (similar to whatneed to adapt their strategies, in particular those in the happened in France in 2007 when co-branded cardsretail sector that are directly in the line of fire. were authorised) and the large scale integration of the European banking space with that of the rest of the world. 57
  • 57. "inCrEasED The third scenario we’re thinking of is innovation – which takes very different directions depending on the players CompEtition involved. For instance, once Microsoft, google or Apple have standards on which to base themselves, they are mEans ConsumErs capable of deploying their own innovations very rapidly. In this context we’ll try to stay close to these fast movers. havE morE however, we’ll remain complementary to players from the banking sector. We’re not going to compete with Visa and ChoiCEs anD Mastercard! thus grEatEr WHAT STREnGTHS CAn RETAiLERS DRAW uPon in THE BATTLE FoR THE PAyMEnTS Bargaining MARkET? powEr. thE BattlE The retail sector has seen its capability for action grow considerably in the course of the past few years. The For suprEmaCy major retailers have been able to extend their scope of activity from the “now” by building relationships with their in thE paymEnts clients that last over time, by thinking of their customer base in terms of flows and networks rather than merely sECtor will catchment areas and territories. One of the corollaries of this change of approach is that they are also starting to also BE Fought build more solid relationships with their suppliers. with thE hElp oF Another development is sociological: it has been observed that although people trust organisations less and less, markEting." 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.58
  • 58. 59
  • 59. "this trEnD will soon transFormour moBilE tElEphonEs intoElECtroniC monEy managEmEntCEntrEs, sECurE anD EasilyaCCEssiBlE anytimE, anywhErE."60
  • 60. TESTiMoniALSDaniEla manuElloMARKETINg DIRECTORPoSTEMoBiLEWHAT ARE THE PRinCiPAL CHALLEnGES benefits. In Italy, the number of SIM cards is almost doubleLinkED To SEPA AnD THE PSD? the number of inhabitants and many customers use cards from different operators depending on their needs andThe first challenge is linked mainly to the opening of the the cheapest fees. With regard to payments we can alsofinancial services market to players other than banks and foresee the birth of “multi-accounts,” leading customerstraditional credit institutions. This inevitably implies an to deal with multiple institutions, subscribing to differentacceleration in the competitive dynamics and changes to services and using them on the basis of the specific valuethe market structure — until now, almost an oligopoly — offered and the relative price.where new players will appear, some of them from othercountries. In this context individual organisations will excel AnD WHAT ABouT youR BuSinESS MoDEL?if they are able to structure themselves effectively andefficiently, both in terms of the value added services offered In Italy, PosteMobile represents a unique case. We’re theand technological infrastructure. number one Italian virtual mobile network operator in terms of customers, with around 1.3 million active SIM cards.SEPA, on the other hand, will represent an important testingground, especially for the integration of different business The mission and the positioning our company, which is anmodels, processes and behaviours. The introduction of integral part of gruppo Poste Italiane, allow us to significantlychip cards will allow storage of a much greater quantity of influence the development of an entire country’s economicdata compared to what is possible using normal banking system, not only as a supplier of telecommunicationstandards and will also progressively enable contactless services and payment systems, but especially as a playerpayment, which will inevitably lead to these cards being that reduces the digital divide and as a facilitator of allused for micropayments. It’s easy to imagine how this the innovative processes that can improve citizens’ livescapability can influence the behaviour of end users, by and boost companies’ effectiveness. The market demandssimplifying access to products and services and creating simple, quick and secure payment services. In this sense,new relationships. This scenario will force operators to be PosteMobile can offer state of the art solutions, and upinnovative, not only in defining services and operations, but to four different e-wallets, in an integrated manner whilealso in terms of their ability to build a system capable of guaranteeing the highest security standards.satisfying all the players involved. WHAT oTHER CHAnGES Do you FoRESEEWHAT WiLL BE THE iMPACT, EiTHER DiRECT in THE nEAR FuTuRE in TERMS oFoR inDiRECT, oF THE “nEW” PAyMEnT DEVELoPMEnTS in TECHnoLoGy AnDSySTEMS on THE MARkET? CoMPETEnCiES?The synergies created by the two regulatory initiatives, We’re facing a trend that will transform our mobile phonesSEPA and the PSD, will make the use of electronic means of into instruments for managing e-wallets simply, safelypayment (e-wallets and cards) more widespread, increase and effectively, anytime and anywhere. We’ll certainlythe level of security for transactions and increase the see the development of new vertical competencies andaverage time funds are available on current accounts. observe knowledge and functionality sharing phenomena between structures with different business cultures andThe increase in competition will certainly drive a natural backgrounds. This is exactly what’s happening within ourreduction in fees and will, to some extent, erode the group, where the know-how of a national postal operatorcustomer base. This will force all operators to find and (Poste Italiane) is combined with the financial expertise ofimplement new business models that increase both the BancoPosta and delivered into in the hands of the customervolume and the quality of services offered in order to using the technologically advanced network of PosteMobile,maintain sustainable profitability. providing access to financial and postal services, anywhere at any time.As far as end users are concerned, it is probable that theywon’t simply use the services offered by a single operator,but will choose several according to specific customer 61
  • 61. "wE EmBraCE EvErything whiChFaCilitatEs CompEtition anD thEgrowth oF issuErs’ aCtivitiEs."62
  • 62. TESTiMoniALSEmmanuEl pEtit CEOMASTERCARD FRAnCEHoW DoES THE iMPLEMEnTATion oF SEPA WHAT ELSE iS on THE HoRiZon?inSPiRE you? We have put innovation at the core of our business. DebitIt’s not so much a revolution as a slow evolution. Many of and credit cards are an interesting example. The MasterCardour partners have been preparing for this moment for a “Double Action” card, developed by Crédit Agricole, or thelong time. We also anticipated the coming of this European S2P card (from Carrefour) allows customers to choosespace, as it were. With 303 million cards in Europe, Maestro between debit or credit functionality.is the first large scale SEPA product. Our infrastructure andacceptance network operates in the same way throughout Another example is co-branding programmes. We haveEurope and meets SEPA requirements. demonstrated our card know-how in the Mozaïc M6 cards for young people from Crédit Agricole, ISIC from LCL forHoW iS MASTERCARD PoSiTionED in TERMS students and Sirène from SBE for military reserve personnel,oF THE CHAnGES CuRREnTLy unDERWAy? to name but a few. The potential market is significant – again, however, we do not believe in a revolution that will sweepWe are above all facilitators. As such, we embrace aside everything else! The key element in this area is theeverything which facilitates competition and operations for specific added value for the customer, which must createissuers – whether they are traditional banks or new players a strong affinity and deliver real and personalised benefits.from sectors such as retail, online banking or e-commerce. So AT LAST THESE innoVATionS AREWHiCH RoLE WiLL PAyMEnT SERViCES PuTTinG THE CuSToMER BACk in PRiDE oFPRoViDERS PLAy, in youR oPinion? PLACE …I think that banks, which have the capabilities required The banks have always put the customer at the centre ofto run large scale projects efficiently and which have their product offerings. Thanks to harmonisation, whichstandardised their back office operations, will continue to everyone will benefit from, and greater choice as a resultplay a key role. Payment services providers will be able to of competition, SEPA is giving consumers more power andbuild strong positions in certain market segments on the ensuring they are the focus of our clients’ attention morebasis of sound business models, robust competences and than ever before.well-targeted offerings – that’s what Aqoba intends to dowith its co-branding and loyalty programmes. But they willdoubtlessly remain niche players.WHAT Do you THink ARE THE MAinCHALLEnGES FoR THE yEARS AHEAD?The greatest one will be contactless payment – by card ormobile phone. Mastercard is the leader in France in this field,with the PayPass solution which is the spearhead of ourdevelopment programme. We will of course be taking partin the large scale pilot programmes in Nice and beyond. Wealso launched a project in Paris in cooperation with BanquePostale and RATP: contactless payment will in essence bethe ideal solution for all travellers that currently purchasetickets from machines. 63
  • 63. "a BusinEss moDEl whiChrEmains to BE DEtErminED."64
  • 64. TESTiMoniALSgillEs saBatiErBANKINg & INSuRANCE MARKET DIRECTOR. oRAnGE BuSinESS SERViCESChristophE BEauvaisMARKETINg DIRECTOR PAyMENTS. oRAnGE BuSinESS SERViCESmung-ki wooDIRECTOR MOBILE PAyMENT SERVICES. oRAnGEWHAT iS youR AnALySiS oF THE applications for payment services providers have alreadyDEVELoPMEnTS in THE WoRLD oF been submitted! The other primary phenomenon will bePAyMEnTS? the arrival of online players on the scene – and especially the major American players. In addition to Paypal, Apple,gilles Sabatier: We have in fact observed three google and even Facebook are developing their owndisruptions. The first concerns the changes in consumer payment solutions.behaviour brought about by Web 2.0. The second istechnological, caused by NFC and dematerialisation, iS oRAnGE EnViSAGinG BECoMinG Awhich in turn trigger new behaviours: facilitation of PAyMEnT SERViCES PRoViDER?withdrawals, growth in the volume of micropayments,etc. The regulatory ecosystem of SEPA coupled with M-K. W and C.B.: Orange Business Services focuses abovethe arrival of payment services providers constitutes all on businesses and banks. In terms of our activitiesthe third disruption. The combination of these things as a telecom operator serving the public at large, we’rewill change our daily lives, with new mobile interfaces preparing for the arrival of contactless mobile paymentbetween our private environment and the services systems – but the payment service itself will be providedenvironment. by the banks. We’re seeking to help our partners, the banks and businesses, secure the benefits offered byHoW Do you SEE youR oWn PoSiTion in this new technology.THiS ConTExT? WHAT iS youR oPinion oF THE MoBiLEChristophe Beauvais: Our role is to guide our clients PAyMEnT SERViCES TESTinG BEinGthrough the technological disruption currently underway, ConDuCTED in niCE? WHiCH SERViCESby offering tools and services that will be compatible CAn WE EnViSAGE oVER THE LonG TERM?and make it possible to turn regulatory developmentsinto competitive advantage. In concrete terms, for M-K. W: The project being run in Nice is a sort of dressexample, when we manage the transition from x25 rehearsal. For several years we have been workingnetworks to IP, we enable clients to use SEPA compliant with banks and public transport operators to define atools to do what they did previously in the “old world” service that responds to latent customer needs. Nice will(payments, e-commerce, ETEBAC transfers, etc.). And allow us to fine tune the last details prior to large scalewe will continue to innovate, as we have in the past with deployment.co-branded pre-paid cards, the virtual dynamic card and The service for purchasing tickets on public transport iscontactless payment cards, for example. one of the most eagerly awaited. As for other services,WiLL THE REGuLAToRy DEVELoPMEnTS the only limit is imagination. In japan, where half theunDERWAy, in PARTiCuLAR THE nEW population is equipped with contactless mobiles, 80STATuS oF PAyMEnT SERViCES PRoViDER, services are already available. From tickets, to yourCHAnGE THE WAy in WHiCH MARkET library card, to access control and loyalty programmesPLAyERS inTERACT? – whichever cards or paper tickets are in your pocket today can be transferred onto your mobile.Mung-Ki Woo: With SEPA and the new PaymentServices Directive, numerous new players should enterthe payments market - in the uK roughly fifty license 65
  • 65. 66
  • 66. 3thE nExt paymEntsrEvolution EurOpEAN pAymENTS BArOmETErin EuropE. tns soFrEswho will BE rEsultsthE winnErs? 67
  • 67. TARGET AnD SAMPLE Structure of sample: banks and companies Banks: 42 participants Luxembourg Luxembourg 12 % France France 14 % Belgium Belgique 5% Spain Italy Italie Espagne 19 % 17 % uK UK germany Allemagne 19 % 14 % Companies: 53 participants Luxembourg g Luxembour 6% France France Belgium 15 % Belgique 8% Portugal Portugal 7% Italy Italie 15 % Spain Espagne 19 % uK UK germany Allemagne 15 % 15 %68
  • 68. EuROPEAN PAyMENTS BAROMETERStruCture of Sample: funCtionS of partiCipantSBanks: Manager, payment lala Monétique ou des moyenspaiement côté Métier Responsable de monétique ou des moyens de de paiement côté Métier Responsable de systems administration Manager, payment systems back office ens de de paiement Responsable des Back offices Moyens paiement Responsable des Back Offices moy Manager, payment lala Monétiqe ou des moyens de paiement côté informatique Responsable de systems IS Responsable de monétique ou des moyens de paiement côté informatique Otheres utr Autres 29 % 44 % 17 % 10 %Companies: Grand commerce et distribution grandand distribution distribution Retail commerce et Administrationadministrationou décentralisée Central or local centralisée Administration centralisée ou décentralisée Grand organisme financier publicinstitution grandpublic or semi-public financial ou ou parapublic Large organisme financier public parapublic Large companies Grandes entreprises grandes entreprise PME SMEs PME 13 % 11 % 23 % 34 % 19 % 69
  • 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 50 % 48 % 45 % TNS – Banques TNS - Banks Efma -–Banques EFMA Banks 33 % TNS – Entreprises - Companies 30 % 25 % 23 % 17 % 7% 7% 5% 4% 4% 4% 0% Faible Weak Moyenne Medium Fort Strong TrèsStrong Very fort NSP No response given70
  • 70. EuROPEAN PAyMENTS BAROMETERiMPACT oF THE PSD on MARkET PLAyERSBanks and businesses share the same point of view on the future role of banks, of international and domestic automatedclearing houses (ACh) and large sales and distribution companies. however, their opinions diverge regarding othermarket players, in particular private operators and computer services companies, payment institutions and bothinternational and national card schemes.This difference is certainly due to the fact that banks are very attuned to the highly probable arrival of new competitorsseeking to seize the opportunities offered by SEPA and the PSD. This outcome is consistent with the desire of Europeanauthorities to level the playing field by eliminating national barriers to competition. Few companies, in contrast, seempreoccupied by the subject.(SiGnifiCant or very SiGnifiCant) ChanGeS in the role of variouS playerSBanks: Private operators or software and systems Les opérateurs privés ou SSII 52 % integration service providers 48 % Les autres établissements de paiement Other payment services providers 45 % Les International systems schemes internationaux National systems Les schemes nationaux 43 % Banks and credit institutions Les banques et établissements de crédit 33 % Les International ACh 29 % ACH internationaux Retail and distribution companies 26 % Le grand commerce et la distribution National ACh 19 % Les ACH nationauxCompanies: Banks and credit institution 32 % Les banques et établissements de créditInternational automated clearing houses (ACh) Les ACH internationaux 30 % Le grand commerce et la companies Retail and distribution distribution 25 % Les autres établissements deproviders Other payment services paiement 21 % National automated clearing houses (ACh) Les ACH nationaux 21 % International systems Les schemes internationaux 15 % Private operators or software and systems Les opérateurs privés ou SSII 13 % integration service providers Les National nationaux schemes schemes 11 % 71
  • 71. 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 transactions Les transactions de paiement à distance 64 % 67 % Remote banking services (via thedistance… Les services de banque à internet) 57 % 67 % Les nouveaux instruments (SCT- SDD) New instruments (SCT, SDD) 36 % 60 % Cross-border flows Flux transfrontières 28 % 48 % La gestion des terminauxmanagement Payment terminal de paiement 38 % 45 % Le Cash management cash management 28 % 40 % La gestion du comptemanagement Payment account de paiement 28 % 36 % Cards Les cartes 28 % 17 % Lacquisition deof domestic flows Acquisition flux domestiques 17 % Les chèques ou autres 0% Banks banques Cheques or other domestic instruments Dans les instruments nationaux 9% Companies Dans les entreprises72
  • 72. EuROPEAN PAyMENTS BAROMETEREfma: Remote payment transactions 63% Remote banking services 59% New instruments 56% Acquisition of cross-border flows 34% Cash management 31% Payment terminal management 26%Card withdrawals from other establishments 20% Payment account management 19% Card issuance 17% Withdrawal terminal management 16% Acquisition of domestic flows 11% Checks or other domestic instruments 1%CompanieS expeCtation of ChanGeS in the followinG CateGorieS: Fort Strong Moyen Medium Faible Weak NSP NR 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 Cash Le SCT Le SDD Les cartes EM Le nouveau cadre Le cash Transfer (SCT) Debit (SDD) protection management de protection management des framework consommateurs 73
  • 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 cross­ border 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) 60 % Nouveaux instruments (SCT, SDD) 33 % 5% 45 % Card issuance Emissions de cartes 40 % 10 % 45 % Acquisition of cross-border flows Acquisition de flux transfrontièress 33 % 7% 36 % Payment account management 26 % Gestion du compte de paiement 31 % 36 % Cash management Cash management 26 % 26 % 36 % GestionPayment terminalde paiement des terminaux management 50 % 5% 29 % Card withdrawals from de cartes déplacés Retraits other establishments 50 % 12 % growth Accroissement 14 % No impact Peu d’impact Acquisition de fluxdomestic flows Acquisition of domestiques 43 % Decrease 26 % Réduction 0% Chèques et autres instrumentsinstruments Cheques or other domestic nationaux 7% 79 %74
  • 74. EuROPEAN PAyMENTS BAROMETERCHAnGES in MERCHAnT ACCounT FEES oVER 5 yEARSAgain, businesses are much more conservative in their outlook than banks which are anticipating changes. half ofcompanies 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 % New instruments (SCT, SDD Nouveaux instruments (SCT, SDD) 30 % 28 % 32 % Cheques or other domestic instrumentsLes chèques ou autres instruments nationaux 21 % 45 % 26 % Remittance of cross-border flows La remise de flux transfrontières 43 % 19 % 25 % Payment terminal management La gestion des terminaux de paiement 38 % 34 % 25 % Payment account management La gestion du compte de paiement 42 % 32 % 23 % Cards Les cartes 42 % 32 % 23 % growth Accroissement Cash management Le cash management 40 % No impact Peu d’impact 32 % Decrease Réduction 13 % La Remittance flux domestiques remise de of domestic flows 57 % 19 % 75
  • 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) Nouveaux instruments (SCT, SDD) 33 % 24 % 36 % Cross-border flows Acquisition de flux transfrontières 24 % 26 % 31 % Payment account management Gestion du compte de paiement 26 % 33 % 26 % Cash management 29 % growth Accroissement Cash management 31 % No d’impact Peu impact 24 % Decrease Réduction GestionPayment terminalde paiement des terminaux management 33 % 31 % 21 % Card issuance Emissions de cartes 48 % 24 % 14 % Chèques et autres instrumentsinstruments Cheques or other domestic nationaux 14 % 57 % 14 % Card withdrawals from other establishments Retraits de cartes déplacés 45 % 33 % 5% Acquisition de fluxdomestic flows Acquisition of domestiques 40 % 38 %76
  • 76. EuROPEAN PAyMENTS BAROMETERCHAnGES in THE nATuRE oF PAyMEnT SERViCESFoLLoWinG THE CREATion oF PAyMEnT SERViCESPRoViDERSConscious of the commoditisation of the execution of transactions and the decrease in prices (and revenues) expected forbasic services, the banks are committing themselves like never before to improving quality of service and creating addedvalue, 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 serviceswithout added value).Companies expect considerable improvements in quality and service levels, but combined with a strong price increase (inall likelihood the total cost per transaction, value added included).While banking players have largely measured the challenges concerning European interoperability and reachability, thesubject is far from the preoccupations of 2/3 of businesses.expeCteD (StronG anD very StronG) Growth in CharaCteriStiCS of paymentServiCeS followinG the Creation of payment ServiCeS proviDerS 64 % European interoperability Interopérabilité européenne 38 % 57 % Quality of services Qualité des services 49 % 55 % Valeur ajoutée aux services Added value to payment services de paiement 47 % Banks Dans les banques Companies Dans les entreprises 31 % Cost of services Coût des services 81 % 77
  • 77. CHAnGES in FunCTionALiTy oF BAnk PAyMEnT SERViCES 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. growth Accroissement No impact Peu d’impact Decrease Réduction NR NSP 90 % 79 % 64 % 48 % 36 % 26 % 14 % 12 % 7% 7% 5% 5% 2% 2% 2% 0% New cross-border New electronic Fight against fraud Lutte contre Payment or Nouveaux services Nouveaux services Risques de paiement services payments (via the transfrontières de paiement électronique la fraude credit risks ou de crédit internet or mobile (sur internet ou sur mobile) telephone)78
  • 78. EuROPEAN PAyMENTS BAROMETERCHAnGES in THE uSE oF TECHnoLoGiCAL innoVATionoVER 5 yEARSBanks and businesses anticipate growth in mobile telephone payments and some growth in electronic payments ande-money on the Internet. however, banks also foresee strong growth in ‘contactless’ payments and to a lesser extent inprepayment. These results were confirmed by the Efma survey on banks.(StronG anD very StronG) Growth in uSe of teChnoloGiCal innovation over 5 yearSTNS Sofres: 74 % Mobile payment Le paiement mobile 58 % 60 % La monnaie électronique Electronic payment via the internet sur internet 68 % 55 % Contactless payment Le sans-contact 28 % 50 % Prepayment Le prépaiement 23 % For Banks Dans les banques 38 % Le popean e-wall et Eur rte monnai For Companies Dans les entreprises électronique européen 34 %Efma: 63 % 60 % Mobile payment 59 % 56 % 49 % Contactless payment 34 % 31 % 46 % E-money on the Internet 26 % 19 % European e-wallet 29 % European e-Walet 17 % 11 % Prepayment 29 % 79
  • 79. AREAS REquiRinG TECHnoLoGiCAL DEVELoPMEnT RELATED 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, 57 % Adaptation des formats des virements, withdrawals and standing orders des prélèvements et domiciliation 52 % Mass SCT SCT de masse 28 % 50 % Developing e-commerce Développement du e-commerce 42 % 50 % Bank-business interoperability Interapérobilité banque-entreprise 34 % EBICS/SWIFTNet 48 % EBICS / SWIFTNet 48 % Mandate management Gestion des mandats 19 % For Banks Dans les banques For Companies Dans les entreprises80
  • 80. EuROPEAN PAyMENTS BAROMETERprojeCtS for implementation of SDD If yes, deadline? 64 % 56 % 62 % In 2010 En 2010 26 % For Banks Dans les banques Dans les entreprises 22 % For Companies En 2011 In 2011 26 % 26 % 50 % 7% For Banks En 2012 In 2012 Dans les banques 14 % For Companies Dans les entreprises yes Oui No NonprojeCtS to overhaul CaSh manaGement If yes, deadline? 68 % 54 % 48 % En 2010 In 2010 For Banks Dans les banques 35 % For Companies Dans les entreprises 31 % 32 % For Banks Dans les banques For Companies Dans les entreprises 38 % In 2011 En 2011 41 % yes Oui No Non 81
  • 81. 82
  • 82. 4thE nExt paymEntsrEvolution EurOpEAN pAymENTS BArOmETErin EuropE. EFmawho will BE rEsultsthE winnErs? 83
  • 83. 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
  • 84. EuROPEAN PAyMENTS BAROMETERCHALLEnGES AnD PRioRiTiES RELATED To THEiMPLEMEnTATion oF THE PSD AnD SEPAAlmost all respondents think that the PSD will have an impact on the payments services sector (and 47% think theimpact will even be very significant).50% of respondents indicate that the PSD will harmonise national regulations, but without changing markets whichwill initially remain national. Less than a third of respondents expect the integration of national markets. Less than20% 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. Not very much 4% Somewhat 50% A lot 30% Radically 17% 85
  • 85. 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? 10% Other payment establisments 53% International ACHs 41% Big business and distribution 33% International schemes 31% 2% Private operators or computer 20% services companies Domestic schemes 13% Banks and credit establishments 9% 1% Domestic ACHs 9%86
  • 86. EuROPEAN PAyMENTS BAROMETERiMPACT oF THE PSD on TRAnSACTion VoLuMEShere 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 thenext five yearS? Remote payment transactions 63% Remote banking services 59% New instruments 56% Acquisition of cross-border flows 34% Cash management 31% Payment terminal management 26%Card withdrawals from other establishments 20% Payment account management 19% Card issuance 17% Withdrawal terminal management 16% Acquisition of domestic flows 11% Cheques or other domestic instruments Checks 1% 87
  • 87. Do you have planS to introDuCe SDD? If yes, deadline? 38% In 2009 64 % In 2010 38% 62 % In 2011 24% Yes No CaSh manaGement : Do you have planS to reDeSiGn your offer? If yes, deadline? In 2009 11 % 61 % 54 % In 2010 39 % In 2011 32 % In 2012 7% Yes No88
  • 88. 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 47% Acquisition of cross-border flows 31% Cash management 30% Card issuance 23% Payment account management 23% Payment terminal management 21%Card withdrawals from other establishments 16% Acquisition of domestic flows 11% Checks or other domestic instruments 4% 89
  • 89. 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? Mobile payment 60% 31% International standards 53% Contactless payment 49% 23% E-money on the internet 46% European e-wallet 29% 11% Prepayment 29%90
  • 90. 91
  • 91. 92
  • 92. 5thE nExt paymEnts EurOpEAN pAymENTS BArOmETErrEvolution paymEnts:in EuropE. a stratEgiCwho will BE ChallEngE For CsCthE winnErs? anD its CliEnts 93
  • 93. paymEnts: a stratEgiC ChallEngE For CsC anD its CliEnts94
  • 94. the payments landscape in europe isbeing transformed, which will over timeresult in far-reaching changes not only forprivate individuals but also businesses,the public sector, financial institutions andinfrastructure operators.assisting its clients throughout this crucial,multi-year transformation process is astrategic challenge for CSC. 95
  • 95. THE ConTExT oF THEpaymEntsmarkEtIS EVOLVINg RAPIDLy 96
  • 96. 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 studiesTHE CATALySTS oF CHAnGE In the area of electronic payments, the consolidation of payment systems in the shape of standard platforms isSince the implementation of Target 2, the first stage in the intensifying, cross-border activity is increasing and newfurther development of the payments market in Europe, products and services, such as mobile payments, arenumerous regulatory, legislative and technological emerging.changes have taken place or will take place at anaccelerated rate, among others: Lastly, payments market infrastructures (such as Equans,• Regulatory developments linked to SEPA; Stet, Voca, etc.) are also being affected by these changes• The new European legislation applicable to payment in their operating context. services, the PSD;• Measures taken to combat money laundering; At the same time, the PSD (which will have a major impact)• The unifi and BIC/Iban standards, the use of the will necessitate significant efforts on behalf of players in xML format and the planned replacement of legacy terms of making their offerings and processes compliant, communication protocols by new ones, such as Ebics and will usher in greater competition by creating a new and Swift. 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 publicALL PLAyERS ARE inVoLVED, AnD nEW sector, businesses, financial institutions, infrastructurePLAyERS ARE EMERGinG operators and payments services providers – a “PAyMENTS” service offering, which draws heavily uponOn the one hand the public sector, businesses and its traditional services:financial institutions are all having to take on new roles– for example, responsibilities as creditors under theSDD scheme – and thus respond to new needs. On the • Consultingother there are opportunities to be seized – in terms of • Business Solutionsnew offerings and markets. New business models are • Outsourcingappearing. 97
  • 97. CSC, worlDwiDE prEsEnCE, in-DEpth ExpErtisE Consulting BusinEss solutions Regardless of whether it involves facing a changed Whether it involves information systems alignment, scaling environment or transforming a constraint into a up and standardising an electronic payments system, competitive, commercial or financial opportunity, all making a legacy payments platform SEPA compliant or players are being confronted with multiple challenges. overhauling a cash management system, CSC brings its in­ The position of each player in terms of new roles and depth experience of a broad range of areas into play. here obligations, creating value for clients, generating are just a few examples: replacement revenues to compensate for lost business, cost savings and risk management - these are all areas • Alignment of the information system roadmap with in which we can assist our clients. We can help them in that of operations; many ways, for example: • Design and adaptation of the information systems architecture (planning, roadmap, EAI, SOA); • (Re)defining business models; • Solution selection; • Designing and launching new products and services; • Large scale programme management • Providing competitive intelligence, evaluating • Integration and customisation of solutions, either off­ consolidation opportunities, resource strategies and the-shelf (ACI Worldwide or Wincor) or proprietary insourcing and outsourcing options; (CSC Sepa DDWay, CSC Mandateway, or CAMS for • Assisting in the design of consolidated platforms – electronic back office payment systems); “payments factories”; • Delivery of turnkey solutions, including corresponding • Overhauling operating models, processes and the knowledge transfer; organisation; • Development of specific solutions, portals, • Drawing up development roadmaps, aligning collaborative and decision support systems; information systems and IT resources with operations; • Change management. • Managing the portfolio of programmes and projects. With a strong track record of managing complex and These are among others the types of assignments taken ambitious programmes, CSC puts its experience to work on by the CSC Consulting team in the areas of electronic for its clients in a field in which, in Europe, most of the payments, payment systems and cash management. 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 Some exemples: offerings and processes • Feasibility study for a “SAE global” solution • Managing a major programme for the integration of a • Setting up of a “payments factory” new electronic payment solution for a network bank • Planning of the convergence banking • implementation and large scale integration of the platforms standard DDWay (SDD) solution within several large • overhaul of a cash management system 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 system98
  • 98. outsourCing The quest for critical mass and the lowest unit cost; European consolidation; assisting businesses in movingAt a global level, CSC is a major software provider, toward payment and collection centres; the creation ofin particular in the insurance, banking and shared service centres – these are all major trends affectingpayments sectors: the emergence of a European payments services sector. Some players will respond by setting up “payments• GraphTalk A.i.A is a global reference in the life insurance sector and is used by the largest factories” while others will choose to outsource these industry players such as AxA, Aegon, and operations. many others;• CAMS ii* is a global back office system for In both cases, CSC (a leading player in the field of software acquisition/issuance of electronic payments, and systems integration services) offers the following used in the uSA by Mastercard and in Europe outsourcing services: by Barclaycard, SSB/Sinsys and others;• For legacy payment systems and single­ • Information systems infrastructure management; platform SEPA systems, CSC offers two • Application portfolio management; solutions: DDWay and Payment Transaction • Process management (Business Process Outsourcing System (PTS), for mainframe and mid-range deployment respectively; - BPO).• For SEPA, our offering is rounded out with MandateWay, the European solution for mandate management. Some examples: • information system infrastructure management: - Renault, - Royal Mail (uk),*over 400 client references - British Aerospace, - Caceis Banque. • Payment application portfolio management for several large banks • Database management for BPo 99
  • 99. ABouT CSCThe 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”.
  • 100. EuropEanpaymEntsBaromEtErThE FirST EurOpEAN SurvEy ON ThE impACT OF SEpA ANd ThE pSd 101
  • 101. EuropEanpaymEntsBaromEtErThE FirST EurOpEAN SurvEy ON ThE impACT OF SEpA ANd ThE pSd
  • 102. EuROPEAN PAyMENTS BAROMETERthE 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 withthe leaders of major players from the European payments industy:Philipe Citerne | SoCiéTé GénéRALE (Ancien directeur général)Willy Dubost | BnP PARiBASPhilippe Lemoine | LASEREnrique Barthe | BBVAMarc Carlos | CRéDiT AGRiCoLE S.A.Gilbert Ernst | BAnquE ET CAiSSE D’EPARGnE DE L’ETAT (BCEE)Elizabeth Fraser | uk PAyMEnTS CounCiLJosef Gilger | HyPoVEREinSBAnkZélia Livramento | CAixA GERAL DE DEPoSiToS (CGD)Daniela Manuello | PoSTEMoBiLEEmmanuel Petit | MASTERCARD FRAnCEGilles Sabbatier, Mun ki Wu, Christophe Beauvais | oRAnGE BuSinESS SERViCESRoberto Santos | BAnCo SAnTAnDERHerve Sitruk | MAnSiT SASMarc Temmermans | ViSA EuRoPELuca Vanini | uniCREDiTPaolo Zanchi | BAnCA MonTE DEi PASCHi Di SiEnA