1

ABE EBA

Oct..2003

STEP2

A Pan-European ACH

for the Single Euro Payments Area

Payment Systems Conference, Budapest, 9th October 2003

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ABE EBA

Oct..2003

• STEP2 objectives, benefits and participation

• High-level overview of EURO1 and STEP1

• EBA history and background

Overview

• STEP2 and SEPA

3

ABE EBA

Oct..2003

EBA was founded in 1985

• by 18 commercial banks and the European Investment Bank

• today : more than 190 members from all EU countries and

the US, Switzerland, Norway, Australia, Japan, China

Introduction

18 years of experience in

• operating a cross-border payment system with the BIS as

Settlement Agent (till end-1998) and the ECB (since 1999)• consensus building and decision making within a

pan-European, industry owned organisation

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ABE EBA

Oct..2003

Successful migration to the euro

• development of the EURO1 and STEP1 system

• creation of EBA Clearing Company as operator of the

system, 74 EURO1 banks are shareholders• Association pursues its mission with further initiatives

Introduction

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ABE EBA

Oct..2003

The EBA Group 

EBA

Euro Banking Association

EBA

Euro Banking Association

EBA Clearing

Operator of EURO1/STEP1/STEP2

EBA Clearing

Operator of EURO1/STEP1/STEP2

EBA Administration S.A.EBA Administration S.A.

Introduction

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ABE EBA

Oct..2003

The Euro Banking Association’s mission

Introducing EBA

• to serve as a forum for the practitioners in the euro payments industry

• to initiate further interbank cooperation arrangements in relation to payments infrastructure needs

• to carry out studies and research to increase the general knowledge and awareness of the euro payments industry

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ABE EBA

Oct..2003

Introducing EBA Clearing

The mission of EBA Clearing

• to develop and implement processing arrangements for new pan-European payment schemes

• to ensure that services delivery conforms to the highest levels of cost-effectiveness, robustness and resiliency

• to facilitate the migration of the banks’ payment traffic from domestic to pan-European platforms

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ABE EBA

Oct..2003

… a source of private sector initiatives for pan-European

payment infrastructures

The EBA

• a meeting place of practitioners

• capable of building consensus

• creating commitment

• delivering solutions

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ABE EBA

Oct..2003

• STEP2 features, benefits and participation

• High-level overview of EURO1 and STEP1

• EBA history and background

Overview

• STEP2 and SEPA

10

ABE EBA

Oct..2003

EURO1 and STEP1

Two schemes for single payments processing,operated on one technical platformprovided by SWIFT

EURO1 Participants settle with

ECB, extend to each other

credit lines to create liquidity,

share risk, collateral

Processing of single payments

STEP1 Participants settle with

a EURO1 Settlement Bank,

liquidity is provided by the

Settlement Bank

EURO1

STEP1

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ABE EBA

Oct..2003

EURO1 and STEP1

74 Direct Participants42 Sub-participants

Processing of single payments

>190 Direct Participants(incl. EURO1 Banks)

EURO1

STEP1

8000+ directly

addressable BICs

Two schemes for single payments processing,operated on one technical platformprovided by SWIFT

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ABE EBA

Oct..2003

160 -

140 -

120 -

100 -

80 -

60 -

40 -

0 -x1000 Q1 Q2 Q3 Q4 Q1

2000 2001Q2 Q4Q3

Daily average value (EUR bn)

- 200

- 180

EURO1/STEP1 Traffic

2002Q1 Q2 Q3 Q4

Daily average volume (000)

2003Q1 Q2

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ABE EBA

Oct..2003

Key facts

EURO1/STEP1 platform

Second-largest high-value system in the world in terms of volume

Includes all major players of the European payments industry

Evolution towards Flexible Settlement Capability

Settlement at the European Central Bank

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ABE EBA

Oct..2003

• STEP2 features, benefits and participation

• High-level overview of EURO1 and STEP1

• EBA history and background

Overview

• STEP2 and SEPA

15

ABE EBA

Oct..2003

with proper pan-European arrangementsfor high-value payments,

The starting point

A new Single Currency Area …

- but deeply fragmented infrastructuresfor low-value payments,different standards andbusiness practices, legalenvironments

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ABE EBA

Oct..2003

WHAT WEDON’T WANT

What infrastructure approach ?

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ABE EBA

Oct..2003

… a truly pan-European platform !

What infrastructure approach ?

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ABE EBA

Oct..2003

distribution of payment instructions to any bank operating in

the EU, no need to maintain routing tables for payments in EU

a pan-European ACH connecting directly or indirectly the banksfrom all EU countries

highly automated, based on new pan-E. standards and latest

technology, simple to operate, minimising bank internal costs

open to progressive integration of domestic traffic

integrated liquidity position for EURO1/STEP1/STEP2

STEP2 key features

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ABE EBA

Oct..2003

Sending cut-off

D-122:00

Settlement cut-off

8:00

STEP2 processing cycle

Receiving files from

participants

Validation of files

and of instructions

Sorting per ad-

dressed participant,

creating reject file

Calculation

of bilateral

obligations

Generation of

settlement

payment orders,

transmission to

EURO1/STEP1

Processing of settlement

payments in

EURO1

Creation of

outgoing file for

each addressed

participant

Sending one

file to each

addressed

participant

D7:00

Files not settled are returned

Time line

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ABE EBA

Oct..2003

1

file file

1

EURO1

11

funds

STEP2

STEP1

STEP2 Participation Modes

1. Direct Participants : Banks sending to and receiving from STEP2 files directly

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ABE EBA

Oct..2003

2 1 1

EURO1

1. Direct Participants

2. Indirect Participants : banks in the EU that have appointed a STEP2 direct participant to receive files and funds on their behalf

STEP2

STEP1

STEP2 Participation Modes

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ABE EBA

Oct..2003

3

3

3

EURO1

3. Other banks : Routing of payments to any other bank in the EU via STEP2 Direct Participants acting as Entry Points for a country

STEP1

file

Direct Participants

acting as countryEntry Point

STEP2

1

1

1

STEP2 Entry Point

1. Direct Participants

2. Indirect Participants

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ABE EBA

Oct..2003

STEP2 ramp-up

Direct Participants in STEP2, since live date in April 2003

Banca IntesaBanco Bilbao Vizcaya ArgentariaBanco Commercial PortuguesBanco Espirito SantoBanco Popular EspañolBanco Santander Central HispanoBank Austria Creditanstalt Banque Fed. du Credit MutuelBarclays BankBCEECECACommerzbankCredit Commercial de FranceDeutsche BankDresdner BankEFG Eurobank

HSBCHypovereinsbankING BankING BelgiumJP Morgan Chase BankLa CaixaNational Bank of GreeceNordea Bank DanmarkNordea Bank FinlandRabobank NederlandSanPaolo IMISociété GénéraleSydbankUnicredito ItalianoWestLB

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ABE EBA

Oct..2003

STEP2 ramp-up

Banks joining in October 2003 as Direct Participants

Banca Pop. Verona e NovaraBanca Popolare di MilanoBNP ParibasCaixa Geral de DepositosCapitaliaCaja MadridCredit AgricoleCredit LyonnaisCredito BergamascoDanske BankDen norske BankDeutsche Bundesbank

Dexia – BILFortis BankKBC BankNatexis Banques PopulairesÖsterreichische NationalbankSEBSwedbank

760+ Indirect Participants by the end of 2003

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ABE EBA

Oct..2003

Declarationof interest

Briefingsessionsin EBA

Letter confir-ming interest

- 5months

- 2

Bank internal preparations

Completelegal andtechnicaldocumen-tation

- 1

Live

- 6

Test & trainingregistration

- 4

8 weeksscripted testing

STEP2 admission cycle

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ABE EBA

Oct..2003

Joining windows in 2004

8 March5 July8 November

Indirect Participants join on a monthly basis

STEP2 admission cycle

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ABE EBA

Oct..2003

STEP2 ramp-up

Receiver Capability as of 31/12/03

STEP2 Direct Participants in 14 EU countriesact as Entry Points to ensurecountry wide distribution of paymentscoming from STEP2

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ABE EBA

Oct..2003

Country Entry Points Dir. Particip. as of Nov 03 as of Nov 03

Austria 2 2Belgium 1 3Denmark 3 3Finland 1 1France 2 7Germany 4 6Greece 2 2Ireland - -Italy 4 7Luxembourg 2 2Netherlands 1 2Portugal 3 3Spain 6 6Sweden + 2United Kingdom 1 3

STEP2 receiver capability

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ABE EBA

Oct..2003

EU 25

Receiver Capability as of 31/12/04

STEP2 Direct Participants in 14 EU countriesact as Entry Points to ensurecountry wide distribution of paymentscoming from STEP2

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ABE EBA

Oct..2003

• STEP2 features, benefits and participation

• High-level overview of EURO1 and STEP1

• EBA history and background

Overview

• STEP2 and SEPA

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ABE EBA

Oct..2003

The Single Euro Payments Area !

Where do we have to go ?

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ABE EBA

Oct..2003

Challenges and opportunities

• SEPA : a change of scale or changes of horizons ?

• En route to SEPA : which sort of business cases for abandoning domestic standards/infrastructures and creating new ones ?

• New infrastructures : the difficult balance between the need for consensus, the need for leadership and market driven consolidation.

• How equal are banks vis-à-vis - scale driven cost saving potentials ? - opportunities emerging from de-fragmentation and broadening business horizons ?

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ABE EBA

Oct..2003

Step2 not only provides a solution for the future

pan-European mass payments processing …

STEP2 : a migration project

… Step2 also offers a variety of paths to individual

banks and bank communities for migrating their

traffic to PEACH !

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ABE EBA

Oct..2003

Core Market Practice:

CommonStandards

MGS Type: MT103+Amount : € 12.500STP Beneficiary Account Identification: IBAN + BICGuaranted execution timeframeOthers . . .

STEP2 and EPC Concentric Model

ex.All the elements of the common standard codeMaintanined, except theamount : € 250.000 . . .

ex.Amount : € 250.000STP Beneficiary Account identification: BBAN (Clearing Code + Acc. number ex. RIB). . .

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ABE EBA

Oct..2003

Innovation and value for SEPA

A new technology : InterAct and FileAct, SWIFT XML Standards for Bulk Payments

A new business platform : a pan-European ACH supporting the new pan-European payment instruments

A new customer proposition : low cost, secure and rapid payment services across Europe for retail customers

STEP2 key features

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ABE EBA

Oct..2003

« ... the Pan-European Infrastructure WG should ensure that the following milestones are respected : ...

• By mid-2003, the pan-European infrastructure should be operational for cross-border STP compliant credit transfers.

• By mid 2004, 50% of current cross-border credit transfers volumes should be processed on the pan-European infrastructure as well as, potentially, domestic payments from countries with no ACH infrastructure.

• By mid-2005, the pan-European infrastructure should accommodate new Euro direct debit schemes. • By 2007, the agreed target service levels as defined should be met (e.g. same day settlement). »

STEP2 and SEPA

(Excerpts of S.E.P.A. Workshop report, March 2002)

The next steps …

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ABE EBA

Oct..2003

Different blocks …

The EBA vision

forsettlement :

indirect

forprocessing:

paymentfiles,STPcredit&debit

directsinglepayments,same-day,STP andnon-STP,credit&debit

EURO1

STEP2

STEP1

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ABE EBA

Oct..2003

EURO1

STEP2

STEP1

… one integrated offering

The EBA vision

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ABE EBA

Oct..2003

Directsettlement

Indirectsettlement

Singlepayments

Bulkpayments

A broadly based clearing and settlement services provider

for processing single and bulk payments in euroopen to all financial institutions in the EU

The EBA Payments Processing Center

for the SEPA

The EBA vision

… one integrated offering

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ABE EBA

Oct..2003

The EBA Payments Processing Center

www.abe.org