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E U R O P A YI n t e r n a t i o n a l
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E U R O P A YI n t e r n a t i o n a l
Multi-Currency Multi-Currency Programme SolutionProgramme Solution
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Multi-Currency Programme Solution
Central Acquisition (CA) Programme. Cross-Border (X-Border) Acquiring Programme. Mail Order Telephone Order (MO/TO) Programme. Central Issuing Programme. Global Key Account Support. Corporate Payment Programme Solutions (Acquiring &
Issuing). Dynamic Currency Conversion at the Point-of-Sale (DCC).
Master-Merchants & e-Commerce Acquiring. Third Party Multi-Currency Processing.
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E U R O P A YI n t e r n a t i o n a l
Europay’sEuropay’sCentral Acquisition Central Acquisition
ProgramProgram
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Subjects
Europay’s CA program specifications.
Interchange.
Multi-Currency technique.
Strategic options for consideration.
Costing & Business model.
Central Issuing.
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E U R O P A YI n t e r n a t i o n a l
The ProductThe Product
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What is Central Acquisition ?
Central Acquisition is the ‘central collection and processing’ of transactions acquired in
more than 2 European countries
(or Globally), by one Member organization on behalf of an International merchant.
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What is Central Acquisition ?
Central Acquisition represents a ‘shift’ of transaction processing from domestic to International processing environments.
Processing modules that are impacted includes: Transaction processing, network switching, multi-currency, risk detection, multi-lingual & integrated cash management.
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Merchant
Merchant
MerchantMerchant
What is Central Acquisition ?
Europay Member ’s
Processing Centre
Merchant ’s Central
Processing Centre
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Major rules changes to CA program
Any merchant can be acquired by a registered CA in any of the below named EPI country.
Andorra, Austria, Belgium, Channel Islands, Cyprus , Denmark, Finland, France, Germany, Gibraltar, Greece, Iceland, Rep of Ireland, Isle of Man, Italy, Liechtenstein, Luxembourg, Malta, Monaco, the Netherlands, Norway, Portugal,San Marino, Spain, Sweden, Switzerland, Turkey, the UK & Vatican City.
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Major rules changes to CA program
Each merchant must still be declared to EPI via the CA application.
For all other EPI markets not above-named, only merchants that are present in more than 2 countries and have a central network will be eligible for the EPI CA program.
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Which merchants categories & regions qualifyfor Central Acquisition?
Merchant categories
International Airlines
All Europay regions
Permitted regions as of Jan 1, 2000
All Europay & masterCard regions
All International Merchants
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CA Rules applied to Non-Physical merchants
Rules applicable to any merchants that is organized in a manner that warrants CA is subject to CA rules.
Acquirers can acquirer e-comm trxs from all merchants located in the Area of Use mentioned in their product license .
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CA Rules applied to Non-Physical merchants
A Merchant’s location is determined by the address stated in the merchant agreement which it has signed with the acquirer (PBS).
Acquirers also have the right to acquirer e-comm trxs. that reflect sales to cardholders residing in their area-of-use.
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AIRLINE
BSP-BANKSETTELMENT PLAN
Airline Transactions Registration
CENTRAL RESERVATION SYSTEM
TRAVEL AGENCIES
Specific to Airlines
CENTRAL ACQUISITION Generic Network Topology
MasterCard traffic
National EuropeanAcquirers forAuthorization
other brand
Switching
Bi-lateral Agreements
other brand other brand
MemberAcquirer
Global accessibility via INET
EuropayInternational
Waterloo - Belgium
Regionaloffice
Your Country
Specific to Car Rental, Hotel , Ferry &
International Retail (oil, MO/TO) companies
Regionaloffice
Regionaloffice
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What are some of the advantages?
Single agreement & contract with one Member.
Opportunity to negotiate bilateral interchange and preferential merchant fees.
Standardization in POS and in procedures regionally and globally.
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Advantages.
Centralization of expertise at one centre (Centres of Excellence).
Opportunity to optimize economies-of-scale.
Opportunity to upgrade and automate processes.
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Advantages.
Interface with merchants pan-Europe or global reservation system.
Opportunity to build a State-of-Art Management Information System.
Central Acquiring reduces float and currency exposure in transaction processing.
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Advantages.
Clearing cycles are speedier.
Multi-currency processing in tandem with treasury management functionality.
Over time-horizon, clear cost reduction !
One system interface lessens possibility of Fraud.
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The Central Acquisition Product MixValue-added spin-off services
Multi-Lingual call center facilities.
Integrated & advisory cash management facilities.
Management Information system [detailed].
Central network administration.
These USP’s command higher Merchant
Discount Fees.
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E U R O P A YI n t e r n a t i o n a l
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What are the [current] Requirements?
Central Acquisition license.
Operational procedures.
Merchant criteria:
Must be a compatible international merchant. Operational in more than 2 countries. Central processing & accounting system. For additional information please refer to the
Product Guide.
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Likely Changes to CA program rules
Qualifying Merchant Criteria will go.
Merchant must have established presence in
more than 3 markets.
Merchant must have central network system.
New application procedures (simplified) & new geographic areas for consideration.
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Likely Changes to CA program rules
Will be similar to Visa’s X-Border program.
Member Licensing & merchant application fees will not change.
Date for the above TBD (subject to EPI Board approval).
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Application procedure
Application form (per merchant). Duly completed.
Copy of latest annual report.
Bilateral agreements can be made with an
issuing organization.
Contact your regional office for more assistance.
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E U R O P A YI n t e r n a t i o n a l
The Central The Central Acquiring & X-Border Acquiring & X-Border
FormulaeFormulae
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What is the CA / X-Border Formulae ?
A Centrally Acquired transaction can follow 4 identified pathways.
These transactions pathways have direct impact on transaction processing and in the application of the correct interchange fee (either domestic, intra or inter-regional interchange fees).
The fees and other rules (including rules per card type), must be implemented within Europay’s / MasterCard’s system.
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CA Formulae
The central acquirer must pay the issuer all declared (and implemented) domestic or inter / intra-European interchange fees
1.CENTRAL ACQUIRED (INTRA-EUROPEAN TRANSACTIONS)
Example of CA Trxs pathway
Member Merchant location Issuer
Spanish merchantEKSCard issued by UK bank
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CA Formulae
The central acquirer must pay the issuer domestic tariffs As these transactions are flagged domestic ‘centrally acquired
transactions’, no assessment fee will be levied on volume shifted Central Acquisition activity provides a truly (100%) incremental
revenue opportunity to EPI as these transactions are now being shifted via EPSNet.
2.CENTRAL ACQUIRED (DOMESTIC TRANSACTIONS)
Example of CA Trxs pathway
CA = Merchant location Issuer
Spanish merchantEKSCard issued
by Spanish bank
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CA Formulae
CA trxs are re-routed via ECCSS. There is a clear shift in processing fees & tariffs as EPI already are contracted to process domestic acquired traffic for the respective issuers.
CA’s must pay intra-European tariff, while local issuers will pay the negotiated EPI ‘domestic tariff’. For domestic centrally acquired ’trxs, must ensure that assessment fee is not levied on volume shifted.
3.CENTRAL ACQUIRED (DOMESTIC TRANSACTIONS)Where EPI are under contract to processes domestic transactions for local acquirers & issuers.
Example of CA Trxs pathway
CA = Merchant location Issuer
Italian merchantHungarian merchantPolish merchantRussian merchant
EKSCard issued by Italian bankCard issued by Hungarian bankCard issued by Polish bankCard issued by Russian bank
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CA Formulae
To ensure that the correct intra-regional / domestic rules are respected, the central acquirer should pay domestic fees.
4.CENTRAL ACQUIRED (INTER-REGIONAL TRANSACTIONS)Where either the merchant or Issuer is non-European based (i.e. central acquisition in MCI territories).
Example of CA Trxs pathway
CA Merchant location Issuer
Mexican merchantEKS Card issued by Mexican bank
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CA Formulae
Central Acquiring transactions pathway Projected percentage of transaction volumeinto ECCSS
August 1999 By 2002 By 2005
10% 10% 10%1. Central acquired (intra-European transactions)
No incremental revenue to EPI
66% 62% 58%2. Central acquired (domestic transactions) whereEPI isnot contracted to undertake processing.
Incremental revenue to EPI from issuers &acquirers
20% 24% 28%3. Central acquired (domestic transaction) whereEPI, under contract, processes domestictransactions for local issuers and acquirers. Incremental revenue from Central Acquirers only.
Transparent for the issuers that will continue to paythe agreed domestic tarif
4% 4% 4%4. Central acquired (inter-regional transactions)where either the acquirer or the issuer is non-European based. This area is currently being discussed with MCI.
Hence, revenue projection is yet to be forecast
TOTAL VOLUME 100% 100% 100%
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E U R O P A YI n t e r n a t i o n a l
Multi - Currency Multi - Currency ConceptConcept
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Multi - Currency
YEN ¥
US $ F francs
Peseta NZ $
Euro € Aus $
Can $HK $
CLEARING IN SINGLE-CURRENCY FORMAT
AUTHORISATION ALWAYS IN THE CARD
ISSUER / TRANSACTION CURRENCY
MULTI-CURRENCY & CONVERSION FACILITIES
PRIMARY, SECONDARY & FORCED CURRENCY TO BANKS
Multi to Single Currency transaction acquiring & processing
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Single to Multi-Currency Transaction Acquiring & Processing
Rand
YEN ¥
Euro € F francs
Aus $Peseta
Can $
NZ $HK $
CLEARING IN MULTI-CURRENCY FORMAT
AUTHORISATION ALWAYS IN THE CARD ISSUER / TRANSACTION CURRENCY
MULTI-CURRENCY & CONVERSION FACILITIESPRIMARY, SECONDARY AND FORCED CURRENCY TO BANKS
US $
Multi - Currency
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Multi - Currency
YEN ¥
US $ F francs
Peseta NZ $
Euro € Aus $
Can $HK $
CLEARING IN MULTI-CURRENCY FORMAT
MULTI-CURRENCY & CONVERSION FACILITIES
PRIMARY, SECONDARY & FORCED CURRENCY TO BANKS
Truly Multi-Currency Transaction Acquiring & Processing
YEN ¥
US $ F francs
Peseta NZ $
Euro € Aus $
Can $HK $
AUTHORISATION ALWAYS IN THE CARD ISSUER / TRANSACTION CURRENCY
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E U R O P A YI n t e r n a t i o n a l
InterchangeInterchange
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Categorization of transactions
As an important element of central acquisition, please note the following.
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Domestic transactions
Merchant'sCentral
ProcessingCentre
GERMANY
Merchant
Cardholder using a
German - issued card
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Merchant'sCentral
ProcessingCentre
GERMANY
Merchant
Intra-regional transactions
Cardholder using an
Italian - issued card
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Merchant'sCentral
ProcessingCentre
GERMANY
Merchant
Inter-regional transactions
Cardholder using a
Non - European issued card
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Product Development activity
Project (Phase 1 ended with release 99.1). Phase 2 began Sept 2000.
(To encompass international Maestro & E-commerce).
MO/TO vs. X-border vs. Central Acquisition. Product Differentiation.
End of exclusivity. New Rules (domestic rules, penalties & fines). MIS.
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Activities Central Acquisition Unit 2000 - 2001
Central Acquisition. CA Projects.
(Phase 2 / Debit & MCI Project, e-Comm.).
MO/TO. Acceptance in Corporate Card. 3rd party Processing / Acceptance. Maestro Acceptance Development. Member Relationship.
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E U R O P A YI n t e r n a t i o n a l
Currencies Currencies used in ECCSSused in ECCSS
Clearing & SettlementClearing & Settlement
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Transaction CurrencyAuthorization Currency
Issuer CurrencyReconciliation Currency
Cardholder Billing Currency
Definition of Currencies
Payment Currencies (Settlement Currencies)
PrimaryPrimary
SecondarySecondary
Forced
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Authorization Currency
Currency in which the transaction is Authorized
100
110
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Cardholder Billing Currency
Authorization:Conversion from Transaction Currency to
Cardholder Billing Currency (Issuer Currency)
100
110
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Reconciliation Currency
ClearingClearing SettlementSettlement
Reconciliation Currency
The currency in which batches are transferred from the Clearing to the settlement
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Payment Currency
Member’s account currency.
Currency used to calculate Buy & Sell Orders.
Members choose their own Payment Currency.
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Payment Currencies
Primary Currencydefault payment currency of member.
Settlement Currency
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Payment Payment Currencies
To prevent currency conversion from reconciliation currency to payment currency.
Secondary Currencies.
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Payment Currencies
Specific relationship between a function type (issuer or acquirer), a batch type,
a reconciliation currency and a payment currency.
Forced Currencies.
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Currencies in ECCSS (intra)
ClearingClearing
SettlementSettlement
PresentmentPresentment
Trxs CCYTrxs CCY==
Rec. CCYRec. CCY
PresentmentPresentment
Trans. CCYTrans. CCY==
Rec. CCYRec. CCY
Rec. CCYRec. CCY
Payment CurrencyPayment Currency
ACQUIRERACQUIRER ISSUERISSUER
Payment CurrencyPayment Currency
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E U R O P A YI n t e r n a t i o n a l
Strategic OptionsStrategic Options
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STRATEGIC OPTIONS FOR CONSIDERATION
Do nothing.
Full outsourcing all non-domestic trxs. to 3rd party
processor.
Partial outsourcing of related activities.
Form strategic alliance with other capable issuers
& acquirers.
Undertake full multi-currency implementation
within the Front & Back office systems of BNP.
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OPTION 1 DO NOTHING
International transaction acquiring is not the core business.
Profit margins in the international acquiring business is too slim
to justify entering this area.
None or little support from senior management & Board, to
undertake the re-engineering of business (vertically &
horizontally).
International trxs. acquiring & processing costs versus Danish
domestic processing cost are too expensive.
No international staff to run this business (multi-lingual facilities
and chargeback units). Permanent staff too expensive.
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OPTION 2 FULL OUTSOURCING TO 3RD PARTY
Contract the services of a neutral 3rd party processor to
acquirer and process all non-domestic Danish trxs.
Additional auxiliary services will be also out-sourced (call
center, merchant helpdesk, voice authorization etc).
Outsourcing costs will be prohibitive for making clear profits.
Option can be used to justify the retention of the key corporate
accounts for PBS.
Corporate relationship can be jeopardized and lost directly to
the contracted 3rd party.
Transactions will be acquired and processed by capable
transaction processing (neutral) players.
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OPTION 3 PARTIAL OUTSOURCING TO 3RD PARTY
PBS will retain some of the additional auxiliary services (Front-
office activity).
Core multi-currency transaction processing will be also out-
sourced (call center, merchant helpdesk, cash management
etc.
All domestic (I.e. Danish) traffic will be processed by PBS
Quality issues. Risk of introducing various service levels in the
overall product.
Difficult to manage centrally, all related activities.
Center of Excellence will be difficult to to create.
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OPTION 4 FORM STRATEGIC ALLIANCE
Formation of strategic alliance with other Banks. Create synergies & optimize economic scales.
Formation of strategic alliance with other European acquiring
bank. Create synergies & optimize economic scales.
Benefit from the shared investment spend.
Risk is created in losing Corporate clients to strategic partner.
Dependency is created on other partner banks to service
accounts.
Shared investment spend. Argument in justifying this activity.
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OPTION 5 DO MULTI-CURRENCY PROCESSING
Commitment from the Board is critical. Commitment is a
long-term strategic decision. Pay-back time - 5 years.
Investment is required to implement system and set-up
business.
International oriented staff required to run business.
Opportunity to create economies of scale and to do MO/TO
acquiring, e-comm & 3rd party processing.
Retention of key corporate accounts are assured.
Opportunity to be a competitive, vertical integrated financial
institution and defend market-share.
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E U R O P A YI n t e r n a t i o n a l
Costing & Costing & Business ModelsBusiness Models
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Multi-Currency Acquiring
The Dynamics - Income Drivers. Merchant Turnover. Merchant Service Charge. Fees.
– Minimum Monthly, Set-up, exception item handling.
Treasury Revenues.
– e-commerce etc.
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Multi-Currency Acquiring
The Dynamics - Cost Drivers. Interchange Pay-away.
– Domestic, Intra & Inter-regional.
Currency Conversion.
– Non-Settlement currencies.
IT Support. Operational Infrastructure.
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Multi-Currency Acquiring
The Dynamics - Key Profitability Indicators. Turnover by Merchant Category.
Gross MSC by Merchant Category.
Interchange Pay-away by Merchant Category
and by card type.
Operational Support Costs.
N.B. More Difficult to adapt Portfolio Approach.
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Multi-Currency AcquiringDecision process using the Economic Model
What If's
Investment
Business Impact
Business Plan
Strategic Options
Total CSS Business Impact
Economic Model
Business Decision
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Multi-Currency AcquiringBuilding the Model
What If’s Market growth by segment : Low / medium / high.
– Card Present environments.– MO/TO.
– e-commerce. MSC & Interchange rate by segment. Cost Dynamics. Investment Required.
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Multi-Currency AcquiringBuilding the Model
Segment Current ‘00 ‘01 ‘02 ‘03
Card Present
MO/TO
E-comm
16% 15% 13% 9% 8%
60% 54% 44% 32% 26%
24% 31% 43% 58% 66%
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Multi-Currency AcquiringMerchant Discount & Interchange - Margin Effect
= MARGIN EROSION
Downward Pressure onMerchant Rates
Market Growth in physical acquiring
Growth in Card Not Present segment
Upward Pressure onInterchange Rates
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E U R O P A YI n t e r n a t i o n a l
Central IssuanceCentral Issuance
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Central Issuance
Domestic license required. Respecting domestic rules & principles in each
market. Not necessary for bank to have established
local presence. Issuing bank must use designated BIN and/or
ICA to ensure correct multi-currency processing.
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Central Issuing : the Principles
Passive central issuance and marketing by financial institution.
Active marketing and sales by issuer, to selected niche or market profile.
Corporate cards products - issued only to employees of multi-national organizations.
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Benefits of Central Issuing
Leverage incremental revenue streams. Achieve critical mass. Opportunity to enhance MIS and reduce
marketing spend. Implement international marketing
programs. Plastic management from one center. Strengthen the Member / merchant
relationships.
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Truly Multi-Currency linked to ICA for Acquiring
YEN ¥
US $ F francs
Peseta NZ $
Euro € Aus $
Can $HK $
CLEARING / INTERCHANGE
AUTHORISATION
SETTLEMENTS
ACQUIRING MEMBERS ICA
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Truly Multi-Currency for Central Issuing
YEN ¥
US $ F francs
Peseta NZ $
Euro € Aus $
Can $HK $
Currencies linked to Issuer Card Bin ’s
CARD MANAGEMENT PLATFORM
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Truly Multi-Currency (Acquiring & Issuing)The combined business Case
ACQUIRING MEMBER ICA
CARD LINKED TO ISSUER BIN ’s
YEN ¥
US $ F francs
Peseta NZ $
Euro € Aus $
Can $HK $
US $ F francsEuro € Aus $
YEN ¥ Peseta NZ $Can $HK $
BUSINESS CASE
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E U R O P A YI n t e r n a t i o n a l