local and pan european ach promise versus realityc.ymcdn.com/sites/ 2012... · local and pan...

© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Local and Pan European ACH –

Promise versus Reality

Kris Koppelman, VP, Global Treasury Management

MNAFP

April 24, 2012


Agenda

Treasury management – U.S. vs. Europe

Payment methods by country

Pan-European payments systems

SEPA

The future of European payments

Questions?

1

2

Treasury management


Treasury Management – U.S. and Europe

3

U.S. Europe

Payment and collection systems

Nationwide - No regional differences whether clearing check or making ACH payment

Country-specific and pan-European

Float

Check float. Funds not immediately available

Beneficiaries can expect to receive value immediately when payment hits their account

Accounts

Corporate accounts earn ECR or interest

Corporate accounts pay interest

Lockbox

Used to consolidate collections and accelerate postings

Not common, guaranteed clearing of checks through integrated central clearing system

Positive pay

Necessary protection against check fraud

Unnecessary with most payments electronic

Direct debit

NACHA Rules: Consumers have 60 days to return. Fact: If item truly is unauthorized, can be returned any time

Guarantee. Consumer protection is open ended, which has promoted acceptance

Mobile Bank mobile apps, Google Wallet, PayPal wallet in early stages

Europe ahead of U.S. in use and adoption.


Treasury Management – U.S. and Europe U.S. Europe

Payment and collection systems

Nationwide - No regional differences whether clearing check or making ACH payment

Country-specific and pan-European

Float

Check float. Funds not immediately available

Beneficiaries can expect to receive value immediately when payment hits their account

Accounts

Corporate accounts earn ECR or interest

Corporate accounts pay interest

Lockbox

Used to consolidate collections and accelerate postings

Not common, guaranteed clearing of checks through integrated central clearing system

Positive pay

Necessary protection against check fraud

Unnecessary with most payments electronic

Direct debit

NACHA Rules: Consumers have 60 days to return. Fact: If item truly is unauthorized, can be returned any time

Guarantee. Consumer protection is open ended, which has promoted acceptance

Mobile Bank mobile apps, Google Wallet, PayPal wallet in early stages

Europe ahead of U.S. in use and adoption.

4

5

Payment methods by country


The U.S. and the U.K.

U.K. – 6th largest trading partner of U.S.

U.S is largest investor into U.K.

U.K.-U.S. trade = $107.1B in 2011

U.S. exports to U.K. = $55.9B in 2011

6

Sources:british-american-business.com; Census.gov, U.S. International Trade Data ukinusa.fco.gov.uk/en/business/economic-relations/key-facts


Payments in U.K.

Cash

– Payment volumes projected to fall 27% 2009-2018

Checks – Business usage down 32% since 2004

– Still 3.1 mm check transactions per day

Cards – Account for over 60% of non-cash payments

– 2012 debit card transaction value should exceed cash

Electronic payments

– Make up 33% of non-cash payments

Mobile

– First contactless mobile payment service for consumers launched May 2011

Source:.Bank for International Settlements

7


U.K. payment systems

8

• U.K. ACH for GBP

• Debits and credits

• For future-dated payments

• No float (debit and credit occur on day 3)

• Widely used for vendor and payroll

• Customers have multiple entry point options

• U.K. wire system for GBP

• Real time Gross Settlement System

• Urgent and large payments

• Premium service for immediate finality of payment

• Introduced in 2008

• Consumer driven – retail and Internet

• Threshold limit GBP 100,000.00

• Corporations mainly use Bacs as it is cheaper than

Faster Payments

• Large urgent payments can be transferred only via CHAPS

Faster Payments

CHAPS

Bacs


U.K. payment systems

9

• U.K. 2/4/6 Rules • D+2 you will be given credit, which can offset debits and begin to earn interest, if applicable • D+4 You can pay away the funds • D+6 the funds will not be debited unless you make this request, funds are full and final

• Card payments are increasing in use in the U.K. • Debit cards used widely • Credit cards increasing steadily • Pre-pay card schemes in use across the U.K. • T&E cards not as prevalent in the U.K., typically reserved for for very large spends

Check & Credit Clearing Company

U.K. Card

Association


Payments in France

Cash

– Low usage

– French made 236 cashless transactions per year versus EU average of 157

• 99% of population has bank accounts

Checks

– Still popular

Cards

– Account for almost 38% of payments (over 5.6B)

Electronic payments

– Growing in popularity

10



Payments in Germany Cash

– Makes up most consumer transactions

Checks

– Historically a low level of check usage

Cards

– 130mm cards; 120mm have a debit function

– 82,700 ATMs – 1 for every 900 people

Electronic payments

– The main payment type for corporations

– Gaining popularity with consumers

Direct debits

– Make up nearly 40% of non-cash transactions Source:.Bank for International Settlements

11


Payments in Nordic region

Cash – Used so little that Finland once considered abolishing

Checks – Rarely used, being driven out

• Banks in some countries don’t issue checks to customers

• Cashing a foreign bank check is possible but expensive

Cards – Dominant form of payment

Electronic payments

– giro (bank-to-bank transfers)

• International, inter-connected giro system in use since 1950s

• Account for nearly 90% of all payment value

Direct debits

– Popularity and usage vary by country

Mobile

12



Payment preferences by country Type U.S. U.K. France Germany Nordics

Cash To decline $200B by 2015*

<50% consumer payments by 2015**

Low: 99% banked

>50% consumer payments

Minimal

Checks World’s highest usage but declining

High Business use falling

Popular Low Rare to none

Cards 60% non-cash payments

>60% non-cash payments

38% of payments

High Dominant

Electronic >17% of non-cash payments

33% of non-cash payments

Growing Credits main corp method Debits 40% of non-cash payments

Giros = 90% of payment value

Mobile Just starting up

Just starting up

Usage 2nd to Asia

13

*Source: Aite Group, 2011, "The Less-Cash Society: Forecasting Cash Usage in the United States.“

** Source: U.K. Payments Council

Use of main payment instruments in EU

2000-2009

14

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Card payments

Credit transfers

Direct debits

Cheques

Number of transactions per year in billions, estimated

Source: European Central Bank

15

Pan-European payment systems


The euro

Launched in 1999

– 17 countries use the euro as their national currency

– Euro zone includes more than 332 million people

Goal for the euro

– To create a harmonized financial community where citizens of Europe can cross borders, from a payment and collection perspective, easily and efficiently

European Central Bank (ECB)

– Manages the euro

– Has sole authority to set monetary policy

16


Pan-European payment systems

ACH: SEPA, STEP2, Eurogiro

Wires: TARGET2, STEP1, EURO1

Checks: no plans to create pan-European check processing system due to declining check use

Individual countries continue to operate national payment systems until February 1, 2014

17

SEPA (Single Euro Payment Area) Countries

18

Euro zone European

Economic Area (non Euro)

Non Euro EU

Austria

Belgium

Cyprus

Estonia

France

Finland

Germany

Greece

Ireland

Italy

Luxembourg

Malta

Monaco*

Netherlands

Portugal

Slovakia

Slovenia

Spain

Iceland

Liechtenstein

Norway

Switzerland

Bulgaria

Czech

Republic

Denmark

Hungary

Latvia

Lithuania

Poland

Romania

Sweden

U.K.


SEPA (Single Euro Payment Area)

Benefits

Cross-border payments possible across the euro zone

Most banks have access to SEPA credits

U.S. companies can access by establishing an account in the European Union

Cheaper than wire payments

Settlement has to occur D+1

19


SEPA (Single Euro Payment Area)

Limitations/considerations

Banks within the euro zone have had little incentive to move away from local systems

Some companies reluctant to migrate to SEPA, waiting for SEPA payments to become mandatory

Not every European financial institution is reachable

SEPA Direct Debit is still in its infancy, many banks are still using national systems for this purpose until 2014

SEPA card framework will be introduced to harmonize cards across the zone in 2012

20


SEPA usage volumes in euro zone

SEPA Credit Transfers = 25% of total credit transfers

SEPA Direct Debits = less than 1% of total direct debits

March 2012 – SEPA migration end-date of February 1, 2014 was set by the European Parliament

Will banks and corporate customers be ready in two years?

21

Source: European Central Bank SEPA Indicators


Managing SEPA Direct Debit Risk

Regulatory requirements for return timeframes differ from the U.S. standard

Consumers are protected by the right to return:

– 8 weeks, no questions asked

– 13 months for unauthorized transactions

SEPA B2B direct debit

– 13 months for unauthorized transactions

Managing “R” transactions

22


Managing SEPA Direct Debit Mandates

Different warranties and obligations than U.S.

Creditor-Driven Mandate Flow (CMF)

Originator responsible for obtaining the debit authorization

Receiving Bank electronically receives mandate information with first collection

Some legacy direct debit mandates can be used, but may need to be enriched

Regulation 260/2012

– Receiving Bank must have capability limit SEPA DD collections by amount and block certain payees

– Receiving Bank must maintain a database of exceptions to scrub transaction prior to paying

23


SEPA Direct Debit migration challenges

IBAN/BIC requirements

Mandate management

Message formats/contents

Payment collection timelines

Return transactions

Customer communications

24


Target2– cross border euro wires

25

TARGET 2

Real-time gross settlement system (RTGS) for the euro. Used for settlement of central bank operations, large-value euro interbank transfers, and other euro payments.

Target2 is automatically accessible to all EU member states as well as any other country that can join on a voluntary basis.

The popular method of making centralized euro corporate payments until introduction on SEPA.

In RTGS payment systems, processing and settlement take place continuously "in real time" rather than in batch processing mode. RTGS transactions can be settled with immediate finality. "Gross settlement" means each transfer is settled individually rather than on a net basis.

26

The future of European

payments


A look to the future of European payments

SEPA will replace national non-urgent electronic

payment systems in February 2014

Preparation toward Single European Account

concept

Larger European corporations leading adoption of

SWIFT for Corporates

Centralization continues to be a important theme

for companies in the euro zone

Euro retains global currency status

Mobile consumer payments grow

27

local and pan european ach promise versus realityc.ymcdn.com/sites/ 2012... · local and pan...

Documents