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Please turn off all cell phones or mobile devices.
Thank you to today’s sponsors!This morning’s Continental Breakfast sponsored by Javelin
Breakfast Roundtables sponsored by SWACHAThought Leadership Spotlight Session sponsored by Fundtech
Monday Night Celebration sponsored by Fiserv
Most of the education sessions at the conference can be counted towards yourcontinuing AAP accreditation. If you are interested in becoming an Accredited ACHProfessional (AAP), please stop by the NACHA & RPA booth.Please take a moment to complete session evaluations! Each evening attendees willreceive an email link to access session evaluations that are offered each day.Attendees are automatically entered into a daily drawing for a chance to win a $50gift card. Register now for PAYMENTS 2012 –Receive the PAYMENTS 2011 EarlyBird Rates –Only available onsite –Visit the Registration Desk for more details.
Thanks to all of our TrackSponsors!
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NACHA Payments 2011April 36
Austin, Texas
Making Waves Across the Atlantic
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Presenters
Elizabeth McQuerry, Ph.D.Federal Reserve Retail Payments Office
Dr. Udo MilkauHead of Strategy & Market DevelopmentDZ Bank
Michael SteinbachEquens, CEO & Chairman of the Board of Directors
Timothy SchmidtVice President, Global Treasury ManagementU.S. Bank
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FedGlobal U.S.Europe Payments
•Bidirectional credits between accounts in U.S. andaccounts in 22 countries in Europe
• Multiple foreign exchange options•Gateway operator exchange built on the business rules
and formats of the International Payments FrameworkAssociation (IPFA)
•U.S. financial institutions originate and receive paymentsin IAT format
•Service began in late October 2011
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Payments in Europe in a Nutshell:It’s always a little bit different …
Source: Capgemini „World Payments Report 2010“
0%
25%
50%
75%
100%
Europe2001 2008
North America2001 2008
27%38% 38%
58%
24%
31%
17%
27%
4%
10%7%
6%
52%
25%8%
Cheques
Cards
Direct Debit
Credit Transfer
27%
Payments in Europe and N America Usage of Electronic Payments
0
100
200
300
400
Noncash Transactions per Inhabitant
U.S.Finland U.K.
Germany
Poland
Ireland
’01 ’08’02 ’03 ’04 ’05 ’06 ’07
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The Single Euro Payments Area:458m Inhabitants, 250m Trx per day
Before SEPA … After SEPA ...
Various national payment systems,payment infrastructures and providers A Single Euro Payments Area …
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The Single Euro Payments Area (SEPA)
§ The €uro as single currency andmonetary basis for SEPA
§ Single set of payment instruments:–credit transfers–direct debits–card payments
§ Efficient processing infrastructuresfor euro payments
§ Common technical standards(based on ISO20022 and XML)
§ Common business practices and aharmonized legal basis
§ Development of new customerservices
But at least a lot of investment in thenew SEPA infrastructure paid by theEuropean banks.
SEPA consists of: What does that mean for banks?
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Cooperative Banks in Germany and DZ BANK ascentral bank: How to leverage investments?
Cooperative Banks
Cooperative Financial Network in Germany
DZ BANK Group
nearly 1000 localcooperative banks
OwnershipMarket sharein Germany100% 25%
10000+ branches andother distribution channels
30 million customers,thereof
16.4 million “shareholders”
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And DZ BANK’s Approach to leverage SEPA
Double Economies of Scale And beyond Economies of Scale
Bank A Bank Z
Equens asPayment Service
Provider
Bank …
§ There is an efficient processinginfrastructure for €uro payments.§ There are technical standards
(ISO20022 and XML).§ There is Equens as a capable
service provider.§ So, why aren’t we going beyond
SEPA and beyond the doubleeconomies of scale?
§ Why don’t we use existinginfrastructure for more?
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Intro to Equens:Founding principles & Key milestones
§ Equens has been created by a group ofleading European banks from Germany, theNetherlands and Italy (ABN AMRO, DZBANK, ICBPI, ING, Rabobank)
§ These founding banks share the same visionon the consolidation, internationalization andindustrialization of the payments market
§ Set up as a commercial company, Equenshas the explicit intent to continuously reduceprices for its clients (banks)
§ Acknowledging that the payments market isscale driven, the banks have committed tosupport Equens’ European growth strategy
§ Volume growth from sales activities, mergers& acquisitions and partnerships will lead tosynergies and thus price reductions
Leading panEuropean payment and cardservice provider
Headquarters: Utrecht, The Netherlands
Payments service offering
– Back office processing, clearing andsettlement
– 9.7 billion payment transactions p.a.
Cards service offering
– Issuing and acquiring processing of debitand credit cards
– Hosting, switching, authorisation, clearingand settlement
– 3.7 billion card transactions andauthorisations p.a.
– Management of ca. 700,000 ATMs and POSterminals
Market share in Europe: > 15%
Equens’ founding principles Facts & Figures
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Intro to Equens:Extensive network of clients and partners –full reach in Europe
United States ofAmerica
The Federal Reserve Banks andEquens process lowvaluecrossborder payments between theUSA and Europe based on thepayments framework of the IPFA
Equens full EuropeanSEPA Credit Transfer reach
Legend
= Countries with CSM clients
= Countries with CSM partners
= Countries predominantly reachedby Equens EBA connection
= Countries with CSM clients &partners
PolandGermany
Austria
Netherlands
Spain
IrelandUnitedKingdom
CzechRepublic
France
Greece
Italy
RomaniaHungary
Slovakia
Norway
FinlandSweden
LithuaniaDenmark
Latvia
Estonia
Iceland
Slovenia
Bulgaria
Portugal
Luxembourg
Belgium
Switzerland
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Equens both a provider of CSM andPayments Back Office services
Traditional Equens CSM model in Netherlands:“Facilitating a community”
Traditional Equens role in Germany and Italy:“Offering Payments Back Office
services to banks”
Equens European strategy:“CSM services plus complete Payments Back
Office services for banks”
CSM
Proce
ssin
g
E
B E
EE
E
E
Ban
k pay
men
tsBO
Pro
cess
ing
CSM
+ P
aym
ents
BO
Pro
cess
ing
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Equens provides much more to support Bank’spayments operations
Retail
Wholesale
FinancialInstitut.
...
Branch
Internet
Callcenter
Fax
...
Credittransfer
Dom./SEPA
DirectDebit
Dom./SEPA
Internat.Payments
High value/urgent
Payments
Finance ...Servicemgmt.
Mgmt.information
Problem &incident mg.
Changecontrol
Processmgmonitoring
Tracking &Tracing
Liquidity mgmt.Services &
Pooling
Client & Accountmaintenance
Accountentries
Accountreporting
Billing
FX Conversion
Liquidity mgt(Treasury)
EquensCommunity
ACHs
EBA/Target
Swift
Central Bank ReportingGeneral LedgerTrade Mortgages Securities …
Customer Channels Products
Paymentsinitiation &
capture
Pretreatment
/processing
Clearing Settlement
Customerservice/
interaction
Bank internal administrations
Networks
Bank wide supportprocesses
Generic support processes
Payment infrastructure support processes
Payments value chainCheques
...
CardsIssuing/Acquiring
IPF
...
Client & account administration processese.g., credit approval and booking
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US to Europe Payment Flow
IAT or localformat
FedGlobal
IAT
$USD
$USD
EUR, GBP,CHF
EUR, GBP, or CHF toaccount of Receiver
Foreign Exchangerate conversion
FixedtoVariable (FV) –USD to Euros, Pounds, or Swiss Franc
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Clearing and settlement services forEUR and Currencypayments
SettlementSupport
BackOfficeProcessing Clearing Services
Verification/Entrance
Data entry
Correction/Amendment
Data processing/output
PostingSupport
Delivery
Targ
et2
E
BA
N
ost
ro/
Lo
ro
Clearing &Settlement
Equens
DZ Bank
INGKBC
…
EACHA
SIAVoca
PBS
KIR …
BGC
Multilateral
…
NBs …
EBA
…
BilateralDresdner
……
…
…
Onus
VRBank
……
…
…
SettlementSupportClearing Services
Cen
tral B
an
k *
Corr
esp
on
den
t N
etw
ork
* N
ost
ro/
Loro
* P
art
ner
corr
esp
on
den
t N
etw
ork
IPF
…
SWIFT
Dedicated (SSI)
…
Currency
Currency
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.
U.S. Bank’s International ACH
§ Allows Corporate Originators to make payments in 6 currencies across 25 countries.
§ Ensures that originators can make payments in USD or an exact amount of foreigncurrency.
§ Provides an international payment option that prevents beneficiary deductions.
§ U.S. Bank utilizes correspondent relationships and the Federal Reserve’s FedGlobalACH Payments program.
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What is the U.S. market opportunity?
§ 40% of U.S. middlemarket importers ($50million $250 annual revenue) have nonU.S.trading partners; approximately 78% of those businesses make international payments.
§ Approximately twothirds of U.S. importers that conduct business overseas currently pay all orsome of their foreign suppliers in their local currency.
Source: Aite Group
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How does it work?
Example: Payments to German SuppliersExample: Payments to German Suppliers
1.Customer initiates
Int’l ACH viaCorporate Portal
3.USB takes the customer’s
Int’l ACH file andreformats file. (IPF, IAT,
CPA, etc)
5.USB send payment file tothe Federal Reserve our
European Gatewayprovider.
4.USB FX Dept buys/sells
foreign currency and fundsUSB Nostro account at our
partner bank.
6.Equens receives payments
instructions from the FederalReserve and issues ACH to
German beneficiaries (suppliers).
2.Customer accepts Int’l ACHFX rate online. U.S. Bank
performs FX.
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Who are the participants?
Receiving DepositoryFinancial Institution (RDFI)
Corporate initiates an Int’l ACH Payment viaDirect Transmission or Corporate Portal.
Originator
Originating DepositoryFinancial Institution
(ODFI)
Operator
Originating GatewayOperator (OGO)
Receiving GatewayOperator (RGO)
Receiver/Beneficiary
U.S. Bank processes (performs FX)and OFAC scans the Int’l Payment androutes to our Operator.
Operator (Fed or EPN) processes theInt’l Payment and routes to the OGO.
Federal Reserve validates theInt’l Payment and routes to theRGO.
Equens translates the IPF formattedpayment into the incountry format,performs the FX (if required) androutes to the RDFI.
Beneficiary Bank receives the Int’lpayment from the RGO and posts thepayment to the beneficiary’s account.
Vendor/Supplier receives a credit totheir EUR account.
=
=
=
=
=
=
=
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What does it look like?
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What opportunities and challenges are there?
Opportunities
• Provide nonurgent internationalpayment capabilities tocorporate originators
• Ability to perform ForeignExchange
• Utilize International PaymentsFramework Standards and Rules
• FedGlobal ACH Payment servicereduces management required ofcorrespondent relationships
Challenges
• Couldn’t avoid the constructionof multiple correspondentrelationships
• Training corporate originators onnonurgent payment routingrules (IBANs, BIC, CLABE, etc)
• Transferring internalInternational Wire Transferknowledge to International ACHteams
• Managing and mapping incountry formats
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U.S. Bank corporate originators utilize International ACH as an easy, safe and “known” payment channelfor payroll, pension, vendor payments and intercompany transfers. They chose International ACh as anoption due to customer dissatisfaction with Foreign drafts, International Wire Transfer fees, and beneficiarydeductions. Marketing of this new option was very limited during the pilot.
International ACH Online User Feedback:§ Dedicate extra time to the initial payment instruction setup phase. IAT is more complicated then
domestic ACH, not due to software, just the additional “wirelike” variables.§ Ability to see real time rates online at initiation and approval.§ Integrated International ACH functionality within standard domestic ACH workflow
Customer feedback§ Likes:
– Speed of Payment (nearly as fast asa wire)
– Love that there are no beneficiarydeductions
– Cost to the originator and receiver(cost savings can exceed $20 forboth parties)
§ Dislikes– Limited Prenotification capabilities– Truncated Return and NOC
information available.
How have customers responded?
§Who: Quality Schools International§Problem: High cost of wires for teachersalaries§Solution: International ACH§Customer benefit: 86% savings intransaction fees§Bank benefit: Customer retention andincreased satisfaction
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What are Originators asking for next?
§ Enable Foreign Exchange on International ACH Payments initiated via transmission(FTP, HTTPs, VAN, etc)
§ Settlement out of MultiCurrency and Foreign Currency Accounts.
§ Expanded remittance capabilities on forward payments, CTX like addenda capabilitieswithin the NACHA IAT format or the new expanded remittance capabilities availablewith Wire Transfers beginning Nov 2011.
TURKEY
CYPRUS
JORDAN
ISRAEL
LEBANON
ARMENIAAZERBAIJAN
GEORGIA KYRGYZSTAN
TAJIKISTAN
KUWAIT
QATARBAHRAIN
U. A. E.
YEMEN
SYRIA
IRAQ IRAN
OMANSAUDI
ARABIA
AFGHANISTAN
PAKISTAN
INDIA
CHINA
KAZAKHSTAN
TURKMENISTAN
UZBEKISTAN
MYANMAR
THAILANDCAMBODIA
NEPALBHUTAN
VIETNAM
SRI LANKA
LAOS
BANGLADESH
MALAYSIABRUNEI
SINGAPORE
PHILIPPINES
TAIWAN
INDONESIA
JAPAN
MONGOLIA
SOUTHKOREA
NORTHKOREA
EASTTIMOR
PAPUANEW GUINEA
HONGKONG
§ Broader country and currency reach.Expansion into new markets andnew currencies.