Crossing Borders – Key Payment Systems Outside the U.S.
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Enhance your understanding of retail and commercial payment systems outside the U.S. and learn how the rest of the world has implemented ACH, funds transfer, and check systems. This session focuses on important national payment systems in different countries throughout the world and their distinguishing characteristics – a must for any institution that wants to know more about non-U.S. payment systems. We will also cover the evolving environment for “ACH” payments outside the U.S. and talk about what’s taking place – identifying some of the organizations involved in cross-border “ACH” payment services.
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Crossing Borders – Key Payment Systems Outside the U.S.
- 1. Webinar: Crossing Borders: Key Payment Systems Outside the U.S. Nasreen Quibria | Managing Director & Founder April 2, 2015
- 3. Types of Cross-Border Payments 3 Source: US Census BureauSource: World Bank $22.81 $13.07 $11.96 $10.60 $6.13 $5.68 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 B2B – Supplier Payments B2C – PayrolleCommerce – C2B Remittances – C2C 2012 Worker Remittances (In Billions of U.S. Dollars) $26.69 $26.74 $37.14 $37.63 $41.23 $42.37 $59.69 $114.31 $181.69 $251.69 0 50 100 150 200 250 300 Singapore Belgium Netherlands Brazil United Kingdom Germany Japan China Mexico Canada 2013 U.S. Exports (In Billions of U.S. Dollars)
- 5. 5 Mexico • Hybrid real-time electronic funds transfer system since 2004 • Interbank payment system owned and operated by the central bank • Processes almost all large value payments and most interbank low value credit transfers • Funds transferred within minutes • Available 23 x 5, but most banks offer payment services only 12 x 5 • Average SPEI banking fee is 4 MXN ($0.3) • Real-time gross settlement network • Operated by the central bank since 1990 • Limited functionality • Manages the liquidity provision facilities and the banks’ current accounts at the central bank • Processes mainly low value payments - checks, the direct debits service, and the deferred Electronic Funds Transfers (TEF) service • Automated clearing house owned and operated by CECOBAN, a private company owned by banks • Most payments are settled D+1 CCEN SPEI SIAC
- 6. Retail Payments Trends in Mexico 6 Source: Bank of Mexico › Mexico is primarily a cash culture › Only for larger purchases such as household appliances is cash is a less common form of payment › In Mexico, combined credit card and debit card volume equates to less than 6% of GDP › Mexico is heavily unbanked, but active mobile subscription is at nearly 90% penetration rate SPEI – Non cash payment instruments in Mexico (Volume)
- 7. 7 Brazil COMPE (Check Clearinghouse)STR (Reserves Transfer System) SILOC (Deferred Settlement System for Interbank Credit Orders) SITRAF (Funds Transfer System) • Real-time gross settlement system • Hub of the national payment system (all Brazilian clearing and settlement systems settle in central bank money) • Clears checks (T+1) • Operated by Banco do Brasil • Deferred settlement for interbank credit transfers (DOC), and other services (e.g., TEC, Boleto) (T+1) • Two settlement sessions are carried out daily at 8:20 am and 4:10 pm • Under the supervision of the central bank • Hybrid system (RTGS-like system): RTGS and DNS • Express Wire Transfers – TED (T0) • Operation starts at 4 am and ends at 5:10 pm • Under supervision of the central bank CIP (Interbank Payment Clearinghouse)
- 8. 8 Canada USBE (U.S. Dollar Bulk Exchange) LVTS (Large Value Transfer System) ACSS (Automated Clearing and Settlement System) • Used for CAD wires – high value, same day, urgent customer and bank transfers • 16 direct bank participants • Processes CAD Checks, EDI, low value (up to C$25 million), credit and debit transfers, etc. • 11 direct participants • 99% of daily transaction volume is processed • These items represent just 10% of the total value of the clearing • Next day (ACH style) settlement of USD • Positions settled through US correspondents › Overseas Canada’s national clearing system › Not an ACH › Establishes domestic rules framework The Role of the CPA…
- 9. 9 *The timeframes allowed by the CPA exceed those in the current NACHA rules NACHA Terminology CPA Terminology Originator Payee ACH agreement (between the Payee/Originator and Sponsoring member/ ODFI) Letter of undertaking Receiver Payor Pre-authorized debit authorization form between the Payor and Payee Payor's PAD agreement Originating Depository Financial Institution (ODFI) Sponsoring member Receiving Depository Financial Institution (RDFI) Processing member Consumer returns are permitted for up to, and including, 60 calendar days after settlement date Consumer returns of PADs are permitted for up to, and including, 90 calendar days after settlement date* Corporate returns are permitted for up to, and including, 2 banking days after settlement date Corporate returns of PADs are permitted for up to, and including, 10 business days after settlement date* Variable date notice: 7 calendar days prior Variable amount notice: 10 calendar days prior Variable PAD date: additional authorization required Variable PAD amount notice: 10 calendar days prior Pre-notification is a ‘test entry’ in advance of any real’ entry Pre-notification is used to describe each written notice sent to the Payor / Receiver in advance of a recurring debit Learning Canadian…
- 10. Average Company Ltd. N408911 555 Main Street East Toronto, Ontario M5K1X1 ________20___ Pay to the order of ___________________________________________$_______ VOID ______________________________________________________/100 DOLLARS The Scotiabank Bank Toronto Centre Branch 55 King St. W. & Bay St. Toronto, Ontario M5K 1A2 408911: 95042 : 002 : 0694:0234567 Account Numbers are Different in Canada… 10 Populating the NACHA record with the numbers on a Canadian check: 408911: 95042 : 002 : 0694:0234567 Country code Bank transit routing number Institution number Foreign receiver’s account number (maximum of 12 digits) To create Foreign Receiving DFI Identification ⇨ 000295042 1) Add leading 0 to Institution Number 2) Combine with Branch Transit Number
- 11. Retail Payments Trends in Canada 11 Cash 46.0% Debit 16.0% ABM 1.0% Prepaid Cards 2.0% Checks & Paper 4.0% Credit Card 14.0% On-Us 9.0% E-Wallets / P2P 0.1% EFT 8.0% Cash 2.0% Checks & Paper 40.0% Debit 2.0% ABM 1.0% Prepaid Cards 0.6% EFT 32.0% Credit Card 4.0% On-Us 18.0% E-Wallets / P2P 1.3% Volume Value Source: 2012 Canadian Payments and Trends Report, CPA NOTE: With the focus on retail payments or payments other than wholesale payments, LVTS payments are excluded. Business checks (under $25 million), direct debit, credit card, etc. payments are included in the data.
- 12. CPA Future Vision: Migration & Drivers to ISO 20022 12 • Enhanced remittance data • Domestic and global interoperability • Single global standard
- 13. 13 China • Check clearance all over China • Promotes and satisfies non-cash payment demands • Established June 2006 • Transactions below RMB 500,000 • Operates 8 am to 5 pm • Credit collection – T+1; pre-authorized collection – T+1; dated debit – T +2 • 1754 direct and 107, 755 indirect participants • Expected to launch at the end of 2015 • Enable cross-border RMB clearing among both onshore and offshore participants • Run on a SWIFT standard • Operate 23 hours a day in 17 different time zones • Multilingual • Real-time gross settlement system • Established June 2005 • Transactions above RMB 500,000 • Operates 8 am to 5 pm • 1747 direct and 107,850 indirect participants CIS (Check Image System) HVPS (High Value Payment System) CIPS (China International Payment System) BEPS (Bulk Electronic Payment System) CNAP (China National Advanced Payments System)
- 14. SEPA: Pan – European ACH 14 › 34 countries › Euro currency only › All intra-European credit transfers, direct debits (and card payments) are domestic payments › Harmonized legal environment › Standardized schemes based on ISO 20022 XML › Technically interoperable ACH infrastructures › Use of IBAN and BIC › Remittance details of 140 characters Euro introduced in interbank settlement in 1999 2013-2016 EU Regulation 924 – SEPA End Date PSD 2012 (EC Regulation 260/2012) EPC Regulation on mandatory BIC and IBAN in 2007 PSD 2009 (EC Regulation 924/2009) SEPA Direct Debit (SDD) launch SEPA Credit Transfer (SCT) launch Euro Cash and Coins EU Regulation 2560 introduced for payments ≤ € 12,500 in 2003 1998 2002 2004 2006 2008 2010 2012 2014 EU Regulation 2560 increased to € 50,000 Integrated payments environment… SCT & SDD End Date As of March 2015. Qinsights.net
- 15. SEPA Members 15 European Union (EU) Bulgaria Czech Republic Denmark Hungary Lithuania Poland Romania Sweden United Kingdom Non-Euro Single Market Area As of March 2015. Qinsights.net Italy Luxembourg Malta Netherlands Portugal Slovakia Slovenia Spain Latvia ‘Euro zone’ Austria Belgium Cyprus Estonia France Finland Germany Greece Ireland Croatia Non EEA Switzerland Monaco San Marino Iceland Liechtenstein Norway Non-Euro European Economic Area (EEA)
- 16. Key Features – SEPA Credit Transfer 16 › Faster settlement: maximum one day time between debit on payer account and credit on payee account (D+1) › No deductions of charges – beneficiary receives full amount of transfer › Common pricing – same cost whether within country or cross border › No scheme or transactions value limit (Exception: Bank of Spain imposed a 50,000 limit on residential to non-residential transactions within Spain) › Central Bank of Reporting (CBR) may still apply to transactions over defined thresholds in some countries, as they do for domestic transactions. CBR, via banks, is to be removed by February 1, 2016
- 17. Key Features – SEPA Direct Debit 17 SDD Core SDD B2B › Debtor is business or consumer (C2B and/or B2B) › All SEPA banks must participate › First / One off on D-5, recurrent on D-2 › Refund possible within 8 weeks › Unauthorized transactions – claims up to 13 months › Debtor mandate only to the creditor › Returns – 5 days after due date › Customer pre-notification – 14 days › Legacy mandates can be re-used › Debtor is a business (B2B) › Optional - Restricted number of banks participate › All types on D-1 › Refunds are not possible › Unauthorized transactions – claims up to 13 months › Debtor mandate to creditor & debtor bank › New mandates are required › Returns – 2 days after due date › Customer pre-notification – 14 days › Debtor bank verifies every SDD transaction
- 18. Construction of the IBAN and BIC International Bank Account Number (IBAN): Length differs per country, up to maximum of 34 positions DE 79 3706 0590 1234 5678 90 18 Country code Check digits / control code Bank identifier/ routing number Account number *NOTE: BIC details will no longer be required after February 2016 Bank Identifier Code (BIC)*: length of 8 or 11 letters and numbers DEUT DE FF XXX Bank identifier Country code Location code Branch Code [XXX denotes head office]
- 19. United Kingdom 19 • 3-day clearing batch system • Direct debits • Direct credits (e.g., salary, pensions, welfare, and tax credits) • Current account switch service • Processing time of 15 seconds • Lower value payments [limited to between £10,000 and £100,000] • Small percentage of total UK clearing value (focus on retail online/telephone) • 24 x 7 availability • 140 character narrative • RTGS intra-day service for sterling payments • Low volume - total of .5% of clearing volume • High value - 93% of daily value • The check clearing system in Great Britain, includes bankers’ drafts, building society checks, postal orders, warrants and government payable orders • The systems for clearing paper bank giro credits and euro-denominated checks
- 20. Payments Trends in the UK 20 Source: 2013 The Way We Pay Report, Payments Council
- 22. The Drive to Faster Payments 22 Live in 17 markets with 5 more in the planning / development stage Source: SWIFT
- 23. Adoption of ISO 20022 Standards 23 Source: SWIFT
- 25. Cross-Border Inefficiencies 25 Multiple stages in correspondent banking…
- 26. Cross-Border Considerations… 26 Account number requirements › BIC, IBAN, Transit and routing codes Currencies › Generally ACH systems clear in local currency only › Varying currency digits for different countries e.g., 3 or 0 decimal currencies Cut Off Times › Varies greatly by country or region e.g., Latin American, Asia Settlement Cycles › Hong Kong, Malaysia and India same day › Generally three days Clearing Rules and Regulations › Value Dates › Direct Debit Mandates › Recourse › Returns and Rejects › Threshold amounts Features and Functions › Varied capacity and capabilities › Disparate pricing › Many regions lack common standards Unique Requirements › Character / language restriction - Japanese Zengin Clearing based on Katakana › South Africa restricts specific type of international flows Reconciliation › Challenges with support of remittance information including reference information
- 27. International Consumer Protection Laws 27 …and their impact on cross-border payments
- 29. FedGlobal ACH 29 Domestic Formats & Rules FX USD IAT Format & Rules USD MXN 02:15 am ET Day 0 Day 1 ACH Flow Example: Fixed-to-Variable payment to Mexico › International ACH payments service offered by the Federal Reserve Banks to Financial Institutions › Relies on open bank-to-bank system › Allows for cross-border ACH credit payments to 35 countries and debits to Canada Services Foreign Gateway Operator Service Provider Clearing and Settlement System Canada Bank of Nova Scotia n/a ACSS Mexico Banco de Mexico n/a SPEI Panama Banco Nacional de Panama Telered ACH Directo Europe DZ Bank Equens Multiple Latin America Banco Rendimento MFIC Proprietary
- 30. PayPal 30 Network effects Global footprint Network of networks with simplified process Online fraud prevention expertise › >100M active accounts › >$100B total payment volume › Millions of merchants, from sole proprietors to large corporations › 190 countries › 25 countries › Localized websites in 21 markets › >27 financial networks › >15K bank partners globally › 12+ years experience fighting fraud online › Leading anti-fraud technology › Industry-leading loss performance Online Shoppers Prefer to Pay with PayPal #2 #1 #1 #3 #2 Payments network designed for e-commerce
- 31. Earthport 31 Earthport is a regulated global financial services organization specializing in cross-border payments Established in 1997 | FSA regulated | SWIFT member, supervised financial institution | Traded on London Stock Exchange (AIM: EPO) | Major investors: Henderson, Schroder, Blackrock, Millennium Investment by World Bank (IFC) - 2013 | Purchase of Baydon Hill (FX) – 2013 Global reach - 60 countries, multicurrency capability
- 32. Ripple’s Solution 32 From this… To this… Instant and bilateral › Synchronization › Latency › Liquidity › Risk › Visibility › Fees
- 34. 34 Thank You – Questions? Let’s Connect… Nasreen Quibria| Managing Director & Founder nasreen.quibria@qinsights.net (m) 617.388.6207 nasreenquibria @nquibria