The Future of Postfinance Is Now Interview with Hans-Rudolf Thönen, Member of the Postfinance Board

CLEARIT The Swiss professional journal for payment traffic Edition 50 | December 2011

> The future of PostFinance is now Interview with Hans-Rudolf Thönen, member of the PostFinance Board

> TARGET2-Securities: No Swiss franc participation

> CLEARIT turns 50 2 CONTENT / CLEARIT | December 2011

Interview Page 4 Standardization Page 12 The future of PostFinance is now SIX Group pushing the frontiers of ISO 20022 After more than 160 years of being a federal institution, the Implementers of ISO standards traditionally had to rely on Swiss Post is becoming a corporation. PostFinance, too, their long-established methods for implementing message- becomes an Ltd and comes under the regulatory control of standards-based business processes. With the advent of the Swiss Financial Market Supervisory Authority FINMA. ISO 20022 and its versatile processing XML-based capa- Exactly what that means is explained in the following bilities, a changing wind has swept new ideas to the fore. interview with Hans-Rudolf Thönen, member of the Post- As a representative of the financial center, SIX Group is Finance Board who has been working for the payment contributing the Swiss perspective to the SWIFT-initiated traffic provider for almost 40 years. He’s taking both a look MyStandards pilot, a sophisticated standards implemen- back and one ahead: from the evolution of IT from the little tation environment. yellow payment book right up to today’s technical trends in payment traffic. News Page 13 TARGET2-Securities: No Swiss franc participation Business & Partners Page 8 In September, the Swiss National Bank decided to forgo Twelve years payment traffic development at BCV participation by the Swiss franc in the European securi- Over the past ten years, the payment traffic sector has ties processing system TARGET2-Securities – for now. The undergone some major changes, mostly as a result of the decision was preceded by an intensive dialog among the increase in Internet payment orders, resulting in important stakeholders. consequences for banks’ organization and systems. At the Banque Cantonale Vaudoise (BCV) the number of Highlights Page 14 processed orders has doubled since April 1999, while the CLEARIT turns 50 number of full-time employees assigned to these activities CLEARIT has many initiators: the representatives from was reduced to one-third. Swiss banks as editors in the earliest times and the SIX Interbank Clearing board members in the late 1990s. But Facts & Figures Page 9 without then-CEO André Bamat as the driving force and Cash preferred advocate, the trade journal wouldn’t be where it is today: The reason why Germans still prefer to pay with cash rather At 50 issues. than with credit cards was a mystery to economists until now. A recent Bundesbank study is shedding some light on the phenomenon.

In & Outs Page 10 The death knell for the magnetic stripe? Since Chip and PIN was introduced in Europe, it has been largely accredited for the fall in card present fraud. Latest statistics released by the UK Cards Association, for example, show that fraud losses on UK cards, cheques and online banking have fallen to their lowest levels since the turn of the century.

Front page photo: Extract of the 50 franc banknote Editorial / CLEARIT | December 2011 3

Dear readers, The weight and meaning of many things change in signi While the topic was practically absent in media and politics ficance when the counter changes from 49 to 50: The 50th a few short years ago, the Neue Zürcher Zeitung wrote wedding anniversary – the ”golden“ year – precious, shiny recently that payment traffic was a vital banking activity. and reliable, just like the precious metal itself. The fifty stars The Financial Times refers to it as a reliable barometer of of the American flag – of symbolic importance particularly GDP. It has even reached the French election campaign, for Hawaii, the 50th state. Each 50th year is a holy year, the where the website of a presidential candidate asks for a 50th day a holiday – Pentecost or Shavuot – the end of an tax abatement on payment traffic. epoch and the beginning of a new one. CLEARIT is cele- brating this doubly significant milestone with its 50th issue. Payment traffic is indispensable. And beyond that, it is the raison d'être of CLEARIT. The editorial staff, along with the Within these twelve years, this trade journal for payment advisory council, thank you for your trust and are looking traffic has published about a quarter million words. That forward to the next fifty issues – another “dictionary” corresponds to the content of an average dictionary. related to the world of payment traffic. <

And just as your trade magazine has become a solid fixture, the term payment traffic has become an integral part of public awareness. Would you, dear reader, ever have suspected, fifty CLEARIT editions ago, that payments would someday be at the focal point of the media’s interest? Or that TV, radio and print media would pick up its system- Gabriel Juri relevant significance and explain to the public at large why Chief editor of CLEARIT glitch-free payment processing is vital to globalized SIX Interbank Clearing financial markets and the world economy? You are the industry experts; you understand why. Hopefully, the spe- cialist information provided in CLEARIT has also made some of this technical knowledge more easily accessible and understandable, especially since CLEARIT has con- tinuously pointed out the payment traffic’s systemic relevance.

Four years ago, CLEARIT asked Thomas Jordan, who is now Swiss National Bank Vice Chairman, why, “notwithstanding the Swiss interbank payment system SIC’s central significance for the National Bank’s monetary and currency policy and for the Swiss financial center as a whole, the payment traffic topic gets hardly any public attention.” Back then, before the rising tide of the financial, currency and debt crises, his answer was, ”because everything has been running perfectly smoothly.” It is unimaginable what the impact on the world economy would have been without the faultless operation of the payment systems. 4 IInterNHALTvi /e CLEARw / CLEARIT | SeptemberIT | |December Dezember 2010 20112009

The future of PostFinance is now

After more than 160 years of being a federal institution, the Swiss Post is becoming a corporation. PostFinance, too, becomes an Ltd and comes under the regulatory control of the Swiss Financial Market Supervisory Authority FINMA. Exactly what that means is explained in the following interview with Hans-Rudolf Thönen, member of the PostFinance Board who has been working for the payment traffic provider for almost 40 years. He’s taking both a look back and one ahead: from the evolution of IT from the little yellow payment book right up to today’s technical trends in payment traffic.

CLEARIT: Mr. Thönen, you are truly a veteran of the Swiss us internally, one that we have been preparing for a long payment traffic business. What was the most interesting time. For instance, we have been operating at a high level or the most exciting time in your career? in the area of money-laundering prevention. But there is Hans-Rudolf Thönen: I am just as excited about it today no doubt that the wealth of experience within FINMA will as I was the first day. There isn’t one particular thing that further advance us and that we will certainly benefit, and it springs to mind. But there was a point in the late 80s when goes without saying that in various other areas we will have technical advances had truly started to make an immense to re-integrate ourselves differently. Here, too, we have impact on the production area. It was fascinating that I was been preparing for many years. When in the future Post- able to implement steps on my own that advanced the Finance Ltd is supervised by FINMA, we will be receiving PostFinance payment traffic. To see the potency of IT as the typical regulations governing our industry, and that the driving power of change was very significant. My fasci will strengthen our position in the Swiss financial center. nation with the payment traffic environment is still here, every day. You mentioned above that the IT developments in the 80s strongly impacted the world of payment traffic. For more than one hundred years, the little yellow post-payment “When in the future PostFinance Ltd deposit booklet has survived any technical trend. When is supervised by FINMA, we will be re- will the receipt-booklet’s final hour be? I don’t know whether I’ll experience that. It's in the ceiving the typical regulations governing character of the Swiss that they make so many payments our industry, and that will strengthen our at the post office. In comparison with the rest of Europe, we are in a special situation. It seems that to physically hold position in the Swiss financial center.” the booklet in their hands is proof for many customers that the payment actually was made. Besides, it’s not just the That fascination will continue when PostFinance obtains silver-haired set who make their payments like that, but the FINMA licence and becomes a bank. What does this the younger population, as well. Each year we sell 300,000 mean for the payment traffic of your organization? of these booklets – a very large number, indeed. Person- The division that deals with prevention of money launder- ally, I don’t understand why, with the options available ing will in all likelihood be under FINMA supervision by today, payment information would manually be copied 1 December, with complete monitoring expected by 2013. from a receipt into a booklet. We wanted to streamline I think that will help us especially in the area supervision. this process for our customers, but the effort had to be Now we’ll have a regulator with broad experience in the cancelled shortly after its launch about five years ago. banking business, and we will be monitored the same as Since all relevant information had been obtained by the all other financial institutions. That’s quite necessary for us post office, we would print out the receipt and hand it to being the fourth-largest financial player in the Swiss market. the customers. We tested this change at ten post offices and informed the customers that the booklet would no So how does this new situation affect your processes, your longer accepted, but instead the receipt would be made business? available to the customers. Immediately, many people Our customers won’t notice much of a change. Being switched to those post offices where the yellow booklets monitored in this way is an especially important step for were still accepted. The desired effect was never achieved. EdiIntertorviialew / /CLEAR CLEARITIT | |September December 20112010 5

Short Biography

Hans-Rudolf Thönen entered the IT area of PostFinance in 1973. He is the COO and a member of the Board since 1993. During his career he has held various leadership positions in diverse areas of PostFinance. In addition, he has held a number of board membership mandates (Paynet and Eufiserv) and was president of TeCo ep2. 6 IInterNHALTvi /e CLEARw / CLEARIT | ITSeptember | December 2010 2011

The costs for this type of service would seem to be exces- mobile phones, a significant step forward. We assume that sive. younger people will use this option in order to pay faster, Obviously, this type of payment costs us more than others. independently of where they are. But we'll use all those But in accordance with the Postal Act, the parliament stip- other channels as well to offer our customers the opportu- ulates that every Swiss must have access to a post office nity to process their payments and benefit from technical within a 20- to 30-minute commute, where they can make advances cost effectively. payments using cash. So PostFinance meets this basic service mandate. And how is the pricing per transaction developing here? The per-transaction fees drop with increasing volume. Original investments in new processes are always signifi- “Over the past year, the number of Post- cant, but with increasing numbers we rapidly achieve good Finance staff in pay-slip processing has cost structures. But what really matters is the total cost consideration of a process. It’s crucial to avoid crossover more or less been reduced by half.” between media. Any system able to simplify or avoid media breaks between billers and payers lowers costs. How have your staffing numbers changed over the past ten years? How are you facing this challenge? The number of transactions is steadily decreasing signif- With e-billing, for instance, where the invoice is produced icantly in the area of paper-based payments. The exact and presented electronically and I can process a payment opposite can be observed in electronic processing. Over with three simple clicks. That completely eliminates breaks the past year, the number of PostFinance staff in pay-slip from one medium to another avoiding sources of errors. processing has more or less been reduced by half. But Reference, debtor and beneficiary information can be these are no longer big changes; those we had earlier on. omitted altogether in processing. In the late 80s, during a first step and with the change from manual operations to PCs, we had to eliminate around 1,000 jobs. During a second step in 1996, when integrated “We’re already cooperating well with IT was introduced, almost 900 more jobs were lost. The the banks. In technical areas, we coordi- reductions over the past eight years haven’t had as big an impact Thanks to our high straight-through-processing nate via various committees, heading in rate, only a few payments need to be manually processed. the same direction, and moving forward Post office pay-slips, for example, are scanned directly at the respective post offices and run through fully automated together.” processing – a total of about 180 million payments per year. At the PostFinance Operations Center we are still process- How will holding the banking permit in your hands impact ing payments by letter through payment order, but that your cooperation with other financial institutions? number is decreasing by about 7% annually. I’m assuming We’re already cooperating well with the banks. In technical that this service will no longer be offered sooner or later, areas, we coordinate via various committees, heading in as opposed to the little yellow payment book. the same direction, and moving forward together. It’s obvious that we compete in the same market. But we also What developments can we expect to see over the next closely cooperate in the area of card-based payments, few years? which is steadily and significantly increasing each year. I think that the electronic payment traffic will grow signifi- As the former president of the TeCo ep2 association, the cantly, thereby replacing the paper-based one. We already organization that, along with acquirers, issuers and POS have 1.3 million customers who make their payments via terminal producers, laid down the technical infrastruc- the Internet – an upward trend. Online purchases through ture for all of Switzerland – I also know that especially direct payment will increase, too. in this area, cooperation is working very well, to everyone’s benefit. The same holds true for the two payment Staying with electronic payments: How much have you traffic systems. PostFinance, on the one hand, has efficient been affected by online innovations by such players as solutions in bulk payments. On the other, the interbank PayPal a while back, and now by Google? payment system SIC has its own strengths. Both systems Service providers such as these will increasingly enter the co-exist well, but tension is part of competition. And market. That’s a given. Seeing ourselves as an innovator besides, PostFinance also processes payment transac- within the Swiss payment traffic, PostFinance is trying tions for five banks, UBS and some cantonal banks among to remain at the forefront and to implement all technical them – proof that with good service and accepted pro- novalties. Just recently, we have communicated to our cessing fees, we can cooperate. Just now we have been customers that they may scan and pay invoices with their able to renew contracts. We are the largest processor for EdiIntertorviialew / /CLEAR CLEARITIT | |September December 20112010 7

participating and having a say. And for more than ten years we have been one of the SIC owners.

One question comes to mind for those involved in payment traffic: When will Switzerland receive a uniform slip, replacing the red or orange payment deposit slips? That is an ongoing discussion. If it even makes sense to strive for a uniform slip in these times, there would need to be significant benefits. Switching to a new one would bring about huge changes in everyone’s processing. Producing a slip would be the smallest of these problems. Such a change would take about ten years for the old processes to be finally be replaced by new ones, in my opinion. Bar codes, for example, have been discussed for more than 20 years. It remains to be seen whether now is the time for that. <

Interview: Gabriel Juri, SIX Interbank Clearing [email protected] payment partners, and in connection with the ”too big to fail” requirements the big banks have to meet now, addi- André Gsponer, Enterprise Services AG tional cooperation is possible. Let’s wait and see. The path [email protected] toward new models and new types of business is conceiv- able. I’m certain that our cooperation in this environment will be very much in demand.

Does this mean that the collective mindset has become stronger? It has become much stronger. Today, we are also repre- sented in all the committees surrounding SEPA, actively

From manual labor to 24/7 service, 365 days per year

In 1994, 500 central staff and 1,700 employees at the staff handle processing, IT, back-office and customer postal offices worked, predominately manually, to service. Centrally maintained customer and account process payments and payment orders across many files allow account data access around the clock. With- interfaces. At the computer center, the behemoth drawals can be made from anywhere, at any time and computers are humming while the offices have PCs. verified against available balances before booking. 1,000 jobs are eliminated. New automated services enter the market one after Two years later, the dawning of a new era. Manual another. Customer service around the clock, payments processing mostly disappears; another 900 jobs are conclusively recorded and processed at the post are lost. With computers capable of processing office or processed by the customers themselves. Pro- up to 5 million payment deposit slips per day; with duction has evolved into a whole new modern service printing and packaging conveyors producing up to area. All staffers have the same tools available: PC, 120 million pages per year; and with robot systems monitor, printer. for data carrier handling (30,000 data carriers per month), payment processing turns from production to an industrial enterprise. 1,350 of 1,650 production 8 IBusiNHALTne ss/ CLEAR & ParITtner | Septembers / CLEAR 2010IT | December 2011

Twelve years payment traffic development at BCV

Over the past ten years, the payment traffic sector has undergone some major changes, mostly as a result of the increase in Internet payment orders, resulting in important consequences for banks’ organization and systems. At the Banque Cantonale Vaudoise (BCV) the number of processed orders has doubled since April 1999, while the number of full-time employees assigned to these activities was reduced to one-third.

At the time of CLEARIT’s first issue, outgoing payment same time, the BCV-net platform keeps steadily evolving. traffic was mostly based on customer orders submitted in With the introduction of a mobile application by the end of paper form and divided into one of three categories: 2011, customers will at first be able to move funds between • Standardized, postcard-sized payment notifications, their own accounts from their smartphone, and later have labeled TOP orders at BCV and introduced in 1993, access to all BCV-net functions. which could be digitalized and processed automatically. • Hand-written orders, submitted in any kind of paper It will be interesting to analyze the evolutionary path of format and processed manually. payment options in twelve years and six months – when • Phone orders (BCV-Phone) that required new manual the 100th issue of CLEARlT will be published. < data entry by the bank. Jean-Jacques Maillard, Banque Cantonale Vaudoise Approximately 25% of the global ordering volume was [email protected] submitted via the Internet. Somewhat fewer than the equi valent of 60 full-time staff were responsible for the order processing in the payment traffic department. They were Evolution of the payment order volumes divided into four services, plus Swiss and foreign transfers. and the number of full-time employees Over time, processes and systems evolved. Versatility (Numbers available since 2001). was of great importance within the team. Along with the technical evolution, the standardizing of new forms that 5.0 mn 60 could be digitalized was also encouraged, and character 4.5 mn recognition software solutions were substantially improved. 50 New functions were integrated into the BCV-net online 4.0 mn bank platform, making it more attractive. 3.5 mn 40 3.0 mn Beyond that, customers were encouraged to switch to this system by attractive pricing. Marketing efforts advanced 2.5 mn 30 the sale of service packages where payments submitted 2.0 mn via the Internet were processed for free, with the exception 20 1.5 mn of foreign transfers not containing SEPA characteristics. Full-time employees

All these varied efforts were successful, since now more Number of payment orders 1.0 mn 10 than three of four orders are submitted via the Internet, 500 000 automatic payments included. Even though the number 0 0 of processed orders has practically doubled, the number 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 of full-time units of processing payments requiring manual Years intervention has decreased. Today, about 18 full-time jobs are dedicated to the processing of payment orders. Number of payment orders Number of Internet payment orders The fact that for two years now BCV has experienced the Assigned number of FTE processing payment orders stabilizing of paper-trail work bears special mention. At the Fcta sEdi & Figutorireal s/ /CLEAR CLEARITIT | |September December 20112010 9

Cash preferred

The reason why Germans still prefer to pay with cash rather than with credit cards was a mystery to economists until now. A recent Bundesbank study is shedding some light on the phenomenon.

Today, there are almost no retailers left that wouldn’t accept The researchers analyzed more than 25,500 individual trans- a card for payment. The old saying “you can’t spend more actions. Cash comes in first in numbers of transactions, but than you have in your pocket” has become outdated in also in value. A look into one’s wallet is telling – and that’s the 21st century. Customers can access their accounts also the conclusion of the study: Mostly, those who prefer anywhere, anytime quickly and easily. cash to card payments place great value on having control over their expenses – these are very often people who have There is much support for the theory that modern payment to spend carefully. methods will sooner or later turn bills and coins into novelty items. Yet, even in these times of plastic money, customers Preference for plastic dig through their wallets and pick out the exact amount at The researchers nicknamed this group the ”pocket the cash register, to the penny. Three central bank econo- watchers.” These buyers paid cash for two-thirds of all their mists have researched this behavior in an empirical study. purchases. Only for purchases greater than EUR 116 did they begin to choose the electronic alternative. Of the other A look into the wallet consumers, only about every second euro goes across the Before this, economists believed that transaction costs counter in cash; cards are being used for purchases starting were the determining factor as to which payment method at EUR 62. ”Our results show that cash has retained an a customer preferred. When paying cash, the “transaction important role, seemingly more cost-efficient alternatives cost” is the time and effort of going to the ATM. When using notwithstanding," according to the researchers. Their con- a card, this doesn’t apply. In a purely economic sense, there clusion is confirmed by the popular payment habits in Italy is no argument for using cash. and Austria that can be explained by the study’s model. The researchers are having a tougher time justifying why Americans across the board prefer plastic to cash.

Researchers believe that social norms and differing tradi- tions are responsible – even before the dizzying rise of credit cards, checks were the most common payment alternative. At least, the central bankers have a simple tip for the American credit card users who are over-indebted: “Use cash.” <

Johannes Pennekamp, Handelsblatt [email protected]

“Using cash to monitor liquidity – implications So how do we explain the preference for bills and coins? The for payments, currency demand and withdrawal economists of the German and Austrian central banks have behavior,” an explanation: “We focused our attention on the single Link to download the study: www.bundesbank.de/ characteristic only cash has – the memory function." In download/volkswirtschaft/dkp/2011/201122dkp_ order to find out whether the preference for hard coins really en.pdf is connected to this characteristic, the researchers asked 2,300 adults from all over Germany about their payment preferences and their habits in the use of credit cards. And the study participants wrote a journal about their expenses for a week. 10 IInNHALT & Ou /t sCLEAR / CLEARIT |IT September | December 2010 2011

The death knell for the magnetic stripe?

Since Chip and PIN was introduced in Europe, it has been largely accredited for the fall in card present fraud. Latest statistics released by the UK Cards Association, for example, show that fraud losses on UK cards, cheques and online banking have fallen to their lowest levels since the turn of the century.

The largest drop has been in counterfeit card fraud – where presence with customer and account identification makes a card is cloned or skimmed – which in 2010 was cut by the card vulnerable to skimming. Americans themselves an impressive 41% to GBP 47.6m when compared to the are also starting to realize that there are situations – such previous year. as train ticket vending machines – where only Chip and PIN are accepted. In such situations, they have to revert to cash Several factors have been attributed to the decline of this which makes travelling more inconvenient and expensive type of fraud all across Europe. Specifically, the greater for them. adoption of anti-skimming equipment attached to ATMs have helped reduce counterfeit fraud. Yet, still cited as the The Belgian’s move main driver behind the fall in fraud is Chip and PIN, where These hurdles are increasing as more and more EMV stronger cryptographic algorithms can be used to authen- enabled countries look to fight fraudsters. The concern over ticate cards and the cardholder. card fraud is illustrated by the decision taken by 22 Belgian banks to block their debit cards for usage outside Europe as However, while it is positive and reassuring that counterfeit of January 2011. It has been reported that this measure has fraud is decreasing, it has not been completely eradicated already lead to a decrease in fraud. While this is a first step and is still a big issue for many European banks' card oper- in combating fraud, in the long run, it is recommended that ations and merchants despite the now widespread roll-out steps should be taken to tackle the problem of skimming of Chip and PIN in the region. EMV migration has been at its root by removing the magnetic stripe altogether. This effective as far as minimizing losses against card-present is the approach Luxembourg has taken where banks have fraud but, until it becomes a universally applied standard decided to replace Maestro cards with VPay cards, which across the world, fraud techniques around skimming will have only Chip and PIN capability. remain attractive to fraudsters keen to exploit regional loopholes, such as in the US. These moves follow the publication of the Seventh Progress Report by the European Central Bank (ECB) last October, No business case in the US? which recommended that from 2012 onwards, all newly Despite the successful implementation of Chip and PIN issued cards in SEPA should be issued, by default, as 'chip- in Europe, the US has been reluctant to embrace this only' cards. proven technology across their own continent. Aside from consumer habits and preferences, there is also no perceived Indeed, the debate around the universal adoption of Chip financial benefit of migrating from magnetic stripes over and PIN and the existence of cards with magnetic stripes to EMV. Historically, relatively low telecommunication was reignited in the UK earlier this year following news costs was a factor. More recently, the sheer number of reports that fraudsters have been targeting tube and rail POS terminals and volume of card transactions means that commuters by attaching skimming devices to station ticket the expense and inconvenience of implementing Chip and machines. Similar to ATM fraud, the magnetic stripe was PIN technology for many stateside outweighs the cost of being copied as passengers bought tickets and then used absorbing any losses due to fraud. In addition, as there is to create fake cards for use in countries with no Chip and no liability on banks in the US should their customers lose PIN protection. out to fraud, the business case for a move to EMV is further undermined. Criminals finding new ways This new approach to skimming highlights how fraudsters However, now that companies like Chase Card Services and are reinventing ways in which to defraud their victims and Wells Fargo have announced initiatives to adopt EMV, the are always looking at ways to counteract the fraud preven- move towards the chip technology looks like it has taken a tion tools already in place. Whereby ATM fraud has been step closer. US companies are beginning to recognize how reduced by anti-skimming devices, these fraudsters have outdated the 50-year old magnetic stripe is and how its simply turned to other terminals where they can capture EdiIntor & Ouialt s/ /CLEAR CLEARITIT | |September December 20112010 11

Skimming utensils, Copyright KEYSTONE/Thomas Frey the same data. With authorities describing this twist to Role of the banks ATM skimming as a new development that may take time The fact is that until a common standard is introduced, for frauds to become apparent, it is clear that the industry counterfeit fraud will continue to appeal to fraudsters keen cannot take the declining counterfeit fraud figures for to take advantage of the gaps in Chip and PIN protection. granted and become complacent. As such, banks need to ensure that if they cannot prevent a card being reproduced for fraudulent purposes, they should The fact is that while cards with magnetic stripes continue be able to monitor the transaction flow and stop the fraud to exist, there remains the opportunity for fraudsters to in its tracks. This requires effective fraud management commit their crimes in countries where Chip and PIN still processes, such as the setting up of reliable customer- hasn't been introduced. One simple solution is to mandate specific rules and back-office tools to block settlements. Chip and PIN technology worldwide in order to stamp At least these systems can flag any irregularities in a cus- out this fraud altogether. Adopting this proactive security tomer's transaction behavior as soon as possible and open measure will no doubt place more pressure on non-EMV a case to investigate. countries like the US to follow suit. However, we are not even close to such a scenario. Despite promising statistics on the fall in counterfeit fraud, the key to eliminating it is to fight it together. While the The SEPA regulation mandates EMV in the euro zone but industry can sit and wait for a political consensus, it really only as far as the issuing side. Therefore, there needs to needs to initiate the first steps and present a united front. be broader and more far reaching regulation, as well as As the banks grapple with this specific fraud issue and an industry agreement, on how to move forward with the innovative ways in which fraudsters are approaching this issue. If global legislation does come in to prohibit it, they also need to keep an eye on fraud levels associated magnetic stripe cards, it will require countries like the US with new payment methods such as mobile and contact- to introduce alternative ways for card users to authorize less payments. The industry has done well in reducing their payments and ensure the genuine card is being used fraud, and Europe is certainly on its way to eradicating it but won't guarantee that EMV will be adopted as the trusted by killing off the magnetic stripe. However, for these efforts method to do so. There is speculation that should the US to continue and to have a real impact, the US will need to implement a card fraud strategy, it is likely to be a mobile say farewell to the die-hard magnetic stripe as well. < solution. However, this would again fragment the industry's response to counterfeit fraud and could oblige Europe to Guy Weber, Risk Manager, SIX Card Solutions follow the US's lead. [email protected] 12 IStanNHALTdar / CLEARdizatiITon | /September CLEARIT |2010 December 2011

SIX Group pushing the frontiers of ISO 20022

Implementers of ISO standards traditionally had to rely on their long-established methods for implementing message-standards-based business processes. With the advent of ISO 20022 and its versatile processing XML-based capabilities, a changing wind has swept new ideas to the fore. As a representative of the financial center, SIX Group is contributing the Swiss perspective to the SWIFT-initiated MyStandards pilot, a sophi sticated standards implementation environment.

First and foremost, ISO 20022 stands for the well-founded this solution and is among a handful of participants in the methodology that can be employed as a recipe for creating MyStandards pilot group, which is shaping the capabili- financial messaging standards, in other words, a "standard ties of this Web-based tool. One of the focus areas of SIX for creating standards". According to the seasoned ISO Group’s evaluation during the pilot rests on the tool’s co 20022 methodology, the development of a messaging llaborative capabilities. The built-in community support has standard starts with specification of the underlying the potential to make MyStandards the solution of choice business process. The subsequent creation of the raw for the market practice work of the Swiss Commission messages to be exchanged between business partners for Financial Standardization (SCFS), which is looking for seems no more than a mere administrative step, undertaken a mechanism to compile the specifications in a versatile at a push of a button rather than a fully-fledged design form. The collaborative features support all downstream exercise, as was the case with legacy message-based activities in an integrated manner, including community standards. In the past, implementation projects were inert review, dissemination and analysis of market practice spec- undertakings with complex project organizations, change ifications. management processes and project phases. The beta version of MyStandards, which runs as a closed This innovative concept has made ISO 20022 the standard pilot, was released at the end of October. Since then, of choice for the many market initiatives looking for a fu- SWIFT has opened it to more institutions in additional ture-proof framework to express their business processes. countries to test the features. < SEPA, TARGET2-Securities and a host of over fifty standard business justifications are testimony to its success. Rainer Vogelgesang, SIX Systems [email protected] The future is now ISO 20022 lends itself to the application of an entire host of software-based applications to accelerate the implementation of ISO 20022 business processes in corporate business systems. SIX Group is a pioneer in this field. SIX Interbank Clearing, as a joint venture of the Swiss financial center, is offering a validation platform it launched earlier this year. Financial institutions, software producers and business customers can use it to test whether the elabora- tion of individual payment messages meets the rules and recommendations the financial center developed last year and published at www.iso-payments.ch.

As a further evolutionary step, SWIFT is currently piloting MyStandards – a collaborative Web-based tool, which will allow market practitioners to manage their own usage of standards and market practices, as well as to share them with counterparties.

SIX Group, in its role of infrastructure provider for the Swiss financial center, has recognized the potential of MyStandards GUI with Swiss SCFS investment funds market practices. EditorNeialws / /CLEAR CLEARITIT | |September December 20112010 13

TARGET2-Securities: No Swiss franc participation

In September, the Swiss National Bank decided to forgo participation by the Swiss franc in the European securities processing system TARGET2-Securities – for now. The decision was preceded by an intensive dialog among the stakeholders.

The European Central Bank (ECB), which is currently de- and strategic level. The SNB and SIX SIS informed the veloping and will be operating TARGET2-Securities (T2S), banks about the ECB initiative during roundtable discus- is interested in including other processing currencies – sions. These meetings also offered the opportunity for an outside of the euro – in T2S. This openness toward other exchange about technical implications. Additionally, a total currencies is justified by positive economies of scale and of three high-level meetings were called for the top rep- a vision of harmonizing the processing landscape beyond resentatives of these institutions, providing them with a the borders of a single European currency. However, after platform for an exchange on the strategic implementation the Bank of England’s announcement not to participate and impact of the franc participation. in T2S, the ECB will likely have to reduce its vision. If it were to participate, a non-euro central bank would have to No franc participation transfer central bank funds of its own currency to the ECB The stakeholders’ dialog was concluded in August, when by opening corresponding accounts in T2S. These accounts it had become apparent that franc participation was not would have to be maintained by the national RTGS system. widely supported by the market participants, for the time A franc participation would thereby immediately affect the being. The SNB would only have considered participa- SIC system. tion if the market had taken a very clear positive stand. Since this condition wasn’t met, and the SNB doesn’t consider the contractual stipulations for Swiss franc participation ideal, the Governing Board of the SNB decided in September against making the franc available as a processing currency in T2S, for the time being. As a result, the SNB has withdrawn from the contract negotiations and the T2S Programme Board.

This decision notwithstanding, the ECB initiative remains relevant, both for the Swiss Financial Center and the SNB; for the latter, in particular, in view of the processing of monetary The franc question revisited repo transactions. But even without franc participation, the Three years ago, participants in the Swiss market had question for the Swiss market players of participating in the already evaluated T2S participation, and dismissed it for T2S remains. Hence, the SNB will continue to follow the lack of sufficient apparent benefits. The revised T2S par- project with great interest and continue the exchange with ticipation criteria for central securities depositories in early the market players. < 2010 were the reason to re-analyze participation by the franc. Consequently, the Swiss National Bank (SNB) took Giuseppe D'Alelio, Swiss National Bank part in “Currency Participation Agreement” negotiations [email protected] between the ECB and other non-euro central banks, and participated on the T2S Programme Board, the body responsible for the overall project management. The SNB, in conjunction with SIX Group, has initiated a stakeholders’ dialog in order to determine the interest of the Swiss financial center for a franc participation in T2S.

Stakeholders’ dialog The dialog between the SNB, SIX Group, the banks and the Swiss Bankers Association was conducted at the technical 14 IHigNHALThlig /ht CLEARs / CLEARIT | SeptemberIT | December 2010 2011

CLEARIT turns 50

CLEARIT has many initiators: the representatives from Swiss banks as editors in the earliest times and the SIX Interbank Clearing board members in the late 1990s. But without then-CEO André Bamat as the driving force and advocate, the trade journal wouldn’t be where it is today: At 50 issues.

How did it all begin? ”With the euro payment traffic project launched by the Swiss banks,” André Bamat remembers. In the fall of 1997, when facing the introduction of the euro, the banks had decided to introduce their own Swiss system for interbank transactions for the new currency. That was a fast-paced project, the now-retired executive observes. The company, then known as Telekurs, had to get the euroSIC system up and running within sixteen months, set up a company together with the two major banks and PostFinance, and start a bank in Frankfurt. ”Instead of just communicating with our 22 original and 82 first participants by sending out minutes and e-mails, we periodically published the euroSIC NEWS – a multi-facetted information newsletter, in which we conveyed project-related instructions and information.” André Gsponer, head of today’s CLEARIT advisory council, specifies that it used to be an actual working tool back then. Project management was all set to halt publication of the euroSIC NEWS André Bamat, father of CLEARIT HigEdihltorigihtal s/ /CLEAR CLEARITIT | |September December 20112010 15

CLEARIT turns 50

after the fifth issue in 1998, at the time of the euroSIC pro- the reasons why this magazine is really a necessity. But the duction release. Purpose achieved. As André Bamat tells true formula for success is how CLEARIT is designed. Ever it, ”After we had outlined our intention at the last steering since its inception, representatives from Swiss financial committee meeting, there was a long silence – you could institutions have continually contributed to and shaped it, hear a pin drop. Nobody spoke until Stephan Zimmermann, be it as authors of trade articles, as interview partners, or then president of the board of directors, opinioned that as generators for the planning of its contents. “The rep- dropping publication wasn’t such a good idea, since it resentatives from Credit Suisse, UBS, PostFinance, SNB, had been so well received and had become established.” SECB and the cantonal banks were all aboard right from That’s how I decided to rename the euroSIC NEWS and to the start,” says André Gsponer, “and they are mostly re- broaden its content. sponsible for shaping content guidelines and the topic emphases of individual issues.” The credo of all partici- The new name pants is to “inform without judgment.” ”Various suggestions combining clearing, the actual payment and securities processing with IT were presented And both Andrés are convinced that that’s how it should during a working group brainstorming.” Somehow be in the future, too, in order for CLEARIT to be able to ”ClearIT,” in the colors blue/white on a red background, continue to offer news and information around the national won out and evolved into today’s logo. – “André Gsponer, and international payment traffic – something readers you’re nodding your head – were you actually part of it back won’t find anywhere else. < then?” ”Yes, I personally created the very first layout… what a tough nut to crack that was! No comparison to Moderation: today’s professional production.“ Gabriel Juri, SIX Interbank Clearing [email protected] The collaborative payment traffic publication “As far as I know, there is no other payment-traffic trade publication other than CLEARIT, neither in Switzerland nor elsewhere in Europe,” ponders André Bamat. This is one of Impressum

Publisher SIX Interbank Clearing Ltd Hardturmstrasse 201 CH-8021 Zurich, Switzerland

Ordering/Feedback [email protected]

Edition Edition 50 – December 2011 Published regularly, also online at www.CLEARIT.ch. Circu- lation German (1300 copies), French (400 copies) and English (available in electronic format only on www.CLEARIT.ch).

Council Patrick Bürki, PostFinance, Boris Brunner, UBS Ltd, Susanne Eis, SECB, Martin Frick, SIX Interbank Clearing Ltd, Andreas Galle, SIX Interbank Clearing Ltd, André Gsponer (Head), Enterprise Services Ltd, Gabriel Juri, SIX Interbank Clearing Ltd, Roger Mettier, Credit Suisse Ltd, Christoph Weder, Liechtensteinischer Bankenverband, Jean-Jacques Maillard, BCV, Silvio Schumacher, SNB

Editorial Team André Gsponer, Enterprise Services AG, Andreas Galle, Gabriel Juri (Head) und Christian Schwinghammer, SIX Interbank Clearing Ltd

Translation French: Word + Image, English: HTS

Layout Felber, Kristofori Group, Advertising agency

Printer Binkert Druck Ltd, Laufenburg

Contacts Product Management SIX Interbank Clearing Ltd T +41 58 399 47 47

Additional information about the Swiss payment traffic systems can be found on the Internet at www.six-interbank-clearing.com