Payment System Ownership and Access Models Compara�Ve Analysis of 13 Countries December 2015

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Payment system ownership and access models Comparave analysis of 13 countries December 2015

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§ Execuve summary 3 § Scope, methodology, and basic data 4 § Drivers of change 11 § Ownership, governance, outsourcing, and tendering 17 § Product diversity & features index 33 § Indirect access 44 § Access models / network topology 46 § Role of SWIFT 53 § Scheme membership criteria & indirect parcipaon 57 § Conclusions 63 § Appendices 66 § Condensed country proﬁles 67 § Deﬁnions and glossary of abbreviaons 148 § Detailed methodology 151

UK features and overall key findings Project scope UK payment system infrastructures exhibit rich features in The Payment Systems Regulator (PSR) is reviewing access and comparison with the other payment systems in scope and high ownership arrangements, specifically whether compeon is product diversity. The UK is one of 6 countries that has a low-value effecve in the provision of infrastructure services related to real-me payment system. It is one of the few markets in scope that interbank payment systems and whether the supply of indirect has had a compeve tender for central infrastructure provision. access to payment systems is working well for service-users. The UK is typical in having a mix of regulatory and commercial The PSR engaged Lipis Advisors to provide fact-based structural drivers, but unusual in having both an acve regulator and comparisons to payment systems in 12 countries and the UK. The commercial impulses feeding new developments. interbank payment systems in scope for each country include high- value systems (typically RTGS), low-value bulk systems, low-value The UK’s stated regulatory objecve to promote compeon is real-me systems (where present), and ATM systems. unique. There is no organizaon comparable to the Payment Systems Regulator in terms of promong compeon at the infrastructure The research focuses primarily on issues pertaining to ownership and level in any of the other systems examined in this report. governance of schemes, operators, and technical infrastructure providers; the provision of central infrastructure; access to payment Key findings across all countries include: systems, parcularly indirect access; decision-making and drivers of § Compeve tenders for payment system infrastructures are rare. change; and products, services, and quality and innovaon indicators for each system in scope. § Innovaon and compeon can result from regulaon, but regulaon oen aims at consumer protecon & financial stability. The report focuses on payments systems in 12 different countries § The greatest diversity in core product offerings was seen in low- and compares these to comparable payment systems in the UK. The value bulk and ATM systems. countries in scope were carefully selected to ensure a high degree of relevance for the UK market based on criteria such as existence of § The move to develop real-me payment systems is a major driver modern and innovave payment systems, comparability to the UK of change in many markets and can coincide with or influence (e.g. market structure, regulatory regime), and the features of the decisions such as the adopon of ISO 20022 or the development central infrastructure. of overlay services.

§ Execuve summary § Scope, methodology, and basic data § Drivers of change § Ownership, governance, outsourcing, and tendering § Product diversity & features index § Indirect access § Access models / network topology § Role of SWIFT § Scheme membership criteria & indirect parcipaon § Conclusions § Appendices § Condensed country proﬁles § Deﬁnions and glossary of abbreviaons § Detailed methodology

Background Focus topics The Payment Systems Regulator describes its objecves as: The research focuses on the following elements: § Ensuring that payment systems are operated and developed in § Ownership and structure of each payment system in scope, a way that considers and promotes the interests of all the including governance arrangements and regulatory regimes businesses and consumers that use them § Provision of central infrastructure and the tendering of infrastructure provision (where applicable) § Promong effecve compeon in the markets for payment systems and services between operators, PSPs, and § Ownership and structure of scheme management, operaon, infrastructure providers and infrastructure provision in each system § Provision and pricing of indirect access § Promong the development of and innovaon in payment systems, in parcular the infrastructure used to operate those § Communicaon between central infrastructures and systems parcipang PSPs § Detailing how decisions are made in each market or for each To these ends, the PSR is reviewing access and ownership system and the movaons behind them arrangements, specifically whether compeon is effecve in the § provision of infrastructure services related to interbank payment Products and services for each payment system, including systems and whether the supply of indirect access to payment selement arrangements, refund rights, and overlay services systems is working well for service-users. § Quality and innovaon indicators dealing with security and resiliency, infrastructure innovaons, and future plans for The PSR engaged Lipis Advisors to provide fact-based structural change comparisons to payment systems in 12 countries with UK The countries in scope were carefully selected to ensure a high payment systems. The interbank payment systems in scope for degree of relevance for the UK market based on criteria such as each country include: existence of modern and innovave payment systems, § High-value systems (typically RTGS) comparability to the UK (e.g. market structure, regulatory regime), § Low-value bulk and the features of the central infrastructure. § Low-value real-me (where present) § ATM networks

Belgium, Germany, and Italy share a common scheme for low-value bulk (SEPA) and a common scheme and infrastructure for high-value payments (TARGET2/EURO1)

SG Australia Belgium Brazil Canada Denmark Germany Country in scope Italy Japan Scheme in scope New Zealand Singapore Sweden United Kingdom United States

Low-value bulk Low-value real-me High-value ATM

Australia BECS NPP RITS various

Belgium SEPA, CEC nap TARGET2 & EURO1 BCMC

Brazil SILOC SITRAF STR various

Canada ACSS nap LVTS Interac

Denmark Sum & Interday RealTime 24/7 KRONOS Dankort SEPA, STEP2, Germany nap TARGET2 & EURO1 DK Bundesbank Italy SEPA, ICBPI, SIA nap TARGET2 & EURO1 Bancomat

Japan nap Zengin BOJ-Net MICS

New Zealand BECS nap HVCS various

Singapore IBG FAST MEPS+ various

Sweden Bankgirot & DCL PIR / BRT RIX Bankomat

United Kingdom Bacs Faster Payments CHAPS LINK NACHA, The Clearing United States nap Fedwire & CHIPS various House, FedACH

Sources and methods Systemazing features of each system The data for the comparave analysis and country profiles is To structure the hundreds of data points for cross tabulaon complied from mulple sources prior to the detailed of data and comparave analysis, Lipis Advisors compiled a analysis. Key aspects include: features index and typologies with common elements in each system. Each profile includes a typology covering § Research relying heavily on an internal informaon ownership of scheme, operator, and infrastructure, which database as well as primary sources in each country in enes drive change in payment systems, and the products scope offered by each system. The features index looks at the § Over 50 execuve interviews completed with senior overall centralized funconality offered by the systems in representaves from banks, payment processors, each market. payment associaons, infrastructure providers, and soware vendors in each country in scope The purpose of both of these frameworks is to establish common criteria to compare the diverse systems in scope § A variety of frameworks were used to analyze the data with the UK, as well as to enable cross tabulaons with and perform cross tabulaons to examine the elements such as banking concentraon, ownership relaonships between different data points. structure, or speed of change. § Payment system characteriscs such as governance structure, ownership, access, and system features were A standard analysis of each country’s payment systems captured and represented in a payments system typology. features allows for comparisons to other aspects of each system, including: § For a detailed descripon of the methodology, please see the appendix. § Access models § Banking concentraon § Outsourcing / tendering § Ownership structures § Speed and drivers of change § Regulatory regime © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal The UK is a large market, although others are larger 9 Euro area and United States have highest total volumes

The Euro area has by far the largest overall Volume of selected payment instruments (2014, in billions) payment volume for the systems in scope, with Germany being the largest Euro area country 50 by payment volume. The United States is the largest single country by payment volume. 45 40 Unsurprisingly, there is a strong link between populaon and overall payment volume. Of the 35 5 largest countries/regions in scope by 30 populaon, 4 are in the top 5 for overall payment volume. A notable excepon is Japan, RTGS 25 which has the ﬁh lowest overall payment 20 Direct debit volume. While the use of credit cards (out of scope for this project) is high in Japan, other 15 Credit transfer non-cash payment instruments see very low 10 ATM adopon. 5 The countries with the highest overall payment 0 volume feature a high percentage of direct debit usage compared to other markets (excluding Brazil, which has no interbank direct debits). Smaller markets with modern payment systems and habits such as Canada and Belgium also see high direct debit usage. Notes: Euro area volumes include all Euro area countries, including Belgium, Germany, and Italy. ATM volume data for the United States is for 2012. ATM data for Denmark is not available. Volume indicates absolute market size, and Sources: BIS, naonal central banks and clearing houses, Lipis Advisors therefore could be an indicator of ability to support compeon. The UK is a substanal market; it is the ﬁh largest in scope.

Per capita payment volume of selected payment instruments (2014) Per capita usage indicates the penetraon or popularity of electronic 250 payment usage and therefore is one RTGS indicator of the potenal for growth. Per capita volumes in the UK are among the 200 Direct Debit highest in this internaonal comparison, Credit Transfer exceeding larger markets such as the United States and Euro area. 150 ATM Note that the data here does not 100 represent total non-cash transacon volume. Many of the countries with the highest per capita volumes (e.g. 50 Germany, Belgium, and Sweden) have very low cheque usage, while many of the countries in the lower half of the list 0 (United States, Canada, Singapore, Brazil) have much higher cheque usage. Some also have high card usage (such as the USA and UK), although debit/credit card Notes: Euro area volumes include all Euro area countries, including Belgium, Germany, and Italy. systems are out of scope in this report. ATM volume data for the United States is for 2012. ATM data for Denmark is not available. Sources: BIS, naonal central banks and clearing houses, Lipis Advisors

Overview across all markets UK drivers of change and comparison In most countries, neither commercial nor regulatory The mixture of commercial and regulatory acvies driving interests dominate completely. The dominance of one driver changes in UK payment systems has contributed to over another tends to be a maer of degrees. innovaon at the infrastructure level. Regulatory change most oen aims at achieving beer The UK is typical in having a mix of regulatory and outcomes for payment system users. Regulaon explicitly commercial drivers, but unusual in having both an acve targeng increased innovaon or more choices for payment regulator and commercial impulses feeding new service providers is rare. Innovaon and compeon can developments. result from regulaon, but it is oen not the primary aim. Regulaon brought about the establishment of the Faster Promong compeon among central infrastructures is not Payments real-me system and a change in selement a stated objecve in any of the countries in scope other than method for Faster Payments and Bacs. the UK. Commercial interest has led to the development of innovave products such as Paym and the upcoming launch of Zapp, which hopes to compete at the point-of-sale.

Findings Effect on innovaon Neither commercial incenve nor regulatory acvity Many of the changes seen in this report resulted in necessarily lead to different outcomes in the funconality or outcomes widely regarded as boosng innovaon and pace of change in payment systems. compeon in the markets examined: the development of The evidence from the countries in scope suggests that the real-me infrastructures, the use of ISO 20022, changes to catalysts for change in payment systems tend to be highly regulaons or regulatory regimes, and the introducon of specific to the local legal and regulatory environment. new products and services. Markets that see more acve regulators (such as Brazil) can By documenng the catalyst(s) for change in each market feature innovave funconality that is comparable to more and comparing this with the funconality found in that commercially-minded markets (such as Singapore). market, we can ascertain whether regulatory, commercial, Moreover, the fact that regulatory acvity does not always or mixed drivers of change affect overall funconality or focus on innovaon (e.g. market integraon in SEPA, risk level of innovaon in a market. reducon in the UK) means that acve regulaon has not necessarily led to increased funconality. Methodology Regulators and commercial enes oen collaborate on Judgments were made to classify drivers of change across implemenng changes to one or more payment systems. mulple payment systems based on which enes play a The move toward real-me systems was a major driver of dominant role in bringing about the inial push for change. change in several countries in scope (such as in Australia, Changes in payments infrastructure were classified Denmark, and Sweden) or will be factors in future changes in according to whether they were insgated by a regulatory the United States and the Euro area, where both commercial push or mandate, or by commercial enes (e.g. banks or interest and regulatory acvies are at play. industry associaons) coming together to pursue change due to a perceived need in the market.

Every country in scope has seen some change to one or more of its payment systems in the past 5 years. The vast majority (10 out of 14, including SEPA) have seen major changes in the past 5 years. Regulaon has been a key driver, with over 70% of changes in the sampled countries being at least parally due to regulatory imperaves. The decisive determinant was the type of organizaon that created the impulse for change. In nearly every case, cooperaon between commercial and regulatory bodies carries out the changes.

Commercial drivers Regulatory drivers

Brazil Belgium New Zealand Australia Canada Singapore Japan Denmark Sweden United Kingdom Germany United States Italy SEPA

§ Increase compeon through entry Regulatory Reform of Brazil’s payment systems has been the main of new players focus of regulatory acon. In 2013, legislaon was § Increase interoperability between diﬀerent passed that brought payment schemes, card schemes, payment schemes and systems Brazil and non-bank payment instuons under the central § Increase access to ﬁnancial services for the bank’s regulatory umbrella. under-banked through payment instuons Examples of changes and drivers

In 2008, Australian payment industry stakeholders § Increase speed of payments to enable beer developed a roadmap for the future of low-value service and new products for corporates and payments. The development of real-me clearing for Both consumers electronic payments was considered a crucial § Increase remiance data in payments component of future payment systems, as was the use

Australia messaging to ease reconciliaon of the ISO 20022 message standard. The industry has § Use of ISO 20022 as modern data standard worked together with the RBA to develop the NPP, due to go live in 2017.

The launch of the real-me BiR/PRT system in 2012 was Commercial § Increase compeveness of banks in P2P the result of Swedish banks reacng to products and payments over third pares services oﬀered by third pares in the market. A group § Enable development of mobile payment of banks came together and decided that the applicaons targeted at the P2P space, with development of a real-me system would increase Sweden C2B and B2B use cases also being developed banks’ compeveness in areas such as mobile payments, with a focus on the P2P space.

The degree of change in payment infrastructures in the last 5 years and the drivers of those changes were examined across Country Major changes Driver all systems in scope. The changes were then categorized as Implementaon of real-me system, NPP Australia Both minor or major and further categorized as driven by (planned for 2017) commercial interest, regulaon, or both. The majority of Introducon of RealTime24/7 system systems have undergone signiﬁcant change. (2014), change in ownership of central Denmark Regulatory Major developments include the introducon of a new infrastructure, Nets, from bank payment system or signiﬁcant overlay services, the overhaul associaon to private equity (2014) of an exisng system, or extensive regulatory changes. Implementaon of ISO 20022 payment Brazil, Canada, and the United States have not undergone Japan messaging and other updates to the 6th Both major changes in the last 5 years. Brazil saw major generaon Zengin system (2011) developments about 10 years ago, and Canada and the US are New Move to selement before interchange Commercial planning major changes but those changes have not yet been Zealand (SBI) in BECS (2012) implemented. Belgium, Migraon to SEPA CT / DD rules, PSD and Country Minor changes Driver Germany, PSD2, compeon from pan-European Regulatory Italy clearing houses (2014) Brazil Update of the real-me system (2014) Regulatory Introducon of the FAST real-me system Singapore Commercial (2014 ) Planning for the introducon of faster selement for low-value payments and Sweden Introducon of BiR/PRT system (2012) Commercial Canada Regulatory a migraon to ISO 20022 data standard (planned) Establishment of the PSR (2015), move to pre-funded selement for Bacs and Faster United Planning for the introducon of faster Payments (2015), introducon of Current Both United selement for low-value payments and Kingdom Commercial Account Switch Service (2013), Paym States the introducon of a low-value real- (2014), and Zapp (planned) me system (planned for 2017)

Ownership layers Tendering and outsourcing Ownership of each payment system is broken down into Outsourcing central infrastructure provision is common. three layers: scheme, operator, and infrastructure. Over half of the markets in scope see at least one system § In the UK, scheme and operator layers are oen the same outsource the provision of infrastructure. enty. Outsourcing of infrastructure is rarely compeve. Overlap For high-value payments, the UK has less involvement by the of ownership between the two pares to the contract is central bank (acng only as infrastructure provider) than common. In systems that outsource or tender infrastructure other countries. for an exisng system, the incumbent processor always wins Ownership of the scheme and operator layers in the UK low- the bid among the systems in scope. value bulk system is not-for-proﬁt, which is in line with § The UK’s outsourced payment systems are typical in this industry norms elsewhere. The provision of infrastructure by sense. a commercial enty was observed in about half of LV bulk systems in scope. Compeve tenders for payment system infrastructures are rare. § The provision of infrastructure for low-value real-me payments in the UK is in line with most other real-me § The compeve tendering process for infrastructure systems in scope, over half of which are operated by a provision in the Faster Payments system is one of the few commercial enty. examples of compeve tendering idenﬁed in this report.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Ownership, governance, and outsourcing 19 Definions and methodology Ownership Outsourcing and tendering Each system was broken down into three ownership layers: Each system was invesgated to determine which layers – at Scheme, operator, and infrastructure. the scheme, operator, or infrastructure levels – were § Scheme: refers to the body that sets the system rules and outsourced. If a part was outsourced, we invesgated admits members whether the contract was awarded via a tendering process § Operator: refers to the organizaon with which contracts and if so, whether this tendering process was open and are signed to operate the clearing compeve. An instance of outsourcing was deemed to be a compeve § Infrastructure: refers to the organizaon running the tender if it fulfilled both of the following requirements: associated IT infrastructure § Several companies/organizaons sent in proposals to run Note: The same enty can perform the role of two or more the system, and of these layers (as in the UK, where the scheme and operator layers are the same for each system in scope. § There was a fair chance for a non-incumbent party to win the contract. Governance Aggregaon The owners of the three layers were categorized based on The results for each system were then aggregated to show the type of organizaon they are, including: Not-for-profits, the breakdown in how ownership differs across the three commercial, naonal central banks, or not applicable. different system levels across each of the four types of § Not-for-profit: Organizaons such as associaons or payment systems in scope: high-value, low-value bulk, low- nominal companies whose owners are also their value real-me, and ATM switches. customers, making them de facto non-profits. Note that some countries have mulples of some systems, § Commercial: Independent profit-seeking organizaons such as the Euro area’s mulple high-value systems or the § Central bank: The naonal/regional central bank. USA’s mulple ATM switches. This means that the total sample size per system is not the same across all system Note that some payment systems do not have a central types. infrastructure.

High-value § Scheme governance has evolved in Low-value bulk substanally diﬀerent ways for diﬀerent payment types. § High-value schemes are most oen governed by central banks. § LV bulk and real-me are most 3 5 commonly governed by community n=13 consensus. n=13 8 § ATM schemes demonstrate a mix of governance models and are the 10 only schemes in scope that feature commercial scheme ownership. § The closer control of high-value schemes by central banks mirrors the perceived risk in those systems. Low-value real-me High-value schemes oen serve as ATM the selement for other payment schemes and are a key tool in the execuon of monetary policy for 1 central banks. 1 § LV bulk and RT services are largely seen as commercial services with a n=7 6 n=13 strong interest in common rules 6 and standards. 6 § ATM services are seen as least risky and more compeve.

Central bank mandated Community consensus Commercial

Scheme

Operator

Infrastructure

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Central bank Commercial Not-for-profit N=15 Across all countries in scope Comparison to the UK The majority (approx. 75%) of high-value systems in scope are controlled on The UK’s high-value system, CHAPS, is run by a de facto not-for-profit at least one level by a central bank. Over half of the systems are controlled company at both the scheme and operator levels (colored blue in the chart by the central bank at all three levels. above), while the Bank of England, the UK’s central bank, owns and Two markets (Euro Area and USA) each have two high-value systems, one controls the infrastructure level. run by the central bank and one by a not-for-profit company. The UK’s arrangements are similar to a significant minority of other Only Denmark and Japan outsource their high-value infrastructure to a systems. About 1/3 of systems share the UK’s arrangement with a not-for- third-party commercial enterprise. profit scheme and operator. Three systems, (Canada’s LVTS, the Euro area’s EURO1, and the USA’s CHIPS), all operated by not-for-profit organizaons, are high-value neng systems designed to lower cost and liquidity requirements with immediate finality of selement. § LVTS is the sole high-value system in Canada; the Euro area and the USA each have an RTGS system in addion to high-value neng systems.

Scheme

Operator n/a*

Infrastructure

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Central bank Commercial Not-for-proﬁt N=15

*Australia does not have an operator, contracts are bilateral between parcipants Across all countries in scope Comparison to the UK Nearly all low-value bulk schemes in scope are owned by not-for- The UK’s low-value bulk system, Bacs, is owned at the scheme and proﬁt organizaons. operator levels by BPSL, a not-for-proﬁt company limited by § Only Canada has all three layers controlled by the same enty (the guarantee, which is in line with industry norms. A commercial CPA), and this is established by law. organizaon, VocaLink, provides the infrastructure, which is true for about half of the low-value bulk systems in scope. Only two central banks operate a low-value clearing: Germany and the United States. These are also comparavely fragmented banking markets. Both of these central banks see their role in low-value payments as enabling smaller banks access to the payment system. Commercial management at the scheme and operator levels is uncommon; 40% of infrastructures, however, are commercially operated.

Scheme

Operator

Infrastructure

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Central bank Commercial Not applicable Not-for-proﬁt N=7

Across all countries in scope Comparison to the UK Almost all of the low-value real-me schemes in scope are owned by The UK’s Faster Payments is in line with the other real-me payment not-for-proﬁt associaons. systems in scope in that its scheme and operator are managed by § In 3 of 7 systems (Australia, Singapore, and the UK) there was a FPSL, a not-for-proﬁt organizaon. tender process of some type for the provision of the system’s Furthermore, like 4 of the other 7 systems, its infrastructure is run by infrastructure. a commercial company, in this case, VocaLink. The majority of infrastructures (4 of 7) are commercially operated. It should be noted that there is no enty at the operator level for Australia’s NPP, which is why it is colored dark blue. The NPP is designed so that all payments will be exchanged bilaterally.

Scheme

Operator

Infrastructure

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Central bank Commercial Not-for-proﬁt N=22

Across all countries in scope Comparison to the UK § Scheme ownership among those examined systems is split § ATMs in the UK are vercally integrated in that one company, approximately 50/50 between not-for-proﬁt and commercial VocaLink, owns all three levels. That said, the UK seems to be organizaons. Operators and infrastructure providers are more or less in line with the industry standard when allowing commercially focused in 10 of the 13 countries. commercial ownership of most, if not all, of the layers of the ATM § 4 countries in scope have no central switch (Australia, Germany, system. New Zealand, and the USA). § Many of the countries in scope (including Australia, Germany, Singapore, and the USA) have mulple ATM networks, meaning that one could argue that these countries’ ATM systems skew the overall data towards more commercially-oriented ownership models.

Mulple networks, Mulple networks, Mulple networks, no Naonal network linked by 1 switch bilateral switching linkage

Belgium, Canada, Australia, Germany, New Denmark, Italy, Sweden, Japan Brazil, Singapore Zealand, United States UK

The countries in scope exhibit widely varied structures for their ATM networks. § 6 countries have a naonal ATM switch and network, including Belgium, Canada, Denmark, Japan, Sweden, and the UK. § Japan has 9 networks that connect to each other via a single overarching switch (MICS) § In 5 countries, ATM networks or individual banks are linked by bilateral or mullateral agreements, such as in Australia, Germany, New Zealand, and the USA. In two countries, Brazil and Singapore, naonal ATM networks are not interoperable at all. § Banco24Horas only provides interoperability across 7 banks in Brazil. All other ATMs are individually operated and are not interoperable with other ATM networks. § Singapore has 3 main ATM networks that are not interoperable: NETS (used by 2 banks), ATM5 (used by 7 foreign banks), and a proprietary switch used by DBS-POSB. § Many ATMs in these countries deliver interoperability by accepng internaonally branded cards (i.e. Visa and Mastercard).

Market sizes High-value payments

50 Volumes of selected payment types, 2014, § The Euro area has two high-value systems: TARGET2 and billions EURO1. 40 LV Bulk ATM RTGS § The USA has two high-value systems: Fedwire and CHIPS. 30 § Each market has one system owned and operated by its 20 central bank, and one by a cooperave industry ulity. § Neither market has a ubiquitous real-me system for low- 10 value payments. 0 Euro area USA UK

Low-value bulk payments ATM networks § Schemes for low-value bulk payments are managed by § Neither the Euro area nor the USA have a naonal EPC rules in the euro area, and by NACHA in the USA. scheme for ATM transacons. § 22 CSMs (clearing and selement mechanisms, also § USA has 12+ networks, each with its own rules, switch, known as ACHs in some geographies) process payments in and infrastructure, plus Visa and MasterCard. They are Euro area; 2 in the USA. connected by a patchwork of agreements. § The Euro area and the USA are very diﬀerent markets § The Euro area has naonal schemes, with cross-border with very diﬀerent histories: transacons completed under Visa, MC, or EAPS rules. § Euro area largely fragmented along naonal lines § USA duopoly evolved from 10+ ACHs (automated clearing houses) in the 1970s.

Market sizes and compeon Governance, regulaon, and innovaon § Both the Euro area and the US markets are much larger § Although there are more than one infrastructure provider than the UK’s; the number of banks and their diversity in for both high-value and low-value bulk markets in the sizes is also noteworthy. Euro area and the United States (as well as diﬀerent § The Euro area is far from being a single market for regulatory approaches), the number of innovave payments infrastructure; it is sll highly fragmented for LV services in these segments is limited. bulk and ATM payments. The United States, in contrast, is § The USA takes a light regulatory approach, and has highly compeve and consolidated in the LV bulk and lots of innovaon in consumer services, but these high-value payment markets. are built on an infrastructure of moderate § ATM switching is highly compeve in the USA and in funconality. some countries in the Euro area. § The EU takes a more acve approach toward § The number of banks and the extent of direct regulaon and market integraon, but Euro area parcipaon provide greater potenal for new PSPs to infrastructures are not especially innovave. ﬁnd sponsors and less loyalty among tradional PSPs to § Where there is infrastructure innovaon in these markets each other in larger markets. (e.g. the development of a low-value real-me service in § Pricing in the United States and the Euro area is the USA), it is oen pushed by the private-sector comparable for LV bulk transacons, with headline prices operators and infrastructure providers or by regulators of 0.15-0.30p, but funconality is not comparable to the rather than the central bank. UK, where the central infrastructure covers a greater § ATM switching is loosely regulated almost everywhere, poron of the value chain. and new product development is commonplace.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Compeve tenders for infrastructure are rare 28 Operaon and infrastructure provision oen one enty § This chart depicts the vercal integraon of payment system operaon and infrastructure provision for each system type in Vercal integraon of payment systems scope. operators and infrastructures § Vercal integraon of enre systems is common. § There has been a trend over the last decade toward separang legal enes (e.g. SEPA, UK), but this has not had a noceable eﬀect on genuine compeon for infrastructure provision. 8 § Low-value bulk systems display the most frequent separaon of ownership. § Percentage of vercally integrated ownership: 11 § High-value: 85% 5 2 § LV bulk: 57% § LV RT: 29% 6 2 § ATM: 55% (not including Australia, Germany, Singapore, 3 and the USA) 1 3 1 1 1 § The tendering of Belgium’s low-value bulk system resulted in a High value LV bulk LV RT ATM new, SEPA-compliant system. The provision of infrastructure was tendered, with STET winning the bid.

Compeve tender Separate legal enes Vercally integrated systems § One evident trend is previously state-owned (or central bank- owned) enes being spun-oﬀ and the systems either being tendered out (Belgium’s LV bulk system) or the privazaon of Note: ATM networks in Australia, Germany, Singapore, and the USA are not included to avoid skewing the data. These countries do not have central previously state-run systems (Denmark, mulple systems). infrastructures. Data for Brazil's ATM network refers to Banco24Horas, Brazil’s § This happened in Euro area countries as well with EPC only interbank network. and EBA Clearing replacing schemes previously run by naonal associaons and/or central banks.

Legacy systems have never changed providers 29 Incumbents were awarded the tender in both applicable cases

System Country System name Incumbent Tender winner

High-value Japan BOJ-Net NTT Data NTT Data LV bulk Belgium CEC nap STET Japan Zengin NTT Data NTT Data

LV real-me UK Faster Payments nap VocaLink

Australia NPP nap SWIFT ATM Japan MICS/IASS nap NTT Data

§ Of the six systems that had a compeve tender, only Japan § The absence of compeve tendering for legacy systems in has a tendering process for systems already deployed. No the UK is thus typical by internaonal comparison. bidder other than the incumbent has ever been awarded the § In the parcular case of Belgium, STET was awarded the contract to operate BOJ-Net or Zengin. tender to provide the infrastructure for the new, SEPA- § For instances in which a new service was being developed, a compliant low-value bulk system. In the legacy naonal tendering process was somemes performed; this was the system, this role was held by CEC, an industry ulity that was case in the UK and Australia for LV RT systems. In other housed within the Belgian central bank (NBB). cases, the contract was simply awarded to a not-for-profit, § While communies of banks are reluctant to switch such as in Sweden’s LV RT system, which was outsourced to infrastructure providers for an established payment system, Bankgirot (and therefore not tendered). individual banks somemes switch providers in countries/ § The relaonship between MICS and NTT Data (Japan) is the regions that feature more than one infrastructure provider. only scenario in which the ATM contract was open for § Since the implementaon of the SEPA scheme in the tender. Several countries, including Australia, Germany, and Euro area in 2014, some individual banks or groups of the USA, lack a centralized switch. The USA, in parcular, banks in naonal communies have switched features compeng switches. providers (e.g. from naonal systems to the pan- European STEP2 system operated by EBA Clearing). © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Types of operator and tendering 30 A large poron of contracts tendered come from not-for-profit industry ulies

§ The majority of contracts tendered are awarded by operators categorized as not-for-profits (i.e. banking associaons and companies whose owners are also their customers). § 5 tendered contracts were idenfied from not-for-profits, while Payment systems tendering contracts, by one central bank offered a contract for compeve tendering. organizaonal type No commercial enty was observed that tendered a contract. § Out of the 13 countries in scope, 9 featured outsourcing on either the operator or infrastructure levels (Australia, Belgium, 1 Denmark, Italy, Japan, New Zealand, Singapore, Sweden, UK). § Of these 9, only 4 offered up any sort of tendering process (Australia, Belgium, Japan, UK) N=6 § Of these 4 countries, 3 had meaningful tender processes (Australia, Belgium, UK). § 4 countries feature no outsourcing of enre payment 5 infrastructures: Brazil, Canada, Germany, and the United States, although operators and infrastructure providers commonly outsource porons of their IT, as in most countries. § A larger number of contracts were awarded without a Commercial Central bank Not-for-profit compeve tender. These contracts are oen awarded to a company specifically set up and owned by the banking community, such as in Denmark, Italy, Sweden, the UK, and the USA.

Relaonship between CR5 and ownership overlap in payment systems Banking concentraon was found to weakly correlate with overlap in payment system Ownership overlap ownership, although this may be due to the sample size and selecon. CR5 scores Low Medium-low Medium-high High The “high-high” grouping is made up of small Australia, New Denmark, countries (countries with populaons less than High (over 85%) Belgium None Zealand, Sweden 20 million) – Belgium is the only small country Singapore not found at either “medium-high” or “high- high.” Medium Brazil, Canada, Germany Italy None § Belgium’s outsourcing of CEC’s low-value (65-85%) UK bulk system diluted its ownership overlap, otherwise it would be close to Singapore, Low (below 65%) USA Japan None None further strengthening this correlaon. Notes: Countries that could be considered outliers are circled in red whereas countries “Outliers” include Belgium, Brazil, Canada, following the trend – that is, countries with higher banking concentraon raos tend to Germany, and the UK. have more highly overlapping ownership in their payment systems – are circled in blue. Brazil and Canada see “high” overlap because Bank concentraon ﬁgures (CR5) are extracted from the World Bank. industry ulies provide comprehensive, Criteria for scoring ownership overlap: vercally integrated services. In Canada, these § Number of legal enes present in scheme management, operaon, and are spulated by law, and in Brazil, by the infrastructure provision central bank. § Overlapping ownership structures of these enes or shared owners The UK appears to be unusual in its cohort § Presence of diﬀerent types of enes (i.e. a mixture of banks and government group, with high overlap, medium enes) concentraon, and lile government ownership of payment systems.

Quality and compeon Pricing § The limited amount of genuine compeon for central § There is an inherent difficulty in comparing pricing due to the infrastructure provision in the countries and payments in commercially sensive nature of pricing informaon. scope makes conclusions about the effects of quality and § Pricing models depend on instuonal moves (cost recovery for pricing difficult. central bank/industry ulies versus for-profit companies). § Compeon in payment system provision is rare: We § Typical aspects of pricing mechanisms include: have only noted 6 tenders in the more than 40 systems § Some systems require new entrants to pay a one-me examined. entry fee in order to compensate exisng members for § Control and trust are the key reasons for keeping systems infrastructure costs in-house or selecng a known incumbent supplier. § Annual and/or monthly fees § Quality is typically measured by upme and error rates. § Transacon-based fees (somemes ered, based on § Quality is integral and is typically assumed for any service volume) provider bidding on an infrastructure. § Many ATM systems are run by for-profit companies, few of which § Industry insiders esmate that central infrastructure publish any pricing data. provision covers 5-10% of the total cost of the payments value chain. While controlling costs for the central infrastructure is no doubt important, banks oen focus on the factors of the value chain directly under their individual control to reduce overall cost.

Overview across all markets UK products and services The greatest diversity in core product offerings was seen in The UK has a richly funconal payments system offering low-value bulk and ATM systems. products and services beyond the basic payment § While the majority of LV bulk and ATM systems offered only instruments. single products, other systems offered mulple products, In addion to rich core funconality that includes direct individual bank services (for ATM systems) or community corporate access and A-services that enable automated services (for LV bulk). management of recurring payments, UK payment systems High-value systems typically offer only single products, and feature uncommon overlay services such as: some offer closely-related addional funconality. § Current Account Switch Service for automated account § Addional products offered by some high-value systems switching include collateral management and automated reporng § Paym, which allows users to send and receive payments processes. using a mobile phone number Every real-me system in scope offered a single core product: § Zapp (in development), which will enable real-me real-me credit transfers. Although the diversity of payments at the point of sale funconality is low, the speed of payments itself is oen considered a value-add compared to legacy systems. UK comparison to other markets Overlay services add significant funconality to all or most Product offerings in the UK (both core services and overlay parcipants in a payment system. In this study, we have only services) are richer than most other systems in scope for this examined those offered by payment systems, not third pares. project. The added funconality of the real-me system, as § Real-me systems and low-value bulk systems see the most well as rich funconality on legacy systems, is the result of overlay services. Typical overlay services include mobile innovaon. payments/proxy address services, account switching/ § Sweden and Denmark have similarly rich funconality masking, and alternave merchant payments. among the payment systems examined in this report.

High-value Low-value bulk and ATM systems Low-value bulk typically support mulple products. In some cases this results from maintaining legacy products, and serving special needs of community 1 3 4 members. These systems are also n=13 most likely to support bank and n=13 community services. 9 In most cases, low-value real-me 8 systems have been developed recently and in addion to low- value bulk systems. There is thus no need to support legacy products in these systems. Instead, the Low-value real-me emphasis is on creang an excellent ATM customer experience and supporng innovave technology rather than a diverse suite of 2 3 products and services. n=7 As the core of the payments n=13 ecosystem, high-value systems have to be highly secure and 7 reliable; product diversity is not a 8 priority.

Single product Mulple products Bank services Community services

Sweden UK § The Bankgirot system in Sweden supports a variety of § The UK also has a richly funconal payments system specialty payment products and services targeng offering products and services beyond the basic payment consumers as well as corporates. instruments. § Beyond standard payment instruments, corporates in § Examples of UK products and services managed by the Sweden can receive a Bankgirot number which funcons Bacs scheme company include: as an account idenfier and enables easier account § The Current Account Switch Service which allows switching. account holders to easily switch from one bank to § Corporates are offered supplier and payroll payments and another. corporate treasury products to help with account § So-called “A-services” that enable the automated management and reconciliaon. management of recurring payments as well as the § In addion, Bankgirot offers digital informaon services streaming processing of returns. such as digital invoices, documents and secure messages, § Direct corporate access to the central as well as electronic idenficaon, document signing, and infrastructure by tens of thousands of corporates. mobile payments.

Denmark § Nets offers a broad spectrum of services to banks as well as corporates via 3 low-value clearing services § In addion to credit and debit transacons, Nets offers direct debit management, supplier payments, and warehousing credit transfers. § Nets offers corporate clients direct debit management, e-billing, digizaon and informaon services, and digital e-security products.

Products and services defined as overlay services in this report are services that offer significant added funconality and to all or most payment system parcipants in a parcular country or region. They must rely on underlying payment systems for operaon. There is no evident correlaon between the types of enes or their governance arrangement and the type or frequency of overlay services. A paral list of the overlay services idenfied in the course of our research includes:

Proxy address service Real-me payments using legacy infrastructures § Australia (not for profit, in development) § Belgium (commercial) § Denmark (commercial) § Italy (commercial) § Sweden (not for profit) Centralized bill payment services § United Kingdom (not for profit) § Brazil (not for profit) Account switching / account masking Centralized mobile payments § Sweden (not for profit) § Denmark (commercial) § United Kingdom (not for profit) § Sweden (not for profit) Alternave merchant payments (e.g. using a real-me payments Addional oponal services for specific communies infrastructure) § SEPA (not for profit) § Germany (not for profit) Centralized non-payment messaging services § United Kingdom (commercial, in development) § Belgium (not for profit) Direct debit mandate management services § Sweden (not for profit)

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal LV bulk and RT feature the most overlay services 38 How overlay services differ from core services Findings Distribuon of overlay services In all, there were 16 different overlay services observed in 8 By payment system type of the countries in scope. Almost all overlay services were found in low-value bulk or low-value real-me systems. 2 There was an equal number of overlay services observed for 7 each of these system types. Both bulk low-value and real- n=16 me systems each accounted for 44% of overlay services 7 found in the report. High-value systems and ATM networks saw the least amount of overlay services. Of the countries in scope, only 1 ATM LV Bulk LV Real-me ATM system featured overlay services and no high-value systems offered overlay services. Disnguishing overlay services Overlay services tend to be most prevalent in newer systems Overlay services can be offered by the central infrastructure or in markets where new systems/schemes have been provider(s) or by banks or third-pares via a central infrastructure. recently introduced or where new systems are in development. Of the 8 countries in scope that offer overlay While there may be clear examples of overlay and non-overlay services, the line between the two is unclear. Some countries have services, 6 of them have introduced new systems/schemes clear examples of overlay services such as proxy databases that in the last 5 years or are in the process of developing a new are clearly an “overlay” service because it was not designed as system. part of the core infrastructure in each system from the outset. But Each country profile disnguishes between overlay services some systems feature products and services that go beyond the and products and services that are part of the core tradional offerings from core infrastructures, but that are not infrastructure or scheme. In all but the most obvious cases, necessarily overlay services. An example of this is the oponal Same-Day ACH service in the United States. Lipis Advisors had to made judgment calls to determine whether a product or service is an “overlay” or not. In all, there were 16 different overlay services observed in 8 of the countries in scope. As a result, the data about overlay services may be of limited value.

What was measured… … and how it was counted All systems analyzed in the study are included on a country- Aer filling out the scorecard for each of the 13 countries in by-country basis. scope, weights were added to the individual categories in Each system was ranked on the richness of funconality order to demonstrate their overall importance to the scale based on the type of services it offers ranging from low payments market and the level of innovaon occurring in to medium to high. that area. These weights are the same across all countries. Four addional country-wide system features were included Services considered of “low” importance include: high-value that are indicave of the overall level of funconality within (due to a lack of innovaon), and DD mandate management; a country’s payment systems. “medium” importance included LV bulk, ATM switch, indirect parcipant & corporate access, and non-payment For countries that have mulple infrastructures for a single messaging; “high” importance included LV RT and account payments system (such as low-value bulk in the USA or high- switching & masking. value payments in the Euro area), the scores indicate the richest funconality available to the market as a whole. These weights (1 for low, 2 for medium, and 3 for high) were then mulplied by the corresponding score for each We recognize an inherent bias to the methodology toward category (1 for low, 2 for medium, and 3 for high) to come features in LV bulk systems, as these systems typically have up with a score for that category. These category scores the greatest diversity of funconality. In order to limit this were then added together to arrive at a country score, which bias, we have added addional categories specific to other was then used to broadly compare all countries in scope. types of systems and weighted each category to arrive at a more holisc features score for each market. We then grouped the countries into 4 groups based on their scores (see following slide).

Lean Rich

How many products does the system offer? One? Many? Or High-value Low bespoke products for individual parcipants? How many products does the system offer? One? Many? Or Bulk LV credits community services and bespoke products for individual Medium parcipants? Does the system offer direct debits? With or without mandate Bulk LV direct debit scheme management? Low

How many products does the system oﬀer? One? Many? Or Real-me LV bespoke products for individual parcipants? High What types of products does the system oﬀer? Just withdrawals ATM switching and balance enquiries? Overlay services? Or bespoke products for Medium individual parcipants? Does the system provide automated account switching or account Account switching and masking number masking services for some payment types? A High comprehensive service of one type? Or both?

Payment system features Via which channel does the system allow for indirect parcipant Indirect parcipant & corporate access and corporates access? Via direct parcipants? Via a single Medium naonal network? Direct to the infrastructure? Does the system allow non-payment messages? Do these inform Non-payment messaging of one-me events? Are they for ongoing informaon Medium management? Are they driven by a central database?

Weight

Lean Rich

Community / High-value Single product Mulple products Low bespoke services

Community / Bulk LV credits Single product Mulple products Medium bespoke services Yes, but no DD Yes, with DD No direct debit Bulk LV direct debits scheme mandate mandate Low scheme management management Community / Real-me LV Single product Mulple products High bespoke services

Withdrawals & Community / ATM switching + Overlays Medium enquiries bespoke services

Switching or Both switching Account switching and masking Paral High masking and masking

Payment system features Via naonal Direct to payment Indirect parcipant & corporate access Via sponsor bank Medium network infrastructure

One-oﬀ message Ongoing Database-driven Non-payment messaging Medium transmission messages services

Weight

Lean Funconality Rich

Group 4 Group 3 Group 2 Group 1

Australia, Belgium, Brazil, Japan Canada, Germany, Italy, Denmark, USA Sweden, UK New Zealand, Singapore

Findings How to use these groupings Aer evaluang all of the countries in scope and calculang The groupings presented here are very broad. The the weighted result, four groupings became evident. methodology used has the advantage that changes to the Group 1 countries exhibit the richest feature set among criteria or weighng would not have much impact on the countries in scope. Group 2 exhibits the next richest feature outcome. The purpose is to group payment systems by set, and so forth. funconality and create payment system groupings. These measurements are not precise enough to measure We cannot, however, say how much richer group 1 is than diﬀerences within the 4 groups, but they are precise enough group 2 or group 2 than group 3. to say that countries in group 1 feature richer payment funconalies than countries in group 2, etc.

Relaon of funconality to bank concentraon Relaon of funconality to GDP per capita 30 SWE 40 SWE UK UK High High 30 20 DEN DEN USA USA Med. BE Med. NZ ITA 20 BE SNG SNG ITA NZ AUS BRA AUS CAN GER 10 JPN CAN GER JPN

Richness of funconality 10 Low Low Richness of funconality 0 0 30 50 70 90 20,000 30,000 40,000 50,000

CR5 (%, 2011) GDP per capita (USD, 2014) Analysis

Plong CR5 and GDP per capita against these funconality groupings. Although both graphs do show a disnct (if small) trend Two factors prevent us from drawing deﬁnive conclusions: illustrang that levels of payment systems funconality richness § Sample size too small increases with an increase in both the concentraon of banking assets in a country as well as a country’s GDP per capita, the § Funconality rankings are too broad and not suitable for ﬁndings are not conclusive. this detailed of a stascal analysis If neither wealth nor banking concentraon can fully explain the

diﬀerence in payment system funconality richness, what

Contents 44

Methodology Findings This analysis examines how payment system parcipants High-value systems have very similar access models. Only one access the central infrastructure in each system and groups allows direct technical access for indirect parcipants (EURO1 them into three diﬀerent models. via the STEP1 service). All others require indirect parcipants Systems were analyzed and categorized according to how to access the system via direct parcipants. indirect parcipants access the central infrastructure. Three There are a wide variety of access models for low-value bulk access models describe the collecve systems in scope. systems. § Infrastructure-centric Low-value real-me systems exhibit two access models: § All direct and indirect parcipants connect directly European countries and Japan tend to ulize an to a central technical infrastructure infrastructure-centric approach, while all other systems in § Direct parcipant-centric scope are direct parcipant-centric. § Indirect parcipants connect to the infrastructure ATM systems exhibit the greatest model diversity, including through a sponsor (direct parcipant) all three types. Two countries in scope (Brazil and Singapore) do not have interoperable ATM networks on a naonal scale. § Mul-network-centric

§ Mulple networks connect parcipants to each other, either bilaterally or through a central switch. Abstracon necessarily creates generalizaons. Detailed access informaon, including access diagrams for each system, can be found in the individual country proﬁles in the appendix.

Almost all high-value systems in scope High-value feature a direct parcipant-centric access Low-value bulk model. This model places a premium on risk management and is favored by these systemically important systems. The 1 3 excepon is EURO1, which allows indirect parcipant access via STEP1 and serves 3 n=13 of the countries in scope. 4 n=13 The majority of low-value bulk systems 8 10 also feature a direct-parcipant model; Denmark, Italy, Sweden, and the UK, however, use an infrastructure-centric model (although also allows for access via a direct parcipant). Low-value real-me Low-value real-me* systems tend ATM toward the infrastructure-centric (67% or 4 of 6 total) rather than direct parcipant-centric model. ATMs display the most diversity in that all 2 2 4 3 types of access models are found across n=6 the 13 countries in scope. Mul-network- n=13 4 centric is the most common (39% or 5 of 5 13), followed by direct parcipant-centric 2 (31% or 4 of 13), and rounded out by infrastructure-centric (15% or 2 of 13). Direct parcipant-centric Infrastructure-centric Mul-network-centric Not applicable *Note: Certain aspects of Australia’s NPP have not been formulated yet, meaning it may not always appear in the count for low-value real-me systems.

Infrastructure-centric model Direct parcipant-centric model Mul-network model

IP IP DP DP IP DP Net. DP DP Net. IP IP DP DP IP CI DP CI CI IP DP IP IP IP DP Net. DP DP Net. IP IP IP DP

A centralized infrastructure/network (CI) is the enty that facilitates interbank transfers between connected parcipants. For the purposes of the present analysis, the bilateral or mullateral nature of the CI is not considered. IP Direct parcipants (DP) connect to the central infrastructure via a number of networks (SWIFT, VPNs, prop, etc.), whereas indirect parcipants (IP) usually connect via a direct parcipant, except where noted.

§ In an infrastructure-centric model, § In a direct parcipant centric model, § Mulple networks connect all users, including direct and each sponsor bank communicates parcipants to each other, either indirect parcipants, and corporate with its sponsored parcipants. Only bilaterally or through a central originators submit payments direct parcipants connect to the switch. directly to the infrastructure. central infrastructure. § This model is commonly found in § The central infrastructure is § This is the most common model ATM networks. responsible for enforcing security among high-value and low-value policies and credit risk limits, for bulk systems, and is also widely indirect parcipants, as set by used in LV RT and ATM systems. sponsoring banks.

Infrastructure-centric model Direct parcipant-centric model Mul-network model

IP IP DP DP IP DP DP DP Net. Net. IP IP DP DP IP CI DP CI CI IP DP IP IP Net. IP DP DP DP Net. IP IP IP DP

§ Standard service levels for all § Indirect parcipants need to negoate § Indirect parcipants in the mul- parcipants benefit smaller and service levels with direct parcipants. network model have increased choice in providers of products and services. indirect parcipants. § Technical limitaons, such as earlier This can lead to more tailored service § Indirect parcipants have fewer cut-off mes, may result in reduced packages for indirect parcipants, and barriers to entry and most choice in service levels for indirect parcipants support more differenaon in how to access the central and their customers. compeve strategies. infrastructure. § A direct parcipant-centric model may § For example, US ATM networks § In theory, the greater centralizaon of increase total system cost, but allows compete on service, products and funconality in the infrastructure- greater differenaon of bank products price. PSPs can select the network centric model should enable economies and channels. based on what best fits their business. of scale, thereby lowering operang costs.

Prominent central provider Denmark, Italy, Sweden, the UK § In an infrastructure-centric model, all users (direct and § In Denmark, this model is used by all parcipants for both indirect) submit payments directly to the central low-value bulk and low-value real-me payments. In both infrastructure. cases, the central infrastructure provider is Nets. § The centralizaon of this model oen coincides with rich § In Italy, most FIs connect directly to the central central funconality, like account switching, oen with infrastructures via the Naonal Interbank Network (RNI), one operator and/or infrastructure provider for mulple a financial network created by the Italian central bank systems. and run by SIA. § The centralizaon of infrastructure provision and § Sweden’s Bankgirot is the central infrastructure provider networking means standard services for all parcipants. for both the low-value bulk and low-value real-me They cooperate at an infrastructure level and compete systems. All parcipants connect directly to Bankgirot. further down the value chain. Account switching is eased for corporates in Sweden, as is the use of a mobile number as a proxy idenfier for Infrastructure-centric model sending and receiving payments. § In the UK, Bacs low-value bulk payments use an infrastructure-centric model that enables direct technical access for all parcipants (although indirect parcipants IP DP can also access the infrastructure via direct parcipants). Central Bacs manages a variety of community services, including IP DP infrastructure account switching and non-payment messaging, which simplifies returns and processing at an interbank level. IP DP Faster Payments has recently announced a similar model.

Greater product differenaon Most predominant model examined § In a direct parcipant-centric model, indirect parcipants § All high-value systems in scope, aside from EURO1 via the connect to central infrastructure via direct parcipants. STEP1 service, use the direct parcipant model. § Only direct parcipants connect to the central § Banks parcipang in Australia and New Zealand’s low- infrastructure, migang the risks associated with more value bulk systems (both called BECS), exchange files loosely regulated and harder to monitor direct access for bilaterally. Indirect parcipants connect via direct indirect parcipants. parcipants. § This model may increase total system cost as a greater § Canada’s Automated Clearing and Selement System poron of the payments value chain must be internalized (ACSS) is a low-value bulk bilateral system where indirect by parcipants, but allows greater differenaon of bank parcipants access the system through sponsors. products and channels. § Many small banks in the United States choose to access § This is the most commonly used model for the high-value the payment system via larger sponsor banks, despite the and low-value bulk systems examined in this study. fact that the Federal Reserve offers selement accounts Direct parcipant-centric model for all banks regardless of size. While technically direct parcipants, these banks use sponsorship arrangements IP with larger banks to connect them to the central DP IP infrastructure to lower cost. Sponsors may exercise DP control over their indirect parcipant’s payment flows. IP IP

Central IP infrastructure IP

DP DP IP IP

Strong entry barrier for new parcipants Australia, Japan, New Zealand, United States § Mulple networks provide interoperability through a § Australia has mulple ATM networks that connect to each central switch or bilateral agreements with other other and exchange payments. Large banks have their networks. own ATM networks, while smaller banks have developed § Where mulple connecons must be maintained, e.g. common sub-networks. bilateral scenarios, the high number of connecons § Germany, New Zealand, and the United States each have necessary to parcipate in the system is a barrier to entry mulple, interoperable ATM networks connected via a for new parcipants, especially smaller PSPs. patchwork of bilateral and/or mullateral agreements. § This model was only found in ATM systems in this report. § Japan has a central switch connecng its mulple ATM § One key characterisc of this model is that transacons networks. can be cleared/switched and seled within a single network, i.e., the central infrastructure (where present) only handles inter-network traﬃc. Mul-network model

DP DP

Net. Net. DP DP

CI DP IP Net. Net. IP DP

Many countries have mulple systems Germany and the USA use aggregators § No country in scope uses only one model for all systems. § In Germany and the United States, each of the two low- § Within a specific country mulple models may be value bulk clearing systems available is connected with available for each system type. This is especially true, but the other — RPS and STEP2 in Germany and EPN and not limited to, where parallel systems exist. FedACH in the United States. Banks that parcipate one § In a few cases, a single system has mulple access of these systems can send payments to any bank in the methods. The new access model for the UK’s Faster other. Banks in both countries also have the opon to Payments offers both infrastructure and direct clear low-value payments bilaterally. parcipant-centric models (both models are also featured § It is also common for smaller banks in Germany to in the Bacs system). outsource payment processing to capve processors. Nearly all savings banks outsource to the cooperavely- owned Finanz Informak, and nearly all cooperave banks Italy has a naonal financial infrastructure outsource to Equens. These payment processors connect to STEP2 and RPS for their customers. § In Italy, SIA operates the Naonal Interbank Network (RNI). The RNI is an electronic network connecng the § In the United States, commercial aggregators connect most important financial intermediaries in Italy, i.e. Banca indirect parcipants to FedACH, the low-value system d’Italia, the clearing houses, and banks. SIA is also operated by the Federal Reserve. While the Fed offers integrated with the Public Connecvity System for public direct connecon to all members, a majority of bank administraon and with SWIFT. members (approx. 8,000) are medium- to small-size banks. To minimize complexity, these banks prefer to outsource their data processing, payment processing, and IT to third-party data processing companies. § Large banks in the United States choose to connect directly to central infrastructures. Thus banks in the United States can choose based on business and strategic reasons how they access the central infrastructure. © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal SWIFT is a prominent presence 53 SWIFT messages are common even when proprietary connecons exist

Connecvity and messaging standards Countries where SWIFT is most prominent § In many payment systems, connecvity between a § In Australia, SWIFT plays a prominent role in mulple payments infrastructure and its parcipants is oen payment systems: achieved using the SWIFT network. § High-value: The SWIFT Payment Delivery System § SWIFT FIN is used by many high-value systems as a (PDS) is the mechanism used to allow banks to messaging service. exchange payments via the high-value system, § SWIFT FileAct is used by several low-value bulk systems in RITS. Access to PDS is encrypted end-to-end with this study to exchange bulk payment files. unique logins and digital cerficates. § FileAct is oen one of mulple opons rather than § Low-value bulk: The Low Value Clearing Service the sole method of connecng to the (LVCS) was established to create a bridge for infrastructure. Several systems use VPNs in parcipants to exchange cheque & bulk low-value addion to (or in place of) SWIFT services for files across either the COIN or SWIFT networks, connecvity and message exchange. rather than force members to belong to both. § In the UK, for example, Bacs parcipants use the § Low-value real-me: SWIFT will operate the SWIFT-based STS transmission service, as well as common network for the New Payments Plaorm, ETS, a VPN-based service. which is due to launch in 2017. The decentralized § SWIFT-based messaging standards, such as the MT series messaging architecture will rely on the bilateral and the ISO 20022-compliant MX series, are common in exchange of payment messages. several payment systems. SWIFT also delivers messaging § New Zealand requires parcipaon via SWIFT network plaorms and messaging gateways, which act as connecon for their RTGS system, ESAS, and the low- interfaces for exchanging payment messages. value bulk system, BECS. § The EBA’s EURO1 and STEP2 systems use SWIFT FIN and FileAct, respecvely, as their primary communicaons networks.

Data insights Focus on indirect parcipaon § Direct parcipants share common characteriscs § The following analysis provides an overview of indirect including being almost exclusively defined as banks. parcipant access within the systems in scope as well as § There are several instances where barriers to direct highlighng noteworthy examples. parcipaon are acvely being reduced, either for § Indirect parcipaon varies based on country and system reasons of compeon or risk distribuon. type. Regulaon or market forces prohibit access to direct § Not all banks want to parcipate directly, even when parcipaon. there are no significant barriers. This is mostly due to lack § A focus on indirect parcipaon is relevant to issues of of a business case to do so, i.e. the cost of direct compeon, service levels for end users, and risk. parcipaon outweighs the benefit when compared to § Where indirect parcipaon affects service levels and/or indirect parcipaon. results in higher transacon costs, there is an impact on compeon within that market. For example, where Methodology indirect parcipants are granted a lesser service level or are limited in access to a market, some niche or customer § Scheme membership criteria and indirect parcipaon needs may go unfulfilled. was analyzed through document review and through § In Italy, indirect parcipants have reported interviews with experts in individual markets and systems. reduced service levels due to the access § The results are reported in the access secon of the arrangements. This has lead to technical country profiles. limitaons, such as earlier cut-off mes. § Individual responses have been aggregated by system § EURO1 enforces a EUR 50 million (GBP 41.5 type and presented along with key findings. million) limit on indirect parcipants in STEP1, § Where there is more than one access model in a market, liming their use of the system. the most open form of access is reported.

Direct parcipants share characteriscs Efforts to broaden parcipaon § Direct parcipants are defined as a disnct parcipant There are several instances where barriers to direct type and held to a higher regulatory and requirement parcipaon are acvely being reduced. standard under the laws or regulaons. § In Brazil, non-bank parcipants are legally entled to hold § Direct parcipants must meet addional oversight accounts in the central bank selement system (although scruny for liquidity risk management, including the few exercise this right). liquidity required for any sponsored indirect parcipants. § The Reserve Bank of New Zealand is considering broader § For larger banks, there may be a business case for the access to indirect parcipants in its low-value bulk associated addional costs of becoming a direct member. system. § They also have the resources to overcome market § The UK’s Faster Payments system has recently begun to barriers such as market size and structure. support technical access for a new type of indirect § It is widely believed that direct parcipants enjoy parcipant, direct agency. compeve advantages, such as lower marginal cost and increased service levels. However, pricing and service Not all banks want to parcipate directly level data to evaluate this claim is not publicly available. § In some markets, indirect parcipants are reluctant to become direct parcipants, even when it is available. § The EU’s Payment Services Direcve has expanded the potenal pool of scheme parcipants to non-banks. Adopon by non-banks, however, has not been widespread. Banks remain the dominant parcipant group by far. § In the United States, some smaller banks choose to use larger sponsor banks for selement, even though they themselves are legally entled to selement accounts at the central bank. © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Broadening direct access is uncommon 56 Change is movated by risk, not compeon

§ Direct access to high-value systems is restricted to direct parcipants in every system in Most systems limit scope, aside from EURO1, which allows indirect parcipants direct technical access to the broad technical access system via the STEP1 service. § ATM access is mostly restricted to direct parcipants. § Over half of real-me systems allow direct technical access for all parcipants.

§ Only European countries allow non-banks to join schemes and give direct technical access to the low-value bulk and real-me infrastructure. The EU is an excepon § Most non-European systems require indirect parcipants to submit payments via direct parcipants. Japan is an excepon.

§ New Zealand’s Reserve Bank is working to encourage wider direct membership to reduce Examples of broadening risk due to the dominance of a few large banks as direct parcipants. direct access § Similarly, the UK’s CHAPS extended direct parcipaon to former indirect parcipants. § In cases where direct parcipaon is widespread, many small PSPs choose to outsource technical processing (e.g. Germany, Italy, USA).

In markets with a small number of direct parcipants and a high number of indirect parcipants, selement risk is concentrated among the direct parcipants. Some regulators are movated to increase direct parcipaon, which lowers liquidity risk concentraon by distribung risk among a broader base of parcipants. As part of the Bank of England’s 2012 Payment Systems Oversight Report, CHAPS, the UK high-value system, invited indirect parcipant ﬁnancial instuons with an over 2% average daily total payment acvity (by value) processed by CHAPS to become direct parcipants. Similarly, in New Zealand, the RBNZ seeks to widen direct access to the low-value bulk system (BECS) to current indirect parcipants, thereby distribung liquidity risk.

The framework below is used to depict scheme membership criteria and indirect parcipant access by system type across the countries in scope. The example below (from high-value systems) is annotated to explain the terminology used throughout this secon, which applies the framework to all countries and system types in scope. Note that categories are cumulave, i.e. responses of indirect parcipants include direct parcipants. Also, a country or market view is taken, i.e. where mulple systems exist within a market the most open response is presented. The individual country proﬁles include more detailed system level informaon.

An instuon that An instuon that submits A business or public sector A payment service directly submits payments to the high- organizaon that wishes to provider that is not a payments to the high- value infrastructure via a parcipate in the payment licensed bank. value infrastructure. direct parcipant. scheme. Aggregated scheme Indirect Membership in scheme Direct parcipants Non-bank PSPs Corporates membership Details who parcipants 5 informaon. can join the Membership in In this case, scheme. 8 scheme more than a Indirect third of Indirect parcipant access schemes Describes parcipant access to to infrastructure allow indirect how indirect infrastructure parcipants parcipants 3 to join. submit Via direct Indirect parcipants have direct 10 payments to parcipant submission clearing system. Indirect parcipants access via a direct Indirect parcipants submit parcipant, subming their payment ﬁles to Aggregated indirect parcipant their sponsoring instuon. The sponsor their payment instrucons directly. Selement occurs via a access informaon. provides liquidity from their selement account. Indirect parcipants must pay for this access. direct parcipant to the infrastructure. © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Indirect parcipants access high-value systems via sponsors 58 Only EURO1 allows direct technical access for indirect parcipants

Membership in scheme

Direct parcipants Indirect parcipants Non-bank PSPs Corporates 5 Membership 8 in scheme

Indirect Indirect parcipant access to parcipant infrastructure access to infrastructure 3 10 Via direct parcipant Indirect parcipants submit directly

Scheme membership: As the foundaon of a naonal payments banks. system, more than half of the high-value schemes restrict membership to direct parcipants. Indirect parcipants are able (or Indirect parcipant access: Indirect parcipant access to the high- required) to join just over a third of the high-value systems in scope. value infrastructure is highly restricted. These systems are designated Allowing indirect parcipants contribute to the scheme governance, as systemically important, and risk and liquidity management are key despite their limited access, ensures openness and transparency. No reasons cied for restricng access. Access to high-value systems is scheme, however, allows high-value scheme membership by non- restricted to direct parcipants in every system in scope, with the excepon of the EURO1 system (through the STEP1 service).

Membership in scheme

Direct parcipants Indirect parcipants Non-bank PSPs Corporates 3 2

Membership 1 in scheme 6 Indirect Indirect parcipant access to parcipant infrastructure access to infrastructure

5 Via direct parcipant Indirect parcipants submit directly 7

Scheme membership: Scheme membership is restricted to direct Indirect parcipant access: Allowing direct technical access to the parcipants in only 4 of 13 low-value bulk systems in scope. Over low-value bulk infrastructure is also a European phenomenon; all 80% restrict membership to only direct and indirect parcipants. Only non-European systems in scope require indirect parcipants to Euro area countries, in compliance with the PSD, allow non-bank PSPs submit payments via direct parcipants. to join schemes. EPC rules allow corporates to join as well, and several industry associaons are members at this me.

Direct parcipants Indirect parcipants Non-bank PSPs Corporates 2 2 Membership in scheme 2 Indirect parcipant Indirect parcipant access to access to infrastructure infrastructure Brazil Denmark Japan Singapore Sweden UK 2

Via direct parcipant Indirect parcipants submit directly 4

Scheme membership: Of the 6 exisng systems, membership is Indirect parcipant access: Four systems (Denmark, Japan, Sweden, restricted to direct parcipants in Brazil and Singapore, whereas and the UK) allow indirect parcipants to directly submit payment Denmark and Japan both allow indirect parcipants to join the instrucons. Brazil and Singapore do not have any indirect scheme. In both Sweden and the UK, non-bank PSPs are allowed to parcipants. join. No system in scope currently allows corporates to join the scheme as members. About half of the countries in scope have real- me systems, and Australia’s NPP system is due to go live in 2017. There are several other systems under development or consideraon, notably in the USA and SEPA.

Membership in scheme Direct parcipants Indirect parcipants Non-bank PSPs Corporates 3 5 Membership in scheme 4 Indirect parcipant Indirect parcipant access to access to infrastructure infrastructure 2

Via direct parcipant Indirect parcipants submit directly 10

Scheme membership: Scheme membership is restricted to direct pracce there are none. All three networks restrict technical access parcipants in ﬁve of the 12 markets. Seven of the 12 markets allow to direct members. The USA has no naonal ATM scheme, so it is indirect parcipants to become scheme members, of those seven, excluded from this analysis; instead, there are 12+ interoperable Belgium, Italy, and the UK allow non-bank PSPs to become members. regional and local schemes. Brazil, Singapore, and the US have mulple ATM networks. Most of Brazil’s mulple ATM networks only serve individual bank brands and Indirect parcipant access: Indirect access to ATM switches is rare, are not interoperable with other ATM networks. Brazil’s largest mul- occurring in only Denmark and the UK. As ATM authorizaon occurs bank network, Banco 24 Horas, only allows direct membership and in real me and oen over a separate network, most countries access via direct parcipants. Of Singapore’s 3 ATM networks, only believe that ATM selement via direct parcipants does not impact Nets allows indirect parcipants to join the scheme, however, in the customer experience or service levels.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Direct technical access in mulple systems 62 Technical access to indirect parcipants not only in UK Denmark: LV bulk, LV RT, ATM UK: LV bulk, LV RT, ATM § Danish low-value clearings including bulk, real-me, and the § Indirect parcipants have technical access to the ATM network, Dankort, have a parcipant structure where infrastructure operated by VocaLink. The chief difference on a all parcipants submit instrucons directly to the clearings. technical level is whether they sele on their own behalf or § Only direct parcipants hold a selement account at the via a direct member. central bank. Indirect parcipants sele their payments via § Under its new access model, Faster Payments allows two selement accounts held by direct parcipant sponsors. types of indirect members: Direct Agency, which has a direct connecon to the infrastructure, and Indirect Agency, which does not. Both types rely on a direct member for selement. Sweden: LV bulk, LV RT § All members of the LINK scheme connect directly to the technical infrastructure, regardless of their selement § Both direct and indirect parcipants as well as corporates arrangements or regulatory classificaon. can directly access the LV bulk and LV RT clearings. § Indirect parcipants have direct technical access to the payment system infrastructure, subming payment instrucons directly to Bankgirot. § Only direct parcipants hold a selement account at the Swedish central bank (Riksbank). Indirect parcipants sele their payments via selement accounts held by direct parcipant sponsors.

The same outcome in payment system development can The outsourcing of infrastructure provision is rarely have different drivers (regulatory, commercial, or both) compeve Similar developments were observed in countries with § Compeve tenders for payment system infrastructure differing drivers of change provision is rare. § Sweden and Denmark have each developed real-me § Only six examples of tendering were observed, and payment systems for different reasons. In Sweden, banks only 3 of these were deemed compeve. All of reacted to a perceived threat posed by real-me products these were in new systems or legacy systems and services offered by third pares. Danish banks were undergoing an extensive overhaul required to change selement pracces for the low-value § In exisng systems, incumbent infrastructure providers bulk system by regulators and used the opportunity of this have a huge advantage over other potenal providers. overhaul to go further and develop real-me.

Three parcipant access models were observed across all The greatest diversity in system funconality was seen in system types low-value bulk and ATM systems § Each market features a mix of models across system types; § Overlay services are available in just over half of the no market has the same access model for each of the four markets in scope, with the majority concentrated in a few payment systems observed. markets: Denmark, SEPA countries, Sweden, and the UK. § Changes to parcipant models in systems observed may be § Each of these markets has introduced a new system driven by: or scheme in the last 7 years § A desire to improve service levels for indirect § Almost all overlay services are found in low-value parcipants bulk and low-value real-me systems § Risk management, parcularly a desire to reduce § Rich funconality is only weakly correlated to banking selement risk concentraon and GDP per capita

Outsourcing and tendering of UK payment systems display The ownership structure of UK Access methods for UK high- payment system infrastructure rich overall funconality low-value bulk and real-me value and real-me systems are compared to other systems. systems is typical. High-value & typical. Low-value bulk and ATM ATM systems are less typical. systems are more unusual compared with other systems. § The compeve tender for § Only two other markets § Both low-value bulk and real- § Connecon to central infrastructure provision in the examined displayed me systems have a infrastructure via direct Faster Payments system is comparable levels of commercial enty providing parcipants is the norm for all one of the few examples of a funconality: Denmark and the infrastructure and a non- but one high-value system truly compeve tendering Sweden. proﬁt scheme/operator examined. process observed in the overseeing the system. § Together, these three markets § Direct connecon to the real- countries and systems in display the most centralized § The central bank has less me system by indirect scope. features of any country in involvement in the operaon parcipants is also a common § The absence of compeve scope. of the high-value RTGS system pracce. tendering for the Bacs than in other markets. The § All three of these countries § Allowing indirect parcipants infrastructure in the UK is Bank of England acts solely as feature high ownership to directly access the low- typical compared to other infrastructure provider, while overlap in payment system value bulk system is slightly legacy systems in scope. CHAPS handles the operaons layers and high banking atypical. and scheme management. concentraon. § The UK is one of only two § Fewer than half of markets countries that grants indirect examined have a naonal parcipants direct access to ATM network comparable to the technical infrastructure LINK. In most countries, for an ATM switch. ownership is not integrated. Some have no naonal network.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Australia 67 Payment market overview Highlights Market data (2014, millions) § Australia’s payment system infrastructure is highly decentralized. Credit transfers 1,784.6 § The Australia Payments Clearing Associaon (APCA) is a member-owned payments Direct debits 883.1 associaon that sets the rules for several payment systems, including BECS (LV bulk), HVCS (high-value), and ATM transacons. The rule-maker for the New Payments Plaorm, ATM 744.0 a low-value real-me payment system due to go live in 2017, will be NPP Australia Ltd. High value 10.6 § The Reserve Bank of Australia (RBA) is developing a 24/7 selement module to provide mullateral gross selement for NPP transacons. Development of the NPP was awarded Cards 5,862.8 to SWIFT aer a compeve bidding process. Populaon 23.5 § Indirect parcipants access RITS and BECS via direct parcipants, while ATM networks Bank concentraon 90.5% (whether proprietary or cooperave) only grant access to direct parcipants. It is unclear rao (CR ) what the access arrangements for the NPP will be. 5 Recent evoluon and drivers Tendering & outsourcing Australian payments are developing rapidly due to the Changes in last 5 years Australian payment systems do development of the New Payments Plaorm (NPP), a low- None not have central infrastructures, value real-me system set to go live in 2017. Work is under but they do oen outsource way to provide more mely selement of low-value retail Minor networking. APCA’s database payments, currently seled on a next-day deferred net Major management for both the low- basis (there will be a 24/7 selement mode in the RITS value bulk and the planned NPP is system once the NPP goes live). A community network will Drivers of change outsourced to Fiserv, while RITS’ be used to exchange clearing ﬁles for the NPP and Regulaon and the NPP’s messaging systems simultaneously send associated selement instrucons to are provided by SWIFT, which also RITS. The move from bilateral to mullateral links began in Commercial interest won the development contract for 2014 for epos (debit card) transacons. the NPP in a compeve bid. The COIN network is outsourced to Telstra and SWIFT.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Central infrastructure provision 68 Australia Ownership in Australian payment systems The Australian Payments Clearing Associaon (APCA) administers the Bulk Electronic Clearing System (BECS) for credit transfers and direct debits, the Issuers and Acquirers Community (IAC) for ATM and EFTPOS payments, the High Value Clearing System (HVCS) for the exchange of RTGS SWIFT messages outside of RITS, and the Australian Paper Clearing System (APCS) for cheques and other paper instruments. The Various& epos debit-card network, a mullateral payments hub, owned Telstra& and operated by bank and retail members, can also process SWIFT& ATM transacons. The RITS system (RTGS) is owned and APCA& operated by the RBA. NPP&Australia&Ltd& NPP Australia Ltd will set scheme rules for the NPP, which is due to go live in 2017. SWIFT won a compeve bidding process to RBA& operate and provide the technical infrastructure for the NPP. Australia does not have a clearing house operator. APCA sets rules for all payment schemes, but transacons are exchanged bilaterally between banks. The RBA’s Payments Policy Department provides general oversight of Australian payment Commercial&& systems. APCA is ﬁnancially supported by member shareholders Central&Bank&& (RBA, banks, and retail industry bodies), which contribute to Industry&U?lity&& APCA based on the volume and importance of payments they make. Associate membership is also possible for groups not designated in the aforemenoned list of stakeholders.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Access and selement arrangements 69 Australia Technical access to payment systems Type Name Indirect parcipants Non-bank P2Ps Corporates Legend Via direct High value RITS parcipant LV Bulk BECS Direct to infrastructure LV Real-me NPP No relaonship to infrastructure ATM Various Not yet known Access and selement arrangements § There are 88 direct parcipants in RITS and each must have an § All parcipants in an ATM network must parcipate directly. ESA (Exchange Selement Account). Parcipaon and access Major banks have developed their own ATM networks, and policy around ESA eligibility is set by the Bank's Payments Policy groups of smaller banks have created their own sub-networks Department, under the governance of the Payments System that include mulple banks. Achieving access between the Board. Indirect parcipants access RITS via direct parcipants. various networks is done via bilateral links. Banks can set up a § There are 2 parcipant ers in BECS. Tier 1 members, of which one-way access arrangement between each other to allow there are 25, clear and sele directly with each other across customers of one bank to access another bank’s ATM network, their respecve ESA accounts at the RBA. There are 45 Tier 2 with one bank paying the other a fee and no direct charge to members, who use a Tier 1 member to sele on their behalf. end-users. This arrangement is designed to allow smaller banks New entrants rely on banks to gain access to the low-value to access larger networks. bulk system and there are no other channels to allow new § Access criteria and methods for the NPP have not yet been set. entrants in the market.

RITS ATM networks § Australia’s RTGS system, RITS, seles high-value credit § There is no central ATM network or switch. Each ATM transfers in real me. network is linked to others via bilateral agreements to § RITS is owned and operated by the Reserve Bank of ensure reach for Australian end users. Australia. § Banks exchange payment files bilaterally or through § RITS falls under the Payment Selements Department of the new EFTPOS hub. Selement occurs via BECS. the RBA. § Networks are operated by each of the “Big Four” § Members must be authorized deposit-taking instuons, banks. Many smaller banks connect directly to the an Australian-licensed central counterparty (CCP), or a Cuscal network. Cuscal is a payments provider that securies selement facility. mostly serves credit unions. § Parcipants must hold a selement account at the RBA to § New entrants in an ATM network must pay a access the system, i.e. they must be direct parcipants. connecon fee to other incumbents in the network. § Parcipants connect to RITS over a proprietary network or § Interchange fees for ATM transacons were abolished via the High Value Clearing System (HVCS), which is a in 2009 by the RBA due to concerns about closed SWIFT user group. transparency in charging. End users are now charged § RITS offers real-me selement of high-value payments directly for all off-us ATM transacons. and final selement of low-value payment systems. § Large banks access ATM networks directly via their § RITS pricing is based on a cost recovery principles. back office, while smaller banks form sub-networks. § RITS parcipants are required to keep their selement accounts adequately funded at all mes.

BECS NPP § Australia’s low-value bulk system does not have a central § The New Payments Plaorm (NPP) is a real-me low- infrastructure. value payment system scheduled to go live in 2017. § APCA sets scheme rules and governs the system. BECS § The NPP scheme will be governed by APCA. Scheme enables parcipants to exchange credit transfers and rules will be set by NPP Australia Ltd. direct debits bilaterally via common rules. The Payment § The system infrastructure is being developed by SWIFT Systems and Neng Act specifies neng arrangements as a common network for bilateral exchanges. for BECS payment obligaons. § The NPP will be mutually owned by 12 financial § Banks exchange messages bilaterally over SWIFT or via instuons (inially), including all four major banks. the COIN network. § Parcipaon in the NPP will likely be limited to banks § Selement occurs in RITS. at the outset. Each parcipant will connect to the § Any registered financial instuon that meets APCA’s infrastructure through a SWIFT payments gateway. requirements can be a parcipant in BECS. § In addion to offering real-me credit transfers, the § BECS has a two-er parcipaon model. Tier II (indirect) NPP will feature a module allowing parcipants to parcipants do not have a selement account at the RBA provide a variety of overlay services. and sele through Tier I direct sponsors. § The pricing model has not yet been finalized. § APCA does not define any system-wide value-added § NPP parcipants will be required to hold sufficient services for parcipants. collateral to sele all obligaons. Selement will be § BECS parcipants are required to pay both entrance fees immediate and posng will occur almost and annual fees to use the system. There are no simultaneously. transacon-based fees for using the system. § The RBA is developing the Fast Selement Service at RITS to enable 24/7 immediate selement of all NPP transacons.

RITS BECS NPP ATM networks Scheme governance Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure Direct to infrastructure

Products Products Products Products Bespoke bank services Bespoke bank services Bespoke bank services Bespoke bank services Community services Community services Community services Community services Mulple products Mulple products Mulple products Mulple products Single product Single product Single product Single product

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Brazil 73 Payment market overview Highlights Market data (2014, millions) § Brazil has a strong central bank regulator who has implemented significant reform over Credit transfers 6,452.8 the last 15 years. The central bank has recently adopted BIS’s PFMI principles. Direct debits nap § Brazil’s RTGS system, STR, has high volumes and allows non-banks to directly submit payments. ATM 4,567.4 § Brazil has one of the world’s first low-value real-me systems (SITRAF). While is it has High value 36.5 relavely low volumes, it is now showing solid growth. Cards 10,993.6 § The SILOC low-value bulk system only processes credit transfers and offers overlay services such as bill payments. Populaon 202.8 § There are very high numbers of ATMs, however there is a lack of interoperability. Bank concentraon 73.5%

§ Brazil was an early adopter of rich payments messaging, using a proprietary XML protocol. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing Regulatory development has centered around the reform of Changes in last 5 years There is no evidence of tendering Brazil’s payment system regime. In 2013, legislaon was None or outsourcing in any of the four passed that brought payment schemes, card schemes, and Brazilian payments systems payment instuons under the central bank’s regulatory Minor examined in this study. umbrella and subjected them to similar oversight Major requirements. This legislaon introduced a regulatory framework over the card schemes, and established Drivers of change minimum requirements for the safe provision of payment Regulaon services. The legislaon encourages by giving new players (such as non-banks) access to payment systems, and creates Commercial interest a more inclusive and innovave environment for retail payments overall.

The central bank, Banco Central do Brasil (BCB), provides core Ownership in Brazilian payment systems infrastructure services that support Brazil’s payment systems. It owns and operates the high-value RTGS system (STR), and the Naonal Financial System Network (RSFN), which is used to access the real-me low-value system SITRAF. The RSFN is a real- me messaging plaorm that acts as the conduit between the central bank infrastructures and all other parcipang organizaons. Câmara Interbancária de Pagamentos (CIP) is an interbank payment clearing house. It provides clearing and selement services for inter-bank payments, including the SITRAF real-me system, the SILOC low-value bulk system, and several other interbank payment systems. CIP is a non-proﬁt associaon that was established in 2001 with the launch of SILOC. Prior to SILOC, cheques and cash dominated Brazil’s payments landscape. CIP has operated the SITRAF real-me system since 2002. TecBan is the only shared infrastructure for ATMs and has limited reach. It is owned by seven of Brazil’s largest banks and provides the main shared ATM network, Banco 24 Horas.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Access and selement arrangements 75 Brazil Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct High value STR parcipant LV Bulk SILOC Direct to infrastructure LV Real-me SITRAF No relaonship to infrastructure ATM Various Not yet known Access and selement arrangements § Access to the STR system requires a central bank selement § Membership in SITRAF is open to central bank selement account. Since 2013, non-bank enes have been eligible for a account holders. There are currently 98 members. SITRAF’s selement account at the central bank and may directly access access policy is based on the access requirements for obtaining STR. This includes card schemes, payment system providers a selement account. such as CIP, and small banks such as credit unions. There are § The lack of ATM interoperability has reduced feasibility for currently 187 direct parcipants in STR. All banks and independent operators to establish a presence in the Brazilian systemically important financial market infrastructures must market. While not an official policy, all ATM operators are have a selement account and be a STR parcipant. banks (or regulated banks such as credit unions). There are § Any bank that has a selement account at the central bank can approximately 40 ATM operators. Membership requirements join SILOC. There are currently 121 direct members. SILOC’s are disnct to each network operator and not available access policy is based on the access requirements for obtaining publically. The largest network, Banco 24 Horas, is operated by a selement account with STR. From 2013, a wider range of TecBan, which is owned by 7 of the country’s largest banks. banks became eligible for obtaining central bank selement Despite being the country’s largest ATM network, it has limited accounts. reach.

STR ATM networks § Sistema de Transferência de Reservas (STR) is Brazil’s § Brazil is a cash-centric society with a history of hyper- RTGS system, owned and operated by the central bank. inflaon, and a large underbanked populaon. ATM § Parcipaon in STR is mandatory for banks that hold deployment is high. reserve accounts at the central bank. § A standardized approach for ATMs is not available, which § Since 2013’s legislave change, non-bank enes can hinders the potenal for interoperability. Regulatory hold a selement account at the central bank and directly focus has shied to encourage ATM interoperability, access STR. improve market efficiency, and increase access to § Transfer requests submied to STR are queued based on financial services. priority and me. § Due to the lack of standardizaon in the ATM market, § STR ulizes the RSFN real-me messaging plaorm, which there is no common set of connecvity requirements. is also owned and operated by the central bank. § While not official policy, all ATM operators are banks. § STR is required to have a minimum availability of 99.8%. § Selement of ATM transacons occurs via the low-value § There are no admission fees or annual fees. Parcipants bulk system (SILOC). only pay transacon fees. § TecBan offers its client banks over 300 different § There are no overlay services specified for STR. transacon types, ranging from withdrawals to payments to investments. § Connecvity resilience is enhanced due to dual § No shared network means that overlay services are part connecon avenues, including the dedicated RSFN messaging system and back-up internet connecon. of each ATM owner’s product offering. § Banks charge each other an interchange fee (paid by issuing bank to acquiring bank) for ATM transacons.

§ High levels of ATM fraud have led banks to invest heavily in security. The proliferaon of bank-speciﬁc security soluons has hindered communicaon between instuons. © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Low-value bulk & low-value real-me 77 System details

SILOC SITRAF § SILOC is Brazil’s low-value bulk payment system, owned § SITRAF is a low-value real-me payment system owned and operated by CIP. SILOC processes credit transfers and operated by CIP. only, and there is no interbank system for direct debits. § SITRAF takes a hybrid approach that posions it as both § SILOC payments are cleared during two relavely short an RTGS and deferred-net payment system. me periods (one 2-hour session and one 3-hour session). § SITRAF ulizes the RSFN real-me messaging plaorm § SILOC uses a deferred net selement mechanism. operated by the central bank to allow banks access to the Mullateral selement occurs in STR twice per business system. day at specific mes. § Despite its maturity, usage remains relavely low. § Any bank that has a selement account at the central However, SITRAF does have the highest growth rates of bank can join SILOC. all Brazilian clearing systems, at 29.2% (2014 vs 2013). § Parcipants can offer a range of overlay services to § The launch of SITRAF is aributed to a wider regulatory facilitate the “boleto de cobrança,” bill payment product. reform to modernize infrastructure, restore confidence in § SILOC aims for the full recovery of costs through the local currency, and alleviate the central bank from having issuance of a flat fee per transacon, and an annual fee to to cover banks during lengthy deferred selement delays. CIP. § Any bank that has a selement account at the central § There is no mechanism to guarantee the selement of bank can join SITRAF. funds transfer orders processed by the system. § SITRAF only processes electronic funds transfers, known § CIP operates SILOC from two separate locaons, and has in Brazil as “TED” (similar to wire transfers). the ability to change which locaon operates the SILOC § Cost recovery in SITRAF is managed through transacon system to ensure up-me and stability. fees, charged to both the reming and receiving banks. § SILOC’s payments messaging uses a data-rich proprietary XML format.

STR SILOC SITRAF ATM networks Scheme governance Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Canada 79 Payment market overview Highlights Market data (2014, millions) § Canada has a complex regulatory arrangement. The Bank of Canada oversees payments Credit transfers 1,013.1 but does not operate core infrastructures. The Canadian Payments Associaon (CPA) Direct debits 762.3 owns, governs, and operates infrastructures, while the Minster of Finance has oversight powers over the CPA. ATM 713.7 § Low-value bulk payments are processed through the Automated Clearing Selement High value 7.9 System (ACSS), which seles transacons on the following business day. § The Large Value Transfer System (LVTS) is a high-value mullateral net-deferred that Cards 8,796.8 ulmately seles all retail payments. Canada does not have a true RTGS system. Populaon 35.5 § The ATM network is operated by Interac, a non-proﬁt associaon owned by 60 bank and Bank concentraon 84.2% non-bank members. There is a high number of independent ATM operators. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing The most important change in recent years is the overhaul of Changes in last 5 years There is no evidence of tendering payments legislaon, eﬀecve July 2015. The Next None or outsourcing in any of the four Generaon Payment System project is a mul-year project Canadian payments systems to renew core infrastructures for both high and low-value Minor examined in this study. payments. The Next Generaon Payment System iniave Major also includes a commitment to adopt ISO 20022 for the low- value ACSS (and potenally LVTS ) system. Interac is the sole Drivers of change ATM network provider, and allows network connecvity to Regulaon providers. This has led to a compeve ATM market with comparavely high numbers of ATM machines deployed. Commercial interest

The CPA owns and operates the ACSS and LVTS infrastructures. Ownership in Canadian payment systems The CPA organizaonal structure includes an operaonal team responsible for running these infrastructures. By legislave design, the CPA is a non-proﬁt organizaon. It uses a mixture of legislaon, by-laws, rules, and standards to govern the infrastructures. The Bank of Canada (BOC) neither owns nor operates any of Canada's major payments or selement infrastructures. The BOC provides a selement account to each CPA member that parcipates directly in ACSS and LVTS. Selement of LVTS posions is completed through these accounts. The BOC accepts collateral, provides collateralized advances, and provides services to members in support of LVTS intraday operaons and advances. The BOC is itself a CPA member and parcipates directly in LVTS and ACSS. Interac is a major Canadian cards processing non-proﬁt organizaon, switches all of Canada’s interbank ATM transacons. All ATMs in Canada are connected to the Interac Cash network.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Access and selement arrangements 81 Canada Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct High value LVTS parcipant LV Bulk ACSS Direct to infrastructure LV Real-me nap No relaonship to infrastructure ATM Interac Not yet known Access and selement arrangements § All LVTS parcipants, both direct and indirect, must be CPA § There are two classes of Interac Associaon members: members. Both banks and non-banks can be LVTS parcipants, § Direct Connectors are members who connect directly to although currently only banks are direct parcipants. There are the Inter-Member Network (IMN) to provide Interac 17 direct parcipants and approximately 65 indirect Cash and Interac Debit services. Each Direct Connector parcipants. All indirect parcipants must be oﬃcially maintains a physical network connecon to the IMN, registered as CPA members. ACSS membership is split into two which allows them to connect to each other through a categories: direct clearers and indirect clearers. Indirect clearers private TCP/IP telecommunicaons network. submit payments into ACSS via agent banks. While all ACSS § Indirect Connectors are members who connect to the members are currently registered banks, ACSS is open to non- Inter-Member Network via a Direct Connector. bank instuons. § Parcipants in ACSS must be CPA members and are required to have a selement account at the Bank of Canada. Members must account for 0.5% or more of ACSS’s total transacon volume, and must have the ability to meet rules and system requirements

LVTS Interac § Canada’s Large Value Transfer System (LVTS) seles large § The Interac Associaon, a major Canadian cards value and me-crical payments. processing non-profit organizaon, switches all of § LVTS is owned and operated by the CPA. LVTS is a Canada’s interbank ATM transacons. deferred net selement system and not a true RTGS § The ATM market in Canada is open to compeon from system. In the event of a parcipant default, the BOC financial instuons and white label ATM companies. extends the funds necessary for the parcipant to sele § Interac members are broken down into direct and indirect its final net debit posion. connectors. § All LVTS parcipants, both direct and indirect, must be § ATM usage has expanded into non-payment funconality CPA members. Access requirements are set by the CPA. including cross-selling, basic banking transacons, and bill § The Bank of Canada plays a key role in managing both the payments, but these are offered by individual ATM collateral used to secure parcipant’s deferred net owners and not by Interac. selement posions and enacng selement. § A single interchange fee of CAD 0.75 (GBP 0.39) per § LVTS requires connecvity to both SWIFT and the LVTS transacon is paid by the issuer to the acquirer for all core system. Interac Cash transacons. § All LVTS payments are immediately final and irrevocable. § Interac sets and enforces the technical requirements and § LVTS transfers funds through two streams or “tranches.” standards to connect to its network. Each tranche has a corresponding risk-control limit, § ATM transacons ulmately sele in LVTS. collateral requirements, and loss-sharing arrangements. § Card security is transioning from magnec stripe to chip for both ATM and point of sale transacons. Full adopon of chip-and-pin is expected to be completed by the end of 2015.

ACSS § The Automated Clearing Selement System (ACSS) was introduced in 1984 and is owned and operated by the CPA. The ACSS clears retail payments, including paper-based payment items (mostly cheques), pre-authorized debits and credits, debit card, and ATM transacons. § ACSS membership is split into two categories: Direct clearers and indirect clearers. § ACSS is a bilateral system where direct clearers exchange payment items directly with each other. § At the core of ACSS is an informaon switch used to track the volume and value of payment items exchanged between direct clearers in order to determine the balances due to and from direct clearers. § ACSS annual fees are based on parcipant transacon volume and are not publically disclosed. § ACSS uses a proprietary data format, CPA Standard 005. § There are no overlay services designated for ACSS. § The ACSS does not require collateral to be posted. Selement of payments takes place one business day following clearing, meaning that parcipants implicitly grant each other unsecured overnight credit. § ACSS selement takes place in the high-value LVTS system. § Unwinding provisions were removed from the ACSS rule book in 2012 because it was deemed operaonally ineﬀecve. Risk management is handled in LVTS.

LVTS ACSS Interac Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure

Products Products Products Bespoke bank services Bespoke bank services Bespoke bank services Community services Community services Community services Mulple products Mulple products Mulple products Single product Single product Single product

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Denmark 85 Payment market overview Highlights Market data (2014, millions) § Denmark has a highly centralized payment system. Credit transfers 345.8 § The Danish Bankers Associaon sets scheme rules for low-value payment systems. The Direct debits 207.1 central bank sets scheme rules for the RTGS system. § Nets, the only infrastructure provider, plays a central role in low-value clearing. It ATM nav operates low-value bulk, low-value real-me, and ATM systems serving all Danish banks. High value 1.1 § Denmark has a cooperave banking community for schemes. A key infrastructure Cards 1,516.0 provider, Nets, was bought by 3 private equity ﬁrms in 2014. § The majority of banks outsource IT to one of three shared data centers. Populaon 5.6 § Indirect parcipants connect directly to all low-value payment infrastructures. Bank concentraon 91%

§ Compeon focuses on customer facing acvies, e.g. products and services. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing In March 2014, Nets was acquired by a group of private Changes in last 5 years While outsourcing for the equity ﬁrms (Advent Internaonal, ATP, and Bain Capital). None operaon and infrastructure of Nets operates three retail clearing systems in Denmark, the low-value payment systems is naonal debit card scheme, and the largest card acquirer. Minor widespread, no meaningful Both Nets and the Danish banks have commented that since Major tendering process occurs. Nets, Nets’ acquision they have pursued new business areas and which is now owned by several compeon for customers has increased. The banking Drivers of change venture capital ﬁrms, operates the community incenvized electronic payments; cheque usage Regulaon clearings and provides the is minimal and declining rapidly. infrastructure of the low-value Commercial interest bulk, low-value real-me, and ATM systems.

Nets’ central infrastructure consists of three low-value clearing Ownership in Danish payment systems systems, Sumclearing, Intradag clearing (Intraday), and Straksclearing (also called RealTime24/7). The systems are owned by the Danish Bankers Associaon and operated by Nets. The Real-Time 24/7 system is a prefunded real-me gross selement system in which banks connuously sele payments as they are made. In addion, Nets operates the naonal ATM switch and clears ATM transacons in the Sumclearing system. In addion to their role as a central infrastructure provider, Nets oﬀers payment services directly to corporates and customers, including payment collecon services, merchant card acquiring, and e-security services for the public sector. The Danish central bank, Naonalbanken, owns and operates the Kronos system, which is both the RTGS system and the selement system for all low-value clearings. Kronos is maintained by BEC, a Danish IT company that also operates a data center for Danish banks. The low-value schemes are owned by the Danish Bankers Associaon. According to an industry insider, the provision of infrastructure is occasionally tendered. However, no other company has ever provided the infrastructure. The Danish banking community has historically cooperated on central infrastructure and may believe it would be too risky to change providers.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Access and selement arrangements 87 Denmark Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct High value KRONOS parcipant LV Bulk Sum & Interday Direct to infrastructure LV Real-me RealTime24/7 No relaonship to infrastructure ATM Dankort Not yet known Access and selement arrangements § Danish low-value clearings have a dual parcipant structure clearings and the real-me system is mandatory for parcipants with both direct and indirect parcipants. All parcipants in the two other clearing systems, but the Danish Bankers submit instrucons directly to the clearings, however only Associaon can grant excepons from this requirement. Five direct parcipants hold a selement account at the small local banks currently do not parcipate in the real-me Naonalbanken. Indirect parcipants sele their payments via system, which has only 46 direct and 43 indirect parcipants. selement accounts held by direct parcipant sponsors. § Dankort parcipants require a relaonship with a data center as § There are 94 direct parcipants in Kronos. Most Danish banks well as membership in Nets, the scheme operator for Dankort. are connected to Kronos to send and receive RTGS payments, Parcipaon in the Nets ATM network requires a separate and manage liquidity accounts for seling obligaons in the contract, and Nets charges for its services. Direct parcipaon low-value clearing systems. Indirect parcipants sele their requires a selement account at Naonalbanken. Indirect obligaons through a sponsoring bank. Most indirect parcipants sele their payment obligaons via direct parcipants are small local savings banks that use larger parcipants. All parcipants have direct technical access. regional banks as their sponsors. Indirect parcipants submit payment instrucons directly to the § As of 2014 the low-value bulk clearings have 51 direct and 43 clearings by connecng to data centers to submit payment indirect parcipants. In general, parcipaon in low-value instrucons to Nets.

Kronos Dankort § Denmark’s RTGS system, Kronos, is owned and operated § Nets operates the central ATM switch in Denmark. by the central bank, Naonalbanken, which also sets § The ATM authorizaon system falls under the Dankort scheme rules. debit card scheme, which is owned and operated by Nets. § Membership is open to registered ﬁnancial instuons in § Clearing and selement occur in Sumclearing. Denmark. § Membership and access rules are the same as the other § Most banks connect directly to Kronos, however some Nets clearings. smaller banks are indirect parcipants accessing the § Banks in Denmark (both direct and indirect) connect system through larger regional sponsors. directly to the Nets infrastructure through data centers. § Banks connect to Kronos via SWIFT or a proprietary web § The ATM system supports mulple cash related products. interface. § Selement is prefunded, thereby removing selement § Naonalbanken charges parcipant fees to cover the risk. costs for operang and further developing Kronos. Fees § Operaonal reliability of the Danish retail payment are posted on the Naonalbanken’s website. systems was high in 2014. § Kronos was operaonal 99.7 % of the me in 2014.

Sumclearing and Intradagclearing RealTime24/7 § Nets operates the two Danish low-value bulk schemes, § RealTime24/7 is a credit transfer system processing credit Sumclearing and Intradagclearing. transfers in real-me, 24/7/365. § The Danish Bankers Associaon (DBA) sets the rules, § The system falls under the same ownership and makes all strategic decisions for both schemes, and governance structures as other Nets clearings. admits new parcipants. § Membership and access rules are the same as the other § All banks registered in Denmark can be admied to the Nets clearing. The system currently has 46 direct and 43 schemes. indirect parcipants (due to 5 banks being granted an § The Danish low-value schemes have a dual parcipant exempon to the mandatory parcipaon requirement). structure with both direct and indirect parcipaon. § Connecon to the system is done via data centers for all § Banks in Denmark (both direct and indirect) connect parcipants (direct and indirect). directly to the low-value bulk infrastructure through data § There are two overlay services using the system: centers. Mobilepay and Swipp. § Nets offers different products in each of the clearing § Selement is prefunded to avoid selement risk. systems it operates for the DBA. § Nets offers a basic service package that grants access to all their clearing services. They also offer value-added services like direct debit management. § Technical returns for credit transfers must be made within 5 days. All direct debits can be returned within 7 days for technical reasons, and within 8 weeks for refunds.

Sumclearing & KRONOS Intradagclearing RealTime24/7 Dankort Scheme governance Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Japan 91 Payment market overview Highlights Market data (2014, millions) § The Bank of Japan (BOJ) operates the BOJ-NET FTS (BOJ-NET) system, which operates as a Credit transfers 1,558.4 high-value RTGS system and as a selement system for all interbank payment systems. Direct debits nap § The Zengin Data Telecommunicaon System (Zengin) processes all credit transfers in Japan. It is operated by the Japanese Banks’ Payment Clearing Network (Zengin-Net), ATM 263.0 which is a subset of the Japanese Bankers Associaon. Zengin undergoes major hardware High value 16.7 and soware overhauls every 8 years. § There are 9 ATM networks in Japan that are all connected by the MICS central switch. Cards (debit only) 11.4 § Japan does not have a low-value bulk payment system and does not have a system for Populaon 127.1 processing interbank direct debits. Bank concentraon 57.7% § NTT Data provides the central infrastructure for Zengin, BOJ-NET, and MICS. rao (CR ) § Use of ISO 20022 is oponal in the Zengin system, and many banks sll use the legacy 5 standard. Tendering & outsourcing Recent evoluon and drivers All 3 of the Japanese payments Japan’s payments market has remained stable but there are Changes in last 5 years systems in scope outsource the changes underway. The sixth generaon Zengin system went None provision of central infrastructure online in 2011, and featured the implementaon of ISO – and this outsourcing is 20022 for payments messaging. The legacy data standard is Minor contracted to NTT Data. Although sll accepted and the Japanese government and the Bank of Major the Zengin system oﬃcially tenders Japan are now weighing whether or not they would like to the provision of infrastructure make the use of ISO 20022 mandatory in the future. Zengin Drivers of change every 8 years, NTT Data has won is currently developing a new plaorm that will operate 24/7 Regulaon the contract every me. No by 2018 (alongside the legacy plaorm). The BOJ has also informaon is available on the updated the BOJ-NET system to ulize ISO 20022, extend its Commercial interest frequency or compeon in operang hours, and implement liquidity-saving features. contracng for BOJ-NET or MICS.

Japan’s RTGS system, BOJ-NET, is owned and operated by the Bank Ownership in Japanese payment systems of Japan, which also sets the rules for the system. It acts both as a high-value payment system and as a selement system for low- value payments such as credit transfers and ATM transacons. Zengin is operated by the Japanese Banks’ Payment Clearing Network (Zengin-Net), a subset of the Japanese Bankers Associaon. Zengin is a real-me low-value system for credit transfers. Japan does not have a bulk low-value ACH system. Japan has 9 separate ATM networks that are deployed by individual banks or groups of banks across the country. MICS is a common scheme for the central Integrated ATM Switching Service (IASS, a technical switch operated by NTT Data) and ensures interoperability and reach between all Japanese ATM networks. The infrastructure for Zengin, BOJ-NET, and MICS is provided by NTT Data. The provision of infrastructure in the Zengin system is tendered every 8 years when upgrades occur. NTT Data has always won the bid due to the fact that it is seen as the most trusted and experienced infrastructure provider. The Bank of Japan also conducts tenders for BOJ-NET. While some of Japan’s largest banks do own shares in NTT Data, they do not represent a controlling stake in the company. Regulators have not openly expressed concerns about compeon in the operaon of payment systems (Zengin, MICS) and the provision of infrastructure by NTT Data. The majority shareholder in NTT Data is NTT Corporaon (54%). The Japanese Ministry of Finance is the largest shareholder in NTT Corporaon (35%).

Access and selement arrangements 93 Japan Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct High value BOJ-NET parcipant LV Bulk nap Direct to infrastructure LV Real-me Zengin No relaonship to infrastructure ATM MICS Not yet known Access and selement arrangements § Membership in BOJ-NET is open to all financial instuons in § MICS acts as a central switch between nine different ATM Japan. There are currently 474 parcipants in the BOJ-NET FTS networks. The total membership in these networks was 1,377 at system (with 538 total parcipants on the securies side). the end of 2009. The nine networks connected by MICS only Parcipants include all major Japanese banks, foreign banks, count banks as members. The nine separate networks Japanese cooperave banks, securies companies, and money connected by MICS are made up of groups of similar banks: city market brokers. Some small Japanese banks sele indirectly via banks, regional banks, trust banks, credit banks, Shinkin banks larger banks and thus do not hold selement accounts at the (small cooperave banks), labor banks, and agricultural BOJ. cooperave savings banks. § Access to Zengin is only open to authorized financial instuons. The system currently has 142 direct parcipants and approximately 1,200 indirect parcipants. Non-banks and corporates are not eligible to parcipate in the system. New parcipants must pay an admission fee and a percentage of the operang costs of running Zengin. All parcipants access the system directly.

BOJ-NET MICS § BOJ-NET is an RTGS system for all payments above JPY § Japan has 9 separate ATM networks developed by 100 million (approx. GBP 540,000). All transacons seled different groups of banks. in the system are final and irrevocable. § MICS is a central switching scheme operated by the § BOJ-NET is owned and operated by the Bank of Japan, Japanese Bankers Associaon (as MICS secretariat) and which also sets the system rules. owned by Japanese banks. § In October 2015, the new BOJ-NET went live. The updated § The Integrated ATM Switching Service (IASS) was plaorm includes the capability to process ISO 20022 established to provide a technical switch for the MICS messages, the ability to extend operang hours (expected gateway. IASS is operated by NTT Data. to take place in February 2016), and liquidity saving § NTT Data also provides the technical infrastructure for features such as bi- and mullateral offseng algorithms. some of the larger individual ATM networks. § The technical infrastructure for BOJ-NET is provided by § Most ATMs provide cash withdrawal, balance inquiry, NTT Data, with the Bank of Japan operang the system. bank transfer, and bill payment services. There are no § Membership in BOJ-NET is open to all Japanese banks. known addional overlay services. § BOJ-NET parcipants are charged a monthly fee as well as § Pricing informaon is unknown, but presumed to be on a transacon fees to use the system. cost recovery basis. § The Bank of Japan provides an intraday overdra facility § Security and resilience figures are not made public. Most during BOJ-NET operang hours. All overdras are fully ATMs do not operate 24/7. collateralized by parcipants. § Liability, solvency, and dispute resoluon procedures are not made public.

Zengin § Zengin is a low-value real-me payment system owned and operated by the Japanese Banks’ Payment Clearing Network (Zengin-net), a subsidiary of the Japanese Bankers Associaon, which sets the system rules. § Zengin only processes credit transfers. There is no interbank system for direct debits in Japan. § The technical infrastructure for Zengin is provided by NTT Data. § The Zengin system undertakes major upgrades every 8 years. This includes re-tendering provision of infrastructure. NTT Data has always won the tendered bid. § All parcipants access the Zengin system directly, although some parcipants sele indirectly at BOJ-NET. § All Zengin members hold equal vong rights on the Zengin-net board. § Zengin-net is currently planning on increasing the system’s operang hours to 24/7 beginning in 2018. § Payments are final and irrevocable once selement occurs, at the latest on the first business day aer iniaon. § Overlay services have not been developed for Zengin. § Security and resilience figures are not made public.

BOJ-NET Zengin MICS Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal New Zealand 97 Payment market overview Highlights Market data (2014, millions) § New Zealand has a centralized RTGS system and decentralized clearing systems for low- Credit transfers 505.3 value bulk and ATM switching. Direct debits 150.8 § Low-value bulk payments in the Bulk Electronic Clearing System (BECS) are cleared through a decentralized SWIFT-based system called SBI that seles each batch at the ATM 98.7 central bank before the interchange ﬁle is exchanged. SBI is owned and governed by High value 2.3 Payments NZ, with infrastructure provided by SWIFT. Cards 1405.7 § The ESAS RTGS system is operated by the Reserve Bank of New Zealand, with business rules set by Payments NZ. Banks access ESAS via the High-Value Clearing System (HVCS). Populaon 4.5 § ATM switching is done via decentralized bilateral networks, with Payments NZ seng Bank concentraon 94.1% rules. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing In 2010, Payments NZ was established as a scheme and rule Changes in last 5 years The RBNZ payment and selement making organizaon for the payments industry. In 2012, None systems, ESAS and NZClear (a New Zealand’s low-value bulk system BECS moved from a securies selement and bilateral exchange with mullateral selement, to a Minor depository system), require mullateral exchange with bilateral selement. The system Major signiﬁcant investment or uses Selement Before Interchange (SBI). In SBI, selement replacement. RBNZ has decided to is completed before the interchange ﬁle is released, Drivers of change replace ESAS and to divest the eliminang selement risk. Regulaon NZClear business if another specialist operator can provide the Commercial interest necessary services. Datacom provides the technical infrastructure for ESAS.

The New Zealand payments community operates a limited number of central infrastructures and depends mostly on Ownership in New Zealand payment systems bilateral agreements and bilateral exchange of payments. The Reserve Bank of New Zealand (RBNZ) oversees high- value payments. Payments NZ, which has 8 member banks, sets rules for ATMs, low and high-value payments, and owns SBI. SWIFT provides the technical messaging services and infrastructure for BECS and HVCS. Various' RBNZ and Payments NZ are the only enes governing SWIFT' payments in New Zealand. PaymentsNZ' RBNZ owns and operates the Exchange Selement Account RBNZ' System (ESAS) and provides selement for RTGS payments. Datacom' The ESAS system is managed internally, with technical infrastructure currently outsourced to Datacom. There are three payment/ selement systems that can access ESAS: § HVCS (High Value Clearing System) known as AVP (Assured Value Payment) in New Zealand for RTGS payments Commercial'(Green)' § BECS for bulk low-value payments Central'Bank'(Purple)' § NZClear, which processes security and equity selements Industry'UBlity'(Blue)'

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Access and selement arrangements 99 New Zealand Technical access to payment systems Type Name Indirect parcipants Non-bank P2Ps Corporates Legend Via direct High value RITS parcipant LV Bulk BECS Direct to infrastructure LV Real-me nap No relaonship to infrastructure ATM Various Not yet known Access and selement arrangements § There are 14 direct parcipants in HVCS. All HVCS parcipants parcipant’s volumes and selement obligaons into their own must apply via Payments NZ for direct access to ESAS (Electronic transacon volumes. This arrangement is not regulated by Selement Account System). While there are no non-bank RBNZ, nor is it regulated by Payments NZ. members in ESAS, there is no policy to exclude them and there § There are 8 direct parcipants in the ATM network and an are requirements in place for non-bank organizaons to join. unknown number of indirect parcipants. There is no policy for The actual decision making authority for new parcipant access access requirements for ATM operators in New Zealand. Access resides with three independent directors of Payments NZ. is bilaterally negoated with the banks. An ATM transacon § There are 8 direct and 10 indiect members in BECS. Direct acquirer that wishes to sele directly with card issuers must join members must apply to Payments NZ to join but indirect Payments NZ's Consumer Electronic Clearing System (CECS). parcipants are not obliged to follow Payments NZ rules, as Alternavely, they can acquire ATM transacons through an they do not sele or interchange with other parcipants. All agency arrangement with an exisng CECS Parcipant. compliance obligaons and requirements are covered by their sponsor bank. The direct sponsor bank absorbs the indirect

HVCS ATM networks § Payments NZ sets scheme rules for HVCS. RBNZ owns and § There is no central ATM switch or organizaon that runs operates ESAS. the ATM network. Each parcipant is responsible for § RBNZ has ulmate responsibility in terms of access, maintaining their respecve links. membership, and overall liability. § ATM networks are connected via proprietary bilateral § RBNZ owns the closed user group AVP which makes up communicaon links that run between parcipang the members of HVCS. banks. § All HVCS parcipants must apply via Payments NZ for § Governance of ATMs falls under Payments NZ’s Consumer direct access to ESAS. Electronic Clearing System (CECS) Management § All HVCS parcipants must connect via SWIFT. Commiee. § § HVCS uses SWIFT messaging – mainly MT103, MT202, Domesc ATM transacons are seled each business day MT205. via the BECS system. § System costs for HVCS are not publically disclosed. § There is no common ATM ownership service or system. § In order to be able to clear and sele ATM transacons, § There are no overlay services defined for HVCS. parcipants must join CECS and Payments NZ’s ATM rules. § All parcipants are required to have two connecons to § ATM products and services are defined by individual SWIFT. ESAS has an alternave processing system in place operators. in the event of an ESAS failure. § ATM pricing is not publically disclosed. § There are no overlay services defined for ATMs. § Payments NZ defines a rule set, but liability, dispute resoluon procedures, and security measures are decided by individual operators.

BECS § The Bulk Electronic Clearing System (BECS) refers to the system used to exchange low-value bulk payment transacons, namely credit transfers and direct debits. § Payments NZ is the rule-maker and owner of the BECS system. § BECS uses the Selement Before Interchange (SBI) model, which involves seling all transacons before payment ﬁles are exchanged between banks. § SBI was launched in early 2012. SBI was an industry iniave, and was not a regulatory mandate (although it was supported by RBNZ). § Proposed members must apply to Payments NZ to join BECS. § Indirect parcipants are not obliged to follow Payments NZ rules because they do not technically access the system. § All BECS parcipants must connect via SWIFT. § Credit transfers and direct debits make up the majority of volume cleared in BECS. § BECS pricing is not publically disclosed. § There are no overlay services deﬁned for BECS. § Extensive procedures are spulated in the case of insolvency or a major operaonal disrupon.

HVCS BECS ATM networks Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Euro area 103 Payment market overview Highlights Market data (2014, millions) § The Euro area has at least two infrastructures for each payment type within scope. Credit transfers 17,810.0 § Two systems, TARGET2 & EURO1, are in place for high-value payments. These are owned and Direct debits 17,504.4 operated by the Eurosystem of central banks and EBA Clearing, respecvely. § EBA Clearing also operates STEP2, a pan-European system for low-value bulk payments. ATM 8,318.9 § The European payments council manages the schemes for SEPA low-value bulk payments. TARGET2 87.8 There are 22 clearing and selement mechanisms (CSMs) that operate under these schemes. EURO1 57.6 § Change in payments at a European level is driven almost exclusively by regulaon. Local developments, like changes in ownership, are oen driven by commercial interest. Cards 26,942.6 Governance & regulaon is mixed among pan-European, naonal, and local instuons. STEP2 SCT 3,791.1 § The EPC is currently working on a scheme for low-value real-me payments based on the SEPA STEP2 SDD 5142.6 Credit Transfer scheme. Populaon 336.5 Recent evoluon and drivers Bank concentraon nav TARGET2 and EURO1 are both pan-European high-value Changes in last 5 years rao (CR5) payment systems, while STEP2 is the only pan-European None Note: Payment volumes are for the Euro CSMs for low-value payments in Europe. All naonal and area. SEPA transacons outside the Euro Minor regional ACHs in SEPA (such as STET, ICBPI, Equens, etc.) are area are negligible. required to comply with SEPA standards for credit transfers Major Tendering & outsourcing and direct debits, but no clearing house other than STEP2 currently has pan-European reach. There is currently no real- Drivers of change Neither TARGET2 nor EURO1 outsource infrastructure provision. me infrastructure for SEPA (pan-European or naonal), nor Regulaon is there a SEPA ATM network. ATM systems are different for STEP2 outsources its infrastructure Commercial interest each SEPA country. ATM systems are different for each SEPA to SIA. Other SEPA CSMs outsource country. individually, if at all.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Central infrastructure overview 104 SEPA Central infrastructure provision Governance There is a clear separaon between scheme (SEPA formats Oversight of large-value payment systems is based on the and standards) and the provision of clearing and selement internaonally accepted Core Principles for Systemically services in SEPA. There is a single scheme for low-value bulk Important Payment Systems (SIPS), defined by the payments that is run by the EPC. Commiee on Payment and Selement Systems (CPSS) and There are mulple low-value clearing and selement adopted by the ECB’s Governing Council in 2013. SIPS should mechanisms (CSMs) in Europe. Originally these primarily comply with the ten Core Principles, which are universal served their domesc markets. With the implementaon of guidelines to encourage the design and operaon of safer the Single Euro Payments Area (SEPA) in August 2014, most and more efficient infrastructures worldwide. of these CSMs migrated to SEPA schemes. Others introduced The ECB Regulaon on Oversight Requirements for a new system (such as Belgium, which outsourced the Systemically Important Payment Systems implements the provision of CEC’s infrastructure to STET, a French CSM. CPSS (CPMI) – IOSCO Principles for Financial Market Some naonal clearing and selement systems closed and Infrastructures and applies to payment systems in the Euro their traffic moved to STEP2, the only pan-European low- area. On 21 August 2014, the ECB published the list of value bulk payment system. systems that fall under the SIPS Regulaon on its website: The STEP2 system began operang in April 2003 and was § STEP2 developed as the first pan-European automated clearing § TARGET2 house (PE-ACH) for bulk payments in euros, with a view toward enabling low-cost cross-border euro payments to be § EURO1 executed in compliance with Regulaon (EC) No 2560/2001 § CORE (operated by STET) on cross-border payments in euros. The STEP2 system migrated to SEPA standards and today handles SEPA credit No disncon is made for the applicaon of the regulaon transfers (SCT) and SEPA direct debits (SDD), as well as between high-value and low-value payment systems. If a similar pan-European instruments such as SEPA Card system is classified as a SIPS, it has to comply with the SIPS Clearing (SCC). Regulaon in its enrety.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Access and selement arrangements 105 Pan-European high-value and low-value bulk systems Technical access to payment systems Legend Type Name Indirect parcipants Non-bank PSPs Corporates Via direct parcipant High value TARGET2 Direct to High value EURO1 infrastructure No relaonship Low-value bulk STEP2 to infrastructure Not yet known Access and selement arrangements § Direct parcipants in TARGET2 hold their own RTGS accounts and § Indirect access in EURO1 (known as sub-parcipaon) is made have access to the Informaon and Control Module. All supervised possible via EBA Clearing’s STEP1 service, which is used by banks credit instuons within the European Economic Area (EEA) can that do not meet the strict access requirements for EURO1. STEP1 become direct parcipants. Indirect parcipants sele TARGET2 enables banks to directly send and receive payments to/from all payments via direct parcipants. Only credit instuons with parcipants and sub-parcipants in the EURO1/STEP1 services. regulated branches in the EEA are allowed to become indirect Payments sent and received by a sub-parcipant are included in parcipants. the posion of the parent bank and covered by the liquidity of § EURO1 rules disnguish between two types of parcipants, the parent bank. Sub-parcipants have the same service features namely EURO1 parcipants and pre-fund parcipants. EURO1 (cut-off mes, MT usage, etc.) as their parent banks. Reaching all parcipants must fulfill all admission criteria and parcipate in the bank parcipants is facilitated by the EURO1/STEP1 Directory, system’s loss-sharing arrangements. Pre-fund parcipants are not which assists the originang banks in idenfying the EURO1 and required to fulfil the financial admission criteria and can only have STEP1 banks through which the beneficiary banks can be reached. a posive posion in the system. The pre-fund parcipant status § Technical access to STEP2 is only available to direct parcipant in EURO1 is currently only available for sending and receiving banks; indirect parcipants connect to the system via direct payment messages for the purpose of selement of certain STEP2 parcipants. STEP2 has also established interoperability with 14 services. Central banks are eligible to be admied as pre-fund other SEPA CSMs to enhance reachability throughout Europe. parcipants.

TARGET2 EURO1 TARGET2 is the RTGS system owned and operated by the EURO1 is a privately-run, pan-European, high-value payment Eurosystem for processing high-value urgent Euro payments. system, owned and operated by EBA Clearing. The system Payments are processed on a connuous basis and seled seles same-day via a selement account opened with the with immediate finality. TARGET stands for Trans-European ECB in TARGET2. EURO1 is overseen by the ECB. Automated Real-me Gross Selement Express Transfer. The system is typically used for high-value payments (both TARGET2 is operated on a Single Shared Plaorm for domesc and cross-border), and offers parcipants the payments to and from all parcipang countries. TARGET 2 funconality of an RTGS system with mullateral net was developed to meet three main objecves: selement to provide an efficient use of liquidity. EURO1 is § Provide a safe and reliable mechanism for the selement based on a legal structure that creates a Single Obligaon of euro payments on an RTGS basis Structure (SOS) among parcipants. This means that at any § Increase the efficiency of inter-member state payments me on any given business day, each parcipant only has within the Euro area one single obligaon/claim towards the system as a whole, which is automacally adjusted every me a new payment § Serve the monetary policy of the Eurosystem that is sent or received by this parcipant is duly processed. TARGET2 is Europe’s most important payment system for Payment messages that would breach these limits at the high-value payments and processes a daily average of me they are sent are queued, which are revisited on a around 360,000 payments with a total value of roughly EUR regular basis to allow for the processing of the queued 2 trillion (GBP 1.4 trillion). About half of the payments in payment messages. terms of volume and nearly one-third in terms of value are To address potenal gridlock situaons, an algorithm allows submied via the Bundesbank, Germany’s central bank. the simultaneous booking of mulple payment messages from different parcipants.

STEP2 is a pan-European automated clearing house (PE-ACH) for § Two oponal night-me cycles: parcipaon is on a closed user retail payments in Euros, and is managed and operated by EBA group basis, i.e. any bank wishing to send or receive payments Clearing. STEP2 is fully compliant with EPC scheme rulebooks and during either or both of the oponal cycles has to register implementaon guidelines. separately for each oponal cycle. The service dates back to 1999 when EBA Clearing decided to § Ability to request addional cycles: any community interested in implement a retail payment system based on direct bank addional cycles may enquire about their implementaon in the parcipaon from all EU member states. The original STEP2 cross- STEP2 SCT service. border credit transfer (XCT) service was then migrated to SEPA The STEP2 SEPA direct debit services sele in two separate cycles: formats and standards. Since 1 August 2014, SEPA credit transfers (SCT) and SEPA direct debits (SDD) have replaced credit transfers § SDD Core selement takes place between 12:00 and 12:45 CET and direct debits in naonal formats inEeuro area countries. § SDD B2B selement takes place between 13:00 and 13:45 CET. The technical infrastructure for STEP2 is provided by SIA, an Italian payments processor, which has provided the central infrastructure for STEP2 since the incepon of the service. Precise contract lengths, terms, and pricing are not available to the public. STEP2 SCT provides the following clearing and selement cycle arrangements: § Five intraday cycles: parcipants are free to send payments for selement during any of these ﬁve cycles but must be ready to process incoming payments during each of them. § The sending cut-oﬀ of the last selement cycle in the day stands at 16:00 CET.

TARGET2 EURO1 STEP2 Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Belgium 109 Payment market overview Highlights Market data (2014, millions) § The ownership and operaon of Belgium’s payment systems features high levels of market consolidaon Credit transfers 1,366.4 and privazaon. § As a Euro area country, Belgium shares its RTGS and low-value bulk payment systems with other Euro area Direct debits 529.5 countries. Accordingly, the Eurosystem controls TARGET2, EBA Clearing controls EURO1, and the EPC sets ATM 360.5 rules for low-value payments. Clearing and selement for low-value payments is compeve. § The Naonal Bank of Belgium (NBB) and the Financial Services and Market Authority (FSMA) are in charge of High value 2.5 general regulaon and oversight of Belgium’s payment systems. § SEPA migraon has played a major role in system evoluon in Belgium, as has the integraon of EU-level Cards 1,502.2 rules and regulaons. Populaon 11.2 § The low-value bulk clearing system is owned and operated by CEC, which outsourced the operaon of the technical infrastructure to STET in 2013. Bank concentraon 93.2%

§ BCMC acts as the scheme manager for Belgium’s ATM and POS market. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing Clearing and selement in Belgium has transioned from Changes in last 5 years Belgium’s low-value bulk system, being centralized within the NBB toward a more open model None managed by CEC, was separated focused on conforming to SEPA regulaons. Implementaon from the Belgian central bank and of SEPA in Europe oﬀered the Belgian banking community – Minor then its operaons were and CEC in parcular – the opportunity to achieve discounts Major outsourced to the French CSM, by ulizing economies of scale by outsourcing the technical STET through a compeve tender processing of its bulk low-value clearing operaons to STET, Drivers of change in 2013. On the ATM side, BCMC, a a French company. The Belgian market for ATM and POS Regulaon private company, outsources processing has also undergone considerable consolidaon. infrastructure provision to Commercial interest Worldline (and SIX for its SEPA- switch).

The migraon to SEPA within Europe led the Belgian banking Ownership in Belgium’s payment systems community to move operaon of low-value payment systems out of the Naonal Bank of Belgium (NBB). CEC, the low-value bulk system, became a non-profit associaon and outsourced technical processing to STET. Outsourcing CEC’s technical infrastructure was based on the judgment that the original infrastructure could not handle the impending SEPA migraon or accommodate the development of faster processing or complimentary value-added services. High-value payments are offered by TARGET2 and EURO1, while selement of low-value payment systems occurs in TARGET2. Belgium’s ATM infrastructure is less centralized, with Bancontact/ Mister Cash (BCMC) acng as the central network and scheme operator, and Atos Worldline (Worldline) providing the technical infrastructure connecng the ATM/POS terminals to the network. One driver of change in the ATM market has been Belgium’s need to implement SEPA-compliant card payments. There had been a plan to move away from the BCMC scheme towards a new, SEPA-compliant scheme in the ATM/POS market. Turmoil in the wake of the financial crisis, however, has delayed such a move, which prompted BCMC to create its own SEPA-compliant scheme.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Access and selement arrangements 111 Belgium Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct LV Bulk CEC parcipant ATM BCMC Direct to infrastructure No relaonship to infrastructure Not yet known Access and selement arrangements § Any potenal PSP that meets CEC’s technical requirements can § Corporates do not have direct submission in Belgium, but be granted access to the system. There are two non-bank Isabel, a provider of corporate banking soluons in Belgium, indirect members to the CEC system that submit files directly to allows corporates to iniate payments via a range of banks the technical infrastructure: BCMC and Worldline. These two using a single network. Isabel is owned by 4 banks and has 25 enes are the only indirect parcipants in CEC that actually member banks. Isabel also owns Zoomit, a free Internet submit files directly, with all other indirect parcipants banking service applicaon. subming files via direct parcipants. Selement is the same § Any instuon that wants to have access to BCMC has to sign as with all other indirect members, with BCMC and Wordline an agreement and follow the rules that govern instuonal seling indirectly in TARGET2 via a direct member bank. accreditaon. BCMC does not prohibit network access to non- § According to an industry insider, CEC is open to other non-bank bank payment service providers. In pracce, only banks access PSPs having direct technical access as long as they have a the BCMC network. BCMC provides cerficates for many sponsoring bank support them for the specific services they different firms entering the market including issuers, acquirers, want to be included in. and a wide range of PSPs.

CEC BCMC § Low-value bulk clearing in Belgium takes place at CEC, with § BCMC is the ATM scheme operator and funcons as the central technical processing outsourced to STET. Final selement ATM network, with technical processing outsourced to Atos occurs at TARGET2. Worldline (Worldline). Worldline also operates an intra- § CEC is a not-for-profit industry associaon and operates on a processing switch for ATM transacons between two banks cost-recovery basis. that have outsourced their ATM processing to Worldline. § Membership is open to both direct and indirect parcipants. § BCMC and Worldline are both for-profit private companies. Two indirect parcipants access the clearing system via direct § ATMs in Belgium are regulated by the NBB and FSMA in the submission. same way that other payment infrastructures are. § SWIFT FileAct is used to send messages to the STET plaorm. § Banks must be members of the BCMC scheme to access ATM § STET’s CORE plaorm is believed to be flexible enough to switching services and must have a selement account at provide for addional products and services should CEC’s TARGET2 (or sele indirectly) in order to access the system. members decide they would like to develop them. § Atos Worldline manages technical connecons to the ATM § STET also provides a data exchange service that could be used network. in the future to provide overlay services. § Pricing for BCMC varies depending on volume. § CEC’s bylaws do not contain liability, solvency, or dispute § There are no overlay services in Belgium’s ATM market. resoluon policies. There are procedures in place to revoke a § Liability, solvency, and dispute resoluon issues in the ATM parcipant’s status in the clearing system, if necessary. market are handled according to CEC rules. § There is no evidence of any security issues affecng the CEC or § There are have been several issues regarding the reliability of STET system over the past few years. the ATM network in Belgium and the NBB and the Belgian Banker’s Associaon (Febelfin) are discussing how to handle these issues.

CEC BCMC Scheme governance Scheme governance Commercial Commercial Central bank mandated Central bank mandated Community consensus Community consensus

Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure

Products Products Bespoke bank services Bespoke bank services Community services Community services Mulple products Mulple products Single product Single product

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Germany 114 Payment market overview Highlights Market data (2014, millions) § Germany’s naonal payment systems are decentralized. Credit transfers 5,923.6 § As a Euro area country, Germany shares its RTGS and low-value bulk payment systems Direct debits 8,666.9 with other Euro area countries. Accordingly, the Eurosystem controls TARGET2, EBA Clearing controls EURO1, and the EPC sets rules for low-value payments. Clearing and ATM 2,897.8 selement for low-value payments is compeve. High value 44.4 (2013) § The majority of Germany’s low-value payments are cleared and seled via EBA Clearing’s STEP2 system. A minority are cleared via the Bundesbank’s RPS SEPA Clearer and a few Cards 3,335.4 are cleared bilaterally. Populaon 80.7 § Germany’s Deutsche Kreditwirtscha, an industry associaon, sets rules for ATM Bank concentraon 78.1% switching, but there is no central infrastructure. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing The primary driver of change in German payment systems in Changes in last 5 years Due to the lack of central the past 5 years has been the migraon to SEPA. The low- None infrastructures, there is no value bulk clearing schemes are managed by the European signiﬁcant tendering in the Payments Council. The ATM scheme is managed by Die Minor German payments market. Deutsche Kreditwirtscha (DK), an umbrella associaon of Major Historically, capve outsourcers banking associaons. These schemes are implemented by have provided processing services mulple CSMs and switches. For both low-value payments Drivers of change to the savings banks (Finanz and ATMs, praccal requirements mean that new market Regulaon Informak) and cooperave banks entrants and non-banks must ﬁnd a bank sponsor to join (Equens). payment systems. Innovaon in Germany occurs outside Commercial interest interbank payment schemes.

Ownership in Germany’s payment systems The market in Germany offers two widely used soluons for clearing and seling low-value payments. Seven large banks send and receive payments via EBA’s clearing’s STEP2 service. Most other banks send and receive via the Bundesbank’s RPS SEPA Clearer. The two CSMs have an agreement with one another that allows sending financial instuons to reach any other financial instuon through either CSM. In the course of migrang to SEPA, seven of the largest clearing banks in Germany agreed to disconnue the bilateral links that they previously operated for domesc clearing schemes. Instead, they agreed to use STEP2. A market insider reports that the decision to clear through STEP2 was taken for strategic reasons – the large banks wanted the efficiency of a single soluon for European payments, and did not want to connect to mulple infrastructures. Prior to SEPA, approximately 85% of payment were cleared bilaterally, and about 15% through the Bundesbank’s Retail Payment System. The service is generally used by smaller banks, and the Bundesbank sees part of its role in providing clearing and selement services as allowing smaller banks access to the payments market. The 85% of payments that were previously cleared bilaterally have now largely migrated to STEP2, while the Bundesbank’s share of volume has remained steady.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Access and selement arrangements 116 Germany Technical access to payment systems Legend Type Name Indirect parcipants Non-bank PSPs Corporates Via direct LV Bulk STEP2 parcipant ATM DK Direct to infrastructure No relaonship to infrastructure Not yet known Access and selement arrangements § Both direct and indirect parcipants can be members of the § Only banks that are members of the respecve banking EPC scheme, non-banks may also join the schemes. Only direct associaons can access ATM networks directly. Non-banks that parcipants can access the technical infrastructures in use in wish to connect to the networks must use a bank sponsor. Germany. § The concept of indirect parcipaon does not exist for ATMs in § Indirect parcipants submit payments via direct parcipants. Germany. For banks that do not operate their own ATM Technical access and selement occur via direct parcipants. processing infrastructure, comprehensive card processing and The data formats are rigorously standardized and have been for outsourcing services are available in the market for handling a long me in Germany. Indirect parcipants and corporate authorizaon and account management. These are commonly customers that use more the one bank oen use the same done by capve processors and are also available from the soware to prepare payment files. market on a commercial basis. All banks sele of their own § Corporate customers will oen sort their own payment files and accord using direct debits. submit to mulple banks using the same standards. Banks are chosen based on price and speed. § All banks in Germany are members of the girocard ATM and debit card scheme.

Low-value bulk systems ATM systems § The SEPA schemes for low-value payments are managed by the § The girocard ATM agreement of the Deutsche Kreditwirtscha EPC. (DK) is a system of rules implemented by four independently § The market in Germany offers two widely used soluons for owned and operated networks and switches. clearing and seling low-value payments. EBA Clearing’s STEP2 § There is no central infrastructure. The four ATM networks are service and the Deutsche Bundesbank’s RPS SEPA Clearer. connected by bilateral links. Selement is accomplished using Bilateral clearing is also used. direct debits. § Germany’s naonal infrastructure is owned and operated by its § The four networks do not compete with each other in any central bank, Deutsche Bundesbank. It clears about 14% of meaningful way. All are operated as capves of the banking SEPA payments originang from Germany. associaons whose members they also serve. § Indirect clearing and outsourcing of payment processing to § All banks in Germany are technically members of the scheme. capve processors in Germany is common, especially given the § Access to these networks is via the financial instuons that large number of small banks. are their members. § Connecvity to CSMs is achieved via SWIFT and EBICS, an § Indirect access to the technical infrastructure is common. internet-based connecvity standard. Telecommunicaons connecvity is highly standardized as § Interbank products and services are standardized. Overlay well. services include ecommerce payments but these are not § Products other than cash withdrawals and balance inquiries offered by all in the market. are developed by individual financial instuons and networks. § Liability and solvency maers are for individual CSMs. But all § Liability and solvency maers are handled by the low-value CSMS sele before outpung files to receiving banks to bulk clearings, because interbank ATM transacons are cleared migate selement risk. Dispute resoluon, security, and as direct debits. Dispute resoluon, security, and resilience are resilience are maers for individual CSMs, but they are not maers for individual ATM networks, but they are not differenated. differenated.

STEP2 ATM Scheme governance Scheme governance Commercial Commercial Central bank mandated Central bank mandated Community consensus Community consensus

Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure

Products Products Bespoke bank services Bespoke bank services Community services Community services Mulple products Mulple products Single product Single product

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Italy 119 Payment market overview Highlights Market data (2014, millions) § Italy’s payment system has both centralized and decentralized elements. Italy’s central bank and Credit transfers 1,347.2 the two domesc CSMs (ICBPI and SIA) play prominent roles in the payment system. Direct debits 624.3 § As a Euro area country, Italy shares its RTGS and low-value bulk payment systems with other Euro area countries. Accordingly, the Eurosystem controls TARGET2, EBA Clearing controls EURO1, and ATM 952.7 the EPC sets rules for low-value payments. Clearing and selement for low-value payments is compeve. High value 11.5 § Italy’s low-value payments are need via the BI-COMP system, a centralized neng system for Cards 2,034.0 EUR-denominated retail payments, operated by the Banca d’Italia. Selement occurs in TARGET2. § BI-COMP is divided into subsystems for paper and electronic clearing. These subsystems are made Populaon 60.4 up of low-value clearings operated by ICBPI and SIA. Bank concentraon 71.4%

§ Consorzio Bancomat owns the naonal ATM/POS scheme, seng rules and adming parcipants. rao (CR5)

Tendering & outsourcing Recent evoluon and drivers Changes in last 5 years The operaon of Italy’s naonal The primary driver of change in Italian payment systems in None network (RNI), is outsourced to the past 5 years has been the migraon to SEPA. BI-COMP SIA. ICBPI outsources operaon of was made interoperable with other systems so that it could Minor its clearing house and data center process cross-border SEPA CT and DD transacons. Some Major to Equens S.p.A., the Italian Italian banks have switched from their local ACH to STEP2, subsidiary of Equens SE. EBA although the majority of SCT and SDD transacons sll ﬂow Drivers of change Clearing’s STEP2 system has through the two domesc CSMs, ICBPI and SIA. outsourced its technical processing Regulaon to SIA. Commercial interest

Both SIA and ICBPI provide technical infrastructure as well as Ownership in Italy’s payment systems operate applicaon centers connecng parcipants to the retail clearings and processing payments. ICBPI has special relaonships with the cooperave banks via ICCREA. ICCREA is the central instute for cooperave banks and together with ICBPI constutes one CSM. Historically, ICBPI and SIA have competed for projects to build and operate infrastructure. The SIA group manages key services for the domesc Italian and European financial system. SIA developed the naonal interbank network (RNI) for the exchange of informaon between financial instuons. Today SIA manages the RNI infrastructure which connects Banca d’Italia with banks and other financial instuons. SIA is also the technological service provider for the implementaon and management of STEP2, the pan-European clearing house for low-value bulk payments. The ICBPI group operates the other domesc clearing house in Italy. ICBPI specializes in payment products and services to domesc and internaonal financial intermediaries. ICBPI and Equens established Equens Italia in 2008 as a 50/50 joint venture. As ICBPI’s infrastructure provider, Equens plays a prominent role in Italian . payments infrastructure provision. Equens operates ICBPI’s clearing house and data center for communicaon with the Naonal Interbank Network (RNI). In 2011, Equens Italia became a 100% subsidiary of Equens SE and the company has been renamed Equens S.p.A.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Access and selement arrangements 121 Italy Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct LV Bulk ICBPI/SIA parcipant ATM Bancomat Direct to infrastructure No relaonship to infrastructure Not yet known Access and selement arrangements § ICBPI and SIA have dual membership structures with both direct § Only direct parcipants access the technical infrastructure for and indirect parcipants. Indirect parcipants, by definion, do the Bancomat ATM network. In theory financial intermediaries not hold selement accounts at the central bank and access the and other payments instuons are allowed to access the ATM selement system through a direct member sponsor bank. networks, but no non-banks do. Indirect member banks are mostly small regional and local banks. These indirect members do not have the same access to services as direct members. This is due to technical limitaons such as cut-off mes. If the direct member has a cut-off me at 10:00, the indirect member needs to submit their data to the direct member earlier in order to give the direct member me to prepare its files in order to meet the cut-off me. Service level agreements are governed by bilateral agreements between the indirect and sponsor bank. Indirect parcipants cite the high fixed costs in respect to IT infrastructure as a barrier to becoming direct parcipants.

ICBPI/SIA Bancomat § The central bank owns, operates, and governs the BI-COMP § Consorzio Bancomat is the owner of the ATM scheme and neng system. responsible for scheme governance. § There are two commercially operated and governed CSMs, § ATMs use the RNI network and ISO 8583 format for ICBPI and SIA. authorizaon requests. § ICBPI has outsourced the provision of its technical § Applicaon centers run by ICBPI/ICCREA and SIA process infrastructure to Equens. SIA is the infrastructure provider for authorizaons. EBA Clearing’s STEP2 system. § Clearing and selement for ATM transacons use the low- § The Italian schemes follow EU & SEPA rules for payments value bulk channels from ICBPI and SIA. including membership, access, liability, solvency, and dispute § Italian ATMs support mulple products including bill payment resoluon. and mobile top-ups. § Indirect members access the clearings through direct member § Interchange fees are regulated by Bancomat in accordance sponsors. with EU standards. § Both ICBPI and SIA offer mulple clearing products and § No significant events effecng security and resilience have services. been recently reported. § Pricing for ICBPI and SIA are compeve, BI-COMP is based on cost recovery. § There are no overlay services for the system as a whole, both ICBPI and SIA are offering real-me P2P products that use SEPA CT for selement. § No significant events effecng security and resilience were recently reported.

ICBPI/SIA Bancomat Scheme governance Scheme governance Commercial Commercial Central bank mandated Central bank mandated Community consensus Community consensus

Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure

Products Products Bespoke bank services Bespoke bank services Community services Community services Mulple products Mulple products Single product Single product

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Singapore 124 Payment market overview Highlights Market data (2014, millions) § Three local banks dominate in Singapore’s consolidated banking market: DBS Bank, OCBC Credit transfers 40.6 Bank, and UOB. Direct debits 57.2 § The Monetary Authority of Singapore (MAS) oversees all payment systems recognized as Systemically Important Payments System (SIPS). This includes bulk low-value, RTGS, and ATM 229.4 real-me systems. High value 5.2 § The Singapore Clearing House Associaon (SCHA), chaired by MAS, operates the FAST and Cards 581.0 Interbank GIRO systems, while MAS operates the MEPS+ RTGS system. § Banking Computer Services Pte Ltd (BCS) provides the technical infrastructure for IBG and Populaon 5.4 FAST systems. BCS is a privately-owned company. Bank concentraon 97.9% § VocaLink provided a plaorm to BCS for the FAST system. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing Payment systems in Singapore have undergone major Changes in last 5 years The provision of infrastructure for developments in recent years, most notably the introducon None Singapore’s low-value bulk system, of the FAST real-me system, which went live in 2014 and Interbank GIRO, and the low-value currently has 19 members. There have been no major Minor real-me system, FAST, are both developments in the IBG system or the various ATM Major outsourced, though not tendered. networks over the past 5 years. The RTGS system operated BCS has the contract for both of by MAS underwent a signiﬁcant overhaul in 2006. MAS is Drivers of change these systems, and VocaLink exploring uses for alternave electronic payments and Regulaon provided the real-me plaorm for payment providers and established the FinTech & Innovaon the FAST system. Group to set policy and respond to to market developments Commercial interest in the FinTech sector.

Singapore’s RTGS system, MEPS+, is owned and operated by the Ownership in Singapore’s payment systems Monetary Authority of Singapore (MAS), and funcons as a system for high-value interbank transfers as well as the selement system for most low-value payment systems. The Singapore Clearing House Associaon (SCHA) provides clearing services for the low-value bulk system, Interbank GIRO (IBG), which seles in MEPS+. SCHA also oversees the Fast and Secure Transfers (FAST) real-me payment system, which went live in March 2014. Parcipaon in FAST is voluntary and currently has 19 bank members. The technical infrastructure for both IBG and FAST is provided by Banking Computer Services Pte Ltd (BCS), which is a privately-owned payments processor. Singapore lacks a centralized ATM infrastructure; instead, there are three main ATM networks in Singapore: the NETS network (used by OCBC and UOB), the DBS-POSB network, and the ATM5 network (used by 7 foreign banks). The provision of infrastructure in each of these networks varies. NETS provides the technical infrastructure for its ATM and EFTPOS networks, while ATM5 is operated by MasterCard. The DBS-POSB network is a proprietary ATM network originally developed by the Post Oﬃce Savings Bank (POSB), which was acquired by DBS Bank in 1998. DBS Bank was one of the founding members of NETS, and sll uses it for POS transacons.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Access and selement arrangements 126 Singapore Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct High value MEPS+ parcipant LV Bulk IBG Direct to infrastructure LV Real-me FAST No relaonship to infrastructure ATM Various Not yet known Access and selement arrangements § MEPS+ currently has 63 direct parcipants and 77 indirect § Access to FAST is only open to registered banks in Singapore. Of parcipants. Indirect parcipants clear and sele transacons in the 121 full members in the Associaon of Banks in Singapore MEPS+ via a direct member agent. All local banks in Singapore (ABS), only 19 are currently using the system, which began with are direct parcipants, along with a number of foreign banks, 8 parcipants in March 2014. According to one industry insider, whereas indirect parcipants are all foreign banks. Indirect increase in membership has been steady since the system’s parcipants are not required to hold a current account at MAS. launch as more banks see the benefits to end users that real- The agreement by which an indirect parcipant accesses the me payments can bring. There are no plans to make FAST system is agreed to on a bilateral basis with the selement mandatory for all Singapore banks. agent, with MAS providing limited service, allowing the indirect § Access to ATM networks is currently limited to direct banks. parcipant to transfer funds from their current account with Smaller banks or non-banks could theorecally join an ATM MAS. network and sele via a bank that holds a selement account at § Access to IBG is open to all authorized banks in Singapore. In MAS, but there is no evidence of any such enty accessing any 2001, IBG developed eGIRO, a browser-based system. eGIRO ATM network currently. Banks access ATM networks in capabilies were updated in 2008, forming eGIRO+, which accordance with technical requirements and scheme rules of enabled full STP of SCHA files. NETS or ATM5. All DBS ATMs are connected to the bank’s proprietary network.

MEPS+ ATM networks § MEPS+ is owned and operated by the Monetary Authority § The ATM market is highly decentralized, with three main of Singapore (MAS). ATM networks that are not interoperable. § MEPS+ processes and seles high-value payments and § MAS oversees ATM networks but is not an acve acts as the selement system for low-value payment regulator. systems. Transacons are irrevocable immediately § 2 of the 3 main ATM networks are bank-owned, with the following selement. third being wholly owned by MasterCard. § Selement accounts are held at MAS. § Membership in ATM networks is only open to banks. § MEPS+ is designated as a systemically important payment § ATM pricing is set on a cost-plus basis. system under the Payment Systems Oversight Act. § NETS is also used for POS transacons and covers 70% of § MEPS+ has both direct and indirect parcipants. Indirect POS transacons in Singapore. members access the system and sele via a direct § Common ATM services include cash withdrawals, balance member bank. inquiries, and bank transfers. There are no addional § MEPS+ is fully based on SWIFT standards. overlay services offered. § MAS regularly tests MEPS+ to protect against operaonal § Liability and solvency requirements differ by network. risks and uses processes such as two-factor Dispute resoluon procedures for NETS is the same as authencaon and one-me passwords to enhance those for IBG. security. § Security and resilience figures are not made public.

IBG FAST § Interbank GIRO (IBG) is a bulk low-value clearing system § FAST is a real-me low-value payment system that that processes credit transfers and direct debits. typically posts transacons within seconds. Selement Payments are seled once daily and are posted on a D+3 occurs twice daily at MEPS+. basis. § FAST is operated by the Singapore Clearing House § IBG is overseen and operated by the Singapore Clearing Associaon, which has outsourced infrastructure House Associaon (SCHA), which is chaired by MAS. provision to Banking Computer Services Ltd (BCS). Membership is open to all authorized banks in Singapore. § MAS insgated the development of FAST, with a group of § The technical infrastructure for IBG has been outsourced 8 commercial banks collaborang on use cases, business to BCS. requirements, and funconal specificaons. § IBG has a direct and indirect access model. Indirect § Parcipaon in FAST is voluntary. Current membership parcipants sele transacons via direct members. includes 19 banks. § IBG is designated as a systemically important payment § FAST uses ISO 20022 for messaging. system under the Payment Systems Oversight Act. § Connecvity soluons are provided by BCSIS. § Many banks use BCSIS soware to connect to IBG, § FAST is designated as a systemically important payment specifically the IS Bulk Payment product. system under the Payment Systems Oversight Act. § Parcipants who cannot meet their selement obligaons § The development of overlay services using the FAST for IBG can be suspended from the system by MAS. infrastructure has not become widespread. § Informaon on pricing, overlay services, and security are § Parcipant banks pay a transacon fee that is billed on a not made public. monthly basis. End users are priced at different rates. Consumers typically do not pay a fee for FAST transacons, while corporates are charged differently by each bank, with fees not exceeding SGD 10 (GBP 4.72).

MEPS+ IBG FAST ATM networks Scheme governance Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Sweden 130 Payment market overview Highlights Market data (2014, millions) § The ownership and operaon of Sweden’s payment systems are highly centralized. Credit transfers 957.0 § Sweden has individual infrastructures for each of its various payment systems, although Direct debits 323.0 Bankgirot plays a major role in several of them. § Payment systems in Sweden are regulated by the Swedish Financial Supervisory Authority ATM 216.0 along with the Swedish central bank, the Riksbank. High value 4.1 § Bankgirot operates three naonal payment schemes for clearing low-value bulk (2 Cards 2,619.9 schemes) and real-me payments in Sweden. It also facilitates selement for Bankomat. § Bankomat owns and operates the main ATM network, connecng and switching Populaon 9.69 transacons between parcipants. Several smaller networks operate non-bank owned Bank concentraon 94.0%

ATMs. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing Swedish payments have undergone major changes in the last Changes in last 5 years Bankgirot outsources part of its 5 years due to the development of the low-value real-me None processing and development to system BiR/PRT. This system, which was commercially VocaLink. The outsourcing of the developed by Bankgirot at the behest of bank members, has Minor Riksbank’s IT soware was enabled a variety of payment advancements, including a Major awarded by public tender to Evry mobile payment applicaon for P2P transacons called AB and a later project to Perago. SWISH, the reducon of legacy payment ﬂows in the low- Drivers of change value bulk system, and the current development of mobile- Regulaon based C2B and B2B transacons. Commercial interest

The Swedish payments community operates several central infrastructures, each focusing on a diﬀerent payment type, and Ownership in Sweden’s payment systems each with its own governance and ownership structure. The overlap among controlling organizaons is high. Sweden’s RTGS infrastructure is owned and operated by the Riksbank, Sweden’s central bank. It provides selement for RTGS payments and sets rules for those transacons. For low-value payments, Bankgirot (Bg), which is owned by 7 banks, sets scheme rules and provides the technical infrastructure for payment clearing and selement. The ATM network, Bankomat, is also owned by the largest 5 banks in Sweden and is a separate enty from Bankgirot. Bankomat is both the technical operator and the scheme owner of the ATM network. A number of projects to update the Bankgirot systems have recently been completed; most prominently, a new real-me system was added. This system, BiR/PRT, tendered the development of the mobile system called Swish. Sweden’s RTGS system recently underwent renovaon. The Riksbank completed three major projects in response to a network disturbance that occurred in May 2013.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Access and selement arrangements 132 Sweden Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct High value RIX parcipant LV Bulk DCL Direct to infrastructure LV Real-me BiR/PRT No relaonship to infrastructure ATM Bankomat Not yet known Access and selement arrangements § Only direct parcipants have a legal relaonship with the § There are currently 9 direct members and 1 indirect member in Riksbank pertaining to the RIX scheme. Indirect parcipants the BiR/PRT real-me system. Though not a policy, all 10 have no relaonship with the RIX scheme, instead they form parcipants are banks. All parcipants, both indirect and bilateral relaonships with sponsor banks. direct, can submit payment instrucons directly to the real- § There are three categories of Bankgirot parcipants that can me clearing system. Selement of indirect parcipants is access the clearing directly: direct parcipants, indirect (banks), accomplished through a sponsoring direct member’s account and corporaons. Indirect parcipants have direct technical at the Riksbank. All selement in the BiR/PRT system is access to the payment system infrastructure, subming prefunded, direct members allocate a poron of their payment instrucons directly to Bankgirot. All categories of prefunded collateral for the selement of indirect member parcipants directly access Bankgirot’s low-value bulk clearing obligaons. system, but only direct parcipants can directly access the § Access to the Bankomat ATM network is limited to its member selement system. To be a direct parcipant in the selement banks. All Bankomat member banks must access the switch system, members are required to hold a selement account using connecvity services provided by a single company, Evry. with the central bank. Indirect parcipants without Riksbank Other banks and non-banks can access other networks (e.g., accounts access the selement system via direct parcipants. Visa or MasterCard) based on their scheme access requirements.

RIX ATM networks § RIX is the real-me gross selement (RTGS) system in § There are mulple ATM networks in Sweden, the largest Sweden owned and operated by Sweden’s central bank, is operated by Bankomat. the Riksbank. § Bankomat sets it own scheme rules and operates a § All payments above SEK 500,000 (approx. GBP 39,000) are switch. processed in RIX. § Bankomat ATM transacons are cleared and seled once § Selement is affected immediately on a transacon-by- a day through Bankgirot. transacon basis. § Bankomat is owned and governed by the large Swedish § Funds are transferred electronically between selement banks. accounts held at the Riksbank. § Bankomat supports cash related products, e.g. § Membership is limited to Swedish banks, regulated withdrawals and deposits, and account informaon. financial instuons, clearing organizaons, and the § No overlay services are available in the system. naonal debt office. § Bankomat sets pricing for interchange and membership § Only direct members access the system using SWIFT or a fees. proprietary network. Indirect members access via direct § No recent events affecng security and resilience of the members. ATM system have been reported. § The RIX system supports credit transfers and has no overlay services. § Pricing encompasses an annual fee, per transacon fees, and separate fees to SWIFT. § In its 2013 risk assessment, the Riksbank reported that there were three disrupons affecng the formal availability of the RIX system in 2013, the most serious of which meant that RIX did not funcon for 360 minutes.

Bankgirot/DCL BiR/PRT § There are two low-value bulk clearing systems in Sweden, § BiR/PRT is a real-me credit transfer system owned and Bankgirot and DCL. operated by Bankgirot. § The SBA sets the rules for DCL; Bankgirot for the § BiR/PRT processes connually on a 24/7 basis. Bankgirot clearing. Bankgirot is a private company owned § The Swedish BiR/PRT infrastructure uses 2-layer by the 7 largest banks in Sweden. architecture. Bankgirot BiR/PRT is the interbank § Bankgirot operates both systems, with selement infrastructure. The first commercial applicaon accessing occurring at the Riksbank. the real-me system, Swish, is a P2P mobile plaorm § Membership is open to regulated banks, financial developed as a collaboraon between Swedish banks. instuons, and non-bank PSPs in Sweden. § 10 banks, 9 direct and 1 indirect, are currently § Indirect parcipants submit payment instrucons directly parcipang in BiR/PRT. to the clearings. § Indirect parcipants submit payment instrucons directly § Financial instuons connect to Bankgirot using a variety to the clearing system. of SWIFT services. § Currently one overlay service, Swish, a mobile P2P § Both DCL and Bankgirot support mulple products. No applicaon uses the system. overlay services are currently offered. § Selement is prefunded and occurs in real me, thereby § In 2014, availability in the Bankgirot system was 99.8%. eliminang selement risk. § Availability in the Bankgirot system was 99.8% in 2014.

RIX DCL BiR/PRT Bankomat Scheme governance Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal United Kingdom 136 Payment market overview Highlights Market data (2014, millions) § The UK’s payment system infrastructure is centralized and includes unique features. Credit transfers 3,270.1 § Member-owned scheme companies (or scheme companies limited by guarantee), with greatly overlapping ownership, set rules for the clearing and switching of transacons Direct debits 3672.0 § VocaLink provides the technical infrastructure for Bacs, Faster Payments, and LINK. The Bank of ATM 2,830.0 England operates the infrastructure for CHAPS. § Indirect parcipants can access the technical infrastructure for Bacs and LINK directly. Plans are in High value 36.5 place for allowing this for Faster Payments as well. CHAPS requires access via a direct parcipant. Cards 13,010.0 § Direct membership in Bacs, Faster Payments, and CHAPS is only open to banks and building sociees. Membership in the LINK scheme is also open to non-banks. Parcipants in all 4 systems Populaon 64.5 must either hold a selement account at the BOE or sele via a direct member. § HM Treasury has designated 8 systems to be regulated by the Payment Systems Regulator (PSR), Bank concentraon 76.7% including all 4 systems examined in this report. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing The past decade has seen major changes in payment system Changes in last 5 years There are signiﬁcant instances of outsourcing and tendering in 3 of development (with the introducon of the Faster Payments None system), the regulatory regime for payment systems, the 4 UK’s payments systems in payment service providers, and payment system parcipants Minor scope for this study. VocaLink (establishment of FCA, PRA, and PSR), selement (move to Major provides the infrastructure for pre-funded selement for Bacs and Faster Payments), and Bacs, Faster Payments, and LINK. value-added services (Current Account Switch Service, Paym, Drivers of change The contract for Faster Payments was tendered, while Bacs was not. and Zapp, which has yet to go live). Changes to UK payment Regulaon systems have come from a mix of regulatory mandate and VocaLink also owns the LINK commercial interest. Commercial interest scheme.

The UK has separate scheme companies for each of its major Ownership in UK payment systems payment systems. Each of the scheme companies are supported ﬁnancially by their respecve members. In the case of the LINK ATM network, VocaLink owns the scheme company and provides the infrastructure. VocaLink& While CHAPS Co sets the rules for the RTGS system, the technical Link& infrastructure is operated by the Bank of England. Payment instrucons are sent and received via SWIFT. CHAPS& BACS& Bacs Payment Schemes Limited (BPSL) and Faster Payments Scheme Limited (FPSL) set rules for low-value bulk clearing and Faster&Payments& low-value real-me clearing respecvely. Both schemes have a BOE&/&SWIFT& single contract on behalf of all scheme members for a central infrastructure. There are no regular tenders for provision of services to BPSL and the contract has no precise expiry date. For FPSL, the previous contract was tendered by Chaps Co and then novated to the new FPSL enty. VocaLink is the only company that has ever provided the central infrastructure for both schemes. Commercial& Central&bank& Industry&u?lity&

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal Access and selement arrangements 138 United Kingdom Technical access to payment systems Type Name Indirect parcipants Non-bank PSPs Corporates Legend Via direct High value CHAPS parcipant LV Bulk Bacs Direct to infrastructure LV Real-me Faster Payments No relaonship to infrastructure ATM LINK Not yet known

Access and selement arrangements § There are currently 22 direct parcipants in CHAPS. Indirect § All parcipants in Bacs, whether direct or indirect, have access parcipants use a CHAPS direct parcipant to send and receive to the technical infrastructure operated by VocaLink. The chief CHAPS payments on their behalf. According to CHAPS, about a difference is whether they sele on their own behalf (direct quarter of the volume of payments to indirect parcipants are members) or whether they sele via a direct member (indirect the UK domesc leg of correspondent banking payments from or agency bank). financial instuons overseas. There are currently over 5,000 § Under its new access model, Faster Payments allows two types indirect parcipants in CHAPS. Indirect parcipants have a of indirect members: Direct Agency, which allows direct contractual arrangement with a direct parcipant and they do connecon to the infrastructure, and Indirect Agency, which not communicate directly with CHAPS Co about normal day-to- does not. Both types rely on a direct member for selement. day business. § All members of the LINK scheme connect directly to the technical infrastructure, regardless of their selement arrangements or regulatory classificaon.

CHAPS LINK § CHAPS is owned by CHAPS Clearing Company Limited § The LINK network is a centralized switch that connects (CHAPS Co). The Bank of England’s Market Services nearly every bank and non-bank ATM operator and card Division is responsible for technical operaon of the RTGS issuer in the UK. system. § LINK is an unincorporated, non-profit members § As a recognized payment system, CHAPS is overseen by associaon owned by its members. It outsources the the Bank of England. operaon of the technical infrastructure to VocaLink. § Access to the CHAPS Scheme as a direct parcipant is § LINK switches around 70% of total ATM transacons in limited to financial instuons. Indirect parcipants use a the UK. The remainder are intrabank transacons that are CHAPS direct parcipant to send and receive CHAPS not sent to the LINK central infrastructure. payments on their behalf. § All LINK parcipants must either hold a selement § CHAPS offers a single product: same-day, secure, and account at the BoE or sele via another member of the guaranteed credit transfers that cater to both consumers scheme. and corporates. § The Bank of England has not designated LINK as a § Disputed transacons are not possible within CHAPS. All systemically important payment system. transacons are final and irrevocable once seled. § LINK complies with the European Payments Council’s § CHAPS is considered a systemically important payment SEPA Cards Framework (SCF). system and follows the guidelines issued by BIS-IOSCO. § At least 97% of ATMs in the UK do not surcharge end § CHAPS and the BOE RTGS report 100% up me for the users. years 2010-2013. There was a (significant) outage in the BOE’s RTGS system on 20 October 2014.

Bacs Faster Payments § Bacs Payment Scheme Limited (BPSL) is a not-for-proﬁt § The Faster Payments scheme is managed by Faster corporaon (limited by guarantee) that is guaranteed and Payments Scheme Ltd (FPSL), which sets the rules for funded by its direct members. Faster Payments and outsources the operaon of the § Access to the Bacs scheme is open to banks and central infrastructure to VocaLink. corporates. § The core product is a near real-me credit transfer, that § BPSL outsources the operaon of technical infrastructure typically takes only a few seconds to post (for direct of the scheme to VocaLink. parcipants). Net selement is executed three mes § The core Bacs products are direct credit and direct debit daily. payments. A number of other services (e.g., account § At least two overlay products, the Paym proxy database switching, Biller Update Service, Cash ISA Service) are also and Zapp, a POS service soon to be oﬀered by VocaLink provided by the Bacs scheme. rely on the Faster Payments plaorm. § BPSL operang costs are recovered through a § Faster Payments parcipants must cover the costs of combinaon of membership fees and income through operang the system. The amount an individual member other services. pays is based on their proporon of total payment § Selement for Bacs and Faster Payments moved from a volume in the system. collateralized loss-sharing agreement to full pre-funding of all parcipant liabilies with cash held in each parcipant’s reserve account at the BOE. § As a designated systemically important payment system, BPSL assesses annually its compliance with CPMI-IOSCO guidelines.

CHAPS Bacs Faster Payments LINK Scheme governance Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus Community consensus

Infrastructure access for Infrastructure access for Infrastructure access for Infrastructure access for indirect parcipants indirect parcipants indirect parcipants indirect parcipants

Via direct parcipant Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure Direct to infrastructure

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal United States 142 Payment market overview Highlights Market data (2014, millions) § The United States has a decentralized payments infrastructure. Credit transfers 8,763.0 § The Federal Reserve is generally responsible for financial system oversight, including Direct debits 14,237.0 payments, but regulaon does not reside with one industry body and is very limited. § The Clearing House and the Federal Reserve both operate high and low-value systems. ATM 5,804.4 (2012) § NACHA sets rules to govern the ACH network. § Thousands of banks parcipate directly in payment systems and governance structures. High value 244.4 § Most payment product innovaon occurs outside of banks. Cards 84,220.5 § TCH is developing a real-me payment system for its members and the Fed and NACHA (2013) are developing rules for faster processing of low-value bulk payments, specifically same- Populaon 316.4 day ACH selement. Bank concentraon 47.0% § There is no central infrastructure for ATMs in the United States. rao (CR5)

Recent evoluon and drivers Tendering & outsourcing The US payments industry is evolving but not in unison. Changes in last 5 years Due to the lack of a central Low-value real-me payments are a key focus. NACHA None adopted a rule for for seling ACH payments 3x daily, a infrastructure, there is no major increase in speed compared to current selement Minor signiﬁcant tendering in the US me. The Fed began a public consultaon on the future of Major payments market. US payment systems. This consultaon addresses the Outsourcing on commercial terms potenal need for faster selement. The Clearing House Drivers of change is common, parcularly for small- and its member banks are building a real-me payment Regulaon and medium-sized banks. system, now in early development, expected to go live in 2017. The system is driven by commercial interest, and will Commercial interest oﬀer customers a faster alternave to bulk clearing.

None of the payment systems in the United States has a single Ownership in US payment systems central infrastructure. All have mulple operators. The US banking market and infrastructure is decentralized and includes thousands of banks. The Federal Reserve provides high and low-value clearing and selement services to all depository instuons regardless of size and volume of transacons processed. The Clearing House (cooperavely-owned & commercial) provides high and low- value services primarily to large banks. NACHA sets rules and standards for low-value bulk electronic payments. Most services oﬀered by the Fed are not tendered but developed in-house due to security concerns. As a private organizaon, The Clearing House is not obligated to use an open tender process and awards contracts on a purely commercial basis. The at least 12 ATM networks in the United States are highly compeve. There is no central infrastructure for ATMs, but rather a plethora of compeng ATM networks and a patchwork of agreements to switch transacons bilaterally among them.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Access and selement arrangements 144 United States Technical access to payment systems Type Name Indirect parcipants Non-bank P2Ps Corporates Legend Via direct High value Fedwire/CHIPS parcipant LV Bulk FedACH/EPN Direct to infrastructure LV Real-me nap No relaonship to infrastructure ATM Various Not yet known Access and selement arrangements § There are approximately 7,300 Fedwire parcipants. All banking technical access—a category known as correspondent access. instuons in the United States have direct access to selement The Federal Reserve offers direct connecon to all members but accounts at the Federal Reserve. Some choose, however, to clear a large majority of bank members (approx. 8,000) are medium indirectly, and are known as correspondents. to small size banks who outsource their data processing, § There are approximately 50 parcipants in CHIPS. In addion to payment processing, and IT to third party data aggregators. In the 24 direct members, there are an addional 26 correspondent essence, these are direct parcipants with indirect technical members, who do not have technical access to CHIPS but ulize a access. direct member for clearing and selement. Each direct § ATM access requirements are decided on a network by network parcipant must have sufficient liquidity to sponsor a basis but some elements are common. All networks require non- correspondent and must be able to manage its operaons in a bank members to access the ATM network via a direct bank way that will not incur operaonal risk. member. Bank sponsorship of non-bank PSPs is a common § There are 5,000 direct members in FedACH and 450 in EPN. The occurrence in the market. Non-banks must agree to abide by two ACH operators in the United States differ in their definion ATM network rules in order to join or, in the case of bank of indirect parcipaon. The Clearing House claims to have no sponsorship, the sponsoring bank must agree to assume all indirect parcipants, but provides indirect parcipaon without liability for the non-bank member.

Fedwire/ CHIPS ATM networks § There are two high-value payment systems in the United States: § ATM networks in the United States are highly compeve Fedwire, owned and operated by the Federal Reserve, and CHIPS, and decentralized. owned and operated by The Clearing House. Fedwire is a § There is no central infrastructure for ATMs. There are at convenonal RTGS system while CHIPS uses a proprietary neng least 12 separate regional and naonal networks in the algorithm to offset transacons throughout the day. United States. § Each system sets it own rules and access criteria. All financial § The size of these networks run from very small to quasi- instuons in the US are eligible to use Fedwire, and nearly 8,000 naonal level. do. § Access requirements, products, and services are all § Indirect parcipants (called correspondents) connect via direct determined by the individual networks, which are run by parcipants or third party processors and sele via direct technology companies, banks, card networks, and parcipants. All US banks are entled to a selement account at individual operators. the Federal Reserve, although many smaller banks choose to § Regulaon is provided by the Federal Reserve and the sele via direct parcipants. Consumer Finance Protecon Bureau (CFPB). § There are no addional overlay services offered by The Clearing § The networks compete with other on price, reliability, and House or Fedwire for high-value payments. bundling of ATM services with other processing services. § Fedwire and CHIPS charge fees to both the originang instuon and receiving instuon as well as annual fees. § There are two key differenators between the two services. The Fed provides intraday overdras for Fedwire parcipants to reduce liquidity queuing delays. CHIPS features a neng algorithm, which saves cost and liquidity without sacrificing finality and security. § There are no marked differences between the two systems regarding security and resilience.

FedACH/EPN § The Federal Reserve’s FedACH and The Clearing House’s Electronic Payments Network (EPN) are the two operators for ACH payments in the United States. § Both operators process payments under rules set by NACHA, a non-profit associaon. There is lile difference between pricing and quality of service between the two operators. § All financial instuons can access the ACH network directly through FedACH, although some choose to do so as indirect members (correspondents) and others use third-party processors. § EPN access is split into two categories of parcipants: direct parcipants and correspondents. Correspondents and indirect parcipants ulize direct parcipants and do not have technical access. § NACHA defines a number of oponal overlay services, including bill presentment and payment, ecommerce payments, and others. § Overlay services are offered by non banks and are specifically targeted to reach POS and P2P customer segments. These services tend to run over debit or credit card networks. § In no case do members of either FedACH or EPN share liability for potenal losses incurred from the insolvency of another member of the clearing. § Both FedACH and EPN have conngency plans in place and fully funconal back-up centers.

RTGS/ Chips & FedWire Bulk/ EPN & FedACH ATM networks Scheme governance Scheme governance Scheme governance Commercial Commercial Commercial Central bank mandated Central bank mandated Central bank mandated Community consensus Community consensus Community consensus

Access for indirect Access for indirect Access for indirect parcipants parcipants parcipants

Via direct parcipant Via direct parcipant Via direct parcipant

Direct to infrastructure Direct to infrastructure Direct to infrastructure

Account switching services Credit transfer (CT) Indirect parcipant Rules or technologies to assist customers in A payment originated by a debtor and “pushed” A PSP that seles on the books of a direct switching account balances, direct debit to a creditor. parcipant. authorizaons, and standing orders from one Direct debit (DD) Infrastructure PSP to another. A payment originated by a creditor and The infrastructure provider is the enty that Account-masking services “pulled” from a debtor. provides the technical infrastructure for a Systems that allow receivers of payments, Direct debit mandate payment system. It is common for payment typically corporates, to register for a virtual A legal authorizaon for an originator to debit a system operators to outsource the provision of account number that can be associated with any debtor’s account using a direct debit. infrastructure to another party. account. Direct parcipants Interoperability ACH PSPs that sele on their own behalf in the Agreements between clearing houses that allow Automated Clearing House payment system. payments to be delivered to banks that are outside of its circle of parcipants. B2B Euro area IOSCO Bank-to-bank Member states of the European Union whose B2C currency is the euro. Internaonal Organizaon Of Securies Commissions Bank-to-corporate Gross selement KYC Bulk payment Selement of the gross amount of payment Know your customer Credit transfers or direct debits submied in messages or files. files. A single file can contain hundreds or IAP Net selement thousands of individual payments. Indirect Access Provider Selement of the net amount due as the result of many payment mergers or files. Corporate Indirect input/output NFC A business or public sector organizaon that Direct submission from indirect banks wishes to parcipate in the payments scheme. (correspondents) to the infrastructure. Near field communicaon, typically associated with mobile payments. Non-bank PSP A Payment Service Provider that is not a licensed bank. Not-for-profit organizaon Not-for-profit: Organizaons such as associaons or nominal companies whose owners are also their customers, making them © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal de facto non-profits.

Deﬁnions 150

Operator Person-to-person payment System that either requires or typically post to The operator is the enty tasked with Payment scheme receivers’ accounts within minutes or hours of implemenng scheme rules and developing A set of rules, technical standards, and payment iniaon. These systems process payments infrastructure. Operators may be implementaon guidelines for processing payments and exchange ﬁles in real-me. central banks, commercial businesses or not- payments uniformly within a given community. Scheme for-proﬁt organizaons. Payment system direct A set of rules that governs a payment system. parcipants have a legal relaonship with the These rules are oen developed by a scheme

operator, indirect parcipants may or may not. company whose members may include banks, Order of operaons central banks, regulators, non-bank PSPs, The order in which selement, posng, and Payment system soware vendors, and corporates. output occur in a given system. The totality of the set of rules for clearing Selement frequency payments, seling payments, and the technical Overlay services The frequency with which the system seles infrastructure for processing them. Products and services defined as overlay and outputs data. PSP services in this report are services that offer significant added funconality and to all or most Payment Services Provider Real-me posng payment system parcipants in a parcular country or region. They must rely on underlying Funds are posted to a beneficiary’s account in Selement method payment systems for operaon. less than one minute aer payment iniaon. Output Systems sele transacons mullaterally or Real-me selement bilaterally, in net or gross amounts. Funds The step in the payment process where Real-me selement accomplishes selement payment messages or files are outpued to the are transferred on accounts held at a within a few seconds aer a payment is commercial or central bank. receiving PSP. Can take place before or aer iniated. It can occur independently of when a Standing order selement. payment is posted. A recurring credit. P2P Same-day system Third-party direct input/output Direct submission from third-party processors to the infrastructure. Third-party processor A company contracted by a PSP to carry out some part of the payment transacon management, Time of posng to beneficiary’s account © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Time spulated by the system by which transacons must be posted to the beneficiary’s account. Value-added services Addional services provided by a clearing house, somemes closely related to clearing (e.g., roung table maintenance), community services (e.g., eInvoicing for all), or services customized to banks.

Contents 151

This engagement proceeded in three phases: collecng data through research and interviews, organizing data by producing the country profiles, and analyzing the data with the help of proprietary frameworks to create the comparave analysis. The first phase relied on a structured research plan that included extensive research from internal and external sources, as well as over 50 execuve interviews with senior-level contacts in each country in scope. Our experienced analyst team ensured the quality of the informaon and produced the country profiles. These profiles enabled the comparave analysis, which involved comprehensive benchmarking and the use of our proprietary features index to draw out similaries and differences between markets and systems, examine possible correlaons between systems, and compare these results with payment systems in the United Kingdom.

Extensive desk research of Lipis Advisors internal Structured research plan primary and secondary informaon database sources

Global network of senior- Thorough fact-checking Experienced analyst team level contacts

Comprehensive 50+ execuve interviews Proprietary features index benchmarking

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Collecng the data 153 Desk research, internal database, and execuve interviews keys to project Ensuring data quality Execuve interviews The research process began by detailing the informaon The Lipis Advisors execuve interview methodology has been required by the PSR for this engagement, with a focus on craed to provide depth and insight into payment system details related to ownership and access, operaonal details of operaons and trends. The interviews rely on our global payment systems, communicaon between central network of in-country experts and decision makers holding infrastructures and payment service providers, and indicators senior level posions at banks, payment processors, regulatory of quality and innovaon. agencies, central bankers, payment associaons, and soware providers. Aer detailing the researchrequirements, Lipis Advisors compiled the relevant data from our internal database, which At the outset of the interview process, Lipis Advisors compiles a features detailed informaon on payment systems in over 50 list of contacts and develops a generic interview guide covering markets. We then benchmarked this data to the requirements the informaon needed. Before each individual interview, the list to determine where we would need to find new informaon interview guide is customized based on the interviewee, the and/or update exisng informaon. organizaon they work for, and the type of informaon needed. The interview itself takes the form of a dialogue or The process of collecng new informaon was completed using discussion via telephone or in person between the interviewee desk research and execuve interviews. The desk research and an experienced senior consultant, it is not meant to be a involved invesgang primary sources (such as regulaons and scripted queson-and-answer session. Follow ups are operang guides) and secondary sources (such as exisng completed via email, but somemes a second interview is research documents and conference presentaons). arranged. The desk research enabled the Lipis Advisors team to compile Over 50 execuve interviews were completed with senior-level quantave data (such as volume and value figures), regulatory stakeholders in each country in scope, covering nearly every requirements, and operaonal details for systems in scope. This individual payment system. All interviewee responses have enabled the research team to meet some of the research been anonymized in the report, with neither the interviewee requirements. This data was supplemented with informaon nor their organizaon named. Informaon deemed polically from execuve interviews in order to gain a complete picture of or commercially sensive has not been published. each system in scope.

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Organizing the data 154 Research and analysis Structured research plan and data integrity Payment system typologies Before collecng the informaon needed for the report, the Lipis Advisors created payment system typologies that were research team developed a structured research plan to applied to each country and payment system in scope. The determine what informaon is needed, where to find it, who purpose of the typologies is two-fold: to help structure the needs to be interviewed, and how long each step will take. thousands of data points that make up the country profiles and to enable cross tabulaons used in the comparave analysis. As the informaon was collected from our internal database, extensive desk research, and execuve interviews, senior team The typologies are based on Lipis Advisors’ proprietary members checked to ensure the integrity of the data. scorecard framework, which enables comparisons between payment systems with differing levels of funconality. Some of § Desk research was collected from primary sources and the typologies focused on enre markets, while others focused some secondary sources and was checked against these on individual payment systems within a given market. sources (as well as with interview contacts if needed) to guarantee that the facts in the document are correct. Country-wide typologies include: § Interviewees were also asked to provide sources and public § Changes in the last 5 years and drivers of change documents wherever possible. System-specific typologies cover: The seniority of our interview contacts (typically execuve-level § Scheme governance or at the supervisor level in a parcular department), coupled with our extensive research process and source material helped § Access to scheme and access to technical infrastructures ensure the accuracy of our data. § Products and services Where issues were disputed and public sources could not be A more detailed explanaon of the typologies can be found on found, we consulted interview contacts for confirmaon. If a the next page. parcular issue or fact could not be confirmed, it was not included in the report.

Country-speciﬁc Changes in last 5 years Issues considered major changes Direct parcipants in a payment None include the introducon of a new System-speciﬁc system always have direct access to payment system or data standard, infrastructures. In cases where Minor changes made to selement Infrastructure access for indirect parcipants (banks, non- Major method or selement guarantees, indirect parcipants banks, or corporates) have access to or the overhaul of a legacy payment a payment scheme, a disncon is Via direct parcipant Drivers of change system. It is important to note here made between whether or not they Regulaon that regulaon and commercial Direct to infrastructure access the technical infrastructure interest are not mutually exclusive via a direct parcipant or if these Commercial interest drivers of change. enes connect directly to the technical infrastructure.

Even within a single country, the The payment systems in scope vary governance of different payment System-specific in terms of the richness and System-specific system schemes may vary. Products leanness of funconality offered by Scheme governance Community consensus represents a the central infrastructure. Lean Bespoke bank services Commercial collaborave approach to systems tend to offer a single governance that includes both Community services product (such as low-value bulk Central bank mandated commercial and central bank/ Mulple products electronic payments), while richer Community consensus government parcipaon. systems may also offer community Single product services (such as account switching) or bespoke bank services (such as back-office processing).

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Analyzing the data 156 Features scorecard in detail What was measured… … and how it was counted All systems analyzed in the study are included on a country-by- Aer filling out the scorecard for each of the 13 countries in country basis. scope, weights were added to the individual categories in order Each system was ranked on the richness of funconality scale to demonstrate their overall importance to the payments market and the level of innovaon occurring in that area. These based on the type of services it offers ranging from low to weights are the same across all countries. medium to high. Four addional country-wide system features were included Services considered of “low” importance include: high-value that are indicave of the overall level of funconality within a (due to a lack of innovaon), and DD mandate management; country’s payment systems. “medium” importance included LV bulk, ATM switch, indirect parcipant & corporate access, and non-payment messaging; For countries that have mulple infrastructures for a single “high” importance included LV RT and account switching & payments system (such as low-value bulk in the USA or high- masking. value payments in the Euro area), the scores indicate the richest funconality available to the market as a whole. These weights (1 for low, 2 for medium, and 3 for high) were then mulplied by the corresponding score for each category (1 We recognize an inherent bias to the methodology toward for low, 2 for medium, and 3 for high) to come up with a score features in LV bulk systems, as these systems typically have the for that category. These category scores were then added greatest diversity of funconality. In order to limit this bias, we together to arrive at a country score, which was then used to have added addional categories specific to other types of broadly compare all countries in scope. systems and weighted each category to arrive at a more holisc features score for each market. We then grouped the countries into 4 groups based on their scores. Please see the next page for details of the categories and their weighngs.

Lean Rich

How many products does the system oﬀer? One? Many? Or High-value Low bespoke products for individual parcipants?

How many products does the system oﬀer? One? Many? Or Bulk LV Medium bespoke products for individual parcipants?

Does the system oﬀer direct debits? With or without mandate Bulk LV direct debits scheme management? High

How many products does the system oﬀer? One? Many? Or Real-me LV bespoke products for individual parcipants? Medium What types of products does the system oﬀer? Just withdrawals ATM switching and balance enquiries? Overlay services? Or bespoke products for High individual parcipants? Does the system provide automated account switching or account Account switching and masking number masking services for some payment types? A Low comprehensive service of one type? Or both?

Weight

© 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and confidenal Analyzing the data 158 Access models, scheme membership & indirect parcipaon What was measured… … and how it was analyzed Three access models were examined in regards to direct and § Access models were depicted as disnct network topologies indirect parcipant access across all countries in scope. These for each system type. Data was then aggregated across network topologies encompass the collecve systems, i.e. high- system type and across countries to reveal similaries and value, low-value bulk, low-value real-me, and ATM switches. differences. Topologies examined are as follows: § Scheme membership and the degree of indirect parcipaon Infrastructure centric model—All direct and indirect within a system was analyzed in the same graph. These bar parcipants connect directly to a technical infrastructure. charts are split down the middle, where the top half Direct parcipant centric model—Indirect parcipants connect represents the degree of scheme membership and the to the infrastructure through a sponsor (direct parcipant). boom half represents the degree of indirect parcipaon Mul-network centric model—Mulple networks connect on a country by country basis for each type of system in parcipants to each other, either bilaterally or through a scope, i.e. all high-value systems are examined, then all low- central switch. value bulk systems, and so on. § Meaningful examples were highlighted and explained in Scheme membership criteria and indirect parcipaon was also detail. analyzed through document review and through interviews with experts in individual markets and systems. Individual responses have been aggregated by system type and presented along with key findings. Where there is more than one access model in a market, the most open form of access is reported.

Infrastructure-centric model Direct parcipant-centric model Mul-network model

IP IP DP DP IP DP Net. DP DP Net. IP IP DP DP IP CI DP CI CI IP DP IP IP IP DP Net. DP DP Net. IP IP IP DP

An instuon that An instuon that A business or public sector A Payment Service directly submits submits payments to organizaon that wishes to Provider that is not a payments to the RTGS the RTGS infrastructure parcipate in the payments licensed bank. infrastructure. via a direct parcipant. scheme. Aggregated scheme Indirect Membership in scheme Direct parcipants Non-bank PSPs membership Details who parcipants Corporates 5 informaon. can join the Membership in In this case, scheme. 8 scheme more than a Indirect third of Indirect parcipant access schemes Describes parcipant access to to infrastructure allow indirect how indirect infrastructure parcipants parcipants 3 to join. submit Via direct Indirect parcipants have direct 10 payments to parcipant submission clearing system. Indirect parcipants access via a direct Indirect parcipants submit parcipant, subming their payment ﬁles to Aggregated indirect parcipant their sponsoring instuon. The sponsor their payment instrucons directly. Selement occurs via a access informaon provides liquidity from their selement account. Indirect parcipants must pay for this access. direct parcipant to the infrastructure. © 2015, Lipis Advisors GmbH. All rights reserved. Proprietary and conﬁdenal