Get set Changes to the payments business

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1 Get Set for SEPA

2 Get set for SEPA The move towards a Single Euro Payments Area (SEPA) has been at the top of the agenda for banking technologists and strategists for much of this decade. With a number of key compliance deadlines now looming there are real opportunities for organizations that are prepared for this huge transition. But what is SEPA and how do you ensure that your organization is primed to take advantage of everything it promises? SEPA is a European fi nancial infrastructure initiative that involves the creation of a system in which all electronic payments are considered domestic and where differences between national and intra-european cross-border payments no longer exist. It is the natural next step for a region where the majority of nations have already embraced a common single currency. Within the EU s 32 member states, consumers and companies will be able to make and receive payments in euros locally or across borders governed by the same basic regulations and with the guarantee of the same rights and obligations. SEPA will eliminate the difference between local and cross-border euro payments including credit transfers, direct debits and card payments. And as national schemes migrate to SEPA there will be signifi cant consequences for organizations, which will have to upgrade their existing payments system or implement a new strategic solution. For banks, basic compliance will not be enough because competitors with a coherent SEPA strategy will be in a better position to offer attractive, value-added services to the market and with lower processing costs. It is a ground-breaking move, transforming the payments landscape into one that is fi tter, leaner and better suited to the needs of the 21st century. But only those organizations that have embraced SEPA will be in a position to fully exploit the new regime. Changes to the payments business Implementation of and migration to SEPA will have a signifi cant impact on existing payment instruments, standards, operations and infrastructures. So far, the majority of investment,

3 resource and management effort has centered on the compliancy side of payment processing. As a result, banks have not been able to improve the existing payment services they offer customers. This is a key area in which Tieto can help its clients. And the biggest changes that SEPA will introduce to the banking and the payments sector in general are still to come, with national payment instruments, schemes and infrastructures in all euro countries needing to migrate to the regime over the next four years. This will have a huge impact on how banks operate, with some deciding to outsource many tasks to a payments processing partner or a bureau to boost effi ciency, but retaining a payments middle offi ce layer on top. This approach will enable them to harness the cost effi ciencies and expertise that a truly great pan-european outsource partner can deliver. Others may choose to insource payment processing to create a strategic opportunity to grow their business. Here, their investment in compliance should provide them with the fl exibility to develop and offer value-added services to the banks that choose to use them to handle their payments processing. With the upcoming migration of national payment schemes, the biggest impact of SEPA for banks is yet to come.

4 Whether banks opt for an outsource or insource strategy, it is a decision they should make only after they have assessed the practical, strategic and contextual implications of such a move. They need to fully understand their clients needs in order to provide the value-added services which allow them to differentiate themselves in the market and explore new revenue streams. Are you ready for the switch? The fi nancial sector has been preparing for SEPA for some time. Banks started their implementation projects in 2003 and the intra-bank infrastructure has been up and running since January The migration of national payment schemes to SEPA will have a strong impact on banks operating models and systems architecture. The switch means that banks will have to make substantial investment in their payment front-, back- and mid-offi ce systems and processes. Tieto believes that by outsourcing their interbank processing, banks can shift their investment focus from the back offi ce to the parts of their business that directly affect quality of service and customer experience. Clearing and Settlement Mechanisms (CSMs) will also evolve with a range of fi rms competing to offer CSM services for SEPA payments. This marks a massive change for banks, which will be able to choose between CSMs to process domestic payments and will no longer be bound to use their national Automated Clearing House (ACH). Outsourcing of interbank processing puts a bank in a position to shift their focus to generate new revenue streams and increase market share. Tieto ready to help you exploit SEPA Tieto has enabled more than 100 Nordic banks to meet SEPA deadlines through the implementation of our Tieto Payment Suite. The system supports the processing of two-way SEPA credit transfers which are compliant with the EPC SCT Rulebook 4.0. It enables the automatic receipt and processing of instructions from customer-to-bank (PAIN) and from bank-to-bank (PACS) exchanged under EBA/ PSP regulations. With its latest extension, Tieto Payment Suite also supports SEPA Direct Debit (DD) debtor bank and creditor bank processing that complies with the latest EPC Rulebooks for SEPA Core 4.0 as well as B2B 2.0 SEPA DD. The engine covers EBA STEP2 SEPA DD services via EBA STEP2 at a debtor and creditor bank Core and B2B schemes.

5 Payment Suite express is optimised for agency banks to consolidate payment processing and migrate to SEPA with maximum mitigation of risks. Regardless of your business focus, Tieto has a SEPA solution for you. The enterprise version of Tieto Payment Suite is a comprehensive solution that enables end-to-end processing of all payment types including high-value domestic and international payments. Tieto also offers a lite version: Payment Suite express (PSX) aimed at agency banks that want to outsource the interbank processing of their payments to a Payment Service Provider (PSP). PSX can help them with their immediate need to comply with SEPA DD, and it can be extended to process other payment types as required. This enables agency banks to build on the investment they have made in a SEPA DD solution from software licences and integration with other bank systems to establishing a reliable deployment environment to become their consolidated platform for all their future payment processing needs. SEPA supports the customer with more detailed information about payments and could even become a platform for developing new services, especially for the corporate market. Tieto Payment Suite includes the Payment Manager module, which enables the provision of real-time services through multiple channels. The module helps banks address their existing payments limitations by delivering new sources of revenue without the high price tag of re-engineering their payments back offi ce. This component-based product comprises Payment Instruction Manager, which supports Straight Through Processing (STP); Product Manager, which provides fi nancial and performancerelated metrics to help support the payments business; Customer Manager, which supports customer set-up and self-administration; and Information Manager, which supports real-time access to payment events and track-and-trace options. Tieto Payment Suite is the ideal solution to help European banks replace their legacy domestic payment systems when they migrate to SEPA over the next four years.

6 Tieto is a professional service company providing IT, R&D and consulting services. With approximately experts, we are among the leading IT service companies in Northern Europe and the global leader in selected segments. We specialize in areas where we have the deepest understanding of our customers businesses and needs. Our superior customer centricity and Nordic expertise set us apart from our competitors. Tieto Corporation Financial Services financial.services@tieto.com