Trends and Innovations in Payments AFTE - conference Gerhard - PowerPoint PPT Presentation

Trends and Innovations in Payments AFTE - conference Gerhard Bystricky, Head of Product Management Payments Markus Straußfeld, Head of Cash Management Sales Paris, 27.02.2017

Agenda • Trends in Payments 1 • Regulatory Topics 2 • New Payment Products 3 • Innovation in Payments 4 2 UniCredit Bank AG

Agenda • Trends in Payments 1 • Regulatory Topics 2 • New Payment Products 3 • Innovations in Payments 4 3 UniCredit Bank AG

The Transaction-Business is more important than ever Trends in Payments 1 2 3 4 The Transaction Business is still an attractive, big market with further growth potential 1 • $ 411 Billion non-cash transactions* New markets are growing stronger – there are still national differences 2 • Mature markets will grow moderate, emerging markets will grow significant • Differentiation is seen in the digitalization level, Bank infrastructure and the mix of payment methods Growth rate in whole sale is stronger than in retail 3 • Growth in whole sale is expected stronger in the next years • +6 % CAGR („Compound Annual Growth Rate“) regarding volume/value of whole sale business Substitution of cash into non-cash transactions is developing rapidly • Behavour is changing – cash payments will be substituted by non-cash payments 4 • Increase of electronic payments at the expense of paperbased transactions 4 *) Source: BCG Global Payment Report UniCredit Bank AG

5 major trends impacting the transaction business Trends • Non-cash transactions volumes are growing strong - 8,9 % to 373,3 billion Market • moderate growth in the future for mature markets 6% – strong growth for emerging market growth (up to 16 %) • Market is heavily impacted by regulatory and compliance initiatives Regulatory topics • Major topics are PSD II, Financial Sanctions, KYC • Digitalization is increasing and is changing the payment behavior Digitalization • Mobile payment methods are increasing – but slow adoption in the corporate environment • New players are entering in the payment market New competitors • Fintechs but also technology companies like Apple/Google • New technology drives changes – e.g. Blockchain, Internet of Things (IOT) Technology • Digitalization is changing the client behavior and expectations Source: Deutsche Bundesbank – Zahlungsverhalten in Deutschland 2014 5 UniCredit Bank AG

Agenda • Trends in Payments 1 • Regulatory Topics 2 • New Payment Products 3 • Innovations in Payments 4 6

Survey of EPC* Payments – Regulatory Topics Survey Which Initiatives will have the greatest impact on the European Payments market? 8 % 12 % PSD II 48 % Cards – Interchange fee Results SecuRe Pay 12 % Bank Authority EBA European Central Bank 20 % *Source EPC: http://www.europeanpaymentscouncil.eu/index.cfm/newsletter/polls/ 7 UniCredit Bank AG

PSD II regulation defines 3 main requirements that will have significant impact 1 2 3 4 Payments – Regulatory Topics PSD II and RTS Summary  PSD II (Payment Service Directive II) was published at 13th of January 16 and needs to be implemented 2 years later. The focus is on electronic payments, Directive alternative channels and non-bank payments.  EBA (European Banking Authority) is mandated to develop the Regulatory Technical Standards (RTS)  PSD II  Access-to-Accounts: Banks will have to allow TPP's http://eur-lex.europa.eu/legal- (third party providers) access to their accounts content/EN/TXT/?uri=CELEX:32015L2366  Secure Customer Authentication: Payment Service  RTS – Regulatory technical standards Require Providers have to implement stronger Authentication - strong customer authentication methods and security measures ments - secure communication  Rules & Regulations: Banks revise terms and conditions to improve consumer rights and https://www.eba.europa.eu/regulation-and- policy/payment-services-and-electronic-money/regulatory- transparency and need to comply with new regulations technical-standards-on-strong-customer-authentication- on payments and-secure-communication-under-psd2 8 UniCredit Bank AG

Agenda Trends in Payments 1 Regulatory Topics 2 New Payment Products 3 Virtual accounts Payment Initiation & Reporting Innovations in Payments 4 9

Virtual Accounting / COBO /POBO /ROBO 1 2 3 4 • New Payment ccounts threads today example improvements using VA • simplify account structure and maintenance large # of bank accounts • • reduce physical # of accounts and trx costs immense admnistration and formal • todos , e.g. • no need for Cash Pooling account opening and • maintenance, documentation • centralised account management eBanking administration • • reduce documentation needs Cash Pooling • • increase matching rate increased # of transactions e.g. to • organise cash pooling • improve reconciliation /handling of rejects and returns low matching rates • 10 UniCredit Bank AG

Agenda Trends in payments 1 Payments – Regulatory aspects 2 New payment products 3 Virtual accounts Payment Initiation & Reporting Innovations in Payments 4 11

Payment Initiation and Reporting – ISO20022 1 2 3 4 SEPA-Credit Transfer Status pain.002 Credit- Transfer Intern. & FX-Zahlung advice note MT103 camt.052 pain.001 Urgent Payments account statement Target2 camt.053 credit notification Direct- SEPA-Direct Debit camt.054 Debit Core & B2B pain.008 Price report camt.086 Recall Answer Recall SEPA-Recall/Reversal camt.029 camt.055 12 UniCredit Bank AG

Usage of ISO20022 – payment initiation • Payment Initiation: - Mulitbank standard exists • ISO20022 is used for the payment initiation – mainly on SEPA credit transfers and Direct Debits; national flavor based on local standard – but compatible to EPC format • Moreover it's used for initiation of International Payments – based on CGI format German Trends • Support Services: Recall based on camt.055; feedback message if recall was successful based on • camt.029 – multibank-standard from November 2017 on 13

Usage of ISO20022 – reporting • Status-Reporting – positive and negative status reporting on file and transaction level • Account Information and Advice note reporting – approx. 10 % of corporates are using it; the vast majority is still using MT formats • Credit/Debit Notification File – camt.054: used by Big billers for separate processing – especially German for r-messages Trends • Bank Billing Services BSB (camt.086) – optional standard defined; mainly used by multi-national clients 14

Agenda • Trends in payments 1 • Payments – Regulatory aspects 2 • New Payment-Products 3 • Innovations in Payments 4 • Instant Payment • Blockchain 15

Instant Payments – in a nutshell 1 2 3 4 Instant Payments How will SCT Inst transactions work? Source: http://www.europeanpaymentscouncil.eu/index.cfm/about-epc/epc-news/start-of-the-public-consultation-for-first-pan-european-scheme-providing-customers-with-euro-instant-credit- transfers/ 16 UniCredit Bank AG

Instant Payment can trigger new use cases for all customer segments with diversified revenue opportunities 1 2 3 4 Instant Payments P2P P2B B2P B2B Who Consumer-to-Consumer Consumer-to-Business Business-to-Person Business-to-Business Use case Reimburse another Replacing cash and Payroll for short-term Urgent payments to • • • • person checks workers suppliers/pay on delivery Money transfer (via the Payments e-commerce Aggregate payments Cash management/treasury • • • • mobile phone number, Payment of services (bulk) Payment of invoices • • e-mail address or provided at home/pay High-value payments High-value payments • • account number), gift, on delivery Claim payments Financial market • • pocket money Payment of invoices Time-relevant insurance • • International Payments of bills last services • • remittances minute Cost sharing Charity payments • • Channel 17 UniCredit Bank AG

Outlook - Timeline and Evolution of Instant Payments 1 2 3 4 Instant Payments EPC – European Payment Council: • SCTinst Rulebook & Implementation Guidelines – published in November 2016 • Participation process - Adherence was started • Go Live: SCTinst – 20. November 2017 • Outlook about the evolution of Instant Payments in the different channels Channel Year P2P Smartphone (APP-based) 2017 / 2018 Online-Banking – Instant in addition to current standard 2017 / 2018 eCommerce-Integration 2018 / 2019 Initiation by ERP-System 2019 Usage at Point of sale 2020 UniCredit Bank AG 18

Agenda • Trends in Payments 1 • Regulatory Topics – PSD II 2 • New Payment Products 3 • Innovations in Payments 4 • Instant Payment • Blockchain 19

Main Blockchain Use-cases & Advantages 1 2 3 4 Payment Innovations - Blockchain Advantages:  Cross border payments Payments Speed • instantaneous  FX Settlement Settlement Removes Costs • no intermediary Risk reduction • Trade  Letters of Credit or Guarantee (i.e., smart contracts) Fraud/Cyber crime Finance Trust increase • record keeping  KYC verification improvement Identity UniCredit Bank AG