E U R O PAY
I n t e r n a t i o n a l
E U R O PAY
I n t e r n a t i o n a l
Multi-Currency
Programme Solution
Multi-Currency Programme Solution

Central Acquisition (CA) Programme.

Cross-Border (X-Border) Acquiring Programme.

Mail Order Telephone Order (MO/TO) Programme.

Central Issuing Programme.

Global Key Account Support.

Corporate Payment Programme Solutions (Acquiring &
Issuing).

Dynamic Currency Conversion at the Point-of-Sale (DCC).

Master-Merchants & e-Commerce Acquiring.

Third Party Multi-Currency Processing.
E U R O PAY
I n t e r n a t i o n a l
Europay’s
Central Acquisition
Program
Subjects

Europay’s CA program specifications.

Interchange.

Multi-Currency technique.

Strategic options for consideration.

Costing & Business model.

Central Issuing.
E U R O PAY
I n t e r n a t i o n a l
The Product
What is Central Acquisition ?
Central Acquisition is the ‘central collection
and processing’ of transactions acquired in
more than 2 European countries
(or Globally), by one Member organization on
behalf of an International merchant.
What is Central Acquisition ?

Central Acquisition represents a ‘shift’ of
transaction processing from domestic to
International processing environments.

Processing modules that are impacted includes:
Transaction processing, network switching, multicurrency, risk detection, multi-lingual & integrated
cash management.
What is Central Acquisition ?
Europay Member ’s
Processing Centre
Merchant
Merchant ’s Central
Merchant
Processing Centre
Merchant
Merchant
Major rules changes to CA program

Any merchant can be acquired by a registered
CA in any of the below named EPI country.
Andorra, Austria, Belgium, Channel Islands,
Cyprus , Denmark, Finland, France, Germany,
Gibraltar, Greece, Iceland, Rep of Ireland, Isle of
Man, Italy, Liechtenstein, Luxembourg, Malta,
Monaco, the Netherlands, Norway, Portugal,
San Marino, Spain, Sweden, Switzerland, Turkey,
the UK & Vatican City.
Major rules changes to CA program

Each merchant must still be declared to EPI via
the CA application.

For all other EPI markets not above-named,
only merchants that are present in more than 2
countries and have a central network will be
eligible for the EPI CA program.
Which merchants categories & regions qualify
for Central Acquisition?
Merchant
categories
Permitted regions as
of Jan 1, 2000
International Airlines
All Europay &
masterCard regions
All International
Merchants
All Europay
regions
CA Rules applied to Non-Physical merchants

Rules applicable to any merchants that is
organized in a manner that warrants CA is
subject to CA rules.

Acquirers can acquirer e-comm trxs from all
merchants located in the Area of Use mentioned
in their product license .
CA Rules applied to Non-Physical merchants

A Merchant’s location is determined by the
address stated in the merchant agreement
which it has signed with the acquirer (PBS).

Acquirers also have the right to acquirer ecomm trxs. that reflect sales to cardholders
residing in their area-of-use.
CENTRAL ACQUISITION
Generic Network Topology
Specific to Airlines
other brand
TRAVEL AGENCIES
AIRLINE
other brand
Switching
CENTRAL RESERVATION
SYSTEM
Member
Acquirer
BSP-BANK
SETTELMENT PLAN
Airline Transactions Registration
Your Country
Regional
office
MasterCard traffic
Bi-lateral Agreements
Europay
International
Regional
office
other brand
National European
Acquirers for
Authorization
Waterloo - Belgium
Regional
office
Specific to Car Rental, Hotel , Ferry &
International Retail (oil, MO/TO) companies
Global
accessibility
via INET
What are some of the advantages?

Single agreement & contract with one Member.

Opportunity to negotiate bilateral interchange and
preferential merchant fees.

Standardization in POS and in procedures
regionally and globally.
Advantages.

Centralization of expertise at one centre
(Centres of Excellence).

Opportunity to optimize economies-of-scale.

Opportunity to upgrade and automate
processes.
Advantages.

Interface with merchants pan-Europe or global
reservation system.

Opportunity to build a State-of-Art Management
Information System.

Central Acquiring reduces float and currency
exposure in transaction processing.
Advantages.

Clearing cycles are speedier.

Multi-currency processing in tandem with
treasury management functionality.

One system interface lessens possibility of
Fraud.

Over time-horizon, clear cost reduction !
The Central Acquisition Product Mix
Value-added spin-off services

Multi-Lingual call center facilities.

Integrated & advisory cash management facilities.

Management Information system [detailed].

Central network administration.

These USP’s command higher Merchant
Discount Fees.
E U R O PAY
I n t e r n a t i o n a l
What are the [current]
Requirements?

Central Acquisition license.

Operational procedures.

Merchant criteria:

Must be a compatible international merchant.

Operational in more than 2 countries.

Central processing & accounting system.

For additional information please refer to the
Product Guide.
Likely Changes to CA program rules


Qualifying Merchant Criteria will go.

Merchant must have established presence in
more than 3 markets.

Merchant must have central network system.
New application procedures (simplified) & new
geographic areas for consideration.
Likely Changes to CA program rules

Will be similar to Visa’s X-Border program.

Member Licensing & merchant application fees
will not change.

Date for the above TBD (subject to EPI Board
approval).
Application procedure

Application form (per merchant). Duly completed.

Copy of latest annual report.

Bilateral agreements can be made with an
issuing organization.

Contact your regional office for more assistance.
E U R O PAY
I n t e r n a t i o n a l
The Central
Acquiring & X-Border
Formulae
What is the CA / X-Border Formulae ?



A Centrally Acquired transaction can follow 4
identified pathways.
These transactions pathways have direct
impact on transaction processing and in the
application of the correct interchange fee (either
domestic, intra or inter-regional interchange
fees).
The fees and other rules (including rules per
card type), must be implemented within
Europay’s / MasterCard’s system.
CA Formulae
1.CENTRAL ACQUIRED (INTRA-EUROPEAN TRANSACTIONS)
Example of CA Trxs pathway
Member
EKS


Merchant location
Spanish merchant

Issuer
Card issued
by UK bank
The central acquirer must pay the issuer all declared (and
implemented) domestic or inter / intra-European interchange fees
CA Formulae
2.CENTRAL ACQUIRED (DOMESTIC TRANSACTIONS)
Example of CA Trxs pathway
CA
EKS




Merchant location
Spanish merchant
=
Issuer
Card issued
by Spanish bank
The central acquirer must pay the issuer domestic tariffs
As these transactions are flagged domestic ‘centrally acquired
transactions’, no assessment fee will be levied on volume shifted
Central Acquisition activity provides a truly (100%) incremental
revenue opportunity to EPI as these transactions are now being
shifted via EPSNet.
CA Formulae
3.CENTRAL ACQUIRED (DOMESTIC TRANSACTIONS)
Where EPI are under contract to processes domestic transactions for local acquirers & issuers.
Example of CA Trxs pathway
CA
EKS



Merchant location
Italian merchant
Hungarian merchant
Polish merchant
Russian merchant
=
Issuer
Card issued by Italian bank
Card issued by Hungarian bank
Card issued by Polish bank
Card issued by Russian bank
CA trxs are re-routed via ECCSS. There is a clear shift in processing
fees & tariffs as EPI already are contracted to process domestic
acquired traffic for the respective issuers.
CA’s must pay intra-European tariff, while local issuers will pay the
negotiated EPI ‘domestic tariff’. For domestic centrally acquired ’trxs,
must ensure that assessment fee is not levied on volume shifted.
CA Formulae
4.CENTRAL ACQUIRED (INTER-REGIONAL TRANSACTIONS)
Where either the merchant or Issuer is non-European based
(i.e. central acquisition in MCI territories).
Example of CA Trxs pathway
CA
EKS


Merchant location
Mexican merchant

Issuer
Card issued by Mexican bank
To ensure that the correct intra-regional / domestic rules are
respected, the central acquirer should pay domestic fees.
CA Formulae
Central Acquiring transactions pathway
1. Central acquired (intra-European transactions)
Projected percentage of transaction volume
into ECCSS
August 1999
By 2002
By 2005
10%
10%
10%
No incremental revenue to EPI
2. Central acquired (domestic transactions) where
EPI isnot contracted to undertake processing.
66%
3. Central acquired (domestic transaction) where
EPI, under contract, processes domestic
transactions for local issuers and acquirers.
20%
4. Central acquired (inter-regional transactions)
where either the acquirer or the issuer is nonEuropean based.
4%
TOTAL VOLUME
100%
62%
58%
Incremental revenue to EPI from issuers &
acquirers
24%
28%
Incremental revenue from Central Acquirers only.
Transparent for the issuers that will continue to pay
the agreed domestic tarif
4%
4%
This area is currently being discussed with MCI.
Hence, revenue projection is yet to be forecast
100%
100%
E U R O PAY
I n t e r n a t i o n a l
Multi - Currency
Concept
Multi - Currency

Multi to Single Currency transaction acquiring & processing
Euro €
US $
HK $
YEN ¥
F francs
Peseta
Aus $
Can $
AUTHORISATION ALWAYS IN THE CARD
ISSUER / TRANSACTION CURRENCY
CLEARING IN SINGLE-CURRENCY FORMAT
MULTI-CURRENCY & CONVERSION FACILITIES
PRIMARY, SECONDARY & FORCED CURRENCY TO BANKS
NZ $
Multi - Currency

Single to Multi-Currency Transaction Acquiring & Processing
US $
AUTHORISATION ALWAYS IN THE CARD ISSUER / TRANSACTION CURRENCY
Euro €
Rand
HK $
YEN ¥
Can $
F francs
Peseta
Aus $
NZ $
CLEARING IN MULTI-CURRENCY FORMAT
MULTI-CURRENCY & CONVERSION FACILITIES
PRIMARY, SECONDARY AND FORCED CURRENCY TO BANKS
Multi - Currency

Truly Multi-Currency Transaction Acquiring & Processing
Euro €
US $
HK $
YEN ¥
F francs
Peseta
Aus $
NZ $
Can $
AUTHORISATION ALWAYS IN THE CARD ISSUER / TRANSACTION CURRENCY
Euro €
US $
HK $
YEN ¥
F francs
Peseta
Aus $
Can $
NZ $
CLEARING IN MULTI-CURRENCY FORMAT
MULTI-CURRENCY & CONVERSION FACILITIES
PRIMARY, SECONDARY & FORCED CURRENCY TO BANKS
E U R O PAY
I n t e r n a t i o n a l
Interchange
Categorization of transactions
As an important element of central
acquisition, please note the following.
Domestic transactions
Cardholder using a
German - issued card
Merchant's
Central
Processing
Centre
Merchant
GERMANY
Intra-regional transactions
Cardholder using an
Italian - issued card
Merchant's
Central
Processing
Centre
Merchant
GERMANY
Inter-regional transactions
Cardholder using a
Non - European issued card
Merchant's
Central
Processing
Centre
Merchant
GERMANY
Product Development activity






Project (Phase 1 ended with release 99.1).
Phase 2 began Sept 2000.
(To encompass international Maestro & Ecommerce).
MO/TO vs. X-border vs. Central Acquisition.
Product Differentiation.
End of exclusivity.
New Rules (domestic rules, penalties & fines).
MIS.
Activities Central Acquisition Unit 2000 - 2001

Central Acquisition.

CA Projects.

(Phase 2 / Debit & MCI Project, e-Comm.).

MO/TO.

Acceptance in Corporate Card.

3rd party Processing / Acceptance.

Maestro Acceptance Development.

Member Relationship.
E U R O PAY
I n t e r n a t i o n a l
Currencies
used in ECCSS
Clearing & Settlement
Definition of Currencies
Transaction Currency
Authorization Currency
Issuer Currency
Reconciliation Currency
Cardholder Billing Currency
Payment Currencies (Settlement Currencies)
Primary
Secondary
Forced
Authorization Currency
Currency in which the transaction is Authorized
100
110
Cardholder Billing Currency
Authorization:
Conversion from Transaction Currency to
Cardholder Billing Currency (Issuer Currency)
100
110
Reconciliation Currency
The currency in which batches are transferred
from the Clearing to the settlement
Reconciliation
Currency
Clearing
Settlement
Payment Currency

Member’s account currency.

Currency used to calculate Buy & Sell Orders.

Members choose their own Payment Currency.
Payment Currencies
Primary Currency
default payment currency of member.
Settlement Currency
Payment Currencies
Secondary Currencies.
To prevent currency conversion from reconciliation
currency to payment currency.
Payment Currencies
Forced Currencies.
Specific relationship between a function type
(issuer or acquirer), a batch type,
a reconciliation currency and a payment currency.
Currencies in ECCSS (intra)
Presentment
ACQUIRER
Presentment
ISSUER
Clearing
Trxs CCY
=
Rec. CCY
Trans. CCY
=
Rec. CCY
Rec. CCY
Settlement
Payment Currency
Payment Currency
E U R O PAY
I n t e r n a t i o n a l
Strategic Options
STRATEGIC OPTIONS FOR CONSIDERATION

Do nothing.

Full outsourcing all non-domestic trxs. to 3rd party
processor.

Partial outsourcing of related activities.

Form strategic alliance with other capable issuers
& acquirers.

Undertake full multi-currency implementation
within the Front & Back office systems of BNP.
OPTION 1
DO NOTHING

International transaction acquiring is not the core business.

Profit margins in the international acquiring business is too slim
to justify entering this area.

None or little support from senior management & Board, to
undertake the re-engineering of business (vertically &
horizontally).

International trxs. acquiring & processing costs versus Danish
domestic processing cost are too expensive.

No international staff to run this business (multi-lingual facilities
and chargeback units). Permanent staff too expensive.
OPTION 2
FULL OUTSOURCING TO 3RD PARTY

Contract the services of a neutral 3rd party processor to
acquirer and process all non-domestic Danish trxs.

Additional auxiliary services will be also out-sourced (call
center, merchant helpdesk, voice authorization etc).

Outsourcing costs will be prohibitive for making clear profits.

Option can be used to justify the retention of the key corporate
accounts for PBS.

Corporate relationship can be jeopardized and lost directly to
the contracted 3rd party.

Transactions will be acquired and processed by capable
transaction processing (neutral) players.
OPTION 3
PARTIAL OUTSOURCING TO 3RD PARTY

PBS will retain some of the additional auxiliary services (Frontoffice activity).

Core multi-currency transaction processing will be also outsourced (call center, merchant helpdesk, cash management
etc.

All domestic (I.e. Danish) traffic will be processed by PBS

Quality issues. Risk of introducing various service levels in the
overall product.

Difficult to manage centrally, all related activities.

Center of Excellence will be difficult to to create.
OPTION 4
FORM STRATEGIC ALLIANCE

Formation of strategic alliance with other Banks.


Create synergies & optimize economic scales.
Formation of strategic alliance with other European acquiring
bank.

Create synergies & optimize economic scales.

Benefit from the shared investment spend.

Risk is created in losing Corporate clients to strategic partner.

Dependency is created on other partner banks to service
accounts.

Shared investment spend. Argument in justifying this activity.
OPTION 5
DO MULTI-CURRENCY PROCESSING

Commitment from the Board is critical. Commitment is a
long-term strategic decision. Pay-back time - 5 years.

Investment is required to implement system and set-up
business.

International oriented staff required to run business.

Opportunity to create economies of scale and to do MO/TO
acquiring, e-comm & 3rd party processing.

Retention of key corporate accounts are assured.

Opportunity to be a competitive, vertical integrated financial
institution and defend market-share.
E U R O PAY
I n t e r n a t i o n a l
Costing &
Business Models
Multi-Currency Acquiring

The Dynamics - Income Drivers.
 Merchant Turnover.

Merchant Service Charge.

Fees.
– Minimum Monthly, Set-up, exception item handling.

Treasury Revenues.
– e-commerce etc.
Multi-Currency Acquiring

The Dynamics - Cost Drivers.
 Interchange Pay-away.
– Domestic, Intra & Inter-regional.

Currency Conversion.
– Non-Settlement currencies.

IT Support.

Operational Infrastructure.
Multi-Currency Acquiring

The Dynamics - Key Profitability Indicators.
 Turnover by Merchant Category.

Gross MSC by Merchant Category.

Interchange Pay-away by Merchant Category
and by card type.

Operational Support Costs.
N.B. More Difficult to adapt Portfolio Approach.
Multi-Currency Acquiring
Decision process using the Economic Model
Economic Model
What If's
Business Impact
Investment
Business Plan
Strategic Options
Business Decision
Total CSS Business Impact
Multi-Currency Acquiring
Building the Model

What If’s
 Market growth by segment : Low / medium / high.
– Card Present environments.
– MO/TO.
– e-commerce.



MSC & Interchange rate by segment.
Cost Dynamics.
Investment Required.
Multi-Currency Acquiring
Building the Model
Segment
Current
‘00
‘01
‘02
‘03
Card Present
16%
15%
13%
9%
8%
MO/TO
60%
54%
44%
32%
26%
E-comm
24%
31%
43%
58%
66%
Multi-Currency Acquiring
Merchant Discount & Interchange - Margin Effect
Market Growth in physical
acquiring
Growth in Card Not Present
segment
Downward Pressure on
Merchant Rates
Upward Pressure on
Interchange Rates
= MARGIN EROSION
E U R O PAY
I n t e r n a t i o n a l
Central Issuance
Central Issuance

Domestic license required.

Respecting domestic rules & principles in each
market.

Not necessary for bank to have established
local presence.

Issuing bank must use designated BIN and/or
ICA to ensure correct multi-currency processing.
Central Issuing : the Principles

Passive central issuance and marketing by
financial institution.

Active marketing and sales by issuer, to
selected niche or market profile.

Corporate cards products - issued only to
employees of multi-national organizations.
Benefits of Central Issuing

Leverage incremental revenue streams.

Achieve critical mass.

Opportunity to enhance MIS and reduce
marketing spend.

Implement international marketing
programs.

Plastic management from one center.

Strengthen the Member / merchant
relationships.
Truly Multi-Currency
Euro €
US $
HK $
linked to ICA for Acquiring
YEN ¥
F francs
Peseta
Can $
AUTHORISATION
CLEARING / INTERCHANGE
SETTLEMENTS
ACQUIRING MEMBERS
Aus $
ICA
NZ $
Truly Multi-Currency for Central Issuing
Currencies linked to Issuer Card Bin ’s
CARD MANAGEMENT PLATFORM
YEN ¥
HK $
US $
Peseta
Euro €
Can $
F francs
NZ $
Aus $
Truly Multi-Currency (Acquiring & Issuing)
The combined business Case
Euro €
US $
HK $
YEN ¥
F francs
Peseta
Aus $
NZ $
Can $
ACQUIRING MEMBER ICA
BUSINESS CASE
CARD LINKED TO ISSUER BIN ’s
HK $
YEN ¥
US $
Can $
Peseta
Euro €
F francs
NZ $
Aus $
E U R O PAY
I n t e r n a t i o n a l