EUROPAY International EUROPAY International Multi-Currency Programme Solution

E U R O P A YI n t e r n a t i o n a l

E U R O P A YI n t e r n a t i o n a l

Multi-Currency Multi-Currency Programme SolutionProgramme 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 P A YI n t e r n a t i o n a l

Europay’sEuropay’sCentral Acquisition Central Acquisition

ProgramProgram

Subjects

Europay’s CA program specifications.

Interchange.

Multi-Currency technique.

Strategic options for consideration.

Costing & Business model.

Central Issuing.

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The ProductThe 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, multi-currency, risk detection, multi-lingual & integrated cash management.

Merchant

Merchant

MerchantMerchant

What is Central Acquisition ?

Europay Member ’s

Processing Centre

Merchant ’s Central

Processing Centre

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 qualifyfor Central Acquisition?

Merchant categories

International Airlines

All Europay regions

Permitted regions as of Jan 1, 2000

All Europay & masterCard regions

All International Merchants

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 e-comm trxs. that reflect sales to cardholders residing in their area-of-use.

AIRLINE

BSP-BANKSETTELMENT PLAN

Airline Transactions Registration

CENTRAL RESERVATION SYSTEM

TRAVEL AGENCIES

Specific to Airlines

CENTRAL ACQUISITION Generic Network Topology

MasterCard traffic

National EuropeanAcquirers forAuthorization

other brand

Switching

Bi-lateral Agreements

other brand other brand

MemberAcquirer

Global accessibility via INET

EuropayInternational

Waterloo - Belgium

Regionaloffice

Your Country

Specific to Car Rental, Hotel , Ferry &

International Retail (oil, MO/TO) companies

Regionaloffice

Regionaloffice

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.

Over time-horizon, clear cost reduction !

One system interface lessens possibility of Fraud.

The Central Acquisition Product MixValue-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.

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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 P A YI n t e r n a t i o n a l

The Central The Central Acquiring & X-Border Acquiring & X-Border

FormulaeFormulae

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

The central acquirer must pay the issuer all declared (and implemented) domestic or inter / intra-European interchange fees

1.CENTRAL ACQUIRED (INTRA-EUROPEAN TRANSACTIONS)

Example of CA Trxs pathway

Member Merchant location Issuer

Spanish merchantEKSCard issued by UK bank

CA Formulae

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.

2.CENTRAL ACQUIRED (DOMESTIC TRANSACTIONS)

Example of CA Trxs pathway

CA = Merchant location Issuer

Spanish merchantEKSCard issued

by Spanish bank

CA Formulae

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.

3.CENTRAL ACQUIRED (DOMESTIC TRANSACTIONS)Where EPI are under contract to processes domestic transactions for local acquirers & issuers.

Example of CA Trxs pathway

CA = Merchant location Issuer

Italian merchantHungarian merchantPolish merchantRussian merchant

EKSCard issued by Italian bankCard issued by Hungarian bankCard issued by Polish bankCard issued by Russian bank

CA Formulae

To ensure that the correct intra-regional / domestic rules are respected, the central acquirer should pay domestic fees.

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 Merchant location Issuer

Mexican merchantEKS Card issued by Mexican bank

CA Formulae

Central Acquiring transactions pathway Projected percentage of transaction volumeinto ECCSS

August 1999 By 2002 By 2005

10% 10% 10%1. Central acquired (intra-European transactions)

No incremental revenue to EPI

66% 62% 58%2. Central acquired (domestic transactions) whereEPI isnot contracted to undertake processing.

Incremental revenue to EPI from issuers &acquirers

20% 24% 28%3. Central acquired (domestic transaction) whereEPI, under contract, processes domestictransactions for local issuers and acquirers. Incremental revenue from Central Acquirers only.

Transparent for the issuers that will continue to paythe agreed domestic tarif

4% 4% 4%4. Central acquired (inter-regional transactions)where either the acquirer or the issuer is non-European based. This area is currently being discussed with MCI.

Hence, revenue projection is yet to be forecast

TOTAL VOLUME 100% 100% 100%

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Multi - Currency Multi - Currency ConceptConcept

Multi - Currency

YEN ¥

US $ F francs

Peseta NZ $

Euro € Aus $

Can $HK $

CLEARING IN SINGLE-CURRENCY FORMAT

AUTHORISATION ALWAYS IN THE CARD

ISSUER / TRANSACTION CURRENCY

MULTI-CURRENCY & CONVERSION FACILITIES

PRIMARY, SECONDARY & FORCED CURRENCY TO BANKS

Multi to Single Currency transaction acquiring & processing

Single to Multi-Currency Transaction Acquiring & Processing

Rand

YEN ¥

Euro € F francs

Aus $Peseta

Can $

NZ $HK $

CLEARING IN MULTI-CURRENCY FORMAT

AUTHORISATION ALWAYS IN THE CARD ISSUER / TRANSACTION CURRENCY

MULTI-CURRENCY & CONVERSION FACILITIESPRIMARY, SECONDARY AND FORCED CURRENCY TO BANKS

US $

Multi - Currency

Multi - Currency

YEN ¥

US $ F francs

Peseta NZ $

Euro € Aus $

Can $HK $

CLEARING IN MULTI-CURRENCY FORMAT

MULTI-CURRENCY & CONVERSION FACILITIES

PRIMARY, SECONDARY & FORCED CURRENCY TO BANKS

Truly Multi-Currency Transaction Acquiring & Processing

YEN ¥

US $ F francs

Peseta NZ $

Euro € Aus $

Can $HK $

AUTHORISATION ALWAYS IN THE CARD ISSUER / TRANSACTION CURRENCY

E U R O P A YI n t e r n a t i o n a l

InterchangeInterchange

Categorization of transactions

As an important element of central acquisition, please note the following.

Domestic transactions

Merchant'sCentral

ProcessingCentre

GERMANY

Merchant

Cardholder using a

German - issued card

Merchant'sCentral

ProcessingCentre

GERMANY

Merchant

Intra-regional transactions

Cardholder using an

Italian - issued card

Merchant'sCentral

ProcessingCentre

GERMANY

Merchant

Inter-regional transactions

Cardholder using a

Non - European issued card

Product Development activity

Project (Phase 1 ended with release 99.1). Phase 2 began Sept 2000.

(To encompass international Maestro & E-commerce).

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 P A YI n t e r n a t i o n a l

Currencies Currencies used in ECCSSused in ECCSS

Clearing & SettlementClearing & Settlement

Transaction CurrencyAuthorization Currency

Issuer CurrencyReconciliation Currency

Cardholder Billing Currency

Definition of Currencies

Payment Currencies (Settlement Currencies)

PrimaryPrimary

SecondarySecondary

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

ClearingClearing SettlementSettlement

Reconciliation Currency

The currency in which batches are transferred from the Clearing to the settlement

Payment Currency

Member’s account currency.

Currency used to calculate Buy & Sell Orders.

Members choose their own Payment Currency.

Payment Currencies

Primary Currencydefault payment currency of member.

Settlement Currency

Payment Payment Currencies

To prevent currency conversion from reconciliation currency to payment currency.

Secondary Currencies.

Payment Currencies

Specific relationship between a function type (issuer or acquirer), a batch type,

a reconciliation currency and a payment currency.

Forced Currencies.

Currencies in ECCSS (intra)

ClearingClearing

SettlementSettlement

PresentmentPresentment

Trxs CCYTrxs CCY==

Rec. CCYRec. CCY

PresentmentPresentment

Trans. CCYTrans. CCY==

Rec. CCYRec. CCY

Rec. CCYRec. CCY

Payment CurrencyPayment Currency

ACQUIRERACQUIRER ISSUERISSUER

Payment CurrencyPayment Currency

E U R O P A YI n t e r n a t i o n a l

Strategic OptionsStrategic 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 (Front-

office activity).

Core multi-currency transaction processing will be also out-

sourced (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.

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Costing & Costing & Business ModelsBusiness 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 AcquiringDecision process using the Economic Model

What If's

Investment

Business Impact

Business Plan

Strategic Options

Total CSS Business Impact

Economic Model

Business Decision

Multi-Currency AcquiringBuilding 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 AcquiringBuilding the Model

Segment Current ‘00 ‘01 ‘02 ‘03

Card Present

MO/TO

E-comm

16% 15% 13% 9% 8%

60% 54% 44% 32% 26%

24% 31% 43% 58% 66%

Multi-Currency AcquiringMerchant Discount & Interchange - Margin Effect

= MARGIN EROSION

Downward Pressure onMerchant Rates

Market Growth in physical acquiring

Growth in Card Not Present segment

Upward Pressure onInterchange Rates

E U R O P A YI n t e r n a t i o n a l

Central IssuanceCentral 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 linked to ICA for Acquiring

YEN ¥

US $ F francs

Peseta NZ $

Euro € Aus $

Can $HK $

CLEARING / INTERCHANGE

AUTHORISATION

SETTLEMENTS

ACQUIRING MEMBERS ICA

Truly Multi-Currency for Central Issuing

YEN ¥

US $ F francs

Peseta NZ $

Euro € Aus $

Can $HK $

Currencies linked to Issuer Card Bin ’s

CARD MANAGEMENT PLATFORM

Truly Multi-Currency (Acquiring & Issuing)The combined business Case

ACQUIRING MEMBER ICA

CARD LINKED TO ISSUER BIN ’s

YEN ¥

US $ F francs

Peseta NZ $

Euro € Aus $

Can $HK $

US $ F francsEuro € Aus $

YEN ¥ Peseta NZ $Can $HK $

BUSINESS CASE

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