electronic cash

Publié le 14 janvier 2008

Electronic Cash System

1. What is the electronic cash system?

Electronic cash is the debit POS-system in euro operated by the German banking industry. It is a strictly PIN-based debit system where transactions are debited to the cardholders current account immediately after presentment of the transaction by the merchant to its bank. The corresponding card is typically issued to the cardholder in combination with an account opening.

Since its introduction to the market in 1991, electronic cash can be used by almost all bank issued debit cards in Germany. The market coverage (523.000 terminals in 2006) and the participating more than 80 million cards generated 1.027 billion transactions in 2006.

The electronic cash-system is designed to contribute to the successive replacement of cash in the retail sector. One of its attractive assets from the merchant's perspective is the payment guarantee given by the issuing bank after the effectual authorisation. Electronic cash is able to grow even in competition with other POS-systems (like ELV, the card initiated Direct Debit system). For cardholders, electronic cash transactions are free of charge.

The electronic cash system is not structured as a four-party model with issuer, cardholder, merchant and acquirer. Electronic cash relies on a three-party-model and therefore slightly differs from most card payment systems.

Originally the electronic cash-system was built on proprietary technical standards in order to leverage the existing domestic debit processing environment. However, with the advent of EMV and the implementation of the SEPA, the technical basis of electronic cash will be migrated to accommodate international standards. Thus, the limitation of the electronic cash-system in geographical coverage to Germany due to proprietary standards will disappear. Based on international harmonised technical standards the electronic cash-system can be used by issuers and acquirers in the entire euro payment area.

2. Contractual basis of the electronic cash system

Electronic cash is managed and maintained by the ZKA, a common body of the banking associations in Germany, which are BVR (Cooperative Banks), BdB (Commercial Banks), VÖB (Public Banks) and DSGV (Saving Banks) on behalf of the banks participating in the scheme.

Electronic cash is designed to enable maximum competition between technical service providers and banks at the level of the individual merchant or cardholder. To enable this, electronic cash defines the necessary technical standards to enable interoperability and it ensures the adherence of every participant to these standards.

Since the associations themselves are not participating in the electronic cash scheme neither as acquirer nor as issuer or technical service provider a complete unbundling of the provision of services from the scheme management is considered to be ensured.

Role model

The electronic cash system is based upon a role model, comprising the entire value chain of POS-transactions. Basically, the following roles can be distinguished:

cardholder
issuing bank
merchant bank
merchant
network provider (technical service provider for provision and operation of POS-terminals)
authorisation system (technical service provider of the issuing bank for authorisation services)

- Cardholder

The cardholder has to have a contractual relationship with its issuing bank based on a current account. The issuing bank has to issue a card which is in compliance with the technical requirements of the electronic cash system to the cardholder, so that he is able to use it in the context of the electronic cash system.

Since the electronic cash system is a 100% PIN-based system the card has to be equipped with a PIN to enable electronic cash transactions.

- Issuing bank

The issuing bank maintains the current account associated with a card participating in the electronic cash-system and will pay all successfully completed transactions to the merchants. With a positive authorisation the issuing bank spells out a payment guarantee which will be valid at least for 8 days after the transaction date. Transactions can be carried online or (based on a chip-transaction) offline. Depending on the risk management of the issuing bank it can define authorisation limits and offline-parameters in the card without limitation.

Any bank can participate as issuing bank in the electronic cash system. Member banks of the German banking associations are automatically entitled to participate in the electronic cash system by their membership in one of the associations. Banks who are not member of one of the associations can participate in the electronic cash system by stating their adherence to the electronic cash regulations issued by Zentraler Kreditausschuss.

- Merchant bank

The merchant bank provides the current account service to the individual merchant. In this role it offers to the merchant collection services for the transactions carried out at the merchant's terminals. The merchant bank is responsible for the presentment of transactions to the issuing banks and it will credit the merchant's current account with the equivalent values of the transactions presented to the issuing banks.

Any bank can participate as merchant bank in the electronic cash system. Member banks of the German banking associations are automatically entitled to participate in the electronic cash system by their membership in one of the associations. Banks who are not member of one of the associations can participate in the electronic cash system by stating their adherence to the electronic cash regulations issued by Zentraler Kreditausschuss.

- Merchant

Participating merchants have to have a contractual relationship with a merchant bank for the current account services as well as with a network provider for the provision and operation of POS terminals. Based on such contractual relationships merchants are able to accept electronic cash transactions carried out with cards participating in the electronic cash-system.

- Network provider (Netzbetreiber)

Network providers are technical service providers who are responsible for the provision and operation of electronic cash terminals. Any technical service provider can participate in the electronic cash system by adherence to the technical requirements of the electronic cash system. The participation to the scheme as network provider is not limited to banks or bank-owned organisations.

- Authorisation system

Each issuing bank has to maintain authorisation services in order to authorise electronic cash transactions carried out with the cards issued by the respective bank. Authorisation services may be delegated to a technical service provider at the discretion of the issuing bank. Currently there are four authorisation gateways covering all participating issuing banks in Germany.

Contractual relationships

The electronic cash system is based upon an agreement between the German banking associations on behalf of their members and any further participants of the scheme, who have declared their adherence to the scheme regulations.

The electronic cash agreement defines the contractual relationships between the scheme participants and sets out the technical requirements for terminals, networks and cards.

The contractual relationships between

cardholder and issuing bank,
issuing bank and authorisation system,
merchant and merchant bank and between
merchant and network provider

are not regulated by the electronic cash agreement but by individual contracts between the players.

The electronic cash agreement however constitutes the following contractual relationships:

the participation of banks to the scheme as issuer and as merchant banks,
the payment guarantee of each participating issuing bank towards any merchant for any successfully completed transaction,
the participation of network providers to the scheme.

Therefore the electronic cash agreement is sub-divided into three parts:

the electronic cash agreement between the associations itself,
the network provider agreement between a network provider and Zentraler Kreditausschuss (on behalf of the participating banks in the electronic cash system)
the merchant agreement constituting the payment guarantee of the issuing bank to the merchant and the duty of the merchant to pay a merchant fee to the issuing bank

Payment system fees

The electronic cash system is based on a uniform merchant fee to be paid by the merchant to each card-issuing bank for providing the payment guarantee for successfully completed transactions. This fee is an ad valorem fee of 0,3 % of the transaction amount, minimum € 0,08 per transactions. For transactions in the petrol sector up to a transaction amount of € 51,13 a reduced merchant fee of 0,2 % of the transaction amount, minimum € 0,04 per transaction, applies.

No further fees are set by the electronic cash regulations. Especially there are no brand or scheme maintenance fees to be paid by the participants. All other fees, i.e. the fees to be paid for the provision of technical services are subject to competition between the participants of the electronic cash system.

Participation in the electronic cash system

Participation in the electronic cash system requires the acknowledgement and adherence to the electronic cash agreement. Banks who are members of one of the German banking associations are participants to the electronic cash system via their membership in one of the associations. Banks who are not member in one of the associations can participate in the electronic cash system by acknowledging the terms of the electronic cash agreement vis-à-vis Zentraler Kreditausschuss.

Technical service providers can participate in the electronic cash system as network provider by signing a so-called "network provider contract" with Zentraler Kreditausschuss and by receiving a certification concerning the compliance of a network provider with the technical requirements of the electronic cash agreement by Zentraler Kreditausschuss. The participation of technical service providers is not limited to providers having their offices in Germany.

Merchants may participate by signing the "merchant agreement" which is part of the electronic cash agreement and by installing a terminal of a certified electronic cash network provider. The participation of merchants in the electronic cash system is not limited to merchants having their offices in Germany.

3. Technical characteristics of the electronic cash System

Participating cards

Cards participating in the electronic cash system have to comply with the technical requirements of the electronic cash agreement. Currently the electronic cash system is based upon a processing of the data of track 3 of the magnetic stripe or on the processing of a proprietary chip application.

Until end of 2010 the technical basis of the electronic cash system will migrate to international standards, i.e. an EMV-based chip-application and track 2-processing. It is planned that any electronic cash terminal will be able to process a transaction based on track 2 of the magnetic stripe from end of 2007 onwards. Until end of 2010 any electronic cash terminal will also be able to process transactions based upon an EMV-based electronic cash-application.

Payment guarantee

The electronic cash system is based on a payment guarantee of the card issuer to the individual merchant for any successfully completed transaction. Transactions may be completed either online or offline (based on the chip-application). The payment guarantee to the merchant is valid for eight days after the transaction date. During this period presentment of the transaction should occur. Also in case of late presentment the issuing bank will try to honour a transaction.

Transaction authorisation

All transactions have to be authorised either by the authorisation system of the issuing bank (online authorisation) or by the chip (offline authorisation). electronic cash is a PIN-based system and each transaction requires a cardholder authentication with PIN.

Clearing and settlement

Clearing and settlement takes place via the standard clearing systems between merchant bank and issuing bank. The processing of clearing and settlement is not part of the electronic cash agreement with the exception of the format to be used for clearing files between banks in Germany, using the German DTA-format.

Security and certification

The issuing bank is only able to provide a payment guarantee to the merchant, if basic security and functional requirements to the terminal and the network processing are met. These requirements are laid down in the technical annex to the electronic cash agreement.

Compliance with the security requirements has to be proven for any security relevant component in a network as well as for the entire network of a network provider by a security evaluation carried out by an independent security evaluation laboratory. In addition to that compliance with functional requirements has to be demonstrated during a functional testing.

4. Market Organisation

Card Market in Germany

Processing Organisation in Germany

Essential settlement options with ec-card payments

(„electronic cash" and „ec-Lastschrift"/ec-direct debit)

DTA-clearing by the network operator on the order of the merchant to the:

bank account of the merchants at the „merchant‘s bank"
bank account of a concern company at the „merchant‘s bank"
standard bank account of the network operator, from there credit transfer to the merchant
collective fiduciary bank account of the network operator, from there credit transfer to the merchant
single fiduciary bank account of the network operator, from there credit transfer to the merchant

5. Mapping ec Model with 4-Corner Model

Note: Chapters 1, 2, 3 & Annex 1, 2 are sources EKS, Chapter 4 is source EPSM

Annex 1:

Acceptance Mark: electronic cash Pictogramme

At least the "electronic cash PIN-Pad" or "girocard" should be used for acceptance points. For new established point of acceptance, only "girocard" is to be used.

Annex 2:

Approval Scheme

Within an interoperable payment scheme payment cards are used at terminals of different acquirers. Card issuers rely on the different payment system components of these acquirers to work as described in the respective specifications and to meet the defined security requirements. Issuers are only able to do so if a standardized, transparent approval procedure is installed using state of the art criteria and adequate processes which are agreed on by all issuers and acquirers participating in the scheme.

Thus one of the crucial aspects of a payment scheme is its approval procedure.

This document describes the ZKA Approval Scheme. It focuses on the approval procedure for payment schemes and their components in the German market in order to provide issuers and acquirers with an acceptable level of confidence regarding the functionality of cards and terminals of the payment schemes. The ZKA Approval Scheme must ensure that the approved components

have a logical behaviour that complies with the specifications of the participating payment scheme,
will neither harm nor compromise the payment scheme environment and
are interoperable.

To perform the approval process ZKA offers an organizational framework developed by the four German Credit Sector Associations. ZKA and Acquirer continued the development in 2005. Within this framework special roles are defined to keep and maintain special tasks throughout the whole process. Both, roles and tasks are described.

The overall approval process includes two processes:

The maintenance process for identification and integration of new approval objects or approval requirements which are necessary to keep the approval process up to date and
the approval process itself which includes security evaluation and functional testing of the components, resulting in an approval letter e.g. for the vendor.

Both processes are steered and controlled by the Councils ("Arbeitsstäbe") defined in the respective ZKA interbank agreements. For EMV based Debit/Credit POS approvals also the Acquirers are constantly involved.

To maintain the process the Councils have to define new approval objects and approval requirements. To ensure that this basic process, which is crucial for the quality of the ZKA Approval Scheme, can be performed in an efficient way the Councils must use defined forms. Thus, open questions and further actions can be clearly communicated to other experts. To strengthen the maintenance process only two committees are assigned to provide for the necessary expertise: ZKA’s Security Committee and Technical Committee.

Both assist the Councils. The Approval Office coordinates the integration of new or revised requirements into the approval process by informing the vendors, providers and all other ZKA Approval Scheme participants.

Routine processes which represent the major part of the approval process are delegated by the Councils to the Approval Office. Questions to be clarified will be analyzed and described by the Approval Office in cooperation with the Testing Laboratories and Security Evaluators resulting in a proposal on how to proceed. This proposal is given to the above mentioned committees for decision. Only questions, which cannot be clarified on this level of expertise, will be handled by the Council.

Nevertheless, the Councils will be kept well informed about approval activities through continuous reporting from the Approval Office.

Reporting

Responsibility: Approval Council

(Arbeitsstäbe electronic cash,

GeldKarte, Geldautomaten)

Security Committee Technical Committee

(Arbeitsstab Sicherheit) (Arbeitskreis Zulassung)

Approval Office

(Zulassungsstelle)

Delegation

Picture: ZKA roles and their cooperation

The ZKA Approval Scheme is open for the participation of other payment schemes such as MasterCard, Visa, JCB, American Express or Diners. The rules and regulations for the participation of these schemes must be agreed on by ZKA and the payment schemes. The payment schemes may use the ZKA Approval Scheme for cards and/or terminals.

Today vendors face and handle numerous different approval schemes offered or mandated by the international payment schemes. Examples are the MasterCard and Visa terminal and processor approval schemes, the EMVCo Type Approvals and the various domestic approval schemes which are necessary for the integration of domestic requirements. To achieve an approval for the German market, a POS terminal vendor today must first decide which payment card his terminal shall accept, because each payment scheme defines its own approval scheme including different testing laboratories, test cases and so on. This procedure is costly and time consuming.

Therefore the ZKA Approval Scheme offers the possibility of a common scheme which integrates the requirements of different payment scheme and thus a "one-stop-shopping" for vendors. Even the EMVCo Level 2 Type Approval is integrated. The Level 2 test results achieved during ZKA’s functional testing will also be presented to EMVCo to be acknowledged as an EMVCo Type Approval Level 2. Thus vendors can use test results achieved during the German test procedure abroad. On the other hand vendors can reduce testing by presenting an EMVCo Type Approval to the German Testing Laboratories. The Approval of German ICCs and terminals, performed within ZKA, will be acknowledged by JCB and MasterCard.

Similar solutions should be found for other payment schemes. To achieve the intended advantages of the ZKA Approval Scheme, it is important that as many payments schemes as possible are supported. In November 2003 an agreement was reached between ZKA and the Acquirers to work on a common Approval Scheme. The concept is finished and included in this document. From September 2005 on the Common Approval Scheme is effective.

In parallel negotiations are ongoing with Visa and American Express to participate.

As the approval schemes of the international payment schemes remain unaffected and can still be used, it is crucial for ZKA‘s common approach, that it is efficient, transparent, flexible, provides high quality and keeps consistently close and quick to market. These objectives are achieved by creating synergy using the same infrastructure with common approval rules, a common set of specifications, security requirements, test tools, test cases and a common set of approval rules. Consistent delegation provides for easy administration and high performance of the process.

Where ever possible, simple Type Approvals are issued to leverage the investments and usage of payment scheme components.