Monday, October 09, 2006

Big banks will not have it all their own way

With a rather expensive yacht moored in Darling Harbour, Logica CMG is certainly making its presence felt at the Sibos 2006 conference in Sydney Australia.

Before boarding the boat I was asked to remove my shoes and found myself in a rather unique situation; interviewing Jerry Norton, the director, strategy, global financial services, Logica CMG, in my bare feet whilst he sat there with his socks on. It was one of those situations where you think to yourself I am glad I painted my toenails, or in Mr Norton's case wore socks without holes in them.

Naked feet aside, the luxurious yacht certainly signifies Logica CMG's new found confidence fresh from its announcement of its acquisition of WM-data, which will enable it to expand its geographical footprint in the Nordic and Baltic markets. Once the deal is finalised, the combined companies will have a turnover of £3.1 billion, and according to Norton it will also make Logica one of the Top 20 companies of its type globally.

With regulators calling for greater harmonisation and convergence of payments in Europe, Norton believes Logica is well placed to provide end-to-end capabilities for all payments (interbank, retail and corporate). Of course the question on everyone's lips is what impact will the Single Euro Payment Area (SEPA) have on their payments business?

Norton like most believes that the payments business (much like its equivalent in the securities world, custody) will consolidate into the hands of fewer providers. The need to run SEPA and non-SEPA payments infrastructure in parallel during the SEPA transition period from 2008 to 2010, is likely to be "the straw that breaks the camel's back," says Norton in terms of smaller banks deciding whether they want to remain in the payments business or outsource it to a scale provider.

Nothing new there, however, Norton believes that the global cash management banks will not have it all their own way. "In terms of how banks speak to their customers, the banks that recognise and respect local customisation, that is where the opportunity is for the regional players." In this respect, Norton believes that cultural issues gives European banks a competitive advantage over US banks who see SEPA as an opportunity to make their "stamp" on Europe.

But before SEPA comes to fruition, there are a number of things banks need to consider, not least of which, says Norton is the 'testing issue'. "There needs to be end-to-end testing in the market to ensure that SEPA standards are not implemented differently in different countries," he says. "And the testing has got to be done now."

Banks also need to do a better job at selling SEPA to corporates, says Norton."The dialogue is starting but there is a long way to go." In terms of adoption of SEPA instruments, Norton believes that government organisations and the European Commission should lead the way. "Banks are looking for some sort of assistance," and if the EC says it is going to use pan-European credit transfers, Norton believes other customers will follow.

Under the terms of the Payment Services Directive, which provides the legal framework for SEPA, Norton is adamant that non-bank payment providers such as First Data Corp. are likely to emerge. The question is, will these non-bank providers be subject to the same regulation as banking providers?

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