Friday, October 26, 2007

SEPA - a case of industry mismanagement

Although they don't necessarily court publicity or boast about the innovative ways in which they are using technology, Nordic banks tend to have grasped the fundamentals of technology long before many other banks and do not approach it with the same level of fear or risk aversion.

That is why perhaps the Nordic payments infrastructure is considered to be 'light years' ahead of many other European states. It boasts a relatively efficient credit transfer system and the concept of "real time", which most other banks only pay lip service to, is enshrined in consumer internet payments which are credited same day. Float has also been reportedly done away with in domestic Norwegian transfers and internet banking uptake generally is much higher.

Some of these aspects are only now being considered on a European-wide scale as part of the Single Euro Payments Area, which in effect means European banks and their customers now have the opportunity to catch up with their Nordic counterparts, which have enjoyed these efficiencies for some time.

No surprises then that a lot of Nordic banks see SEPA as a step backwards for them. They already offer a relatively efficient cost-effective electronic payments infrastructure, which is linked in with value-added services such as e-invoicing.

I was having a discussion about SEPA via email with Bo Harald, ex e-banking guru for Nordea and now head of executive advisors at financial software provider, TietoEnator, which has helped Nordic banks build innovative e-invoicing solutions.

In his initial email he had this to say:

"The thing is we need to be rather forthright together with the ECB and the EU to get the banking community to move to new services. Having met people in London yesterday it did strike me how many still cling to the past(it has NEVER been a good business strategy) and try
to find reasons to delay starting reforms - only to have to do them later in gigantic panicky efforts without being properly prepared

My remark to him was that the industry's tendency to want to preserve the 'status quo' meant that the only form of innovation at times was that forced by regulation, and that SEPA was a good example of that.

His reply was that "SEPA had in fact been an issue of industry mismanagement - by resisting the credit/debit part instead of steering it and promoting e-invoicing instead, the banking industry and thus its customers will have to invest and pay close to €10 billion and revenues will go down. Instead he says they could have invested very little and saved €200 billion plus the cost for EU enterprises and corresponding earnings."

It appears that "fostering creativity in payment services" through the introduction of SEPA-wide payment related services such as e-invoicing, is going to be the difficult part for banks.

SEPA Direct Debits and Credit Transfers is a start, but as we have been hearing from corporates, they have yet to be convinced of the business case for implementing these new instruments and where are the additional optional or value-added services that everyone is saying banks need to provide in order to make up for revenues lost through SEPA's implementation?

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