Thursday, September 18, 2008

SEPA disappointment

It is the last day of Sibos and as the crisis in the global banking sector continues to unravel, banks are also having to acknowledge their failure in another area - SEPA.

While it may be a little too harsh to attribute the lack of uptake of SEPA Credit Transfers (SCTs) wholly to the banks, it does demonstrate the drawbacks of trying to fend off further regulation by devising new payment instruments that nobody wants to use.

With SCTs making up less than 1% of total credit transfers, it is difficult to call SEPA anything other than a failure at this point, although 78% of Sibos delegates surveyed by ACI Worldwide preferred to say that the migration to SEPA instruments had been "disappointing".

SEPA Direct Debits, which are more challenging to implement, are unlikely to enjoy any greater success when they go live next year. "SEPA Direct Debits are a 20th century solution for the 21st century," says Eric Sepkes, chairman of Gresham Computing, but perhaps better known in his former role as a payments industry specialist at Citi. "A three day clearing cycle for [SDDs}, that in itself is criminal," he said.

Sepkes appears to be enjoying his new-found role sitting on the other side of the fence selling technology to the banks he used to work for. It also gives him an opportunity to cast a more critical eye over SEPA than what he would have been able to do if he was still sitting behind his desk at Citi.

Sepkes says the industry has got it the wrong way round and that they should have "eletronified" the supply chain first and then built a solution for direct debits that fits within that world.

It is tempting to say that Sepkes has conviently changed his tune about the banks' response to SEPA as he is now trying to flog supply chain financing solutions in his new role at Gresham. But Sepkes says these are views he has held for some time, even before he took up the role at Gresham.

"Why spend money on something [SEPA] that may not be needed for another five years," he said. Given that banks and corporates are going through one of the worst economic slowdowns since the Great Depression, Sepkes says forcing banks and corporates to invest in SEPA is not the answer.

But looking for a solution to the current SEPA 'impasse' by going back to the very same people that helped architect it, is not the answer either. Forty-six percent of Sibos delegates surveyed by ACI Worldwide said there was nothing more that the banking industry’s self regulation of SEPA can deliver, although I am not quite sure that I agree with them when they say that the time is right for SWIFT to play a role in reversing the present situation.

Let's not forget that SWIFT is owned by the very banks that formulated the industry's response to the European Commission's SEPA vision. And while opening up the SWIFT network to corporates may facilitate higher levels of bank-to-corporate connectivity and the adoption of "end-to-end standards", SWIFT does not have all the answers. Neither do the banks it seems.

It is back to the drawing board for SEPA it seems, but in the current economic climate, the European Commission and the ECB, and those banks that have invested heavily in their SEPA payments infrastructure, may have to wait a lot longer than expected for market traction.

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