Tuesday, September 09, 2008

SEPA - no mass adoption

The usual suspects (Gerard Hartsink - European Payments Council; Jean-Michel Godeffroy - ECB) will be lining up at Sibos in Vienna this year to debate the "root causes of the limited momentum in the SEPA (Single Euro Payments Area) migration."

SEPA Credit Transfers went live at the end of January, but so far uptake of the new SEPA instruments has been less than encouraging - not surprising given that banks did a poor job of selling SEPA to other FIs and corporates.

Given that the EPC (European Payments Council) has pretty much dominated the banks' response to SEPA and the development of the SEPA rule books, are they really the best group of people to drive the SEPA momentum forward and sell SEPA to corporates and public sector bodies?

After all the EPC is largely a conservative European banking organisation, which has focused solely on formulating the banks' response to SEPA without engaging in any meaningful collaboration or consultation with corporate users.

Also it has to be said that the EPC's SEPA vision is not necessarily the one promulgated by the European Commission or the European Central Bank, nor is it what corporates really want from SEPA. So will Jean-Michel Godeffroy be taking the banks to task at Sibos for failing to establish enough momentum behind SEPA?

There is enough evidence to suggest he should be wielding the stick. It appears the banks want clear deadlines for full migration to SEPA as the current environment where SEPA instruments and the existing national payment systems co-exist is likely to persist for some time unless there is a clear end in sight.

I doubt that the average bank (except for those that have made a strategic decision to invest in SEPA) is going to do much more to drive SEPA forward unless they are absolutely forced to.

We keep hearing a lot about the non-STP (straight-through processing) of cross-border payments in Europe, years after BIC and IBAN were introduced to try and enable banks to process these payments straight-through with no manual repairs at lower cost.

One has to wonder whether it is in the banks' interest to maintain a high number of non-STP payments as they can charge more for that, which could help make up some of the revenues lost through implementing SEPA in its entirety.

At a pre-Sibos press briefing, Deutsche Bank, which classes itself as the leading SEPA bank in Europe, said that banks could save billions by moving to full STP of cross-border payments.

Deutsche Bank anticipates its SEPA Credit Transfer volumes will triple by the end of this year, but that is coming from a low base and most of the current volumes are from financial institutions, not corporates or public sector organisations.

While Deutsche may have invested millions in building its SEPA payments engine, Michael Mueller, head of Wholesale Solutions, Deutsche Bank, said that many banks had just taken their existing payment systems and made some modifications to them for SEPA. "That approach will come to an end as soon as SEPA transactions ramp up in terms of volumes as legacy systems won't be able to process these types of transactions," he said.

Having obviously invested considerable sums in its own SEPA payments infrastructure, Deutsche Bank is keen to white label its SEPA solution to other banks to help recoup some of the money it has invested. But even the SEPA white labeling market has been slow to take hold as a number of banks are only now beginning to realise that they do not need to own and build everything themselves.

Yet, given that a number of banks still have not made a strategic decision regarding their SEPA payments infrastructure and that national clearing systems still exist, it could be some time before the economic benefits for corporates to move to SEPA are clear.

The lack of corporate appetite for SEPA was borne out recently by the findings of a VocaLink survey of corporate treasurers, which found that 35% had had no experience of SEPA and only 28% of respondents expect to use SEPA Direct Debits (SDD) by the end of 2009.

Financial software providers like Fundtech have launched a new Software as a Service (SaaS) platform which packages its payments platform PAYplus FTS with its SWIFT Service Bureau offering to provide banks with a low-cost option for upgrading their payments platform for SEPA and SWIFT payments.

That may help banks develop payment services that corporates want, but one has to ask why these kinds of platforms were not available sooner and why banks are really holding off on seizing the so-called opportunities that SEPA provides to offer new value-added payment services to their corporate customers?

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