Tuesday, October 28, 2008

Who is holding SEPA back?

Given current economic conditions and the precarious financial situation some banks have found themselves in, is now really the best time to be forcing banks to invest in SEPA?

Well it seems the European Central Bank is keen to press ahead with SEPA regardless of external conditions. In a newspaper interview last Sunday, Gertrude Tumpel-Gugerell, ECB Executive Board Member, said that an end date for SEPA to be the only bank payments system in Europe needed to be set.

Many banks and corporates will welcome that statement as SEPA Credit Transfers, which make up less than 1% of total credit transfers, have not been the success some hoped for, with The European Associations of Corporate Treasurers (EACT) blaming that on the lack of an end date for SEPA implementation, which makes it difficult for corporate treasurers to convince their CFOs they need to budget for SEPA.

Tumpel-Gugerell was quoted as saying that, "When SEPA is the only system working, bank commissions will fall further, which will be an advantage for all clients." I am not quite so sure that the banks will look on it so favourably as innovation or disruptive innovation, is not something banks in general are very good at, particularly in a recession.

During the third edition of the International Payments Summit “Do You SEPA?”,held in Milan on Monday, Renzo Vanetti, SIA-SSB’s CEO said that the adoption of new technology solutions and the creation of new services and business models under SEPA and the Payment Services Directive (PSD), represented an opportunity to contribute to a "rapid solution" of the current system crisis. But that it needed to be an integrated and complete vision for change with the authorities acting as the catalyst.

In other words somebody needs to pull it all together. The banks are not going to do it on their own. But is heavy handed regulatory pressure or intervention the way to do it, as some banks clearly do not see the business case for full SEPA migration, particularly when it is likely to erode their existing payments revenues?

Going forward if SEPA is to work, the Do You SEPA payments event in Milan heard that there needed to be a high degree of harmonisation in terms of how member states implemented the PSD, which provides the legal framework for SEPA.

Carlo Tresoldi, SIA-SSB chairman, also pointed the finger at the public sector saying they needed to adopt the new SEPA payment instruments. "At European level these public authority bodies alone account for 20% of all payments in euros and 40% of GDP," he said. "In addition, public authorities represent 15% of market share in the area of credit transfers and collections”.

But are public authorities the real problem? Sure it would be good if governments used SEPA instruments, just as it would be good if corporates did. But when you have a number of banks still not fully implementing SEPA or adapting their payment systems fully to handle SEPA payment instruments, one has to ask who is really holding SEPA back; the public authorities or the banks?

1 comment:

Joergen Jensen said...

My short answer is that what is holding SEPA back is a deadline.

But we also need to specify which part of SEPA we are talking about? As SEPA Direct hasn’t been launched yet, it is difficult to measure its success, so for argument’s sake let’s look at SEPA Credit Transfers.

Despite the fact that a vast majority of banks are SEPA compliant, the number of payments has been extremely disappointing. It is much lower than even the most pessimistic sceptic could have predicted, which means it will be very hard to meet the 2010 deadline originally set for complete conversion to SEPA payments.

However, there are different ways to measure the success of SEPA. You can look at the uptake of SEPA instruments or look at the prices for cross border Euro payments. I believe that the competition caused by SEPA has forced prices down, thus not giving the corporates any business case to switch to SEPA. At present, I cannot find any statistics to support my claim, but it would be very interesting to see.

According to the European Central Bank, SEPA payments actually make up 1-2% of all credit transfers in Euros and not less than 1% as you stated. A look at this graph (http://www.ecb.int/paym/sepa/timeline/html/index.en.html)from ECP shows that they are growing at about 10% per month. Compounding 10% per month would still bring us from 1.4% in August 2008 to about 4.5% a year later. In two years it would be at 15% and by spring 2012, we would have reached the 100%. However, my personal view is that I don’t believe we will reach this without a firm deadline from Brussels.

Joergen Jensen
Director Product Management
Wall Street Systems