Wednesday, January 21, 2009

SEPA is stalling

Guest blogger, Paul Styles, business solutions manager, ACI Worldwide, comments on the increasing unrest amongst European banks regarding SEPA's slow progress.

The slow implementation of the SEPA project so far has culminated in a statement from the French Banking Federation (FBF), announcing that its members are ‘downing tools’ on preparation for the introduction of SEPA Direct Debits (SDDs) in November 2009.

As dramatic as this statement may sound, it actually reflects general and widespread stirrings of unrest from Europe’s banks regarding the SEPA project. In fact, as early as September 2008, the FBF warned that they would suspend their SEPA Direct Debit projects in reaction to the European Commission's unclear stance on interchange fees, which they believe threatens their current economic model.

The EC and the European Central Bank (ECB) have stated that banks can use interchange fees on Direct Debits only for an "interim period" and if it is justified. However, French banks point out that the interchange fee system is the "only tried and tested cooperative model" to achieve the financing of SEPA infrastructure investments and maintenance costs. If interchange fees are to be scrapped, then the ECB needs to come up with a long term solution, and quickly.

Nevertheless, whilst the French banks are unwilling to commit to the ECB’s provisional timetable, it seems unlikely that they will completely halt their work on SEPA projects as many have wider European operations. Yet, demand for SDDs in a cross-border context is yet to be proven, and with SDDs due to go live in November, this statement from the FBF speaks volumes that the French banks are not expecting a wholesale shift from their domestic Direct Debits processes to the new SEPA instruments.

While the statement from the FBF may have little impact on the overall roll-out of SDDs, it serves to highlight the fact that the SEPA project is stalling. Without strong customer demand, achieving SEPA through self-regulation will remain problematic. As such, appropriate levels of regulation would help the progress of SEPA implementation and help deliver the much-needed clarification of rules for the financial services industry and its corporate customers.

The FBF statement has served to put further pressure on the European banking industry to set an end-date for the retirement of the legacy payment instruments, which can be no bad thing. The ECB has acknowledged this requirement and has stated that it ‘will work on the modalities – self-regulation or regulation – as well as the end-date itself’. Without such a deadline achieved by some degree of consensus, the FBF refusal to commit to provisional timetables may be just the tip of the iceberg vis-à-vis SEPA challenges.

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