Banks try to force ACH consolidation

Banks have been banging on for some time about ACH consolidation in light of SEPA, and this week at Sibos in Boston we have seen a number of banks including JPMorgan Chase and Nordea announce that they would use the EBA's STEP 2 as their single channel for all SEPA payments, at both domestic and cross-border level.

Is this tantamount to the banks saying they are no longer going to invest in the existing national ACH's as well as those with pan-European ambitions such as VocaLink and Equens?

Well yes and no it seems. In terms of the national ACHs, the banks have made it clear they do not want to invest in multiple ACH's and with respect to Equens and VocaLink some suggest that in five years they will eventually have to address their funding models, but that there will still be a place for them particularly as national payment instruments will continue to co-exist alongside SEPA instruments for some time.

The EBA is obviously feeling pretty pleased with the banks' announcements that they will use STEP 2 for their SEPA payments. Their ambition is to capture at least 30% of SEPA volumes and they predict the remainder will be bilaterally cleared between banks.

An announcement to that effect was made yesterday by Deutsche Bank, Deutsche Postbank and ING, major payment processors in Europe who in addition to leveraging EBA STEP 2, have agreed to exploit the efficiencies of direct file exchange between themselves for SEPA Credit Transfers and SEPA Direct Debits.

The three banks announced that as soon as SEPA clearing volumes ramp up, for high volume mass payments they will establish direct bilateral file exchange based on Pan-European ACH (PE-ACH) standards.

The EBA believes that similar announcements are likely to be made by 20 to 25 banks that are processors of mass volumes of payments, and that over time ultimately this will mean that the banks will "re-consider" their investment in national ACHs.

Another hot topic in the ACH landscape, but one that is not being talked about at Sibos, is direct corporate access, something that VocaLink is looking to offer via its Euro CSM platform.

The word on the street however is that direct corporate access to ACHs is a political 'hot potato' and something that the banking industry is not quite ready for. This suggests that VocaLink and any other ACH owned by the banks may face an uphill battle when it comes to rolling out direct corporate access.

So as much as banks attending Sibos pay lip service to the issue of corporate connectivity and enhanced corporate access, they are still stuck in a legacy mindset fuelled by the fear that corporates are trying to disintermediate them.

Will there be a SEPA pricing war?

As we all know the Single Euro Payments Area (SEPA) is forcing major re-engineering in the European payments landscape. This week at Sibos in Boston a number of major vendors (HP, Bottomline, Microsoft, Sun Microsystems) are touting the latest versions of their payment processing systems.

But what is more interesting perhaps is the announcements being made by banks. At Eurofinance in Vienna in late September, Deutsche Bank stirred things up by announcing that it would apply the same pricing to all payment transfers within the eurozone regardless of payment size to try and entice corporates to start using the new SEPA Credit Transfers from 28 January, 2007.

Having invested heavily in its SEPA platform, Deutsche along with other banks that see themselves as major contenders in the post-SEPA payments processing landscape, are eager to see corporates and the public sector move to the new SEPA instruments as soon as possible so they don't have to bear the cost of running legacy and SEPA systems in parallel for too long.

Deutsche said it would also accept payment transfers in a host of legacy formats to try and reduce the pain for corporates of converting their own internal systems to SEPA XML formats.

Today, ABN AMRO, will announce that its systems are "SEPA ready" and that it will provide "fuss-free" conversion of legacy payments to SEPA XML to minimise the impact of the change.

It did not announce anything on the SEPA pricing front, but surely with Deutsche Bank stepping up to the plate and announcing a flat fee for euro payment transfers, it is only a matter of time before there is a 'pricing war' by major European banking providers to try and incentivize corporates to migrate to SEPA as soon as possible.

Meanwhile, banks like Deutsche have made it clear that they will centralise their payments processing of low value euro payment transfers on the EBA's STEP 2 platform, which it considers to the only PE-ACH. Banks like Deutsche are keen to see consolidation amongst Europe's myriad ACHs and payment processors and see this as a way of forcing the issue by making the bank's stance public.

The question is what does this mean for VocaLink, Equens et al which also see an enlarged role for themselves in a post-SEPA landscape?