Life after SEPA

So what can we conclude now that SEPA is officially live for the euro-denominated countries? Clearly, the lack of recent news relating to SEPA – not only in industry media such as gtnews but also in the mainstream media – suggests a very smooth transition. A search on FT.com yields only one SEPA-related result and a similar exercise on the website of the largest Dutch newspaper, which is known for its anti-European sentiments, yields no result at all on SEPA since February 1.

The Success of SEPA

The sheer lack of recent SEPA-related news at least confirms there were no major payment or collection disruptions. As such, it can be said that the SEPA ‘go-live’ was evidently successful. But does this mean that SEPA is also a success? It’s very difficult to tell at this stage. From my work as a consultant it’s clear that for major corporates with large volumes of payments in different European countries there are definitely benefits being enjoyed; the cost and effort of implementing and maintaining systems and payment formats can be dramatically decreased.

However, this is just the tip of the iceberg. The extent to which costs will be reduced, or efficiencies increased, for small and medium-sized companies as well as for individuals remains to be seen. The forecast savings will most likely be in the reduction of transaction costs or in increased payment efficiencies. It is clear that for the banks the introduction of SEPA has greatly reduced their earning potential in terms of (cross-border) payment execution fees or in the float advantages they enjoyed. However banks will be banks, so only time will tell if we will truly benefit from the cost savings that SEPA promises or whether the banks will simply find another source of income to make up for lost revenue.

It should, however, not be forgotten what a tremendous achievement SEPA is. No les s than 18 countries have agreed to abandon the control of their domestic payment and clearing systems and to move towards sometimes radically different ways of making payments or collecting money. As of February 2016 a further 14 countries will follow. And who knows? If SEPA indeed brings the benefits that some have predicted it might even be a strong argument for a non-euro country to eventually join the single currency.

A Look at the Statistics

When the SEPA end-date was put back by six months so close to the original deadline of February 1 2014 there was much discussion as to whether this extension was actually required. As the European Central Bank (ECB) has kindly provided the SEPA statistics up until July of this year we can get a pretty clear picture of what would have happened had the end-date not been moved.

With regards to the credit transfers the impact would have been significant but not destructive. As of February 2014 94% of all credit transfers were executed as SEPA credit transfers (SCTs). This number has grown slowly to reach 98.5% by July.

Graph 1: SCT Adoption in the Past 12 Months

Zanders SEPA SCT graph

Source: ECB

The graph looks different for SEPA direct debits (SDDs). For these the number was 80% in February, which had grown to a more impressive number of 97% in July.

Graph 2: SDD Adoption in the Past 12 Months

Zanders SEPA SDD graph

Source: ECB

So what do these numbers tell us? First and foremost it shows us that deadlines do work if we look at the impressive increase in adoption in the final months until February 2014 and in the slow but steady increase after that to nearly 100% adoption this July. But the steady increase as of February also shows that the deadline extension was justified. The slope of the curve, especially when looking at the SDDs, does suggest that a number of corporates and/or payment service providers were still not ready on February 1.

SEPA: What’s Next?

A popular term being used lately by banks and consultancies is SEPA 2.0. Much has been written and said about the possibilities SEPA brings in terms of bank and bank account consolidation, the introduction of payment factories and the use of one common payment format. However, the reality is that for most corporates SEPA has caught them off-guard or it was treated solely as a compliance project. SEPA is now a reality, but we should not forget the lessons that were learned in becoming compliant.

At the very least SEPA has forced us to review payment processes and systems that had often grown in the past decades to become difficult to manage, maintain or to be executed in different countries. Even if there was no time to fully reap the benefits that SEPA could offer, it at least raised awareness for the additional benefits that could be achieved. This awareness and momentum should be grasped to take payment processing to the next level.

So what is next? Some countries still have to go live with their euro-denominated payments while some products, such as the electronic mandate (e-mandate), are still being developed. It is, however, my expectation that we will not hear much of SEPA in the future. Hopefully within a few years the term SEPA will ring only a faint bell for some, which will be the true testament of its success.

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