The Ongoing Challenges of SEPA

So the confusion is over. The doubts recede and the bankers have their often pleaded for mandatory end date for single euro payments area (SEPA). After years of wrangling we have the announcement that European banks and businesses have two years to prepare for and take advantage of SEPA and, to be clear, many have advanced strategies and opportunities to do so. We can argue long into the night if the route to SEPA should have been less costly, drawn-out and more effective, but we have an end date now and bankers are always happier when such initiatives spawn mandatory demands that make securing internal approval and budgets easier. The political wrangling will continue and there is still plenty of opportunity for things to go wrong and get side-tracked, but there is light at the end of the darkness.

Those holding the purse strings in banks have used the uncertainty around the next phases of SEPA as an opportunity to minimise investment and limit resources to an initiative that has floundered over many years. Those who believe that SEPA offers banks the opportunity to lead an advance into Europe, extend their transaction banking strengths and lead differentiation of services are flexing their muscles and pushing forward with the knowledge that an end date demands a review of the tactical, often holding position banks have taken.

The positive thing to emerge from all this is the fact that all sides have to look again at SEPA and what it means for then. Those that argue SEPA does not matter and, therefore, do their best to ignore it can’t anymore. Those that look favourably towards it are now under pressure to prove the value.

The Value of SEPA

So great news that SEPA is on the move once more but the debate and publicity remains bank-centred. I question two fundamental things. The first is the collective sigh of relief from the politicians and bankers is not matched by shouts of joy from the many thousands of businesses across the EU. They have been poorly served by banks whose internal focus on setting their own strategies for SEPA constrained communication and insights their clients look for. The second point is that since 2008 SEPA has mattered less. The global impact of the economic crisis changed the priority, focus and investment on what is important to banks.

In my many conversations with senior representatives of corporates there is mixed feeling and awareness of SEPA. Moving monies more efficiently across Europe is welcomed but hardly revolutionary and despite the inevitable complexity of putting in place the legislation to achieve it many feel the banking community has simply been forced to accept that the working practices of the past had to go. Moving monies through the banking system should be more transparent and less complex. The feeling is the value of SEPA has yet to be seen and question the lack of the benefits and opportunities to aid their trade across the EU.

Impact on Banks

For banks the end-date debate will sharpen their focus on transaction banking services. As the movement of monies is increasingly commoditised the revenue earnings from this business are under pressure and earnings are decreasing. Add to this the cost implications of adhering to the SEPA scheme and its impact on payment systems means that many banks are severely challenged to the point of looking again at how they offer such services to their market. Already many banks have chosen to outsource elements of SEPA processing to others and this topic is warming up once more but this time with a different emphasis on what they are prepared to rely on others to do for them. Simply outsourcing one, albeit significant, function of processing to reduce cost is no longer attractive to many banks. They look to retain the franchise they have in their markets, reduce the overheads of servicing their clients and release their investment dollars to offer more front-line products and services. Not merely the movement of monies but enhanced cash management services and far move focus on client centric, as opposed to product-led solutions. Therefore, they look for outsourcing arrangements with banks and technology suppliers that is far more strategic in nature.

Long-term contracts commit all parties to look beyond pure cost reduction towards enabling each to benefit through extending their roles beyond what each offers individually and presenting a stronger collective proposition to the payment markets they focus on. They should look to generate new lines of transaction services revenue, and build on existing income through innovative services to their clients. This is a way in which banks currently struggling to retain market position can benefit.

And within all of this I include SEPA. The banks are no longer focused on just the roll-out of the new instruments and participation in the payment schemes. They have a catalogue of challenges each as demanding as the other. To simply continue in the payments business consumes significant investment year-on-year. Regulatory pressure continues to increase on a global scale and the costs of adherence continues to soar, and the focus remains on reducing risk and systemic failure in the light of the 2008 financial crisis. Standardisation initiatives, including SEPA, are widespread and there is more demand to streamline the ways banks operate in moving monies making it harder to differentiate in order to compete profitably.

No surprise then that innovative solutions are sought by many banks and technology is still as an enabler to link tradition banking services and products to other industries, such as mobile devices and contactless cards. More importantly customers are challenging their banks to fulfil their needs more effectively. So in all of this mix we find SEPA and for many it is an addition burden and for some an opportunity. Let’s see who emerges successfully.

Corporate Pressures

Companies of all sizes across Europe have to compete more effectively in the markets they trade. They need their banks to support them in terms of credit, moving monies, managing their cash and transactions. If streamlining the way monies moves means greater transparency and visibility of their balances in multiple currency accounts with banking partners across Europe, then they want this translated into services that deliver this. Yet banks are inconsistent in achieving this.

They do not expect their banks to merely be participants in SEPA schemes but to extend the services they offer to realise the value for them. The SEPA business-to-business (B2B) Direct Debit (SDD) is scheme is a good example of this and an opportunity to extend value. Large corporates who see the benefit of a single direct debit scheme across Europe, introducing it in countries where it does not exists currently and harmonising the rest, will take steps to handle the management of mandates electronically. Others will wish to reap the same value of certainty of payment but lack the funds to invest and expect their banks to step in and offer mandate management services for which they will pay to achieve the benefits. This is a new source of revenue for banks and a real advantage to corporates. Some banks adopt this approach but far too many are not. They should be, particularly at a time where moving information around transactions is as valuable as moving the payment itself. We will see more examples of this from the innovative banks, perhaps teaming up strategically with third-party providers of solutions.


So SEPA may have risen a few places up the agenda of banks’ ‘to-do’ list, but the fact is that it remains a part of a portfolio of challenges demanding investment and resource. It is important but still not a priority for some banks.


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