Participants at the fifth EBAday, held in Luxembourg from the 26-27 May, expressed frustration and impatience at the slow pace in the uptake of the single euro payments area (SEPA): SEPA Credit Transfers (SCTs) are still just 7.5% of the total volume of credit transfers as of March 2010, and the uptake of SEPA Direct Debits (SDDs) has not been measured by the European Central Bank (ECB), most likely because there is little likelihood of significant volumes until reachability becomes mandatory in November this year.
It is the absence of a firm end date, when the legacy payment instruments are turned off, that is the sticking point for moving forward. In the session ‘Co-opetition in payments and the financial supply chain’, moderator Andreas Pratz, partner at AT Kearney, asked both panellists: “Looking back on SEPA, what would you do differently?”
Nadine Lagarmitte, head of financial institutions, payments and cash management Europe at HSBC, said what almost everyone was thinking: “In order to execute such a project, we must have an end date.” She added that that the industry should have taken the initiative, instead of waiting for the regulators to call on them. In addition, she advocated corporate client involvement from the outset.
The creation of the SEPA Council, which holds its inaugural meeting this month, is one step – if, albeit, a bit late – towards engaging with the larger community of stakeholders. A joint initiative by the ECB and the European Commission (EC), the council will be comprised of ‘SEPA end users’ and aims to “promote the realisation of an integrated euro retail payments market by ensuring proper involvement of all parties and by fostering consensus on the next steps towards the realisation of SEPA.” It is the public sector that has not even begun its migration to SEPA in most countries – although that is starting to change, for example in France.
Lagarmitte’s co-panellist, Mark Buitenhek, global head payments and cash management, ING, took a different starting point to answering the question, responding by asking whether it would really have been possible to do it differently. “I think we should have started with a smaller group of banks – the EPC [European Payments Council] ran the risk of collapsing under the weight of all its members. Second, we should have taken smaller steps and had a well-defined end point. I do not agree that all stakeholders – corporates, consumers, users, etc – should have been invited to the table at an earlier stage. Banks needed to agree the way forward together before inviting others to join in the discussion.”
Buitenhek also warned that the industry should expect a Payment Services Directive (PSD) II in the next three or four years, despite the fact that there is a number of countries that have not transposed the first PSD.
Corporate Needs and Challenges in SEPA
A session exploring the needs and challenges facing corporates when migrating to SEPA was packed out, with barely enough standing room. Moderator Gilbert Ernst, member of the executive committee, Banque et Caisse d’Epargne de l’Etat, Luxembourg (BCEE), opened the session by outlining what corporates were asking for: fast, reliable, secure, and cost-efficient payments. Although SEPA was mainly a public authority driven project through the EC and ECB, the harmonisation that it promises should be of significant benefit to corporates.
Stefan Scheidgen, head of cash management/accounting, Deutsche Post Renten Service, which is the pensioners’ portal of Deutsche Post, said that Renten is in the process of migrating all its national payments to SCTs. The company began the migration in December 2009 when it converted a 24-million payment data set to International Bank Account Number (IBAN). In April this year, 1.5 million SCTs month were going through the system and by year-end the remainder 22.5 million payments will also be SEPA-complaint.
In Germany, Renten is in the forefront of the public sector migrating to SEPA, but Scheidgen said that in some ways the company was struggling because many banks were not prepared to do domestic payments via SEPA. “They are not prepared for the scale of our payments, plus the tools being used do not ensure all payments make it to the ‘old world’. My major concern is a mismatched IBAN/ BIC [Bank Identifier Code] scenario. The risk is that the changes in payment processing can result in payments being returned. We need to reconcile this issue with the banks to find out if it is possible for a payment to reach the beneficiary even if some of the information is wrong. Making sure that the IBANs are correct was a high priority for us this year.”
David Arendt, chief financial officer (CFO), Cargolux, an all cargo airline based in Luxembourg, outllined a very different experience. He joked that he was surprised that everyone was still talking of SEPA as a project – he thought it had already happened. With 37,000 payments per year, 63,000 invoices in 40 currencies, and operating in 115 countries, he welcomed SEPA because it has reduced transaction costs, allowed the company to improve its working capital and liquidity management, and cut bank charges. Luxembourg has the highest SCT conversion rate in the eurozone – 89.9% as of 2H09.
Chris Scheuermann, senior banking specialist at Software AG, which operates a partly centralised and decentralised treasury structure, said that the company still has low SEPA traffic, due to the fact that one ebanking system can’t use SEPA and the other system can’t be used with all its banks. “The different bank interfaces, including channels, technologies, formats, security standards, etc, are very challenging for corporate clients. Corporates also like straight-through processing, not just the banks. But there is a lack of readiness to use SEPA and there are no unified banking tools for multi-banking.”
A wide variance in experience of SEPA is quite common across Europe – even within countries. In an interview with gtnews after the event, Tony Richter, director of global transaction banking at HSBC, said that at a recent HSBC customer event in Milan, a survey found that many corporates need more advice and guidance, not only the benefits of SEPA per se but how they can effect a migration in a cost efficient way. “Interestingly, I was talking to one client from Rome who had done their ERP [enterprise resource planning] changes, and found it straight forward with the BICs and IBANs, and are now frequently using SCTs. Yet for another client, a French subsidiary in Italy, it is going to be a complex process to migrate,” he said. So there remains a space for banks to provide advice and guidance as to how the migration can be as painless as possible for their corporate clients.
Eurozone in Trouble – What Does that Mean for SEPA?
The ‘elephant in the room’ was the impending crisis within the eurozone, led by Greece but followed closely by Spain and Portugal, to name but a few. Will be Greece be ejected from the eurozone and what effect will that have on the SEPA project? This issue was absent from most of the panel debates, although HSBC’s Lagarmitte did make a few passing references to the crisis within Europe during her panel discussion.
In an interview with gtnews, Bob Mackman, head of business services, wholesale, ACI Worldwide, was pragmatic about the problem, saying that it was possible to create a single payments area without a single currency, pointing to the Middle East and also southern Africa, two regions that are looking to do just that.
HSBC’s Richter made the point that it was important to continue with the SEPA project: “SEPA is like any project – there are external pressures coming from here and there during the life of a project, that is normal. But we need to continue – the SEPA roadmap is well-defined and now that all the building blocks are in place, migration can move ahead with confidence,” he said.
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