With just under half (41.4%) of the 5,804 participants at Sibos 2009 from the Asia-Pacific region, it may surprise some that the single euro payments area (SEPA) and the Payment Services Directive (PSD) had such a high profile during the week. But significant factors, such as the pressing November deadlines for the PSD and SEPA Direct Debit (SDD) scheme and the majority (45.3%) of Europe, Middle East and Africa (EMEA) delegates at the conference, meant that eurozone payment developments loomed large in the sessions, and saw a flurry of announcements and reports released in and around the conference.
In the week before Sibos, three reports were released, the most significant being the European Commission’s communication ‘Completing SEPA: a Roadmap for 2009-2012’, which was seen as a signal of political will that hasn’t really been there to date. The communication, which is also in line with the view of the European Central Bank (ECB) and will be endorsed by the ECOFIN Council in December, presented a series of actions to be undertaken by EU and national authorities, industry and users over the next three years.
This communication is significant because for many, whether corporate, bank or public sector, the move to SEPA instruments has lacked a sense of urgency. In July 2009, one and a half years after the launch of SEPA Credit Transfer (SCT) scheme, only 4,4% of all credit transfers used SEPA standards. As Charlie McCreevy, Internal Market Commissioner, said: “By providing a roadmap where actions, actors and deadlines are clearly identified, this communication will play a decisive contribution in helping SEPA successfully achieving its last miles.” In particular, this means bringing on board the public administrators.
The EC set two important deadlines that will drive forward public sector SEPA adoption: the migration of European institutions by June 2010 and the migration of national public administrations by end-2010. With nearly 50% of EU gross domestic product (GDP) and around 20% of all cashless payments made, the public sector has not played the leading role it should in SEPA migration.
At a Sibos session entitled ‘SEPA: Have We Reached Cruising Altitude?’, the consensus was that, although the SEPA aircraft has taken off, cruising altitude was still some ways – and some effort – away. Gerard Hartsink, senior executive vice president, ABN Amro and chairman of the European Payments Council (EPC), wants to see more action from the public sector. “It is clear that public administrators are not making enough progress in all member states,” he said, adding that technology vendors also had to step up and provide the technology for small and medium-sized enterprises (SMEs) in order to help them migrate their payments to SEPA.
Progress Made but Issues Still Lingering
The fifth World Payments Report (WPR), from the Royal Bank of Scotland, Capgemini and the European Financial Management and Marketing Association (EFMA), said that clearly progress had been made on positioning the building blocks needed for SEPA to succeed in the long run, despite the financial crisis, but outlined a number of unresolved issues that still needed to be addressed:
- SEPA cards face certain hurdles, such as issues over scheme compliance. It is too soon to contemplate any additional type of end date for cards beyond the currently agreed deadline of end-2010 for migration to EMV standards (for cards, POS terminals and ATMs), even though some market players are already arguing in favour of it. Interchange fees and standardisation present significant practical hurdles to the SEPA Cards Framework (SCF), with MasterCard having reached an interim solution for calculating fees (after being forced to act by the EC).
- For SEPA migration to speed up, each set of stakeholders needs to overcome their concerns. Banks need to be convinced of the business case for moving forward aggressively and corporates need more information to justify the necessary investments (for example in IT) required for SEPA compliance. Public administrations, prime potential users, have yet to become SEPA advocates.
- The risk of a mini-SEPA remains real, unless stakeholders get certainty on key overarching issues:
- A wide range of stakeholders are increasingly agreeing that setting an end-date for full migration to the SCT and SDD Schemes will be an essential step. Earlier in 2009, a European Parliament resolution called for an end date of no later than end-2012 and the EC has since launched a wide-ranging public consultation on the end date question.
- SEPA solutions must demonstrate their potential to offer tangible improvements in operational performance. National authorities may have a role to play at a practical level to support and ease SEPA implementation in their local markets.
- Banks and corporates need clarity on all the standards to be used for SEPA payments (e.g. around data) in order to prioritise relevant IT investments and progress with SEPA implementation plans.
The report also stressed the need for corporates to be convinced of the benefits of migrating to SEPA instruments. The corporates surveyed gave SEPA only three out of 10 on the priority scale. And yet corporates identified these benefits in the following order:
- Improved reconciliation capabilities.
- Reorganisation/optimisation opportunities.
- Decline in transaction costs (although one respondent said transaction costs could increase as individual incentive deals disappear).
- Alignment of domestic/cross-border transaction prices.
- Enhancement of card acceptance and lower fees.
None of the corporates cited account reduction possibilities. As long as corporates are unclear of the business benefits of SEPA, they are likely to delay switching to SEPA payment instruments, at least in the short term – and especially in the absence of a stated end-date for migration.
The issue of an end date or dates for SEPA is still overshadowing other issues. In an interview with gtnews, Bertrand Lavayssière, managing director global financial services, Capgemini, was very clear: “SEPA has taken some good first steps but we need an end date.” The consensus seems to be that the timeframe needs to be near term enough to stimulate adoption, but far enough away to allow for the refreshment cycle of technology.
In the WPR, corporate executives cited a few specific prerequisites for SEPA to succeed from their perspective:
- More clarity on the impact of the SEPA/PSD, i.e. more communication and information from banks and European authorities.
- More clarity on the benefits of using SDDs, and ways to safeguard the advantages that currently exist in national payment means.
- Card standardisation.
- A single European automated clearing house (ACH) for all participating countries.
Interestingly, SEPA was viewed in a more positive way by non-European, global corporates surveyed than by domestic European corporates – SEPA is seen as facilitating a reduction in their transaction costs, reducing business difference between countries, and allowing a better integration in enterprise resource planning (ERP) systems.
A Land of Confusion
Another report released in the week before Sibos summed up its findings in the title: ‘European Payments: A Land of Confusion’. Commissioned by BT, Earthport and Logica, the Financial Services Club research found that Europe’s policymakers, banks, corporates and infrastructure providers have become increasingly frustrated with 58% of them saying that the PSD is being transposed inconsistently and 63% stating that this is because of different interpretations at the country level. Only 13% believe it is being implemented correctly.
The research surveyed over 350 global payments professionals about SEPA and the PSD’s progress, as well as conducting over 25 interviews with the key organisations involved, including the EC, ECB, EPC, Euro Banking Association (EBA) and European Association of Corporate Treasurers (EACT), as well as leading banks, infrastructures, payment institutions, corporates, vendors, consultancies and more.
The research found that European member states are implementing the PSD in an inconsistent manner that threatens to derail the progress of SEPA. Certain member states were particularly cited as at issue more than others, with Germany and Italy seen to be actively blocking progress while France and Spain are viewed as delaying the process.
On a more positive note, participants do expect new payments institutions to gain market share, particularly money transfer service providers, and that these changes have motivated many banks to look for more innovative services for their clients, particularly around corporate information services, e-payments, m-payments and e-invoicing.
Announcements Round Up
Sibos is the place to announce new products and alliances, and VocaLink led the press release charge, making three announcements mainly around SEPA interoperability. The week before Sibos began, VocaLink announced an interoperability agreement with Krajowa Izba Rozliczeniowa (KIR), the national clearing house for Poland, for SCTs, establishing a bilateral link for the exchange of SCT payments based on the European Automated Clearing House Association (EACHA) interoperability standards. This is despite the fact that Poland is not currently a member of the eurozone.
Additionally, VocaLink and STET confirmed that they are working together to establish a bilateral link for the exchange of SEPA payments based on the EACHA interoperability standards. The provision of reciprocal interconnection services will allow the two organisations to mutually exchange SEPA-compliant payment messages on behalf of their respective clients. The agreement will further enhance their reach within the eurozone.
Lastly, VocaLink announced that it has extended the bilateral agreement with Equens to include SDD payment processing, in addition to the SCT service already offered. The interoperability agreement helps to create a more competitive payments market as banks will be able to choose which processor they want to use for SDDs, as well as SCTs. It is the intention to go-live with the extended interconnection with the start of SDD on 2 November 2009.
Next, EBA Clearing made two announcements. First, it announced that the preparations for the launch of its SDD services on 2 November 2009 continue to be fully on track. The first three scripted testing windows in May, June and July were successfully completed by 19 banks for the STEP2 SDD core service and by 15 banks for the STEP2 B2B service. The number of direct participants signing up for the remaining testing windows prior to the SDD services go-live continues to grow: by early August, EBA Clearing had counted 73 registrations for its SDD core testing and 51 registrations for its SDD B2B testing on the STEP2 platform.
Second, EBA Clearing announced that its new EURO1/STEP1 Directory lists close to 2,400 reachable banks, in addition to the 10,000 participating banks’ bank identifier codes (BICs), a year after the agreement to jointly deliver the payments directory was signed by EBA Clearing and SWIFT at Sibos in Vienna. This means that participant banks are now able to use EURO1/STEP1 for the routing of transactions to close to 7,500 additional BICs across the world. This represents an increase in the reach of the EURO1/STEP1 services by almost 75%.
In other news, Fundtech and Microsoft introduced the SEPA Integration Suite, a new suite of service-oriented architecture (SOA) services that adds SEPA transaction processing to a bank’s existing payments infrastructure with minimal disruption and risk. While Distra launched its universal switch, which includes advanced payment switching applications capable of performing a variety of payment processing rules including multi-leg transactions, and supporting multiple payment channel types such as ISO 8583, ISO 20022 and batch. It runs on an intelligent fault tolerant platform proven in a tier one environment, supports Payment Card Industry (PCI) and PSD compliance, and enables real-time transaction metrics and performance reporting.
And finally, Bank of Tokyo-Mitsubishi UFJ (BTMU) has become the first financial institution to adopt Pelican for SEPA software-as-a-service (SaaS). ACE Software Solutions and Capgemini BAS, a provider of application services in the Dutch market, offers the service jointly. Initially BTMU has adopted the service in the Netherlands, for Amsterdam and Paris. Following this implementation, the service will be rolled-out to branches in London and the rest of BTMU’s European network.
In the build up to the November 2009 deadlines, SEPA and the PSD are on everyone’s lips. Sibos 2010 in Amsterdam will be the real test, where the financial industry will come together again to discuss what has happened almost one year after implementation. (Despite it being traditionally the American region’s turn to host SWIFT’s user conference, Amsterdam has pipped Toronto to the post.) How will the financial industry and corporates view SEPA and the PSD? Will the SEPA project be at cruising altitude, or will it be grounded? Today, most believe that the European payments industry has come too far to turn back, but the flightpath is still uncertain.
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