Taking a Fresh Approach to Payments?

The implementation of the single euro payments area (SEPA) was inevitably a topic running through this year’s EBAday. But are corporates engaged with the process – and what incentives exist to bring them on board, especially against the backdrop of the global financial crisis?

Several speakers at ‘A Corporate Perspective on Payments’ commented that without the benefits of SEPA being made clear to companies, there was little economic incentive for them to adopt it. As Alan Raes at SWIFT said: “I don’t see the benefits for corporates of using SEPA. How can banks make the bribes prettier?” He added that banks needed to get ‘back to basics’ as to why SEPA exists. “Payments is part of a chain and nothing will happen if we don’t tackle this part of the chain. There are ways this can be done but we need to have single, clear objectives. There will always be more important things to do. [We are facing] a hard struggle towards standardisation. Companies are quite satisfied with the existing situation. It is one for the banks to tackle.” Gunther Gall, executive vice president of RZB Group, concurred. “It started as a stakeholder process and is now a banking problem. For example, will banks communicate with their customers?” he asked.

The number of payments and banking relationships made yearly has rocketed in the past 10 years, but this meant there were more mid-market companies with a less clear understanding of the potential benefits of SEPA, as well the roll-out date. The process was also still overwhelmingly viewed as excessively time-consuming – reaching the projected end-date before 2015 was unlikely. Andreas Elberg, principal consultant at T-Systems Enterprise Services, added: “Migration is necessary. But I don’t see an end-date within the next five years. Lots of companies have systems and IT that will take time for implementation. They don’t see the benefits of the project, or of the implementation of new processes and technology.”

One audience member argued that the implementation of SEPA would help firms drive their development of technology. This was not a popular view – indeed, in the session, ‘The Future of the Payments Business’, Werner Steinmüller, a member of Deutsche Bank’s executive committee, made the point that “companies want everything new and free. The investment behind these systems is huge. And corporates can’t pay from their balance sheets any more.”

The New Normal

As to the future of transaction banking, Mark Garvin, chairman of treasury and security services at JPMorgan, said banks as well as corporates would expect more from their clients in exchange for future ease of borrowing. “Corporations are going to the capital market to raise funds – so I think banks will demand more transparency and much higher scrutiny. Yes, there will be more bundling of lending, but banks will expect more as a result of that. Banks not only need to know their clients but vice-versa, and it will lead to more long-term relationships.”

In the ‘new normal’, Garvin added, firms had to accept a more stringent regulatory approach. “We have to be practical. The industry recognises that there has to be a trade-off between customisation and standardisation. It will not be an easy process given what has happened over the last few years.” He added that a combination of revaluing banks’ service offering and repricing [was inevitably driving down costs]. “The trend is away from complexity and towards simplicity,” he added. Steinmüller added: “We are experiencing re-engineering, meeting the right need for the right goal.”

Steinmüller said it was important to allow for a wholesale shift in attitudes rather than merely installing new technology – something that had contributed to the financial crisis. He added that the crisis would also allow banks with a good product range to benefit from corporates’ new ‘flight to quality’. “A lot of questions are now asked [when firms are choosing banking products]. There has been a change of attitude, and corporates are now looking for the key players,” he said.

Innovation in Payments

The financial crisis and consumer behaviour, as well as new technology and the implementation of SEPA and the Payment Services Directive (PSD), are driving innovation in payments, the conference heard. The changes in consumer behaviour in retail payments were driving change at a fast pace, according to Renzo Vanetti, chief executive at SIA-SSB. “The new digital generation is pushing change,” he said.

Ruth Wandhöfer, vice president and SEPA market manager at Citi, said it was vital for banks to drive innovation as well as responding to customer need, while playing to their strengths. “It is [also] about creating a user need. The challenge is making payments simple, easier to understand and to leverage, and banks should take that as their starting point. Remember leveraging partnerships is what you are good at.”

The focus needed to shift from technical innovation to focus on the products themselves, Lee Fulmer, FSS sector lead at IBM, said. Fulmer admitted that, in his previous role at HBOS, he banked with HSBC owing to dissatisfaction with the former’s product offering. “Technology has happened but we haven’t spent a lot of time innovating the products themselves. In a recession we can do product rather than technical innovation. It is not just how to do it quicker, but better; more secure and easier to use.” Collaboration between banks was key to improving innovation, he said. “Banks need to say: ‘If we can take a step back and stop being territorial, we can deliver these things.’ So far we have spent billions and delivered complication to our customers.”

Citi’s Wandhöfer warned that customer knowledge had become increasingly important, especially with the threat of Paypal and similar companies encroaching on banking territory in the retail space with more user-friendly technology. “It is in corporate banks’ interests to collaborate as much as possible to break down the barriers. Otherwise [Paypal and similar firms] will find a way to disintermediate banks and we can all shut down.” She added that the Know Your Customer (KYC) regulation was a vital opportunity to understand customer needs in addition to identifying them: “It gives us the opportunity via market analysis to find out what the customer likes. It has to be quick, easy and cheap, but also available to multiple channels.” But IBM’s Fulmer said a paradigm shift needed to occur to make the Paypal business model viable to banks, since the cheapest payments still incurred the same cost as larger transactions. He added that it was important not to place too much importance on technical innovation. “That can fail. IT is the enabler, it is not the driver – so let’s take it out of the driving seat.”

Conclusion

Despite enthusiasm for the talk of innovation, there were less positive opinions on the progress made on SEPA and the PSD since last year’s conference. More than one participant voiced the view that although the clock was ticking on their implementation, little had actually changed. “I don’t really feel that I am hearing anything new this year,” said one participant. Let’s hope that by EBAday 2010, there will be new food for thought.

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