The Bank’s Perspective on SEPA

gtnews: How do you think the single euro payments area (SEPA) will affect the payments landscape?

Marco Morsch, Commerzbank AG: The SEPA instruments will mean a significant change for euro payments from 1 January 2008. The big European banks will have a more dominant role, because they have opportunities to employ more economies of scale for payment transactions. The payments landscape, e.g. in Germany, will also undergo some changes and there will definitely be some consolidation. The top banks in each country will get a better role in the payments industry under SEPA. The smaller banks will sell their payments business and outsourcing will be a big issue in the future – they will need to decide whether to do it in-house, or to outsource all the payment transactions. It will be much easier to make payments in Europe than in the past and I’m pretty sure that the SEPA direct debit will be a popular instrument.

gtnews: How will Commerzbank ensure that the transition period is as short as possible?

Morsch: That is an interesting question, and we are not sure how we will achieve that! But first of all, we will have a parallel period using both SEPA transactions and domestic payments. We would like the Deutsche Bundesbank to fix a date when the national clearing mechanism will be cancelled, so that the corporates and also the banks know the deadline for implementation. Commerzbank will support the use of SEPA instruments by 1 January 2008. The deadline is likely to be much later than 1 January 2010, possibly more like 2012. We would like to start by using the new XML format, and we will gradually change our customers from the old format to the new format. The biggest objection our customers have in changing from the old format to XML is the cost. In our discussions on SEPA with our clients, they have noted that using XML will have an effect on them – and many corporates are not that supportive of SEPA because it means some disturbance and cost for them. They will also need to implement new modules of their enterprise resource planning (ERP) system for using SEPA instruments and SAP will deliver a SEPA module in the middle of 2007, so I don’t think that will be a problem.

gtnews: What is the level of awareness among corporates about SEPA?

Morsch: I am pretty sure that corporates are well aware of SEPA. In the last quarter of 2006 we have already started informing our multinational corporate clients. Our next step is to inform our mid-sized customers, and we are on the way to completing that, with some additional events for informing our customers about SEPA in the coming months. The bigger corporates already know about SEPA because they can see the effect it will have on their business – they realise that they can change some aspects of their businesses, for example by using the SEPA direct debit. However, the smaller corporates are not aware of SEPA, because they have low volumes of transactions; it will not really affect them much at all.

gtnews: In your current discussions with corporate clients on SEPA, what are their main problems/concerns?

Morsch: The corporates’ main concern about SEPA is the customer-to-bank format. Corporates need to programme the new format into their system, or even get new SAP or Omicron software. Sometimes we have a specific problem with our mandates for direct debit. For example, German law prohibits using the old German direct debit mandate form for the SEPA direct debit, and that’s the main problem. So our customers have to agree a new mandate for using the SEPA direct debit and that can mean that, for example, an insurance company has to get maybe one million new mandates, which will be a big problem here in Germany. We want the governmental bodies, the lawyers from the different banks and the federal government to keep an open discussion about this. There should be a dialogue between all parties involved, i.e. corporates, governmental bodies and banks, to find an acceptable and legally feasible solution for migrating mandates. However, we hope to resolve this problem and obtain a description for the customer bank format by the middle of 2007, so that the SEPA format can be implemented in each different system.

The Payment Service Directive (PSD) has also been a concern, although it is now resolved. Corporates want to be sure that the PSD will be fixed and will be regulated and implemented equally in all countries, so everybody can be sure what’s happened with each different payment method by using the SEPA transaction, so that everybody is talking about the same regulations.

gtnews: What are the advantages of SEPA for corporates?

Morsch: It is very difficult to sum this up in one or two words! For some customers SEPA will have no distinct advantages. The other customers will profit from new possibilities such as new reference numbering schemes, structured remittance information or deviating ordering and beneficiary party. The bigger multinational corporates will definitely benefit more from using one format for European transactions. The SEPA direct debit also means that some corporates will be able to access new markets, which will expand their business, for example into eastern Europe.

gtnews: Do you see specific challenges for the existing German payment culture in migrating to SEPA?

Morsch: I don’t think the German payments culture faces any specific challenges in its SEPA implementation. We will definitely not have any challenges using the SEPA direct debit, except for the problem with format mentioned above, because Germany is a direct debit market. One of the major achievements of the German payments market is a multi-banking standards environment. It will be a challenge to preserve this advantage in the future SEPA market.

gtnews: Do you think SEPA will encourage/enable the development and acceptance of e-invoicing in Germany?

Morsch: I’m not sure. First of all, there is no commonly used e-invoicing system in Germany; direct debit is usually used instead. All of the known solutions are banks’ individual systems and all lack a profound payment component. E-invoicing is unlikely to be a product for us in the next three or four years. First of all we have to start with implementing the SEPA instruments, and after that we can turn our attention to e-invoicing.

gtnews: One of the consequences of SEPA is that clients will be able to consolidate their accounts and thereby select the financial service provider that suits them best. Do you anticipate that clients will change banks frequently in order to obtain the best price for services?

Morsch: Yes, I’m sure that our clients will reconsolidate their accounts. I think this will enable them to change banks more frequently and more easily, first of all because many of the other banks are able to offer the same service level for using transactions across Europe. In the past we had to convert files, and in the future we will have one format and one standard, so it will be easier for our corporates to change their bank and to consolidate their account structures. However, in practice I think that they will stay with their main relationship bank.

gtnews: Are public authorities motivated to use SEPA instruments?

Morsch: Public initiated projects always have longer realisation periods than estimated, and we believe that this will be the case for SEPA as well. Also there might be a problem with funding. What we heard from the federal government in Berlin is that they do not want to change by 1 January 2008, because they want to be sure that everything is running, that they will have a good format. Public authorities in Germany are traditionally very closed and against implementing new services. The federal government in Berlin has said that it will not impact Germany at a national level, but it could have some consequences for each federal state.

gtnews: Do you think central bank reporting is detrimental to SEPA?

Morsch: Central bank reporting is useful for obtaining statistics. However, the present procedure is not up-to-date, and should be reorganized, for example by isolation from transactions. In the current situation it is definitely unacceptable for our customers.

gtnews: Do you expect SEPA to be the catalyst for consolidation in the banking industry, in particular for banks’ payments businesses?

Morsch: SEPA will be more expensive to realise than was initially planned. Smaller banks will have to reconsider their internal position in transaction banking because of the internal costs. Bigger banks have the resources for in-sourcing transaction processing to keep costs down for their customers.

gtnews: Is SEPA an incentive for corporates to set up shared service centres (SSCs) or payment factories? Are invoice factories also a possibility?

Morsch: Absolutely. I’m sure that in the future we will have more shared service centres, because it’s easier to handle the transactions from one place. Maybe you have one format, you have one bank, maybe, which is able to handle all the transactions for you, and I’m sure that in future we will have a lot of customers who want to implement a shared service centre. One of the most likely locations for this is London, Frankfurt or Berlin, which provide a good environment for talking and getting in contact with their banks. This makes sense for the bigger corporates. However, I don’t think invoice factories will be common, at least not in Germany – it is more likely in Scandinavia where they have a good functionality in the e-invoicing system.

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