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SEPA and the PSD: broken but not dead

I haven't written much about SEPA, the Single Euro Payments Area, lately because there's not been much to update although the last time I did, I asked the question: "Are SEPA and the PSD completely broken?"

However, there is now some news as I was with Gerard Hartsink in Hong Kong and Ruth Wandhofer in Frankfurt over the past fortnight and gained a healthy injection of knowledge about the last SEPA and Payment Services Directive (PSD) views.

Gerard Hartsink is Chairman of the European Payments Council (EPC) and Senior Vice President with ABN AMRO.  He is well known as the driving force behind making all of the SEPA plan work, and speaks regularly at forums worldwide as well as being a contributor to the SEPA Book.

Here's Gerard in Hong Kong discussing SEPA and SEPA Direct Debits (SDD):

One thing Gerard made clear is that the SDD program is important but has been challenging. 

This is illustrated by the issues of interchange fees for direct debits being introduced, such that each country can migrate towards SDD structures.  The importance of this is that different countries have different needs and charging structures, and a temporary period of interchange allows each country to slowly migrate towards harmonisation. 

For example, France has historically charged €0.12c per direct debit whilst most countries offer such processing for free through cross-subsidisation.  Under the SDD interchange rules, France has to reduce this charge by almost a third and, over time, to zero charging.  There's a challenge.

Meanwhile, Italy has a totally different product with floats and dating structures that allow Italian banks to generate significant margin on direct debit processing.  This will also be eradicated by SDD and PSD rules.

With France and Italy dealing with significant differences in charging and processing, it's no wonder that no end-date for SEPA migration has been agreed yet.

This point was picked up by Ruth Wandhofer, Vice President for Cash Management in Europe within Citi's Global Transaction Services Divison. 

Ruth also chairs the meetings across the banks implementing the Payment Services Directive and is heavily embroiled in negotiating the implementation plans for both SEPA and the PSD.

Ruth discusses the details of SEPA and the Payment Services Directive at the European Banking Forum in Frankfurt last week**:

The net:net of Gerard and Ruth's comments implies that the program has stalled.

I said this last year, and say it again.

SEPA Credit Transfers are picking up a pace, but it's slow.  Only 1.9% of all credit transfers use the SCT structure today.

e-invoicing is taking off as a specialist interest area, but nothing has yet been agreed or is in place, and it is unlikely to be until 2012 or later. 

The Payment Services Directive (PSD) is agreed and is being transposed by most nations, except Sweden.  Even with transposition, each country has its own PSD flavour so we have 27 flavours of harmonisation.  That's not a standard.

Meanwhile, the SEPA Direct Debit program will start this year.  Hopefully it starts in November, when the PSD gets transposed, but it's not guaranteed.  This is to be determined at an EPC meeting on 31st March where the banks will agree whether November is do-able or not.

Finally, there's no migration or end-date mandate for any of the above and, until there is, this program is a road to nowhere.

That's why Gertrude Tumpell-Gugerell of the ECB made the call for an end-date at the PARSIFAL meeting I attended in Frankfurt last week:

"We need a migration end date from which on onwards
only the European payment instruments will
exist. We all know that it is inefficient and costly if two schemes
continue to run in parallel for a prolonged period of time. Dual
processing does not generate the economies of scale that the SEPA is
able to deliver and hampers stakeholders in fully reaping its benefits.
Maintaining national instruments implies that fragmentation along
national borders is preserved, and that the integration of the European
retail market has failed. Thus, working towards the establishment of a
migration end date is deemed of the utmost importance to make the SEPA
a success."

My aim is not to be negative in portraying things this way, as it's all been moved in the right direction slowly but surely over the last decade, but there's the rub.  It's taken a decade to get to the point outlined above and with the banking system in meltdown, some banks seem to view all of this as irrelevant anyway.

Hopefully, the EPC meeting on 31st March will prove this wrong.

** the European Banking Forum is an event which takes place annually and began as a joint event between the Financial Services Club and VIB Events in 2008.  The Forum is open to all bankers to attend for free, with sponsorship and other opportunities availalbe for those interested in jioning from outsaide the banking community.

All videos and presentations are available to FSClub members in full.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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6 comments

  1. Chris
    Addenda to your article on SEPA ….
    Talk to end-users ,in addition to banks ….otherwise you miss half the story.
    The organizations representing end users who sit in the EPC Consumer Stakeholder Forum ( CSF ) hav created a Coordination Committee with Olivier Brissaud of EACT as spokesman
    Major weakness of SEPA is “governance”, who cannot be left entirely to the EPC . End users participation ,so far, has been largely “ornamental” .The “finished SEPA products” delivered by the EPC,especially SDD , have met with widespread criticism ,lack of committment and lack of end user adoption.
    End users proposals for changes in the Rulebooks have not been discussed . Early thie year,the Committee endorsed EACT Press Release ( and undelying technical paper ) listing 7+2 open issues to be solved before end users acceptan end-date on Credit Transfer.A similar list with open issues re. SDD and e-mandate is besing readied. There is no way , under the current governance, that these changes can be seriously discussed with the EPC. And without this , no serious end-date can be fixed . Unless the EC and ECB plan to impose one regardless…Fixed this way, is tantamount to declaring SEPA’s market flop.
    End-users Committee primary request is there fore a changee of governance .
    Comment on MIF — Present domestic MIF is not impacted by the EC decision to establish a 8.8 euro cents on crossborder SDD ( French banks will continue to use 12.0 euro cents on domestic SDD .This decision, not agreed with stakeholders,is clearly intended as a “subsidy” or “incentive” to banks for them to accept SEPA SDD . It creates “asymmetries” for banks and possibilities of “arbitrage” for corporates. The final fee structure , after the three years’ moratorium , should be discussed with all stakeholders ( not just banks) and be taken considering its impact on each country ( MIF and no-MIF countries )
    End of last year ,the EC+ECB consulted stakholders’ representatives on a new SEPA Governance Scheme and Action Plan. Nothing has come of it yet, due to “political” pressure and more pressing priorities( economic and financial crisis ) . End-users are eagerly awaiting an official proposal and , based on it , will decide whether to continue cooperation on SEPA .
    Gianfranco Tabasso , Chairman EACT Payments Commission

  2. Chris
    Addenda to your article on SEPA ….
    Talk to end-users ,in addition to banks ….otherwise you miss half the story.
    The organizations representing end users who sit in the EPC Consumer Stakeholder Forum ( CSF ) hav created a Coordination Committee with Olivier Brissaud of EACT as spokesman
    Major weakness of SEPA is “governance”, who cannot be left entirely to the EPC . End users participation ,so far, has been largely “ornamental” .The “finished SEPA products” delivered by the EPC,especially SDD , have met with widespread criticism ,lack of committment and lack of end user adoption.
    End users proposals for changes in the Rulebooks have not been discussed . Early thie year,the Committee endorsed EACT Press Release ( and undelying technical paper ) listing 7+2 open issues to be solved before end users acceptan end-date on Credit Transfer.A similar list with open issues re. SDD and e-mandate is besing readied. There is no way , under the current governance, that these changes can be seriously discussed with the EPC. And without this , no serious end-date can be fixed . Unless the EC and ECB plan to impose one regardless…Fixed this way, is tantamount to declaring SEPA’s market flop.
    End-users Committee primary request is there fore a changee of governance .
    Comment on MIF — Present domestic MIF is not impacted by the EC decision to establish a 8.8 euro cents on crossborder SDD ( French banks will continue to use 12.0 euro cents on domestic SDD .This decision, not agreed with stakeholders,is clearly intended as a “subsidy” or “incentive” to banks for them to accept SEPA SDD . It creates “asymmetries” for banks and possibilities of “arbitrage” for corporates. The final fee structure , after the three years’ moratorium , should be discussed with all stakeholders ( not just banks) and be taken considering its impact on each country ( MIF and no-MIF countries )
    End of last year ,the EC+ECB consulted stakholders’ representatives on a new SEPA Governance Scheme and Action Plan. Nothing has come of it yet, due to “political” pressure and more pressing priorities( economic and financial crisis ) . End-users are eagerly awaiting an official proposal and , based on it , will decide whether to continue cooperation on SEPA .
    Gianfranco Tabasso , Chairman EACT Payments Commission

  3. Chris, SEPA (the EPC response to the regulators) may be having a slow start, but it is premature to paint the PSD with the same brush. The PSD provides a regulatory regime for and hence legitimises non-bank providers – some of which are providers to banks, so are not automatically bank competitors as sometimes assumed. Some non-bank providers are extremely well positioned to deliver to the PSD. Whether the banking sector will adopt the alternative approaches, which could therefore fast-track SEPA, is an open question.
    Such payments and collections services are fully live today, hence are very low cost to adopt, and have very fast time to value. And, incidentally, have reach well beyond the EEA. Some of them are designed to benefit banks, not to disintermediate them.
    I’m sure there is a long list but to start it off – Western Union & Earthport have clearly signalled their intent regarding PSD compliance, and various industry pundits have commented on Paypal.

  4. Chris, SEPA (the EPC response to the regulators) may be having a slow start, but it is premature to paint the PSD with the same brush. The PSD provides a regulatory regime for and hence legitimises non-bank providers – some of which are providers to banks, so are not automatically bank competitors as sometimes assumed. Some non-bank providers are extremely well positioned to deliver to the PSD. Whether the banking sector will adopt the alternative approaches, which could therefore fast-track SEPA, is an open question.
    Such payments and collections services are fully live today, hence are very low cost to adopt, and have very fast time to value. And, incidentally, have reach well beyond the EEA. Some of them are designed to benefit banks, not to disintermediate them.
    I’m sure there is a long list but to start it off – Western Union & Earthport have clearly signalled their intent regarding PSD compliance, and various industry pundits have commented on Paypal.

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