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.