A SEPA end-date at last?

Two things coincided today.

The first is the great news that the European Commission is thinking about setting a SEPA end-date.  The second is another report I finally got around to reading which is the excellent Boston Consulting Group’s (BCG) payments analysis from the first quarter entitled: “Weathering the Storm”.

The reason why the latter is important for the former is explained if you read on.

The BCG report looks at all aspects of payments worldwide, and opens with an interesting analysis that shows global payments revenues up at over $800 billion in 2008 for banks worldwide ($805.1 bn), up from $654.3 billion in 2006 and forecast to rise to $1.4 trillion by 2016.

Transaction services, money transmissions and payments processing is where it’s at, folks!

A nice stable revenue stream delivering good, reliable results. Just what a bank with a pain in the arse investment division needs.

It goes on to review each region’s challenges:

• The USA is struggling with how to bring back stability after the credit crisis and then will focus upon excellent in multiproduct payments and transaction processing;

• Latin America has fantastic growth opportunities, particularly in credit cards and the unbanked and underbanked;

• Asia Pacific is another underbanked market opportunity for growth, but also for innovation with many opportunities to deliver new and untested products and services to a willing audience;

and so on and so forth.

They then launch a withering attack on the European landscape with a view that “although some of the original objectives of SEPA have been met – such as equal process for domestic and cross-border transactions and the introduction of a pan-European payment instrument for credit transfers – other SEPA objectives may never materialise. Such objectives include payment services, increased competition and price convergence.

“A majority of European banks have followed a minimum investment strategy to ensure basic SEPA compliance. Yet consumers and retailers have appeared relatively disinterested in the purported benefits of SEPA, an d many corporates are pressing banks to give them good reasons to adopt SEPA instruments.

“in BCG’s view, the benefits of further implementation of SEPA are limited, and investment required for achieving full SEPA are prohibitive. European banks should therefore continue to avoid massive SEPA investments and examine the forces that will drive international strategies over the next few years.

“Policymakers should stop driving payments providers into unnecessary expenditures and focus instead on other initiatives” such as e- and m- payments and biometrics for improving payments efficiencies.

The report goes on but, as made clear by other discussions, it clearly states that SEPA ain’t happening and is unlikely to as no-one sees the benefit.

I’m not sure I agree with that last statement – no-one sees the benefit – as the European Commission obviously does.

This is because a seamless cross-border processing of payments without extensive fees, conversion and costs makes sense. About €100 billion of sense per annum according to the figures touted around when the Payment Services Directive was first introduced.

This is why the European Commission has launched a consultation on whether and how to set a deadline end-date for the migration of credit transfers and direct debits to SEPA.

According to the Commission’s announcement, “setting clear deadlines for the migration of legacy credit transfers and direct debits to SEPA credit transfers and direct debits would send a strong signal to all stakeholders that SEPA migration is an irreversible process. It would provide certainty and predictability and act as a strong incentive for both industry and users to speed up migration. The European Central Bank/Eurosystem stated in its 6th SEPA progress report that ‘setting a realistic, but ambitious end date for the migration to SCT and SDD is a necessary step in order to reap the benefits of SEPA early’.

“The Commission is therefore launching a public consultation on this subject in order to obtain a more comprehensive view of stakeholders' positions. The consultation paper presents all the options available today regarding the definition of such an end-date and its potential practicalities:

• Should it cover only standards, or schemes as well?
• Should it cover only the interbank space, or the bank-to-customer space as well?
• Should it entail full migration or allow the exclusion of certain products?
• If an end-date is seen as needed, should there be one common end-date for SCT (credit transfers) and SDD (direct debits) migration or two separate end-dates?
• Should they be set at national level and/or at European level?
• Should they be left to self-regulation or set by regulation?”

Based on BCG’s report - “Policymakers should stop driving payments providers into unnecessary expenditures and focus instead on other initiatives” - I’m sure that banks, corporates and citizens are jumping for joy with this news.

The consultation process will end on 3rd August and the consultation document is available here.

Meanwhile, the Financial Services Club is conducting research into bank, corporate and national readiness for the implementation of SEPA and the PSD during the summer for a publication to be released in September 2009.

If you are interested in participating or sponsoring this research, please contact us.

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