SEPACSMSEPA: An Opportunity for Europe – Role of the Public Sector

SEPA: An Opportunity for Europe - Role of the Public Sector

I am very happy to see such a distinguished audience here today to discuss the single euro payments area (SEPA) project. I am particularly pleased that after such a long gestation period, SEPA is now becoming a reality. I believe that a successful migration to SEPA will bring huge potential benefits to the EU economy, and to individual players in the payments market.

If some in this audience today still have doubts, I think today’s conference should help dispel any worries. No one doubts the current market structure is highly inefficient, and there are enormous potential economies of scale. For example:

  • Why does Europe need 24 clearing houses?
  • Does the market really need separate infrastructures for high and low value payments, and yet another system for cards?
  • Do banks really need to maintain different systems for domestic, cross-border, euro and non-euro payments?
  • Do we wish to accept the cost of maintaining 27 different national payment systems?

And what about the users of payment systems?

  • Should they continue to bear the cost of connecting to 27 proprietary banking and hundreds of individual payment systems?
  • Couldn’t corporates make better use of their working capital if it were not tied up in expensive cash-collection and payment processes?

So the potential for savings really is large. And as a former finance minister, I believe in this project as it is a way of freeing up capital in the economy. Of course, I do not deny that there will be some cost for banks to bear at the outset. But I would encourage them to think of it as like getting an injection: mildly painful and inconvenient at the time, but highly beneficial over the longer term.

Where are we now with the SEPA project, and what do we need to do next? The good news is that the technical, business and legal foundations of the project have been firmly established. The recent adoption, in a single reading, of the Payments Services Directive (PSD) is in particular a major achievement. Now we need a robust and realistic timeline for completion of the project. And by completion, I mean wide-spread use of SEPA products by retail customers, SMEs, corporates and the public sector.

The PSD will not be implemented in national law until November 2009. This means that the SEPA direct debit products will not be available before that time. Only a few EU member states have so far declared their intention to phase out their domestic payments system and adopt SEPA. Against this background, the latest declaration of the EPC Plenary that they expect a critical mass of users by 2010 is a challenge. Therefore, we need to instil a sense of momentum and dynamism to make SEPA the success we all want it to be. Each stakeholder has to take responsibility for this in their respective domain.

Let me first turn to what I believe the banking sector should do. The banks obviously have the responsibility to design SEPA products that are attractive to customers, competitively priced and retain at least the levels of performance that current national products have. I am sure during the course of today you will have plenty of opportunity to hear what the banks plan and to have your questions answered.

Next, the banks will need to ensure that there are adequate governance structures in place to manage SEPA. The EPC is the only show in town as far as private sector governance of SEPA is concerned. It needs to better involve the users of payment services in its deliberations.

More also needs to be done to invest real authority in the EPC so that it can ensure that all banks are preparing themselves for the SEPA payments market on schedule. Laggards should be gently but firmly told to step up their efforts. The EPC will also need to use its new authority to establish a realistic timeline that all banks will be able to stick to for phasing out their old payments products and migrating their customers to SEPA products. To do this successfully, the EPC must be assured of the backing of banks at the top levels. This is an issue for boardroom discussion.

Let us now look at what the public sector needs to do to make this project a success. The public sector needs to give a clearer commitment to the banking sector that it is prepared to take up and use SEPA products. Assuming the performance requirements we all expect can be assured then the public sector should be early adopters of SEPA.

It is not helpful to those making investments in developing SEPA products if the public sector cannot give a reasonable degree of assurance on SEPA take-up. The ECOFIN Council has already made it clear what its price and quality requirements are as far as SEPA products are concerned.

The European Commission as a large payment area is preparing for early SEPA implementation. This will involve SEPA-compliant bank account files and the definition of a SEPA compliant treasury model. In early 2008, we will be launching a call for tender for opening accounts with SEPA compliant banks. This will have a knock-on effect on the disbursement agencies in member states and their use of SEPA-compliant payments of EU funds to the final beneficiaries.

The public sector also has the lead role in ensuring that the PSD is transposed into national law by November 2009. That is a fairly long lead-in time, so I expect that this is certainly an achievable deadline for all 27 member states. The Commission will be on hand to assist on technical issues during the transition process. But we will act against member states that fail to implement the Directive adequately or on time.

We have to ensure that the market co-ordination mechanism on which SEPA depends is working well and that market participants have certainty over the timetable and take-up, and that they are themselves making sufficient progress towards delivering the agreed products.

As part of this process, we will be reporting in a transparent manner to all parties on the progress that is being made. If all parties to this project do what they should do, I am confident that we will manage to transform our pot of gold at the end of the rainbow into a pot of gold in the hands of our economies and citizens.

Now with the legislative proposal adopted there is no reason why all concerned cannot quickly move to get the momentum into the roll-out of SEPA. This conference today will, I hope, be a launching pad to make this project the success it deserves to be.

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