How Will SEPA Affect the Public Sector?

As the industry moves closer to adopting the single euro payments area (SEPA), many will assume that this is purely an issue for the banking sector. Why should the public sector be interested in changes to the way banks process their payments? Surely this won’t affect the public sector?

The public sector, and in particular the European Commission as one of the key regulators, has of course been at the forefront of guiding the SEPA project. But what about the public sector as a user? At first glance, it is true to say that SEPA does not look like it is of immediate interest to the public sector. But this would be a misjudgment of SEPA and its impact on Europe and the European public sector.

Achieving Governmental Ambitions

The public sector in Europe is undergoing an immense amount of change and there are four broad trends emerging:

1. Ever-increasing diversification of channels for delivering services to the citizen – not just the use of call centres and the Internet, but also a debate between direct service delivery by central government versus local public sector provisioning.
2. The pooling of services to create shared services focusing not just on back office functions but also moving towards front office shared services.
3. Process transformation to improve productivity, create value and drive cost efficiency.
4. A debate about whether government agencies should deliver everything themselves or seek help from others – essentially a debate about getting access to the right skills, capability and capacity.

In our view, SEPA is one part of the solution to all of these challenges. For example, over the past few years, all EU countries have invested heavily in e-government services. According to Capgemini’s annual survey on the levels of e-government across the member states (undertaken on behalf of the EU), it is large-scale transactional services that have been driving the take up of e-services in the public sector. Typically, these transactions involve an exchange of money or information between people or businesses and government. In the public sector, we have seen a growth in the use of e-government solutions in the transactional elements of governmental business, such as e-procurement, e-invoicing and services, e.g. taxation and customs.

As such, SEPA provides a potential new vehicle to move to the next stage in the development of these transactional services by standardizing the payment facilities across Europe. It could be used to develop and deliver common solution sets to common problems that governments across the EU increasingly face. By sharing standardized solutions, governments can share investments not only within their respective countries but also across the eurozone. As well as helping them to realize productivity benefits of process transformation, this could dramatically reduce the cost of implementing new processes and further drive cost efficiencies. We see SEPA as offering real opportunities to further some of these critical public administration objectives.

Directly Benefiting from SEPA

Government ministries and agencies will, of course, be users of SEPA and will also benefit directly from accelerating its reach so that SEPA payments gain a critical mass.

The EU public sector has an economic weight of over 40% of GDP but it also represents a visible market share of around 15% in the areas of Credit Transfer and Direct Debit transactions. The public sector will gain from:

• Competitive price reductions in existing services, which could generate savings against current costs of between 30% to 50% within the eurozone, as demonstrated in Capgemini’s last World Payments Report.
• Less risk as processes become standardized.
• A basis for a modern payment infrastructure, which could be leveraged to support the modernization of government payment services.

Wider Economic Advantages

The public sector must also think about how it encourages the take-up of SEPA because of the wider benefits to Europe’s economy. SEPA will critically increase the benefits of the single currency and the transaction of intra-EU trade by providing savings for businesses and consumers through standardization of services. But we also believe that SEPA will increase competition among payment services providers and foresee new regulations and increased competition having a strong impact on banking tariffs after full conversion to SEPA. Like government this could generate potential costs savings of between 30% to 50% for consumers and businesses.

The Take-up of SEPA

The diagram below, which was designed as part of a study Capgemini is currently undertaking for the European Commission, sets out the four extreme scenarios for SEPA adoption.

Of the four extreme scenarios, it is only the scenario where both the supply side and the demand side actively engage where we see the most positive market perspective. In the least favourable ‘all tied up’ scenario, adoption and take-up is likely to be slow due to scepticism about compliance costs. While the financial sector will face the headaches and cost burdens, those that use banking services may also be concerned about having to carry these additional costs. However, if governments understand the potential benefits and drive demand for SEPA based payments systems then critical mass may well be reached allowing SEPA based payment products to deliver the benefits of SEPA.

Conclusion

SEPA is not just an issue for the banking sector, it could have a profound impact on the way the public sector conducts business. As well as creating opportunities to share the development and implementation of standardized transformational projects within and between governments, the public sector and wider economy will benefit directly from the cost savings associated with standardized payments. By driving adoption of SEPA, governments could help address some of the key challenges they face.

Furthermore, SEPA will deliver benefits for the wider economy. It is not just an issue for the banking sector; SEPA will affect the public sector in the way it conducts its business. The economic advantages of SEPA will also benefit the public sector. Finally, SEPA offers opportunities to the public sector to meet some of the key challenges it now faces.

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