This article was originally published in ‘SEPA Insights’, March 2008, published by The SEPA Consultancy.
During 2007, much attention was focused on achieving the first of several milestones for the implementation of the single euro payments area (SEPA). On 28 January 2008, the SEPA Credit Transfer (SCT) went live, generating sighs of relief as more than 4,000 banks in 31 countries had expressed their commitment to deliver the new standardised service to their customers. The larger players started processing SEPA transactions from day one, and volume seems to increase daily. Anyone who was involved with the wholesale introduction of the euro in 1999 was able to fully appreciate this achievement: SEPA is, after all, an even bigger project than the euro launch as it includes three euro payment instruments in 31 countries.
However, the payment industry has hardly reason to rest on its laurels. While it has now reached the end of the beginning of SEPA – the SEPA Direct Debit (SDD) still needs to be introduced; corporates, SMEs and public authorities have to be fully convinced of the benefits of switching to SEPA instruments; legacy payment instruments need to be phased out; clearing mechanisms need to be shut down; massive investment in marketing, education of staff and in technology will need to take place – but an even bigger project already looms large on the horizon: the Payment Services Directive (PSD).
What is the PSD?
In a nutshell, the payment industry will become subject to regulation under a new Directive that must be implemented in all EU 27 member states by 1 November 2009 at the latest. The PSD:
- Will create a harmonised legal framework for payment services, such as direct debits, card payments and remittances.
- Aims to increase consumer protection.
- Will guarantee fair and open access to payments markets.
- Creates a new type of payment service provider thus increasing competition for traditional payment providers.
- Will be transposed into national law and be regulated by national authorities in each of the EU 27 member states.
And all this has to be accomplished by 1 November 2009! The diagram below provides an inkling of the size and complexity of the tasks ahead. Some are project tasks that banks have to accomplish internally and will take place in the competitive environment. But others need to be undertaken jointly, in cooperation with other players in the market.
Source: The SEPA Consultancy
How Seriously are Banks Taking the PSD?
With 20 months to go until the Directive becomes national law, it might seem like a long way away – but is it? Here are some basic questions you should ask yourself. Note down your answers and check your PSD profile.
1. How is your financial institution preparing for the PSD?
a) We have set up a multi-function project and are actively reviewing each business area of the bank for PSD impact.
b) Since it is unlikely that the PSD will become national law on time, we will start a project sometime in 2008.
c) The PSD is a project for lawyers. We do not think the business side is affected much by the PSD.
2. Have you started to review individual products and services?
a) We have catalogued our retail and wholesale products and services and determined which and whether each of these is affected by the PSD provisions.
b) We have started to review a handful of products and services.
c) We are a sterling-based bank and thus do not feel our products will be affected.
3. Do you see the PSD as a regulatory burden and/or as a business opportunity?
a) While we understand the PSD as a regulatory project for which we need to reach compliance, we see the PSD also as an opportunity to outsource, reduce cost and develop new products and services or our clients.
b) For us, the PSD represents primarily a regulatory burden. We will focus on compliance first, on new revenue opportunities later.
c) The PSD means cost only; there is no upside to this Directive.
4. How well informed are your staff about the PSD?
a) As part of our PSD project governance structure, we are actively communicating to multiple business divisions and all levels of staff.
b) It’s too early to start communicating with staff as we are not certain yet about the exact implications of the PSD.
c) Our legal department is aware of the PSD and there is no need to communicate further than that.
How to Check Your PSD Profile
If you mostly answered (a): Congratulations! You are embracing the PSD comprehensively and pro-actively and are well on your way to becoming PSD compliant before 1 November 2009. You are unlikely to need outside help in your project.
If you have mostly answered (b): while you are aware of the PSD, you may have overlooked the detailed implications and the opportunities it presents. It is time to increase your efforts to become PSD compliant and to plan for post-2009. Either set up an internal project as soon as possible, or talk to external consultants about moving forward.
If you have answered mostly (c): you may have been hoping that the PSD will not become reality or will be delayed. Unless you are prepared to risk the wrath of the European Commission and your national regulators, start planning now!