The Move to SEPA: How is it Affecting the Players in Card Payments?
The single euro payments area (SEPA) is looking to create a realm where all payments are treated equally. It will create a single European market where the same rules will apply everywhere and national market ‘special’ requirements will disappear. For banks and processors, this will likely result in new products, processes and price books. Retailers and corporate clients can potentially benefit from the chance to consolidate their payment systems and banking relationships.
Prior to SEPA, a retailer or corporate would contract with multiple banks and/or processors to cover each of the countries in which it did business. As SEPA has come into effect, the organisation can either stick with its current strategy or look to move to a more consolidated approach. The opportunity now exists to have a single banking relationship for the whole of Europe, with all card transactions processed by one entity. The main aim for the corporate would be to reduce the overall level of spending that it makes on managing transactions and payments across the business, as well as moving to one point of management.
The opportunity that SEPA offers for multi national businesses, or those that conduct operations across borders, is therefore based on reducing the cost of doing business across Europe. It also aims to speed up payments across the SEPA zone: in an age when goods can arrive before payment has been processed, SEPA represents an opportunity for greater efficiency and better cash flow.
The change to a single bank or processor relationship should make the business more efficient and reduce per transaction fees. However, this single relationship could have an impact on business continuity planning in the event of a problem affecting the bank or processor chosen: reliability of infrastructure and reassurance of high system availability should therefore be discussed as part of the choice of partner and processing platform.
The other area for consideration is if the corporate or retailer handles additional card or transaction types, as these may be affected by the switchover to one single payments processor. Existing schemes, such as a fuel card or loyalty programmes, will require additional integration work into the new payment processing application, which should also be considered as part of the scope of work.
For banks, the initial impact of SEPA was to see the removal of cross-border fees and experience a reduction in merchant service charges. After this, however, it has opened up an opportunity for them to win a greater share of the European payment transaction marketplace. There are therefore two potential routes available to banks that work in areas affected by SEPA: invest now and get early adopter advantage, or ‘wait and see’ and risk facing heightened competition and losing customers.
Banks that choose the investment route are now enabling their systems to be SEPA-compliant. While this requires additional investment, it does offer them the chance to win that greater share of their customer accounts and increase the overall volume of payments that they are processing. It also allows them to target other banks, that are either more cautious in their approach or would not see enough value from the investment required to bring them into compliance. In this case, outsourcing of transaction processing becomes another opportunity for banks that are willing to invest.
As the business case for investing in SEPA has not been proven: while compliance with SEPA from a cards perspective becomes mandatory in 2010, the main opportunity for growing revenues may not deliver enough return on investment in the initial implementation phases. This is therefore leading some banks to take a more ‘wait and see’ stance, as others test the waters with customers to see if they are willing to take on a single, multi-country payments relationship. This approach does though risk missing out on early adopter opportunities, but if the size of the market is too small to justify an investment then the opportunity cost will be minimal.
Payment processors in the post-SEPA environment also face a dilemma: should they look to scale their business to handle greater transaction volumes and therefore achieve lower per transaction costs through economies of scale, or should they concentrate on meeting the needs of a particular business or vertical market niche? Should they look to invest and offer additional value added services or concentrate on current key business competencies and maintaining their existing client base? With SEPA offering a more level playing field for processors in Europe, geographical and cultural ties may become less important compared to economics and efficiency of service.
There is also an opportunity for processors to look at having relationships with multiple banks on behalf of their customers: instead of using a single bank, processors can ‘shop around’ for the best deal available on acquiring contracts, passing on a share of the savings to their customers whilst retaining an element. Processors are also looking for additional commissions from preferred value-added providers. This approach does though rely on them having a high degree of flexibility in the payments processing technology they have adopted.
If the organisation’s payment platforms can not easily be enhanced to add in support for new transaction types, or further customer service channels, then not only will they suffer financial disadvantage but also be unable to respond in a timely manner to a competitive situation that develops. Thinking ahead about possible future needs at the beginning of any project will help to ensure long-term success.
SEPA represents an ideal opportunity for banks, processors, retailers and corporates to revisit and streamline their payment infrastructures. However, the move to SEPA will require significant investment and take time if they are to be successful. It must be remembered that there will be cultural and political changes required alongside any shift in technology.
Looking at the wider European market will offer the opportunity for expansion to the right organisation, but it also leads to increased competition as other European-level businesses look to target markets that previously had high barriers to entry. This will potentially lead to more partnerships between processors and banks looking to fill gaps within their offerings; it will also cause more mergers to take place as businesses look to increase the overall volume of transactions they are responsible for processing.
For some banks, the level of investment required to move to full SEPA compliance and competitiveness cannot be justified, and so looking at outsourcing or partnering to offer this service instead may be more appropriate. For corporates, this is an ideal opportunity to consolidate payment systems, suppliers and reduce the number of banking relationships.
In this environment, taking an approach that is based on openness – around technology and platforms, selecting a product with a modern architecture and using state of the art technologies and with SOA exposed interfaces – offers the greatest chance for future success.