Payments Services Directive Dynamics to Date
In March and April 2008, 20 bank entities over 18 countries across the EU and EEA participated in a survey by Logica and the IBOS Association, the international cash management banking alliance. While the focus of the survey was the Payments Services Directive (PSD) and the banks’ projects to support implementation by November 2009, we can also draw conclusions about the impact on the implementation of single euro payments area (SEPA) and the likely consequences for the payments industry.
The PSD is the legal basis for the SEPA. Although the SEPA Credit Transfer (SCT) scheme was launched in January this year, the Direct Debit (SDD) scheme required harmonisation of legal frameworks. The survey showed, however, that the process for transposition, with opportunities for derogation from certain articles of the PSD, introduces a real risk of national divergence, rather than the convergence that is implicit in the SEPA vision. The proximity of the national derogation decisions to the PSD deadline of November 2009, and the national lobby groups’ natural affinity for local customs and practices, creates a high risk that PSD implementation will not be uniform. As such, diversity between national domains undermines the business case for corporates and consumers to migrate to the new SEPA schemes. This raises the question – if the schemes cannot deliver a uniform customer experience, then what added value do they provide? An inconsistent service with national diversity poses a direct threat to the full SEPA vision.
A collaborative approach between legislators and lobby groups is required to resolve inconsistencies arising from transposition, to ensure fitness for national migration and to communicate clearly and rapidly, in order to reduce implementation risk and cost. The balance of country and pan-European drivers needs to be carefully managed. Work underway within the European Commission (EC) and pan-European banking community is aimed to mitigate this risk. However, the current level of detail available to bank project teams appears insufficient to support effective budget and implementation planning. The key missing element for the success of SEPA migration seems to be the choice and imposition of clear, published and co-ordinated end dates for national schemes. Our investigations showed that 35% of respondents did not know when the PSD was to be added to the local statute book and a further 55% were unclear as to the exact date. This lack of certainty is further reinforced by the shortage of information regarding the opt-outs or rights of derogation being taken up by individual jurisdictions. Almost half of the respondents (43%) were unsure of when information on the relevant opt-outs would be available. Early conclusions and clear plans would enable banks and their clients to undertake effective business and implementation planning.
In the area of individual bank strategy and options, each bank has a unique set of strategy and implementation options to consider. Variations in country legislation and in timing, added to existing issues of payments business strategy choice, profitability focus and access to investment budgets, have made matters more complex. The survey shows an appreciation among respondents of the width and scale of the impact of PSD on bank services, applications and existing projects. A significant result highlighted that nearly all respondents identified a division in their bank that has a responsibility for PSD activities, i.e. the number of ‘not sure’ responses was very low. The research established that ‘IT & Operations’ (19%) and ‘Business Bank’ (26%) were the dominant divisions in a bank that are responsible for PSD programme, but more importantly, that ‘Special cross-departmental Programme Board’ (37%) is the leading body for running the PSD activities in banks. Therefore, the high number of banks with special cross-departmental project leadership for PSD, and the acknowledgement of the numbers of product/channel/country variants to be analysed and made compliant, show a pragmatic realisation of the challenge.
But the survey responses on key project milestones and dependencies show a serious risk, with availability of detailed requirements lagging behind investment and development deadlines. Almost half of respondents (45%) did not know the effective date of the PSD in their jurisdictions. There is a risk that some banks will find they are unable to implement the changes demanded by PSD before the November 2009 deadline. Uncertainty over interpretation of national transposition of the PSD, combined with lack of effective communication to the consumer, may encourage brinkmanship in banks that have competing priorities for investment and implementation resources. With only 5% of respondents expecting to have a clear understanding of national opt outs in good time for the setting of 2009 budgets pressure on implementation budgets will be intense.
The conclusion that Logica draws from the findings of the survey, and from our current experience with banks in the payments industry, is that economic and compliance drivers continue to encourage banks towards consolidation of their payments operations. The debate on consolidation has dominated the industry agenda for several years and, in Europe, consolidation appears increasingly likely to be the result of current industry changes. The complex impact of the PSD on multi-country and multi-product banking groups is likely to result in acceleration of the process of consolidation and industrialisation of the back office.
As banks face these changes, those with an agreed strategic view of the role of payments within their business may be able to exploit specific changes in the market for commercial gain. But the pressure points are already clear. In addition to the straightforward commoditisation of payments processing, changes are imminent in terms of:
Banks and their clients face a period of continued uncertainty around the clarity and details surrounding implementation of legislative change across the European payments business. With wider strategic options available in the current climate than in previous times, forward thinking banks have the ability to exploit industry and market change for long term commercial gain.
In the context of today’s current pressures on the banking industry, payments remain a potentially profitable, fee earning service that attracts cash balances and provides relationship-building opportunities. Furthermore, where efficiency and flexibility is built into compliance programmes, changes can generate improved returns for banks that are able to model the impact on their business, operations and technology.