Cash & Liquidity ManagementPaymentsSEPA’s Perfect Future

SEPA's Perfect Future

Q: As an early supporter of the single euro payments area (SEPA), what is your view on how migration is progressing?

A (Steinbach, Equens): When SEPA Credit Transfers (SCTs) commenced at the end of January 2008 the number of transactions was still very low compared to the overall volume of credit transfers. SCTs are approximately 1% of total credit transfers. In the last 12 months we have seen a slight increase in SCTs on a monthly basis. The question now is: how do we get to full SEPA for SCTs? There are different industry opinions. Equens fully supports SEPA and we see it as an essential part of an integrated European market and as a logical next step following the introduction of the euro. However, it is clear that the so-called self-regulation that was set up by the European Payments Council (EPC) has come to the end of its life. This means that a full SEPA can only be reached if an end date is set for adoption of SCTs. The European Central Bank (ECB) and/or the European Commission, in alignment with the EPC, should be able to set an end date. Without setting a date, it will take decades to reach a full SEPA. The end date could be, for example, the end of 2012 or the middle of 2013 for SCTs, which means after that date, every financial instrument and stakeholder has to migrate to SEPA.

Q: How well prepared are the banks to support migration to a full SEPA?

A (Steinbach): Remarkably, as a result of public authorities in some countries changing their credit transfers from the national format to the SEPA format, some banks have increased their SCTs. However, this is still at low levels as governments being the first mover in terms of adopting SEPA payment instruments is not happening on a broad scale. If you look at euro cash, if we had not had a ‘big bang’ when the national currencies of the 15 member states were converted to euro, we would still have the old national currencies and the euro in circulation.

Q: Are you disappointed with SEPA’s progress so far?

A (Steinbach): SEPA is a success in terms of reachability as 100% of SEPA payments reach the end beneficiary. However, transaction volumes are disappointing. Is the economic crisis likely to discourage banks from investing in SEPA? To my knowledge, the SEPA investment within banks is more or less already done. However, the cost of supporting the old payment instruments and the new system for SEPA in parallel is more expensive than using just one system.

Q: What about SEPA Direct Debits (SDDs)? Is their introduction likely to be delayed?

A (Steinbach): I don’t expect any delays in launching SDDs together with the Payment Services Directive (PSD) in November this year. However, I expect there will be fewer banks that adhere to SDDs compared to SCTs. The EPC Plenary approved the SDD rulebook version 3.2 in December 2008, so how banks handle SDDs and the legal environment that the PSD provides is on a stable footing. What is open to debate is the multilateral balancing payment (MBP), which is the subject of ongoing discussions between the EPC, the ECB and the European Commission. This is essential for the broader adoption of SEPA Direct Debits and I hope some resolution will be reached in the next few weeks. From Equens’ perspective, our goal is to service our clients from day one of the introduction of SDDs. However, I do envisage that some of the global banks will use the expected lack of adherence to SDDs by a lot of banks as an opportunity to tell customers that they can offer SDDs throughout Europe.

Q: What services around SEPA Direct Debits will Equens provide?

A (Steinbach): We are offering direct debit mandate handling and management, as it is a lot more efficient to do this once than on an individual basis. For SDDs, the format and the process are completely new, whereas for SCTs, it was simply a case of changing formats. That means that converter solutions that have been put in place for SCTs cannot be used for SDDs. In these difficult economic times banks face significant challenges, which are mainly connected with reducing cost. That means we may get a new client who perhaps a year ago had not even thought about outsourcing part of its back office processing to a service provider, but now perhaps has the need to seriously investigate other options.

Q: But why should companies migrate to SEPA Direct Debits when existing national schemes may be better?

A (Steinbach): As SEPA is a politically driven project, an essential part of a harmonised European market is consolidating existing direct debit schemes in 27 member states into one process. That means you have to make choices. In the end SEPA has to come, as it is an essential part of the Lisbon Agenda. It is a complete waste of time to defend the old schemes. SEPA fully developed and in place is highly efficient and presents a lot of opportunities.

Q: But isn’t it only telecom companies and other utilities that are likely to benefit from SDDs?

A (Steinbach): Telecom companies and other companies that act globally have an interest and a positive financial impact in having one standard for European direct debits, as today they have to support different standards. Yet, there are a lot of companies that only do direct debits within a country or regionally and have less interest in SDDs. To them it is, of course, hard to explain the direct financial benefit of using the SDD for their nationally focused business. However, with a fully developed SEPA, they will also benefit from a harmonised European payments market with a common payment scheme and a single format.

Q: Some corporates also talk about e-SEPA, which incorporates, e-invoicing. Can you tell us about the e-invoicing pilot Equens is conducting?

A (Steinbach): The pilot entails transmitting an invoice between Italy, the Netherlands and Belgium in a fully electronic loop. If we can establish an electronic e-invoicing procedure throughout Europe, there are significant cost savings for stakeholders. With pan-European e-invoicing, it is not so much an issue of a missing common technical standard, it is more about harmonising the different tax regimes and data security. We are also participating in the European Commission’s steering group on e-invoicing and I am positive we will see an e- invoicing solution emerge very soon.

Q: You also support a global ACH initiative. Can you tell us more about that?

A (Steinbach): It is called the International Payment Framework (IPF) and it is a market initiative that started in the US and was supported by NACHA. It is now in its second phase with banks in the US, Asia and Europe and payment processors in these continents working to set up a framework to process low value credit transfers globally, using a common standard. The current intention is to use the ISO 20022 standard. From a European perspective, this is ideal as that is what the SEPA standard is based on and a lot of the investment has already been made. If we can use that standard to process credit transfers globally, it will be at a much cheaper cost and more efficient than what the industry can offer today. Some banks see this market initiative as competition to their existing business models, which uses their network of correspondent banks. To that point it is important to mention that the IPF initiative is about making the back- office processing of these low value credit transfers cheaper and more efficient on a global basis via standardisation and greater economies of scale. It is not about competing with or scrutinising existing business models. The IPF supports the business models of the banks and, given the cost pressures we face across the globe, it is something the banks should look at in more detail.

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