IPS Report - Day Two: A Bumpy Ride Ahead for SEPA
‘SEPA – Are We Finally There?’ was the opening question posed at afternoon sessions reviewing the progress of migration to the single euro payments area, held on Day Two of the 2013 International Payments Summit (IPS). Unsurprisingly no-one responded with an unqualified ‘yes’, but some speakers chose to focus on what had been achieved so far and others on how much still remained to be accomplished before the 1 February 2014 end date.
As Ruth Wandhöfer, Citi’s global head of regulatory and market strategy, transaction services and chair for the sessions, noted at the outset the benefits of harmonisation of payments across the European Union under SEPA are widely recognised by major corporations but small and medium-sized enterprises are generally far less convinced. It was also evident that less than 10 months away from the deadline, SEPA credit transfers (SCTs) were significantly more advanced than SEPA direct debits (SDDs).
The opening speaker, Pierre Petit, deputy director general – payments and market infrastructure for the European Central Bank (ECB) described the SEPA project as a prime example of European financial integration – and also one that hadn’t been derailed by the crisis of 2008. He suggested that overall the migration process was going “relatively smoothly” with the notable exception of SDDs, where migration had hardly begun.
“Most corporates have completed their plans for migration but set their deadlines very late; in many cases not until the very end of 2013,” said Petit. “Awareness and preparedness is also very much less developed among public organisations, although this is no ‘Plan B’ for extending the migration period beyond 1 February 2014.”
The second challenge for SEPA would be to extend it beyond SCTs and SDDs to also include card payments. “Efforts are being made to this end but it’s unclear whether the market is willing or able to accept a set of standards for card payments,” Petit admitted. “There is also a need for a common set of business rules to make the processing of card payments efficient and to promote competition.
Petit also suggested that the role of the SEPA Council, which since June 2010 has served as a platform for stakeholders to exchange views and dialogue, could be enhanced to make it a consultative body to the European Commission advising on future regulation. Other options were for it to become a self-regulatory body or one that performed both consulting and self-regulating roles, although the latter might prove hard to put into effect.
Too Many Rules
During a question and answer session, a delegate asked whether the uneven progress of migration across both EU member states and individual companies made it likely that some payments would be rejected when the 1 February 2014 migration end date arrives.
Javier Santamaria, chair of the European Payments Council (EPC) expressed confidence that next February would not be marked by “a critical situation”, although progress was difficult to accurately assess as many surveys suffered a degree of bias or provided only a partial year. “They nonetheless create awareness among companies of the need to act and usefully highlight specific problems both for payment service providers and the authorities,” he added.
“Major companies which are now coming out with their programmes are pushing many small and medium-sized enterprises [SMEs] towards SEPA in the process, as are the public authorities.”
But a subsequent speaker, Peter Frambach, head of international payment services at AGES, the pan-European service provider for road tolls charging, said that it was evident that many companies were either still ignorant of SEPA, or were aware but were holding off their preparation as long as possible because of the cost and complexity that were involved.
Frambach added that the concept of SEPA was a good one that was let down by poor execution. Not least were the SDD guidelines; ‘SEPA Direct Debit Core Rulebook Version 7.0’ issued by the EPC last November runs to 261 pages, yet was “both imprecise and over-regulatory, revised yearly and far too much to swallow!”
Slow Progress on SDDs
The question of when and if the SDD migration process will finally get underway was raised again in the first of two strategy roundtables that concluded the afternoon sessions. Luca Poletto, head of SEPA for BNP Paribas Fortis said that the group processes SDDs in 20 countries and the level of readiness among corporates varies significantly. Around 20% of corporate clients currently account for 80-90% of total volumes.
However, Poletto was optimistic that the current SDD migration rate of below 3% would rise substantially before the end of 2013 with “substantial volumes” expected in Q4. “Real migration is likely to take place in November and December, rather than in February 2014,” he suggested. Massimo Battistella, manager of accounts receivables for Telecom Italia, said that the many different operations within the group made the introduction of SDDs a real challenge.
“Companies can recognise the potential benefits of SEPA that await them in the future, but in the meantime it’s a costly and complex process,” he commented. “Telecom Italia will be ready by February 2014 and we’re working with Associazione Bancaria Italiana (ABI) to meet the deadline, but completing the necessary IT work will cause delay.”
Roundtable participants also confirmed that payment rejection rates were rising as the SEPA migration end date approaches. “In some cases rejection rates have risen to more than 15% and this trend is likely to continue over the near term,” said Ian Watkinson, head of products management for Europe, the Middle East and Africa (EMEA) at Bank of America Merrill Lynch.
In a generally downbeat session, some more positive comments emerged before the conclusion. “Everyone is focused on compliance at the moment, but we’re going to see innovation and some real benefits emerge post-2014,” suggested Tony Richter, had of strategic business development, global payments and cash management for HSBC. “Once things have settled down and the teething problems have been sorted out, then the benefits can start to emerge.”
Erkki Poutianen, head of payments infrastructure at Nordea, suggested that other EU countries might follow the lead of Finland, which imposed an end of 2010 deadline for migration to SCTs. “Around 20% of corporates didn’t make the deadline, so service providers and banks agreed a ‘grace’ period, to speed up the ‘tail’ of companies that hadn’t yet migrated.”
Wrapping up the session, chair Ruth Wandhöfer agreed with the panel that “a scary, bumpy ride” lies ahead in the run-up to February 2014. “We all need to collaborate both with other banks and with our corporate customers and companies should speak with a strong voice in stating what they want to see from SEPA.
“It’s also highly unlikely that full migration of SDDs can be completed in the 10 months remaining, so countries may well offer some grace period so the process can be completed.”