SEPA From a Non-EU Bank Perspective

While the European Payments Council (EPC) has made great progress on the payment schemes, and the New Legal Framework (NLF) or Payment Service Directive (PSD) has evolved considerably, it is essential that efforts are focused on integrating research recommendations in determining the systemic risk in a correspondent banking system and links between implementation of the monetary policy and payment systems design. This is important for a number of reasons:

• It will help non-EU banks to decide whether to introduce new financial services into the eurozone and determine the type of financial service (macro/micro economic) that could be introduced without affecting the financial stability of the entire financial chain.
• It would validate reports which express concern that the currency will be eroded if transfers are automated. This is especially relevant as the scope of the PSD is not limited to the euro, unlike the EPC’s payment schemes.
• It will address concerns expressed by many banks about the licensing aspects associated with pure payment service providers (PSP), which are different from that of a bank, particularly the prudential requirements that are necessary in safeguarding financial stability and consumer confidence. 
• It would address issues such as settlement and liquidity risk (especially in direct debit return scenarios), which may be transmitted by non-bank payment service providers.
• It will also address divergence that might be created in an anti-money laundering and consumer protection framework.

Apart from research on the payments system design, there must also be a focus on whether enforcing the D+1 execution time will create technical obstacles. It is also questionable whether this will allow the appropriate use of scarce resources. While investment in the acceleration of clearing cycles is a highly worthwhile exercise in addressing netting differences between countries and improving system efficiency within countries that have trade links with the EU to support related payment flows, it is also relevant to consider whether it will be beneficial to the end user if the industry supports the development of other more relevant services.

This may also answer the dilemma for banks about whether various instrument types would move through different clearing systems, or whether country specific ACHs will cluster together to form an interlinked system covering a number of countries.

One factor that might facilitate a non-EU bank’s decision on an alliance or merger is how pricing advantage is achieved through national clearing houses (with PEACH capability) in relation to the PEACH, which has not yet evolved from the national clearing system, and also how the former provides a high percentage of STP as well as price advantage.

The PSD should consider technology and patent issues associated with providing services. (A service provider has to register in each euro country for the patent to be recognized according to current patent laws.)

Other concerns include the fact that banks will debit/credit a customer’s account with a value date equal to the point in time at which the account is booked and the impossibility of banks to require fees for the closing of accounts.

It is also essential that legislation provides the right balance between the need for consumer data protection and the cost to the industry with regard to the fragmented anti-money laundering framework.

The question about whether a payment is an enabler or a differentiated service driver may not be necessary as long as banks look at the effect of SEPA economics on their business, from the point of view of both compliance and opportunity.