Leveraging the Benefits of SEPA
The introduction of the single euro payments area (SEPA) will provide both banks and corporates with new opportunities from 2008 – the first industry deadline. In order to reap the benefits of these opportunities, banks and corporates must first understand what they are and how to take advantage of them.
The creation of SEPA will enable banks to streamline their internal organisation and structure. The boundaries for such an exercise are not only set by the new SEPA products, such as credit transfers, direct debits and cards, related payment instruments that are not directly affected by SEPA must also be taken into consideration and this includes cheques, bills of exchange and cash.
SEPA also creates an environment suitable for the establishment of a common payments product factory – an opportunity that KBC is taking advantage of to consolidate all of its back-office payment entities to cover the new SEPA products. This does not necessarily mean everything will be in one location or that the payments factory will adopt a ‘one size fits all’ approach. In fact, it will have to take into consideration local approaches in countries, as domestic utilities are gradually included in the common payments factory over a five to seven-year period.
Finally, SEPA will facilitate a more streamlined commercial approach for organisations: one payment area, and certainly one currency, will make it much easier to develop initiatives that cover the whole region as well as increase the potential customer base. Local country differences will still exist for some time, however, and therefore require a specific approach.
Currently, SEPA’s focus is on the eurozone, i.e. the 13 countries that have already introduced the euro. But what about the non-euro countries, particularly Central and Eastern Europe (CEE), how will SEPA affect this region?
It is not yet clear how SEPA will be introduced in CEE but the introduction of the euro in these countries will ultimately lead to becoming part of SEPA. However, with the possible postponement of introducing the euro in some of these countries until after 2010, are there other initiatives that non-euro countries can take or do they really need to wait for the introduction of the euro? The truth is there is not enough clarity about what SEPA will mean for countries that don’t have the euro and so it is likely that they will need a different approach to SEPA for the time being. KBC, for instance, is developing initiatives that bring added value for customers in these countries in relation to SEPA. (Read articles by KBC on SEPA and CEE over the coming months.)
The potentially long migration period – when domestic products will co-exist alongside SEPA products – is a major concern for the industry. There is the danger that if this co-existence period takes too long, SEPA products will not take off as expected. The challenge is to make sure that the SEPA products are adopted and accepted as quickly as possible. And this is not just a task for banks; other stakeholders must also take responsibility.
Crucially, banks must offer products that are better than, or at least equivalent to, existing products in order to encourage adoption. Banks must guarantee the continuity of existing products, as corporates don’t want a ‘big bang’ scenario in 2008, and therefore gradual migration, starting with the core products first, is the only option. Value-added services should follow and thereby enhance market acceptance of the SEPA products.
The European Commission and European authorities would also like to see local governments, who typically issue a lot of payments, to act as role models and become frontrunners in the adoption of new SEPA products in order to encourage other end-users.
There will be a learning curve for corporates in terms of understanding the new SEPA products in order to adopt them. As a result, we expect a slow take-up of SEPA products at the beginning of 2008 and there are different reasons for this. First of all, SEPA will mean adjustments to systems and operations. For corporates, it will take time and resources to adapt their ERP systems to handle the new products and formats. This also depends on what progress ERP vendors make with the technology and systems surrounding SEPA.
In addition, there is not yet a comprehensive view on how products and formats in the customer-to-bank space will look. Even though there are advantages of gradually moving to one European product and one format, if corporates are not convinced about what format this will be, they will be reluctant to make the necessary changes. At the moment, only the bank-to-bank space is standardised but this needs to be replicated in the bank-to-customer space. This will also be an important element in the fast adoption of SEPA products in the corporate space and therefore KBC favours detailed guidelines with respect to bank-to-customer standards.
Also, we must acknowledge the fact that how corporates take advantage of the opportunities SEPA introduces will depend on their group structure and individual business factors. For instance, while SEPA creates the conditions for multinationals to reduce their bank accounts, some corporates may choose not to because of tax and legal reasons.
Education and communication is undoubtedly important to SEPA’s success. KBC is currently talking to customers about pilot projects, discussing how they could use the new products and gradually move towards those products through controlled migration.
Banks are committed tnewo being ready for SEPA in 2008 and to offering the new products in time, although their promotion of these services is likely to be different. While there is no doubt that the SEPA Credit Transfer (SCT) will start in 2008, it is another story for the SEPA Direct Debit (SDD). The Payment Services Directive (PSD), which will create the legal basis for SDD, has been delayed and this will affect the launch of SDD.
Guaranteeing product continuity for corporates and ensuring the co-existence period is as short is possible will be vital to the success of SEPA. Further standardisation in the customer-to-bank space will also be an important driving force. Overall, achieving the true benefits of SEPA requires a phased approach – developing the core products first and then building upon them to provide additional value-added services.