Banks foresee higher costs for SEPA than PSD

Published: Thursday 24 July 2008 on EurActiv.com

European banks expect to spend between €10 and €100 million each to apply the new provisions of the Payment Services Directive, the EU legislative initiative designed to increase competition in the payment sector and facilitate a gradual migration to a non-cash economy, according to a new survey.

The poll, carried out in June across 30 major EU banking institutions by the payment system consulting organisation PSE Consulting, reveals that banks expect relatively limited costs but minimal competitive benefits of the new directive. On the basis of the answers collected, PSE Consulting estimates that the total cost for banks will be €6 billion by November 2009, when the directive is supposed to enter into force. In addition, almost 60% of the sample are sceptical about the actual advantages that the new rules will bring.

The survey comes as the banking sector voluntary agreed to establish the Single Euro(pean) Payment Area (SEPA), an initiative to harmonise bank procedures with the aim of creating a genuine EU market for payment services. According to the consultancy TowerGroup, SEPA costs the EU banking sector around €10 billion in investments, much more than the implementation of the PSD.

The two initiatives are expected to bring benefits for consumers, who will be able to enjoy cheaper and more competitive payment services throughout the EU, as the Commission keeps pointing out. But banks themselves are set to profit from SEPA and the PSD by gaining easier access to other EU national markets. Indeed, the relative majority of the financial institutions interviewed by PSE Consulting (37%) consider the increased cross-border competition as the most positive effect of the PSD on their revenues.

The following table explains the differences between SEPA and the PSD:

	SEPA	PSD
Currency	Euro	Euro + Currencies of Member States
Geographical coverage	EU + EEA + Switzerland + potentially other partners	EU + EEA
Impact	Interbank relationships	Bank-consumer relationship
Legal status	Self regulation	Law
Services regulated	Direct debt, credit transfer, payment cards	Payment services including mobile money, low-value payments, e-money
Providers affected	Banks	Banks, credit institutions, e-money providers, postal services, supermarkets, money remittance services, etc.
Involved changes for financial institutions	IT, back-office activities	Contracts, contractual relationships with customers
Estimated costs for the banking sector	€10 billion	€6 billion

Corporates Still Not Sold on SEPA
Joy Macknight, Section Editor, gtnews - 08 Jul 2008

The third EBAday was held in Helsinki on the 25 - 26 June. Over 600 corporates, banks and technology vendors got together to discuss the big issues facing the payments industry, particularly around SEPA and the PSD.

Six months after the introduction of the single euro payments area (SEPA) credit transfers (SCT), corporates are still challenging the banks to come up with a business case to encourage corporate adoption of SEPA instruments. Speaking at EBAday in Helsinki at the end of June, Peter Hasfeld, in charge of specialist cash management projects, including the SEPA implementation project, at German chemical company BASF, said that in the short term he could only see costs and no benefits, and challenged the banks to provide incentives for corporates to move across to SEPA. He also added that until the implementation of SEPA direct debits (SDDs) in November 2009, the benefits to be gained from closing down multiple national euro accounts wouldn't be realised.

In a session entitled 'Moving the customer to SEPA', he said: "The problem of SEPA is that we have a lot of projects that we need to evaluate, manyof which bring us big benefits with where we can see business opportunity or the best business case. And yet, so far, there has been no business case put forward for a quick SEPA implementation, which means there is no urgent priority for a SEPA project. We have been involved in the SEPA discussion for many years, but there is no urgency, no incentive." He added that only Switzerland has promised free SEPA payments processing so far, which he believes is a value-add and important incentive.

Hasfeld placed the responsibility to provide the lead in creating a business case squarely at the feet of the banks. "It is in the banks' interest to reduce the complexity that we have and move away from parallel systems - we can't have domestic systems with SEPA, so the banks should encourage us to move payments to SEPA instruments. It should also be the banks that show us the positive test cases - the first move that they should make is move their own payments onto SEPA," he argued. "Sometimes we talk to SEPA experts at banks and I ask them when they will move their salary payments to SEPA and they can't answer. Yet they expect us to move our salary payments first."

No Fixed End Date

The fact that there is a lag in not just corporates and banks moving their payments over to SEPA instruments, but also public bodies, is indicative of the big question still left unanswered - the end date. Although there has been talk of 2010, in order to adhere to the Lisbon Agenda deadline, there is still much debate as to whether that is a realistic timeframe in which to 'switch off' legacy payment instruments.

Speaking in the same session as Hasfeld, Jonathan Williams, director of product strategy and communications at Experian Payments, said that the SDD will be a trigger to start the move from legacy systems but doesn't think that the industry will see 1 November 2009 as a key date. "I think it will be six months after that. The trigger for customers should be that all their applications will have to be moved across to SEPA as soon as possible, but no corporate is going to move across to SEPA if they have no benefits associated with that and if they have to invest a lot of money in their business applications," he explained.

Guy Pantall, head of geographic coverage for EMEA core cash, treasury services, JPMorgan, agreed that an end date is needed and posed the question as to who should set the date - whether it should continue with industry self-regulation or whether the regulators should step in. "Without a compelling event, we may never get there. However, it needs to be set realistically and well into the future timeframe. Does it need to be imposed in a regularity sense? Are the banks getting together? That is not so reassuring. All banks have diverging interests, from regional banks to local banks, all with different vested interests, I am not sure that we will agree among ourselves so maybe something imposed from the outside will help,"he said. "If we don't get this issue resolved fairly quickly, a threat will emerge as new players come in and disintermediate us - the Payment Services Directive (PSD) may be a catalyst that will help. So, some sort of end date - yes; regulation - perhaps."

Paul Styles, business solutions manager, wholesale banking at ACI Worldwide, commented: "In the main plenary on the first day, there was a reference to building the railway, getting the track right and standardisation across Europe, and we must ask ourselves - are we doing this too quickly? Are we seeking, for political reasons, to move SEPA along too fast? I think that is becoming a very valid question. Particularly because everybody is skating around the issue of the end date and no one is stepping into that vacuum and making the decision. It won't help anybody if national communities decide their own end dates - we need a general end date."

Styles believes that it has to be the regulators that set the end date. "SEPA, so far, has been based on self-regulation and I think we have gone as far as we can with that. I think the regulators have to step in to set a realistic end date, not a politically driven end date."

PSD - a Move Away from Harmonisation?

Gerard Hartsink, chairman of the European Payments Council (EPC), also pointed to the need for certainty around PSD implementation to solve some of the problems that SEPA has generated and called on the European Commission (EC) to provide more clarity.

But as the session called 'Towards Effective PSD Compliance: what is at stake for banks? How to make PSD compliance easy?' effectively illustrated, clarity is even more elusive with the PSD than SEPA. During the session, the panel of experts, who lead the PSD work in their organisations, disagreed on a number of issues covered under the directive, such as whether subsidiaries constitute micro-enterprises under the PSD, and whether non-euro payments will also come under the directive. Yet, with the deadline of November 2009 for transposition of the directive into national law quickly approaching, time is running out for clarification.

Ruth Wandhöfer, vice president and SEPA market manager at Citi, pointed out that there is a problem with the PSD at the European level because each country can interpret the directive and is allowed to make changes to suit their national conditions. "SEPA harmonisation is challenged by the PSD because the PSD reinforces a domestic focus. The directive does not provide legal support for SEPA and today there is still discussion at the European level to gain a common understanding of even the main points of the PSD," she explained.

The whole relationship between SEPA and the PSD was also debated. Seppo Tanninen, senior counsellor, Finnish Ministry of Finance, said: "The PSD is not SEPA - it is not intended to implement SEPA rules but covers every e-payment in EU. And it must be remembered that it is primarily a consumer protection directive." He claimed that 'maximum harmonisation' will not happen and that the EU will never have a truly harmonised landscape for payments because of the number of different directives in place.

No matter how much is up for discussion, argued Simon Newslead, senior manager at RBS, if a firm hasn't started to investigate how the PSD will affect its business and begun implementing changes, then it had better hurry up. "You can't wait for everything to be cleared up or until it is pasted into national legislation," he advised.

But there is always resistance to change, particularly when so much is still being debated.

Conclusion

What was clear from the conference was that there were more questions than answers regarding changes to the European payments landscape. ACI's Styles summed up the general sentiment felt during the two days: "I think that a lot of people have turned up at this event hoping for some new information, insights and enlightenment and they haven't received it."

But it wasn't for lack of trying. The Euro Banking Assocation has invited all the players to the table - banks, corporates and technology vendors - because the end game of full straight-through processing (STP) needs co-operation between all industry participants. As Harri Nummela, executive vice president, head of banking and investment services, Pohjola Bank, said in his plenary speech: "Getting banks to function together is not enough. We need full STP - that must be the ultimate goal. Neither the banks, CSMs, ERP and software providers nor companies can do it alone - everybody has to play a part."

SEPA and more

Thursday 28 August 2008

European Payment Council clears up Sepa for Cards confusion

Monday 11 August 2008