So, finally, November 2nd and here we are.
SEPA day!
SEPA direct debits go live today and the PSD was transposed successfully across all of Europe to become law yesterday.
Apart from a few countries who missed the deadline.
Obviously, Sweden who have always said April because the chap who was meant to transpose it left.
But did I hear Poland, Estonia and Greece are late?
And who said Portugal, Spain and Italy?
And what's that about Belgium in February, Finland in May?
Oh yes, and even if the authorities are late in transposing in each nation, there's also a lot of cynicism amongst the institutions of course.
Many "banking and consumer associations say they have serious concerns that
SEPA will open the way for more fraud and unfair pricing on payments", and "only 2,600 of Europe's 8,000 banks will be ready for the launch of SEPA's direct debit scheme on 2 November" according to Euractiv.
Our own recent research found Europe to be a land of payments confusion, with 58% of the 350 survey respondents saying that the PSD is being transposed
inconsistently and 63% stating that this is because of different
interpretations at the country level; only 13% believe it is being
implemented correctly.
No wonder Elemer Tertak, director of financial institutionsat the European Commission, said: "SEPA is a slow burner, not a chain reaction."
Too right.
Meanwhile, in a conversation with Craig Ramsey of ACI Worldwide and Jonathan Williams of Experian Payments, we got into some idea of how this may play out.
Q: What does the launch of SEPA DD mean for the future of the Eurozone?
Craig: The launch of SEPA Direct Debits is a continuation of politicians’ desire for a single euro economy. It marks the next step of the SEPA initiative. However, in the greater scheme of things this introduction of SDD is unlikely to have a major impact on the way that people do business or who they bank with. Most of the customers that had a cross-border payment issue have already positioned themselves to reduce their costs.
Q: Why has there been such a delay and below-expected industry take up SEPA?
Jonathan:
The key challenge here is the lack of added-value which is preventing
corporate customers from migrating. At the recent Sibos conference in
Hong Kong, Andrew Long from HSBC stated that customers need SEPA to be
relevant to them to create demand and then migration. He suggested that
SEPA was driven only by politicians and that we as an industry should
find out what the market wants and then tailor the rules to fit. If
SEPA was perceived as a value-added alternative there might have been
less debate and no need for an enforced end date as customers would
want to migrate.
Disagreements around interchange fees have
also been a further setback for the European payments framework,
culminating in French Banking Federation (FBF) suspending work on SEPA
payment services.
For corporates who are already finding it
difficult to see the benefits of SEPA, the discussion around
interchange fees is likely to mean higher transaction costs, an
unappealing prospect in the current economic downturn.
The lack
of awareness around the SEPA migration requirements also stretches to
conversion from domestic account numbering systems to the European BIC
and IBAN system.
It is still clear that national legacy systems
will be a barrier to take-up which means that few banks and their
corporate customers are likely to be prepared for SEPA and some of the
obstacles associated with the conversion from the Basic Bank Account
Number (BBAN) to IBANs. However, by cleansing and validating BBAN
details before conversion into IBANs and by validating existing IBANs
on the database, both banks and corporates will be able to get around
some of the hurdles in migrating to SEPA and truly herald the arrival
of the scheme.
So what have we learnt from this? Who should take
responsibility for governance of the initiative? Who should be
responsible for developing and implementing the standards and systems
needed? The answers to these questions are not clear with the European
Commission proposing a new governance structure for SEPA and the
project not yet nearing completion.
Q: Do we need stricter deadlines for SEPA migration?
Jonathan:
The confusion
about the timeframes for an end-date of legacy payment systems added to the lack of interest and urgency regarding implementation of
the SEPA framework on the side of banks and corporates alike. Only
setting a fixed end-date can provide the impetus needed to force the
financial services industry into motion. While we can at least agree on
what we mean by an end-date - the time when all domestic clearing has
moved across to SEPA standards - there are still disagreements over how
to address the country variations, or "additional optional services",
perceived to be necessary to migrate domestic clearing harmoniously.
Q: How will it change the way we pay when it is here?
Craig: If you are a customer in the Eurozone, the launch could encourage the use of Direct Debits. However the trend towards electronic payments from traditional schemes will not be advanced by SEPA, as it is already happening regardless.
Q: What are the benefits and opportunities?
Jonathan:
SEPA is bringing markets closer
together and increasing cross-border opportunities for corporate
organisations and banks alike. SEPA Direct Debits in particular will
enable direct debit originators to collect pan-European direct debits
from any of the SEPA countries using a single direct debit service
instead of the country-specific services that currently exist.
For banks and corporates the SEPA initiative will provide opportunities
to improve end-to-end Straight Through Processing, reduce
processing and transaction costs and expand markets. Those planning to
make use of the initiative will benefit from greater efficiency in
terms of consolidating their systems and rationalising the number of
bank accounts they hold as well as having a common standard for direct
debit transactions in Euro countries. Those corporates which need to
make payments to and receive payments from the European Economic Area
will benefit from this more standardised approach to payment
transactions.
Q: What does it mean for banks?
Craig: Banks have had to spend a lot of money preparing for the
launch of SEPA Direct Debits without a strong business case and with no
guaranteed return on investment. However, the launch date itself will
not have a large effect while an end-date for migration to SEPA
products from legacy products will have a much greater impact. In the
short-term, they will have to support both SEPA products and legacy
products simultaneously, which will be an extra strain on profit
margins. At least once an end-date is set, banks will be able to plan
the move away from supporting multiple products.
Q: What does it mean for payment processors?
Craig: Certain aspects of SEPA Direct Debits are commodities that
banks could potentially buy in from payments processors. This could add
further business viability for banks to move towards outsourcing and
cloud computing business models.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...
