We had our annual debate about SEPA for the fourth year running the other day.
- Jerome Traisnel, Slimpay;
- Ruth Wandhöfer, Global Head of Regulatory & Market Strategy, Citi Transaction Services; and
- Tino Kam, SEPA Executive, Global Cash Management, the Royal Bank of Scotland
were opposed by:
- Simon Bailey, Director, CGI; and
- Peter Miller, Managing Director, Blacksmith Consulting
Jerome Traisnel* provided some stirring words to open the session.
Jerome pointed out that SEPA is a very challenging project but that the banking community is now ready, fit and able to make it succeed.
If it succeeds, it will become the first transnational ACH with uniform payment tools compliant with ISO, with the additional benefit to be ideally positioned to participate in further extensions of transfrontier payments in the future.
The Eurozone SEPA deadline of February 2014 is a constraint, with the risk to have comments on the capabilities or non-capabilities of European nations to match such a requirement. However, it is obvious from activities, or lack of activities to date, that the market needs such a target in order to get movement from the corporate community.
The SEPA end dates will not be renegotiated, and the European parliament has not even had such a discussion. Maybe the target dates will not be matched in several European countries, but the transition has already started and it will increase steadily.
In France, all major corporations (utilities, telecom, insurers) have a migration plan and plan to match the deadline. The major boost to this is the abandonment of the multilateral interchange fees (MIF) on direct debits in France from September 1st 2013. Major corporations represent more than half of SEPA direct debit (SDD) volumes as a result, with the reduction in MIF saving about €200 million in France alone.
SEPA also brings opportunities, such as the electronic signature of an SDD mandate. The PSD articles 54 and 66 transposed in all European countries in late 2009 states that a direct debit shall be executed on the basis of a formal payer's consent. SDD therefore brings an innovative way to record the payer's consent.
SEPA is on the way, whatever the comments on the transition speed. The most important thing to note is that European countries, despite difficult economic conditions, still have the courage to revamp their payment schemes and follow this course.
Ruth Wandhöfer further reinforced these claims by asking: what is the alternative? What is the alternative to SEPA? What is the alternative to the European Union and Eurozone today?
To go back to domestic markets? To go back to a fragmented Europe?
That will not work, as it is too late for fragmentation. Things have gone too far and too much integration and consolidation has taken place.
We have a PEACH (Pan-European ACH) and more, and going back to localised markets with fragmentation would just create issues.
In fact, if you look at today’s marketplace, a European Union that divided would create war. That may appear extreme but just look at Greece, Spain, Italy and the issues of austerity measures, cuts and budgetary extremes. Any breakup of Europe would just make these extremes worse and cause riots within countries, frictions between countries and territorial extremes across countries and across Europe.
That is the crux of today’s debate and it is not about SEPA but about the fundamentals of keeping Europe together and the Eurozone and SEPA is helping to achieve just that.
Proposers Tino Kam and Ruth Wandhöfer
Simon Bailey opposed Jerome and Ruth’s position by comparing the SEPA Project with the American Space Program of the 1960s.
Both projects have involved billions of investment over a ten year cycle involving many constituencies but, if America had reached the Moon, SEPA has landed somewhere around Cleethorpes (this got a big laugh).
For example, the original aim of SEPA was to increase trade and make billions of savings on the cost of our annual GDP in the Eurozone and European Union. Has it achieved that? No. If anything, Europe is more of a basket case today than it was a decade ago.
Is there interoperability of payments systems across Europe a decade after the project started? No. The drive is there and the banks are creating this capability, but it is very slow and the reality is that it is still a long way away. Even with the end dates, most corporates won’t be ready or willing or able to use interoperability, as demonstrated by the surveys recently produced that show over half of corporates – in most cases, around two-thirds – have no idea what SEPA is.
Then there is the regulation and implementation of SEPA which, according to the PSD will be overseen by the relevant competent authority. That is a joke when many of the member states of the European Union have several authorities, not just one.
In summary, it seems that we are still doing the classic mistake of building grand plans with moderate to poor delivery, and then making declarations of success.
Tino Kam took this criticism on the chin and said that, on the question “does it matter”, the answer has to be a big YES.
Apart from implementing a ‘Single Euro Payment Area’, corporates will obviously benefit due to further standardisation, harmonisation and therefore improved efficiencies.
SEPA will also be the foundation and an enabler for the next Payment and Collection Factory solutions such as improved reconciliation and Straight Through Reporting, centralised A/R and supporting In-house Banking Solutions through On behalf Payments and Collections.
The second part of the question, “Is SEPA happening?” I would like to address in two separate questions:
Firstly: “Do we complete the SEPA migration by February 2014?”
For this, I believe that the answer will be NO, especially considering the current state we are in, as confirmed by the many surveys supporting that view. A significant number of the Euro SEPA Credit Transfer (SCT) and SDD flows will not be migrated in time. This will also be due in part to the regulation itself, with its clauses for niche products and waivers.
Secondly “Are we ready by February 2014” and, on that one, I say YES!
Consumers will be ready. Sure we need to get used to IBAN, but we will be able to manage that change.
Will all Corporates be ready?
We see that even the big multi-nationals with large SEPA projects are not sure if they can migrate all their flows on time, and for that do need a 'Plan B'. Corporates will need support from their vendors, and then banks. Banks are ready and will support their clients to make it happen and ensure that the payment and collection flows will be converted to SEPA, or that in-country Clearing and Settlement Mechanisms (CSMs) will continue to support some of the legacy flows.
Opposers Simon Bailey and Peter Miller
Peter Miller decided to take a different tack in opposing the motion, saying that the answer to the question is yes in both cases.
Is SEPA happening?
The more important question is whether it was the right idea in the first place.
Whether it is or not, it is happening and must conclude, as the law requires it, whatever the medium- to longer- term benefits may be. The PSD and the end-state regulations are in place, whether we like them or not and most of the banks are ready for it, and have been for some time.
But what about the customers?
Does it matter?
It matters right now for the negative reason that potential failure of or blockages within the payment systems would be economically damaging for all European countries, and not just the Eurozone. Therefore, right now, the positive reasons for claiming that SEPA matters are outweighed by the need for the project to succeed.
The evening then opened to questions from the floor and further debate and discussion, concluding with a vote at the end of the evening ...
... which overwhelmingly carried the motion by around 75% of the House supporting the statement: “This House Believes That SEPA Does Matter”.
Concerningly, the statement “This House Believes That SEPA Is Happening” was then opposed by a similar number – around 80% of the audience.
This may be slightly related to some Euro scepticism coming from the mainly British audience, but the core view appeared to be that the answers to the questions are the same, whatever your underlying view of European politics may be.
This was best summarised by Peter Miller who, wrapping up his perspectives of the event on an email the next day, said that it shouldn’t be forgotten that a project which works across twenty three countries (the “ins”, the accession countries and the “outs”) processing about 200 million transactions per day ( in the “ins” and the accession countries), replacing the tightly encoded heritage data structures with large gobs of XML data needs more of the participants and the authorities to worry harder about the project risk, however tempting it is at this point to push the merits of the initiative.
It will not make the savings at the clearing and settlement level originally envisaged. There will not be two or three interoperable PEACHs. Indeed, you might argue that the very idea of this creates a concentration risk across the whole economic area which the EPC should have spotted.
The last 5-10% of the market is going to be hard to shift. History tells us so.
The corporate sector and the agency banking sectors would be on red alert today on any normal project monitoring tool.
Delay will mean that banks and clearings will need to continue to offer heritage products in parallel with the SEPA ones, and thus leave banks unable to claim some of the cost benefits, and the lack of a program owner, an authority which is really on the hook for delivery with the power to influence its success, should worry everyone.
We are in the late implementation phase of the project, in which risks need to be closely managed and some degree of delay/overrun feels inevitable. We must hope that it is possible to declare some sort of success, for fear that failure to reach objectives will be regarded as yet another stick used by the authorities to beat the banks up with.
The answers to the questions are the same irrespective of whether you were a believer in the first place and irrespective of what you think of the governance of the euro currency as a whole.
So perhaps it is time to change the question. Perhaps the question should be: “If SEPA is a success, where do we go from February 2014?” or, more interestingly: “What should PSD2 look like. Do we need one?”
Speaking of such things, here are the results of our annual SEPA debate:
- 2010: This House Believed That SEPA DOES Matter (Just)
- 2011: This House Believed That SEPA Does NOT Matter
- 2012: This House Believed That SEPA DOES Matter (two-thirds) BUT It Is NOT Happening (99%)
- 2013: This House Believed That SEPA DOES Matter (three-quarters) BUT It Is NOT Happening (80%)
Combine these results with our European Payments Survey, also in its fourth year:
- 2012: SEPA will survive even if the Euro doesn’t, according to banking industry
- 2011: 2011 Survey on the Health of European Payments
- 2010: PSD and SEPA research results 2010
- 2009: PSD and SEPA research results
And you can see the pulse of the SEPA view from here in London and across Europe.
Speaking of these things, we are about to repeat our annual SEPA survey. If you would like to participate, please email firstname.lastname@example.org.
* Jerome could not actually attend in person due to inclement weather in Paris, leaving Britain as an island in Europe as usual.