The Financial Services Club's Blog

Is SEPA Happening and Does It Matter?

We had our annual pantomime debate at the Financial Services Club this week, with a classical Oxford style debate about whether SEPA, the Single Euro Payments Area, matters or not.

This year, with the backdrop of the Eurozone implosion, the debate was far livelier than usual, with a lot of spicy discussion about countries defaulting, the euro instability, the lack of political union and more.

In particular, the argument against the Eurozone was stronger than usual and so the pro-SEPA panel was loaded with three speakers:

• Daniel Szmukler, Head of Communications and Corporate Governance at EBA Clearing;
• Ruth Wandhofer, Head of Market Policy and Strategy, EMEA, Global Transaction Services, Citi; and
• Jose Beltran, Director of SEPA, STET.

On the other side was:

• Simon Bailey, Director, Logica
• Johnny Brit, former Chairman, Xenophobank

With the last person being a class act anti-euro plant.

It certainly stirred up the debate a bit.

The Case For SEPA

 On the positive side, the panellists argued that SEPA is good for Europe, European Union, and European business and for European politicians.  In fact, it’s even more critical today than it has ever been as the strains on the Eurozone would fall apart far more easily if SEPA and other aspects of the European Economic & Monetary Union (EMU), the Financial Services Acton Plan (FSAP) and the Directives that go with this were not so firmly established in place.

SEPA has been slow to progress, but it’s a ‘moving target’ and should be seen in context as a complex project that involves 9,000 banks and 27 countries (plus four if you include the Extended Economic Area of Norway, Iceland and Liechtenstein plus Switzerland).

This means that you need to understand that the political complexity in delivering a project like SEPA in banking is just a reflection of the political complexity of getting 27 nations to work together across the Union, and you can see how hard that is from things like the latest EU Treaty, the issues in Greece and the PIIGS and more.

In fact, progress was slowed because you had some countries blocking SEPA whilst others publicly supported the program whilst privately were trying to sabotage it, just as any political issue is dealt with.

The slow progress was also down to the fact that it was seen as a compliance project, which caused issues at the start as the program was given to lawyers rather than infrastructure operators.

This meant it was also seen as threat to banks rather than an opportunity.

Equally, it’s still unfinished and there’s still a lot of work to do, with goal posts changing as more requirements are added each month by regulators and governments, but important steps have been taken in terms of creating:

Good governance, through the European Payments Council (EPC) which took two years (2002-2004);

Good practices, through the development and implementation of the SEPA guidelines (2004-2008); and

Good delivery, by demonstrating that SEPA Credit Transfers are working, with almost a quarter of all credit transfers now in the SCT formats (2008 onwards).

Some countries such as Luxembourg and Cyprus now transact almost all their transfers in SCT format and even large countries, such as France, are seeing migration with 45 million SCT transfers per month today.

Yes, direct debits are more of an issue as everyone claims their direct debit structures are different, but that is also moving.

Eventually, it will be like SCTs with SEPA Direct Debits (SDDs) implemented across all member states.

And look at the benefits.

It now costs virtually nothing to withdraw euros at any Eurozone nation’s ATM network, when just a few years ago it could cost you up to €30 for a simple withdrawal.

And standards are making a difference in all of this.  You cannot underestimate the impact of standardisation through XML for example, which is a foundation for innovation.

The end-dates will also help here, with February 2014 for the Eurozone states and February 2016 for the non-Eurozone nations.

You need to see the end-date as the ‘end of the legacy and start of the new’, which is when SEPA will really kick in.

So it’s going to happen … you just need to be with the programme, recognise it takes time and ‘give us a break’.  After all, Rome wasn’t built in a day, and neither will Europe be.

The Case Against SEPA

The nay-sayers were more vocal, and in some ways backed up what the pro-Europeans were saying.

A key point was that SEPA and the Payment Services Directive (PSD) is no longer important against the backdrop of the Eurozone implosion.

Even if you took that implosion away, it would be less important as regulating the post-crisis world has taken over with things like Basel III, Tier 1 Capital ratios, liquidity risk, the rise of Remnimbi and transaction taxes moving to the top of the agenda.

All of this means that mundane activities like payments infrastructure harmonisation has moved down the table and, for some, completely off the agenda.

Equally, the supporters may say it takes time but it’s already ten years and what do we have?  22.66% of credit transfers in SCT format and just 0.93% of direct debits in SDD format.   That is pathetic.

Then you say it will change with end-dates but what do the end-dates actually mean?

It’s just a political statement again, as there are no threats here.

Where are the sanctions if you don’t meet the end-date?

What’s the threat?

Where’s the punishment?

Is there any reward?

And the real issue is that no-one has mentioned the customer.

Who is bringing the customer along in this dialogue?  The regulators?  The governments?  The banks?

No-one is dealing with the customer aspects or needs, and the benefits are risible rather than visible.

So the euro will be dead by the time we reach an end-date, and that means you can forget about SEPA and move on.

The evening then ended with many questions around the themes outline above and concluded with a vote on two questions:

1. Does SEPA matter? and
2. Is SEPA happening?

The 100-strong audience voted that yes, SEPA matters (65% in support – a stronger showing than in previous years) but it’s not happening (only one hand was raised to say SEPA was progressing well).

Obviously, there’s still a long way to go and, if you’re interested, two members of the audience also blogged about the evening: Ben Poole and Barry Kislingbury.

Thank you to them and to all, particularly our esteemed panellists.

A fun evening all around which, when you think we’re talking about SEPA, the PSD and the Eurozone, is saying something,

 

 Postnote:

This is the third annual "Does SEPA Matter?" debate.  Click on the links for the debates in 2011 and 2010.

 

The euro will go on, and on, and on ...

Over the weekend, Standard & Poor’s downgraded nine Eurzone countries, calling into question the viability of the Eurozone for the long term.

France was downgraded to a level not seen since 1975. Italy is now considered the same credit risk as Kazakhstan. Portugal’s credit has now reached junk status.

“This is not a catastrophe”, the French Finance Minister told his people. “But it's not good news”.

I’d say that’s a mild understatement, although the markets reacted mildly because it’s not wholly unexpected.

It’s just a reflection of the lack of confidence in Eurozone leadership.  A situation that’s been going on for a long time now.

What needs to be done?

The ECB needs to start acting like a fully backed central bank, offering long-term debt and bond support along with Quantitative Easing for the Eurozone.

It’s doing some of those things, but not enough.

What does it mean for the Eurozone itself?

I guess it means that, after a decade of jockeying for jurisdiction, vying for victory and debating for directives, the Eurozone is now hitting its hardest year in its history.

Will it survive or will it fail, and what does it mean for the changes to the banking system that have been implemented to date?

To be truthful, the changes to the banking system will stay in play.

We’ve made European financial markets a little bit more transparent and open thanks to directives such as the MiFID and the PSD.

Cross-border Euro payments can now be made at the same price as domestic payments, and pan-European trading through electronic algorithms is now as easy as pie.

Even clearing and settlement has been adapted a little bit, although there’s still a long way to go as illustrated by the fact that we are forming the new Clearing & Settlement Working Group, CAS-WG.

But if the whole thing does fall apart and the Germans adopt the Deutschemark once more, the Greek the Drachma and the French the Franc, will it mean that all of this work goes away?

Will we go back to charging €’s for a withdrawal from a neighbouring country’s ATM?

Will we return to London market trading without any reference to Frankfurt or Paris, let alone Amsterdam, Madrid, Stockholm, Copenhagen and others?

I don’t think so.

The efficiencies of pan-European infrastructures will remain in play, as they are today, and the banks that offer and leverage the opportunity for pan-European coverage will continue to reap benefits by being more competitive through scale advantages.

So the investment to date whilst not being justified or even worthwhile for some, will continue to deliver the benefits originally anticipated by others.

It is for these reasons that I propose we have a new European anthem that goes something like this (to the tune of Celine Dion’s Titanic song, My Heart Will Go On):

Every nightmare for Merkel,
Sarkozy and Draghi,
Is how the euro goes on, and on.
Dragging on forever,
There’s no agreement,
And yet debate about the euro, goes on.

Yes, no, maybe and then nein,
They hope the euro will go on.
Once more, they meet zut alors,
But don’t agree what to do,
And hope the euro will go on and on.

From Maastricht to crisis
They wish it a lifetime,
And don’t want to let go till it’s gone.
EU and EMU,
Let the whole thing pooh-pooh,
And still want it to then go on.

Yes, no, maybe and then nein,
They hope the euro will go on.
Once more, they meet zut alors,
But don’t agree what to do,
And hope the euro will go on and on.

They’re here, there’s nothing they fear,
Until the bears bite too hard.
They’ll stay forever this way,
With a currency fail,
And hope the euro will go on and on.

I guess you get the idea.

Meantime, this blog entry is inpired by Eurocrash! The Musical.  Go see it!

 

 

 

As my SEPA gently weeps ...

I hosted a dinner last night with a focus upon developments with SEPA and innovation.

What innovations has SEPA introduced?

Long silence.

To be honest, there are some – the ability to cash concentrate direct debits into the most efficient countries using SDDs (SEPA Direct Debits) for example –but the list is real short.

We found the reasons why are multiple.

First, there’s innovation and change in wholesale versus retail, with the former taking much longer than the latter.

Second, there’s cooperative innovation where countries and operators need to work together to agree change and standards, which is why it takes the time.

Third, there’s delivery of a wholesale change across a wide economic area, which is not just eating an elephant but a humongous great Blue Whale.

Nothing is simple in the SEPA game, or end-game.

And is there an end-game?

Sure, we’re talking about end-dates, with a single end-date now mooted for end of 2014.

If 2014 is achieved, then twelve years after the creation of the European Payments Council we might get something implemented … but it’s still ‘early days’ as someone said.

Twelve years and it’s still early days?

Jeez.

Another banker said that “just as we’ve started to deliver innovation with SEPA, it may never happen”.

Hmmm … life is what happens to you whilst you’re busy making other plans, and twelve years after inception, SEPA might be delivering a stillborn infrastructure if the Eurozone implodes, as many appear to be predicting.

If you don’t think they are, then talk to a few banks around the City here and they’ll tell you that they’re seriously planning for a euro breakup, and modelling what that means to their systems, structures and processes.

No wonder when most respected media are now saying we’ve reached crunch time.  From this morning’s Washington Post:

“After two years of failed efforts that world markets have swept aside as inadequate, Europe’s politicians face an increasingly sharp divide in combating their financial crisis: either take the sort of politically difficult steps that would tie their economies more closely together, or prepare for the breakup of the euro currency zone.”

So where are we in reality with SEPA?

The EPC’s latest numbers show that, “as of August 2011, the share of SEPA Credit Transfers (SCTs), as a percentage of the total volume of credit transfers generated by bank customers, amounts to 20.12 percent in the euro area”, whilst “the share of SEPA Direct Debit (SDD), as a percentage of the total volume of direct debits generated by bank customers, amounts to 0.13 percent (ECB SEPA Indicators)”.

SCTs have been around since January 2008 (that’s four years near enough) and SDDs since November 2009 (two years).

The reason for the slow take-up of SDDs is down to incompatibilities between country implementations of SDD, and specifically repudiation and revocation rights which have been compromised due to country opt-outs allowed under the rules (derogations).

So we don’t really have any innovation here yet.

Just a slow-burn.

Oh, one thing that was viewed as innovation in this wholesale space however is ISO20022.

“The ISO 20022 standard provides the financial industry with a common platform for the development of messages using:

• a modelling methodology (based on UML) to capture in a syntax-independent way financial business areas, business transactions and associated message flows;
• a central dictionary of business items used in financial communications;
• a set of XML design rules to convert the messages described in UML into XML schemas, whenever the use of the ISO 20022 XML-based syntax is preferred.”

Yea.

ISO20022.

The Nirvana of financial messaging.

And yes, if SEPA delivers a compliance and move to ISO20022 across the Eurozone’s corporations and banks, then yes, that’s good.

According to those around the room, this has to happen as part of SEPA delivery.

OK.

But I’m not going to place any bets on this happening.

And, as if to prove the point, put “ISO20022 SEPA” into Google and what you get back is a whole bunch of articles … from 2008.

Finally, about 30 entries down the list, you get a link to the EPC’s website where an article from October 2011 states: “the existence already of multiple interpretations of the ISO 20022 message standards; i.e. multiple domestic SEPA formats, threaten to undermine key objectives of the SEPA initiative.”

Maybe it’s just me but I’m thinking that, after ten years of evolution and little revolution, this thing ain’t working.

Anyone want to argue the toss?

 

 

Eurozone crisis threatens SEPA

I almost missed this last week at SIBOS, but Bob Lyddon has kindly allowed me to post all details here with attribution to the SIBOS Daily News for the text below ...

The euro zone crisis threatens to derail the Single Euro Payments Area (SEPA), according to a new research paper. Challenging those who separate the crisis from SEPA preparations, The Eurozone, the ECB and the feasibility of SEPA: an overview, says the Sepa policy objectives were based on certain assumptions about how the single market and the euro would be operating by the time SEPA was realised, but these have not occurred.

Last week’s stock market volatility was fuelled by concerns about Greek debt and the ability of the country’s leaders to implement severe savings measures and economic reforms. There was concern that Greek insolvency may be inevitable. Spiegel Online reported that Germany’s Finance Minister, Wolfgang Schäuble, was reviewing scenarios for handling a Greek default and its impact on the euro zone. Two scenarios were reported as possible: Greece remaining in the euro zone, or the country abandoning the common currency and reverting to the drachma.

In studying SEPA and the sovereign debt crisis, the lead researcher for the paper, Matthew Gibson of University College London (UCL), identified two groups – centralists who want to push SEPA through on the basis that a supposed absence of SEPA has contributed to the euro zone crisis, and sceptics (or nationalists) who following the crisis will be less likely to “fall into line” with SEPA. “This contrast could lead to an acceleration of the legislation from the European level, but a weaker implementation commitment at the national level,” says the report.

Bob Lyddon, managing director of international banking alliance, IBOS Association,  says looking at SEPA in the context of the euro financial system as a whole, it is “absolutely predicated” on the existence of a single currency in this single market. “An admission either that the single market is fragmenting (because of the different country risks within it) or that the euro is no longer a single currency (because it exists in many guises in what should be its purest form – central bank money) would almost certainly lead to stakeholder behaviours that stopped the SEPA programme dead in its tracks,” he says.

In order for compulsory deadlines to be set, both EU Council and European Parliament agreement will be needed, says the paper, relying on a degree of political will for unification within the European community.  This is something that the sovereign debt crisis and tensions between EU countries, resulting at least in part from the European Central Bank’s management of the crisis, may preclude, although Gibson admits that “right now” it is likely that a regulation on SEPA migration will be passed in late 2011.

A survey released last week and conducted during the height of European debt concerns in July and August indicates that belief in the strength of European economic and monetary union is flagging. The State of the European Payments Marketplace, which is published by the UK-based Financial Services Club and sponsored by Logica, found that 15 per cent fewer respondents supported the statement: “economic and monetary union is as strong as ever” compared to last year. Of the 360 respondents from financial institutions, consultancies and technology providers, 41 per cent agreed with the statement, compared to 56 per cent in 2010.

When asked if the European Union itself was “as strong and vibrant as ever”, only 5 per cent agreed; down from 13 per cent in 2010. There was a jump in the number of respondents who agreed with the statement: “the European Union is unlikely to be maintained, and will divide into a Northern Union and the rest”, up 17 per cent from 2010 to 30 per cent of the vote. Overall, says the report, participants responded positively to the question, which indicates survey respondents were losing their belief in the European Union and economic and monetary union.

The full research document from the UCL is available here: http://bit.ly/oTaANG

 

Release: 2011 Survey on the Health of European Payments

Survey reveals that SEPA and the PSD are progressing but liquidity risk needs addressing

Research finds liquidity risk is a major potential exposure for the future and calls for more automation

The Financial Services Club and Logica revealed the results of their annual research into the state of play in European Payments and the progress of the implementation of the Payment Services Directive (PSD) and Single Euro Payments Area (SEPA).

The report surveyed over 360 global bankers, consultants and technologists and covered five key areas. These included the development of the European Union, the impact of the PSD and SEPA, bank-to-corporate relationships, and liquidity risk.

The survey revealed that two-thirds of banking professionals agree that an integrated payments market is either critical or very important to Europe’s future. When it comes to the PSD, 50% of respondents think it has been successful – a 15% increase from 2010. For SEPA, when asked the same question the results are not as positive – only 30% think it has been a success. Banks are also slightly more optimistic on the progress of SEPA - with 70% believing that the SEPA vision will be realised by 2017 compared to 68% last year.

A key issue highlighted by the survey is concern over liquidity risk. While 73% of banks surveyed know their financial exposure in the case of a liquidity event, only 39% were able to do this through the right technology of which only 17% can do this in real time.

Seven out of ten respondents felt that SEPA was having a positive impact on corporate-to-bank payments processing and 81% found that technology solutions met their requirements, although the majority noted that these developments could be improved.

Research background

The survey ran during between July and August 2011, and was completed by 360 participants across 44 countries.  The largest single group of participants was from the banks with over a third of the respondents from this constituency.  Consultants and technology providers are the next largest groups, also representing over a third of the votes.  Almost three out of ten participants (27%) describe themselves as “middle management”, whilst 40% were senior management or C-level and one in four (26%) were “consultants” or “advisors”.  The full report is available upon request.

Logica and the FS Club will be hosting a free webinar on GT News on 12 September at 3pm BST / 4pm CEST / 10am EDT.

To register, please visit: http://bit.ly/rjN4h9

Download Summary Document for a free copy of the research.

Is this the end of the euro?

For the past two years, we have performed a major survey around the euro and the Eurozone, and how the developments of the infrastructures to support this is changing.

The survey for 2011 is now live and looks at the world after the PSD and SEPA, particularly the implications of the end of the euro, liquidity risk and corporate’s needs as part of this landscape. 

We would love to have your participation in this year’s survey.

Click here to take survey

By taking the survey – it’s only SIXTEEN multiple choice questions and should take no more than 10 minutes to complete – you get the chance to WIN a free one year membership of the Financial Services Club and copies of all my Blog Books!

You also will get a copy of the full results of the survey, which are due for release in early September, so please join in.

Click here to take survey

Meanwhile, I’ve just finished a presentation at the SAP Annual Treasury Conference in Copenhagen today that covered the headlines of our last three research reports related to this area.

You can see the presentation here:

View more presentations from Chris Skinner

And get copies of our previous research survey reports by going to these links:

• The Progress and State of SEPA and the PSD 2009
• The Progress and State of SEPA and the PSD 2010
• The Changing Face of Payments 2011  

Click here to take this year's survey

Are payments infrastructures fit for purpose?

During the spring, we reached out and asked readers and FSClub members to provide their views, via an online survey, of the world's largest payments infrastructures and whether they are fit for the purpose they are being used for today.

Last night, we released the results of the research at a dinner hosted by survey sponsor, Cognizant, and with a panel discussion of the report's findings with:

• Chris Dunne, Strategy Director, Vocalink;
• Gilbert Lichter, Secretary General, the Euro Banking Association (EBA);
• Arun Aggarwal, Managing Director, SWIFT UK;
• José Beltrán, Director for SEPA at STET; and
• Tony Virdi, Head of Financial Services Division EMEA, Cognizant.

If you would like a copy of the report (3MB PDF) then email our administration and they will send you a copy.

Some of the report's headlines include:

•  96% of retail banks cite the internet and 82% cite mobile technologies as having most important impact on payments infrastructures

• 63% expect significant or major changes to payments infrastructures in complying with regulatory change

• 49% expect Fedwire to face regulatory challenge 

• 40% will be using two to three key payments infrastructures in ten years’ time, compared to the nine used today

• 19% expect VocaLink will be most impacted by developments in mobile payments 

• 27% expect SWIFT and Eurogiro (24%) to be most impacted by Internet developments

 

The key messages from the report are:

• There will be consolidation as well as increased competition. The process of consolidation will be slowed by certain national and domestic interests, with the largest countries of the world – the BRICs and America – protecting their national infrastructures

• There will be fewer payments infrastructures in ten years than there are today and increased competition from both existing and new payment providers

• European Clearing houses for retail payments – such as Equens, VocaLink and STET – will be locked in a competitive battle

• Asian and other clearing services will also be consolidating and some panregional or potentially global players are likely to emerge

• Common standards will drive the process towards renovation and consolidation, as XML and ISO20022 work hand-in-hand to make interoperability easier

• Whilst payments infrastructures were viewed on the whole as being ‘fit for purpose’, Fedwire, Eurogiro and CHIPs scored highest in the ‘out of date’ category

• SWIFT, VocaLink, Equens and EBA are viewed as innovative, although banks and non banks views varied in this regard SWIFT and the EBA have very strong support for the long-term from their banking community advocates, and are likely to remain central to payments for the foreseeable future as standard setters and low-cost processors

• Payments processors need to be on top of rapid developments in mobile, internet and cloud computing to continue to be fit for future purpose. In Retail, changes will be driven by changing customer behaviours relative to social media and the way we pay, with mobile contactless and online payment systems driving real-time connectivity

• As the number of providers and the pace of technology increases there will be greater need for payment risk forecasting, monitoring and the real-time tracking of payments processing by the customer 

If you would like a copy of the report (3MB PDF) then email our administration and they will send you a copy.

The latest chat on Basel III, the PSD and SEPA

This is an extract of the summary of discussions at the IPS conference, written by FSClub friend Heather MacKenzie.

For the past few years the regulation debate at IPS has tended to focus on SEPA and the Payment Services Directive (PSD), but with the mandatory end date regulation soon to be voted on by the European Parliament and PSD transposed into law in most EU states, other pressing regulatory issues shared the platform.

An intense regulatory age is bringing sweeping changes to the banking industry, said Elemar Terták, Director Financial Institutions, DG Internal Market and Services at the European Commission. The new regulations aim to design an international financial architecture that promotes efficient global resource allocation and a level playing field across all countries. "Banks should have stronger capital bases, greater reserves of liquidity and should not be too big to fail."

The day before the opening of IPS, the Payments Regulation Boot Camp enabled speakers and delegates to delve into the minutiae of the Payment Systems Directive, the SEPA end date regulation, Basel III, anti-money laundering and know your customer initiatives.

There were some familiar issues raised; for example, the PSD needs further tinkering as Carl Hassey, Senior Product Manager at Barclays Corporate put it. The PSD requirement for D+1 payment delivery and how it can be reconciled with payment systems that accommodate longer periods, such as the UK's BACS, which is based on D+3, was hotly debated. John Burns of the UK's Financial Services Directive pointed up that the regulator wrote to banks in August 2009, asking if they could comply with D+1, and received a resounding positive response.

Delegates were polled as to how important regulatory reform was compared with other strategic issues - 38% said it was equally important while 29% said it was on the top of senior management's agendas. Furthermore, 53% of delegates said regulation would have the biggest impact in capital and liquidity requirements, reflecting the increasing focus on the impact of Basel III.

Basel III

Concerns about the impact of Basel III dominated a regulation roundtable discussion on day two of IPS. The liquidity coverage ratio, for example, where banks have to set aside liquid assets such as government bonds, would affect liquidity facilities and clearing and settlement, driving up costs, said Dermot Turing, Partner, International Financial Institutions and Markets Group, Clifford Chance. Moreover, the net stable funding ratio would lead to banks pushing alternative financing structures on to corporate clients rather than traditional loans.

Atsushi Mimura, Director, Office of International Financial Affairs, Financial Services Agency, Japan, said Basel II had struck the right balance between strengthening capital requirements and ensuring economic growth. It was important that any new capital and liquidity requirements would not hamper financial intermediation and income growth.

Malcolm Porter, Deputy Head of Regulation Development, Group Treasury, RBS, told delegates at the Payments Regulation Boot Camp that a number of concerns remained for the industry regarding Basel III. These included the criteria for Level Two assets and the treatment of inflows. "The Basel Committee doesn't want lobbying from the banks on these matters - it wants clear data from us that will demonstrate exactly what will happen if certain measures are introduced."

SEPA and the mandatory end date

While progress towards SEPA credit transfer and direct debit instruments has been disappointingly slow, many of the IPS speakers expressed optimism about the prospects for the harmonisation initiative in the long term.

Francisco Tur Hartmann, adviser, market integration division, European Central Bank, said there were still challenges but the market should acknowledge that two new payments instruments - the SCT and SDD - have been delivered and are important for a single market in cashless payments. "SEPA has delivered faster, cheaper, easier and more secure payments. It also provides a platform for further innovation in electronic and mobile payments, electronic invoicing and contactless payments."

Work remains to be done, he said, on issues such as greater legal certainty, a European card scheme, interoperability between payment infrastructures and increased awareness of SEPA among end users.

Terták cited several reasons for slow progress in the transition to SEPA - uncertainty in the market, a difficult economic environment, potential disadvantages in being a pioneer in a network based industry, the lack of standards and the lack of a specific end date. "There are controversial issues that were raised in the SEPA mandatory end date directive proposals. Mandating the use of ISO 20022 will increase standardisation, transparency and competition. But this is a hard battle and progress will be slower in some countries than in others." The end date regulation will be helpful but only when technology is available to provide a platform for innovative instruments, he added. The e-money directive along with the PSD will bring a common platform for e-money initiatives across borders in Europe, attracting users who will be willing to pay more for convenient services.

Friso Spinhoven, SEPA Programme Manager, Ministry of Finance, Dutch State Treasury Agency, said he believed the SCT and SDD were too basic to trigger a large scale market-driven adoption. "In the Netherlands, the cost of a credit transfer is already quite low, so it is difficult to build a business case to migrate to SCTs." The advantages of SCT in delivering end-to-end remittance information was not enough as the domestic instrument usually sufficed and the investment required to migrate to SEPA outweighed the advantages in the short term. "You must look at SEPA in the long term - it is a huge project and will take a lot longer to pay back than three years. But SEPA will bring more competition to the market and we expect to see some interesting offers from foreign banks."

A focus on benefits for users should be the first thing to look at when reforming payments, said Joerg Pinkernell, Head of Financial Institution Product Management, Barclays. But this hadn't been the case with SEPA and there was yet to be a clear business case for corporates. Hartmut Bremer, SEPA Project Manager at Deutsche Bank, agreed with Pinkernell, saying a business case must exist for all stakeholders.

Ruth Wandhöfer, EMEA Head Market Policy and Strategy, Global Transaction Services, Citi, highlighted the need for harmonised market practices when implementing projects such as SEPA. "Anyone wanting to set up a single payments zone must harmonise these practices. We cannot really have on in Europe for thousands of different reasons, including diverse VAT rates and credit identifiers. Full circle processing doesn't yet exist in SEPA."

 

SEPA, ISO20022, Interoperability and more ...

I was involved in a tweminar yesterday organised by Karen Hsu of Informatica, and in conversation with Nancy Atkinson of Aite Group.  This conversation was all about payments and specifically SEPA, ISO20022, interoperability and more.

It is also the second tweminar I've participated in - the first was with First Direct's CEO - and they are incredibly difficult to summarise afterwards as the conversation is fragmented.  It's easy to follow via twitter but, afterwards, trying to pin the flow together is not so easy.

Anyways, I've given it a go as this one is quite interesting for those who like everything payments focused.

Karen Hsu, Informatica: How important are payments to banks? Why?

Chris Skinner, the Financial Services Club: payments are a critical function for some banks that have transaction services as focus. For others it is also key, as it's their perception that this keeps the customer. But the combination of internal capability, economies of scale, op efficiency is a killer combo

Nancy Atkinson, Aite Group: It keeps the customer, but also provides opportunities for offering value added services. And, yes, value add doesn't mean the bank has to do it all in-house.

Chris Skinner: i think that reflects some banks have a hard time at letting go though. Unless you can monitor and monetise and value the real revenue, is payments core? Some think it's real value when it's actually perfunctory

Nancy Atkinson: LOL. Could be. But, the fee revenues were very helpful during the economic crisis when lending wasn't going so well.

Chris Skinner: SEPA is putting squeeze on this, especially for those not big enough to get economies of scale.

Karen Hsu: let's start with the impact of SEPA and what it means for payments.

Chris Skinner: SEPA splits EU banks into three - those big enough to do it, those small enough not to, and those in between who have no clue

Nancy Atkinson: SEPA has been a big topic for some years now. Why has it been so long and difficult?

Chris Skinner: because there is no business case for SEPA, and cost of program vs benefits questionable.

Nancy Atkinson: Okay, then the initial focus was off.

Chris Skinner: yes, it is just a political agenda with no real customer need, although the end game is to have true cross-border payments across EU like USA.

Nancy Atkinson: Do you think there is no real customer need for consumers, or just for businesses?

Chris Skinner: there is no real consumer need although there's a need for businesses with x-border/pan-EU ops.

Nancy Atkinson: Exactly. Isn't that why SEPA is really focused on retail payments?

Chris Skinner: yes, although the end game is what they see as the market driven need

Nancy Atkinson: isn't there also an issue of the cultural and political turmoil among some countries in the EU?

Chris Skinner: yes, but that's been more recent. in fact, we wonder if the EU and euro will hold

Nancy Atkinson: I wondered that too.

Chris Skinner: the answer is yes (the euro) will (survive), regardless of turmoil, as SEPA and Euro is commercial program, not political

Nancy Atkinson: So, when do you expect critical mass to be achieved and what will it take to get it there?

Chris Skinner: Critical mass is coming - already >10% of credit transfers in SEPA. But the motivation and complexity of direct debits is a block.

Karen Hsu: how has the SEPA end date changed the banks' migration efforts?

Chris Skinner: the end-date dialogue helps - with SCTs prob by end 2012 and SDD end 2013, but migration is slow and not focused without business case and some force

Nancy Atkinson: Banks and corporates have been waiting to see what happens, it seems to me. As a result, their migration efforts are slow, although the largest banks that Chris defined as really embracing and owning payments have been active in migrating.

Chris Skinner: Yes Nancy - the global transaction banks all see SEPA as an opportunity. After all they can insource the x-border payments that smaller banks now can't support

Nancy Atkinson: But that is only a small number of the total banks that could be involved.

Chris Skinner: Nancy - yes, i can count the proactive SEPA banks on my hands (no toes needed) lol

Karen Hsu: how about the corporates? are they prepared for the new SEPA changes?

Chris Skinner: Most corporates don't care Karen as it’s not on core radar, unless large pan-EU biz

Nancy Atkinson: Corporates will care when they have to manage mandates for debit transfers.

Chris Skinner: Yes, but debit mandates big issues for many, esp Germany, and there are too many variations between DD mandates and country ops to make it common practice now. so issue is how to force the hand

Nancy Atkinson: In your opinion, Chris, should the issue be forced, and if so, how?

Chris Skinner: issue should be forced Nancy . The method is to get all Public Authorities migrated first and Public Authorities should state they won't take non-SEPA format payments. Bank fee structures should encourage movement too

Nancy Atkinson: When do you think that will happen?

Chris Skinner: Real SEPA critical mass? between 2018 and 2020 dependent on regulatory authorities effectiveness and EU willingness to join in

Karen Hsu: To back up a bit, how many different formats do banks have to deal with (including international and domestic)?

Nancy Atkinson: There are multiple payments and payments related standards.

Chris Skinner: It’s a melting pot Karen - IBAN and BIC, SEPA SCT, SDD and SDD-B2B, SWIFT MX and ISO20022 - all are new and required for SEPA

Nancy Atkinson: Within the standards, there are many versions still being supported.

http://twitter.com/glowsglam: @Chris_Skinner Will this require a change in IBAN? Use only BIC (as not all countries recognize it)

Chris Skinner: IBAN and BIC now mandatory to be quoted in all payments - but depends where you sit - corporate or bank, and IBAN and BICs all different anyway

Nancy Atkinson: And although IBANs only apply to EU payments, they are being requested for payments from non-EU countries, where they do not exist.

Karen Hsu: and how are the banks addressing these formats? through internal solutions? outsourcing?

Nancy Atkinson: With regard to addressing the multitude of data formats, banks use internally developed solutions and external ones.

Chris Skinner: Big banks on top of it, small banks outsource it and others stuck

Karen Hsu: Should the banks provide specific IBAN services, or is there too much in doing this?

Nancy Atkinson: Some banks do provide IBAN services, but IBANs don't exist in some countries (e.g., the USA).

Chris Skinner: What about UPIC or other identifiers Nancy ?

Nancy Atkinson: UPIC is a solution offered to help in the U.S. with changing corporate accounts and with the desire not to share bank account info.

Chris Skinner: On UPIC , some corporates over here think better than IBAN and BIC

Nancy Atkinson: The UPIC is aligned with the company and an account of the company. If the company changes banks, only the UPIC has to be changed.

Karen Hsu: How about payment tracking services-- is there a gap in providing this for corporates (end to end)?

Chris Skinner: little out there to track all that today, just look at issues of cover payments SWIFT, and tracking is clearly not working well in the past. And tracking means end-to-end (e2e) which means customer to bank to clearing to bank to customer. What you end up with is myriad of services, some vendor and some bank to handle format variations

Karen Hsu: So the payment tracking is important - what type of analysis is important for corporates?

Nancy Atkinson: Analysis around procure-to-pay . When do they make their payments? Can they make them sooner and take discounts?

Chris Skinner: Key for corporates is procure-to-pay cycle and providing information abundance and analysis around that

Nancy Atkinson: Once the customer is using a bank, customer service needs to be multi-channel and enterprise-wide.

Chris Skinner: Issue is fragmentation of accounts and information today

Karen Hsu: What about customer onboarding?

Nancy Atkinson: Customer onboarding is part of it, but certainly not everything. It’s more about what is the activity coming up? Seeing trends in the "rear view mirror" is less helpful than knowing approved outstanding invoices. Further, banks have data that can assist corporates in making decisions regarding their payments.

Karen Hsu: lack of standardisation appears to be a big issue-- with most of the banks still working on interoperability

Nancy Atkinson: Banks are working on interoperability with other banks, industry utilities (like SWIFT), and with their customers.

Chris Skinner: Big word 'interoperability' ... still working out what that one means ... as are most banks. I think it means working together on plumbing ... but my spanner's not standard size

Nancy Atkinson: Unfortunately for banks, they are caught in the middle of that one--customers and SWIFT have the power.

Chris Skinner: SWIFT has power, but not to force interop Nancy

Nancy Atkinson: Oh, I agree with you, Chris. But, SWIFT has the power to establish formats that banks must follow to communicate with them. It means working together on standards, but also providing translations between and among standards.

Karen Hsu: Is China using SWIFT or is their critical mass on another standard?

Chris Skinner: China still considering options as they could be biggest payments hub by end of decade. China could take own route, and decide to build new standards and infrastructures , but I don't think they will although you never know

Karen Hsu: Is ISO 20022 widely adopted or becoming widely adopted?

Chris Skinner: ISO 20022 seen as solution, but it is not - just part of getting there. It will help, but has become too much of a panacea - also needs focus

Karen Hsu: Regarding making corporate customers happy, is the differentiating service around customer onboarding?

Nancy Atkinson: Banks want to make their corporate customers happy by making it easy to work with them.

Chris Skinner: Put another way: banks want to keep corporate by making them think they're making it easiest

Karen Hsu: do the banks realize integration is critical to providing that consolidated cash view

Chris Skinner: Yes banks know this, and are starting to compete on information value add analytics

Nancy Atkinson: Banks know it, but winning as the single source provider for their customers is challenging. Being able to provide aggregated account data across multiple banks is what is desired.

Chris Skinner: Nancy is right, and which banks want to be disintermediated by the aggregators is big issue

Nancy Atkinson: None of the banks want to be disintermediated, but some would have to be.

Karen Hsu: would the bank differentiate by integrating aggregated info with the corporates back office systems?

Nancy Atkinson: That is one way for banks to add value. Still, if they only have their own account info, the value is limited.

Chris Skinner: More that they will provide gateways to allow and equally getting close to SAP|ERP by, for example, providing real-time treasury dashboards with global analytics and reach. Real-time is a game changer if a bank can use capability to give corporate more control to sweat working capital

Karen Hsu: what about the treasury workstations at the corporates? are they being replaced in some way by SAP?

Nancy Atkinson: SAP and other ERP providers offer treasury workstation modules, but those modules frequently weren't implemented when ERP was installed.

Chris Skinner: Treasury workstation and SAP go hand-in-hand surely, and banks see SAP as future easy way into the corporate back office so the key is to get SAP and ORACLE integrated

Karen Hsu: Getting SAP and Oracle integrated is what we do :)

Chris Skinner: Ya don't say!

Karen Hsu: Do you see eBAM becoming an area of investment for banks?

Nancy Atkinson: I see corporates demanding eBAM from their banks.

Chris Skinner: Yes Karen, eBAM is getting buzz but it’s not a real force in my domain yet .... lot's of talk though.

Karen Hsu: what's holding eBAM back?

Nancy Atkinson: Can banks charge for eBAM? If not, it is a cost without a payback. Corporates need to make it a requirement.

Chris Skinner: Hold up is whether corporates really see value from these activities, and corporate CFO's are still to be convinced in many cases

Karen Hsu: if not eBAM what processes are CFO's looking to automate

Chris Skinner: CFO's more interested in supply chain automation - eBAM can help but other areas of interest

Nancy Atkinson: CFOs want to improve their knowledge of financial supply chain to match physical supply chain.

Chris Skinner: And liquidity management is #1

Karen Hsu: Wow! We've covered a lot today. We're officially at the end, but please keep sharing your comments. Thank you for joining us.

 

Does SEPA matter?

We had a good meeting of the financial services club this week to debate SEPA, and whether it matters.

It was a repeat of last year’s meeting, with Fred Bar of Vocalink and Gary Wright of the SEPA Consultancy putting the case for SEPA opposed once again by Paul Smee of the Payments Council and Simon Bailey of Logica.

This year the debate had moved on a little bit, with the view that SCTs doubling in volumes from just over 5% in 2010 to 10.4% today showed that SEPA was irreversible and moving forward with momentum.

This was countered by the view that the EPC hoped to have SEPA fully in place by 2010 back in 2002, and then irreversible by 2010 in 2005. The reality is that SEPA still has a long way to go.

No way, say the supporters of SEPA. It’s here and you cannot refute it is succeeding, especially now that there is an end-date likely to be implemented for early 2013 for SCTs and 2014 for SDDs.

“Sure, sure”, say the naysayers. You have an end-date, but it’s a totally chaotic transformation when you throw in the fact that you have ISO20022, XML, BIC, IBAN and more as part of this process which is a problem for everyone, particularly those countries that are not in the EU for example.

Get out of here, say the SEPA-leaders, who believe that we are past the point of no return and that debate should be more about how to exploit SEPA as the American banks are moving into this market big time and, if anything, European banks have been slow to exploit the opportunities that SEPA offers.

Nein, state the SEPA-ratists, who note that the vision is lacking and that the machinations of SEPA have been just that: a bureaucratic machine. SEPA needs some excitement if it is to work, they claim.

The debate raged on for a good hour or so, with the audience lobbing in a few points including:

SEPA seems to be key for the banks, but for the customers?

Is there a raison d’etre for SEPA?

Does anyone need it?

Where’s the consumer and corporate requirements?

A couple of points I particularly noted is that SEPA or, more importantly, the PSD is important for corporates as the commercial clients of banks can now register as Payments Institutions (PI) potentially. As a PI, a corporate can then circumvent the bank if they want ... an opportunity that some will take in the future they believe.

The other point is that the Euro debate that has raged for the past few months is a key burning platform in the SEPA and PSD debate. Does SEPA matter if the Euro implodes, or moves from a single Euro to a hard Eurozone and a soft Eurozone, whatever that means.

None of these questions are easily answered of course, but the debate is fun to have and, like last year, the final vote of whether this house believes SEPA matters was split firmly down the middle.

The vote was carried against the motion however by the voice of the Chair.

So this year, this house believes that SEPA doesn’t matter.

Why?

Because, as the Chair, I think that the Euro matters far more.

The debate right now should be whether the Euro matters and whether it can be maintained.

Once we get through that debate, then SEPA will obviously matter once more, assuming that the debate is won by the Euro supporters of course.

 

UPDATE - 10th February 2011, 07:55

Just got an interesting note from a friend that reads:

I read your SEPA blog of today and I can see that the progress is slow in most places.

The Finnish market (banks and customers together) decided to put a target end-date for SCTs for 31.12.2010 and a final end-date (banks stop receiving old transactions formats ) for 31.10.2011.

These deadlines got the customers moving.

By the end of 2010 we had close to 50% of all credit transfers in SEPA format from the customers (when it was below 10% in the beginning of the year.

We do not have yet the statistics for January but the growth will probably be in the range of 10-15% more of converted volumes.

By this development Finland has become the largest SEPA-country in the EBA STEP2 ACH-service.

So with a good planning and dedication the conversion can be done in a reasonable timeframe.

You can read more at: http://www.fkl.fi/www/page/fk_www_4065

 

2010 Review: Payments

So, there are a lot of things we’re juggling around with in the payments arena, from real-time to TARGET2 to SEPA to SWIFT ISO20022 to mobile to contactless to biometrics and more.

I guess I can summarise this area best by using the results from this year’s payments survey because the last section of the survey asked people what's hot, hot, hot in payments this year.

EUROPEAN PAYMENTS

What was not hot is the world of the Single Euro Payments Area (SEPA) and the Payment Services Directive (PSD).  Interest in these areas due to stagnation and indecisiveness had, to be honest, become flatter than the Flat Earth Society's annual party.  In fact, an indication of how much euro interest exists was articulated well in an insight article on CNBC that claims that: “The European Union Is Over”.

I wouldn’t go that far but, in reviewing the developments of this year, I would say that everything in the Eurozone got a bit tired, tainted and tense.

Thank goodness therefore that the SEPA end-date is in sight, with the European Commission approving the forced migration of national instruments to SEPA credit transfer and direct debit schemes 12 and 24 months after the new regulations for migration are approved.

So that puts SEPA to bed (lol), and leaves me to hone in on other key areas such as mobile and contactless payments.

MOBILE CONTACTLESS

Often breathed in the same breath, these are distinctly different areas even though they are converging as we speak.

For example, Orange has just committed to rollout contactless payments and NFC capabilities across all of their European network next year, whilst Google and Apple are committed to incorporate NFC into Android and iPhones.

 

Picture stolen from Brett King 

So we’re definitely in the era of simple mobile payments.

This was voted the #1 item of interest amongst those responding to the survey this year, and is top of mind with everyone.

What’s surprising is that mobile contactless may be top of mind, but it’s transient.

We’re already into using NFC tags everywhere and the mobile operators’ movements will simply decimate the NFC stick-on tag business (sorry taggo, bling nation et al).

Meanwhile, the fundamental issue is still not addressed: where can you use an NFC chip?

Barclaycard have been pushing Visa Paywave for a couple of years now, and yet I hardly ever get a chance to use it.

Sure, we may now have a few London taxi’s wirelessly enabled, but it’s hardly dense terminal acceptance or usability.

And there’s the rub: we need more terminals.

Maybe they could learn something from Zapa in Ireland, where AIB Merchant Services have worked closely with them to rollout terminals that can use the tags.

Half of all AIB’s merchant terminals are now Zapa ready: that’s 40,000 of their 90,000 terminals, with over 1.5 million contactless transactions in the year to September 2010.

Compare that with Barclaycard who have rolled out just 42,500 merchant terminals to date and processing just over a million transactions by November 2010, and you can see the challenging dimensions they face.

Hmmm ... but there’s no doubt that this will grow ... except that by the time it does, technology will have moved on and direct mobile-to-mobile, or M2M payments, will be the order of the day.

Ah well, we always roll out three-year old technologies to meet three-year ahead needs.

Behind mobile contactless, real-time payments is the next big deal.

REAL-TIME PAYMENTS

Real-time payments are big news because everything is moving into real-time, a point I’ve made often.

What real-time really means is real-time information transfer. Information about money moving worldwide in real-time. Not the money itself, which will still be gated and subject to the laws and barriers required to ensure money moves at the pace of AML, KYC, repudiation and revocation needs.

But real-time is a game changer, as real-time information, risk, cash and enterprise management is delivering real differentiation for corporates and clients worldwide.

That’s why banks need to focus upon it.

For example, in corporate treasury, real-time information that consolidates all the knowledge about a corporation's cash positions across all of their operations, geographies and subsidiaries would be invaluable.  In fact, it amazes me that most companies do not have this capability.  

That is because they are multi-banked and multi-country.

Banks that focus upon aggregation of information in real-time to provide additional knowledge about money will win business.

That's why real-time is important.

OPERATIONAL MANAGEMENT

After these big ticket items, everything becomes a bit more mundane with new pricing models for European payments post-SEPA, SWIFT MX and ISO20022, payments processing hubs, liquidity management and such like being on the ‘must-do’ list.

It’s all about standards, cost reduction and ensuring efficient processing. In other words, good operational management focus.

I could write a lot more about this, but it's covered pretty well elsewhere by SWIFT and other forums, so I'm not going to get all techie today (phew!).

The only point that’s really worth noting on the ‘new for 2010’ model from my side is the fact that there are a lot of new payments institutions appearing out there.

NEW PAYMENTS INSTITUTIONS (PIs)

PIs are new, non-bank payments processors taking out licences across Europe to process payments instead of, or on behalf of, banks.

Funnily enough, when we mention PIs, most people normally think of institutions like PayPal except that PayPal respond by saying: “we are a bank”.

First Data, Western Union, Mobile Telecom firms are also keen PIs, with over 70 licenses registered with EU authorities so far this year to offer payments services in this form.

But the most intriguing new PI for me is Voice Commerce.

Not because they were the first non-bank PI to register with the EU after the implementation of the Payment Services Directive (PSD).

Nor because they were the first PI to become a Visa and, more recently, MasterCard Principle Member.

No, the reason for Voice Commerce being of interest is that they use the idea of the human voice biometric being an identity authentication method.

Bearing in mind that yesterday, all things were moving to mobile and today, all payments are moving to mobile, the idea of using a human voice biometric on mobile seems to be a non-brainer.

And yet, according to our survey, voice biometric fraud management is the least interesting aspect of 2010s innovations.

Amazing how short-sighted we can be when it comes to seeing what may be the most disruptive developments sitting right in front of our eyes or, in this case, right in front of our mouths.

 

"I am Sepacus"

Last minute last week, I was asked to join a panel as one of the panellists had been unable to make it due to snow.

The panel comprised Tony Richter from HSBC; Bob Lyddon from IBOS; and Ruth Wandhofer of Citibank; with the theme: “what should banks be doing to be competitive after SEPA?”

It was an interesting theme, and one that occurs regularly in dialogue with banks and solutions firms.

Tony began be listing six points that he thought came to top of mind, which inspired me to make a list of six things too. As I was a last minute appointment to the panel, I thought I better write something useful down.

The second panellist was Bob Lyddon, who diagnosed the state of banks and SEPA with forensic skill, even quoting Russell Crowe and other luminaries in his analysis.

Quite unusual for a SEPA debate, and such intellectual prowess is rarely seen in conferencing circles.

For example, Bob’s crowning glory was making a pun based upon the old Bible quote from the Book of Luke: “physician, heal thyself” with “Physician, heal they SMED”.

To be honest, I wondered what he was talking about and thought it was some sort of disease, and a nasty one too.

But then Ruth explained that SMED is the SEPA Migration End-Date, or its Six Sigma Lean Management for Single-Minute Exchange or Die.

Hmmm, maybe it is a disease!

Anyways, after all that from Tony and Bob, Ruth turned to me for my opening remarks.

Completely at a loss of what to say for a change, especially after Bob’s quotes and biblical references, I could only think of talking about how does a bank make themselves look different after SEPA, when they all seem the same.

So I began with my own quote: “I am Spartacus”.

The quote comes from that lovely scene in the classic film where the Emperor is trying to track down which rebel slave dog is Spartacus to punish him.

Being the most popular slave dog, all the other gladiators stand up and shout: “I am Spartacus”, so that the offender cannot be identified:

This is like the banks of Europe, who all stand up and shout: “I am Sepacus!”

They are all SEPA-enabled and can all do the same things ... if so, then how do they compete and appear different, when they all look the same?

Well, here’s my list of what a bank should do to be competitive after the implementation of SEPA.

First, relevance.

The bank needs to assess how relevant SEPA and cross-border euro payments are to their own operations. Is this heavy volume or light volume; are they euro mainly or non-euro; do their customers need such payments processing or not; and so on. These questions will then determine whether the bank should transform their back office, or just outsource the service and deal with this on an exceptions basis.

Second, focus.

This is probably the singular most important point: focus upon the customer.

Simple, but often overlooked or forgotten.

If SEPA’s capabilities are critical to the bank’s customers or could differentiate the bank to its customers, then it’s essential for the bank to leverage SEPA capabilities. Equally, if SEPA is completely irrelevant to the bank’s key customers, then it’s irrelevant to the bank.

This latter point was brought home to me by a Eurozone bank who said they surveyed their Top Thirty direct debit customers. These were utilities, public authorities, mobile phone firms and related corporates.

The question: “do you have a need for cross-border direct debits” came back with zero response.

No interest at all.

Nada.

As a result, the bank has kept their old processing platforms and is handling SEPA payments on an exceptions basis only.

This may not be a good long-term plan but, whilst nothing is enforced, it is fine for now.

Third, protect.

Talking about customers, the bank should analyse which customers could be tempted to consolidate bank partners and payments processing as a result of SEPA and ensure that they are aware of the banks capabilities and differentiators, where they exist.

This struck me as a threat as I recently heard the story of one corporate invoicing customers in France, and collected payments through direct debits in Germany because the borders are close and the processing costs are cheaper through their German bank compared to their French bank.

All banks should look for and assess these areas of vulnerability and make sure they’ve got a strategy to keep the customer.

Fourth, leverage.

Banks should look for the things that SEPA enables as innovation and leverage these where they are easy to incorporate. For example, mobile and online developments.

As the European Payments Council (EPC) is working to provide some leadership here, banks should leverage this differentiation to show themselves as being innovative, even though it’s just leveraging things being done anyway.

The same could be said of einvoicing and real-time information services.

Where there are easy innovations, seize them and make out they’re your own.

Fifth, communicate.

Banks aren’t doing a great job at communicating why SEPA is relevant or irrelevant. The only communication I’ve ever seen about these changes for example, is a note from my bank saying I have to quote full IBAN and BIC details in future transactions.

No explanation of why this is worth doing, the benefits or reasons. Just that it’s a mandatory thing the bank’s customers must now do.

Duh?

Finally, keep in simple.

Simplicity is the key and it’s simplicity that makes customers move.

The ATM’s convenience is why there are so many out there today.

PayPal’s simplicity is what made their business work.

The ease of self-service over the internet is why online banking, and now mobile banking works.

Therefore, the more the bank can look at SEPA instruments and search for ways to make things simpler, more convenient and easier for the customers, and tell the customer they’ve done this of course (see point five), then the more business they will gain and retain.

So there’s my list of points and, for banks that do the above, then they are truly competitive and not just Sepacus.

 

The SEPA end-date is not the end

I had a fun day in Brussels this week. Well, it was fun for me anyway, although I’m not so sure about the conference folks attending as we were discussing the PSD and SEPA ... again ... as usual.

After seven years of gestation, full SEPA was finally born last year when SEPA Direct Debits (SDD) landed in Planet EU. Eighteen months later, the whole thing appears to be coagulating.

There is frustration over lack of usage now that the instruments are in play. Hence an end-date is due to be announced, and it looks like it could be next week.

That’s fine but an end-date in and of itself does not solve SEPA’s woes.

First, the end-date is being driven by policymakers who don’t see the reality of what the banking industry is demanding.

This is why, when I hear Gertrude Tumpell-Gugerell of the European Central Bank (ECB) regularly making the statement that it will be the end of 2012 for SEPA Credit Transfers (SCT) and 2013 for SDD, I can always hear an inaudible groan in the room.

Why?

Because the banks are the ones asking for a mandatory end-date and they know that the thousands of banks across Europe yet to migrate to SCT and SDD instruments will just laugh off the end-date if it’s set too early.

That’s why the banks are lobbying for end of 2014 for SCT and 2015 for SDD.

Even then, it doesn’t solve the issue, with some arguing that a single end-date for both at the end of 2015 would be far better than a staggered approach.

But then, as the inebriated banker would say, a staggering approach is often how the industry works.

Even if the end-date if put into play according to the bankers’ requirements, it still does not solve the conundrum as the real issue is not the lethargy of banks to move towards SEPA instruments, but the lackadaisical view of the banks’ users, particularly the corporates and public authorities across the member states.

In the case of the former, they are still frustrated by the fact that the EPC created the SEPA rulebooks as a closed banking shop, and wished they had had more inclusion.

Although many of their concerns have been addressed over time, the frustration was articulated quite well by one of the large European telecom operators who said that it took three drafts of the rulebooks before the “Ultimate” field they had requested to be included in all transactions was incorporated correctly.

This is the field that shows who ultimately pays the bill, as many subsidiaries of European companies order the goods and services, but it may be their parent in another EU state who pays, and corporates need to know this as part of the information of ordering, processing, delivering and invoicing.

Three workarounds before the banks understood this correctly and incorporated it is not great, and it made me wonder how many other fields and nuances the EPC had possibly missed in the corporate view of the development of SDDs and SCTs.

I’m sure the corporates will let them know as, until the structures meet their needs, they aren’t going to move.

Unless of course, the local authorities, public utilities and member state government’s tell them that they have to.

And that’s the other piece missing as of today: a burning platform that will create the movement to away from domestic instruments to pan-European SEPA instruments.

After all, if there’s no need to move, why would you?

The EU policymakers think the mandatory end-date will be that burning platform, but the bankers know that it isn’t.

If this was the case, all banks, corporates and authorities in the EU would know their IBANs and BICs by now, as this has been in the lawbook for almost a decade ... but I suspect most do not and many still quote such identifiers incorrectly if at all.

Finally, the core message to takeaway from all of this doom and gloom is that SEPA is enabling change in banks and corporates.

The change is that, for those who see opportunities, there are things you can do to take advantage of the new rulebooks.

Deutsche Bank get this as they absorb and insource SEPA processing from smaller banks.

Some small banks get this, as they get rid of old and inefficient infrastructure and use outsourcers and integrators to refresh their systems in order to deliver better client servicing.

And consulting firms and technologists get this as they focus upon delivering new innovations in mobile and online payments to clients, such as the planned implementation of Online Bank ePayments (OBeP) by Vocalink next year.

So there is light at the end of this dim tunnel, albeit it is still a dim light and very long tunnel.

 

Understanding SEPA's long and winding road

At the Euro Finance conference in Frankfurt this week was a stream all about transaction banking which yours truly attended.

The great and the good of our transaction world were also in attendance, as demonstrated by this short list of speakers:

• Albert Lechner, Vorstand Zahlungsverkehr, Betriebs-Center für Banken AG, München
• Andreas Kaiser, Leiter Cashmanagement, Bayer AG, Leverkusen
• Andreas Wolf, CEO, Clearstream Banking AG, Frankfurt a.M.
• Annie-Claude Jacquet, Head of Products and Transversal Projects, Global Payments & Cash Management, HSBC France, Paris
• Armin Gerhardt, Geschäftsführer, EFiS Polska SP.Z.oo., Gdansk
• Björn Flismark, Deputy Chairman, Euro Banking Association, Paris
• Charles Cock, Head of Client Development and Member of the Executive Committee, BNP Paribas Security Services, Paris
• Christian Schürlein, Senior Project Manager, Market Development, Xetra, Deutsche Börse Group, Frankfurt a.M.
• Christian Schürlein, Senior Project Manager, Market Development, Xetra, Deutsche Börse Group,
• Claus F. Hilles, Regional Representative D-A-CH, EBA Group, Frankfurt a.M.
• Damian Preisner, Treasury Operations and Processes, Global Treasury, SAP AG, Walldorf
• Dominik Adler, Division Manager Financial Markets, Bundesverband deutscher Banken, Berlin
• Dr. Heike Winter, Bundesbankdirektorin, Grundsatzfragen Massenzahlungsverkehr, Deutsche Bundesbank, Frankfurt a.M.
• Frank Annuscheit, Group Chief Operating Officer and Member of the Board of Managing Directors, Commerzbank AG, Frankfurt a.M.
• Frankfurt a.M.Geert Vanderbeke, Head of Sales Europe, ABN AMRO Clearing Bank N.V., Brussels
• Gertrude Tumpel-Gugerell, Member of the Executive Board, European Central Bank, Frankfurt a.M.
• Gilbert Lichter, CEO, EBA CLEARING, Paris
• Harald Keller, Senior Manager, Payments Markets, EMEA, SWIFT Germany GmbH, Frankfurt a.M.
• Jörg Wiemer, Senior Vice President, Head of Global Treasury, SAP AG, Walldorf
• Karoline von Richthofen, Global Head of Payment Markets, Deutsche Bank AG, Frankfurt a.M.
• Marc Aguilar, General Manager Multi-Channel Bank, BGL BNP Paribas, Luxembourg
• Marc Bayle, T2S Programme Manager, European Central Bank, Frankfurt a.M.
• Marc Rommerswinkel, Head of Payment & Collection Management, Corporate Finance, Treasury Processing, Henkel AG & Co. KGaA, Düsseldorf
• Mark S. Garvin, Chairman, Treasury & Securities Services – International, J.P. Morgan Europe Limited, London
• Nils Jung, Principal Consultant, Payments, Capco, Frankfurt a.M.
• Ruth Wandhöfer, EMEA Head Payment Strategy & Market Policy, Treasury and Trade Solutions, Citi, London
• Thomas Egner, Group Banking Operations – Payments Processes and Vendor Management, Director, Commerzbank AG, Frankfurt a.M.
• Werner Steinmüller, Head of Global Transaction Banking, Member of the Group Executive Committee, Deutsche Bank AG, Frankfurt a.M.

As you can see, with that list of the great and the good, it was bound to be an interesting day, and it was ... although coming so soon on the back of SIBOS, it could have been dull as dishwater.

The reason it wasn’t for me, is that I spent most of SIBOS locked in the innotribe stream, so I was happy to be updated on SEPA, T2S, Treasury ops and all sorts of other dialogue I missed in Amsterdam.

Most of the SEPA discussion focused on end-dates, with everyone saying that SEPA will only succeed when the end-date is in place.

Tell me something we don’t know.

Nevertheless, when Gertrude Tumpel-Gugerell said that: “2012 for SEPA Credit Transfers (SCT) and 2013 for SEPA Direct Debit (SDD) would be a good agenda to follow”, I could see a lot of shaking heads in the audience, as the bankers are working to 2016 and 2018 respectively and the corporates even longer.

But an end-date will come, with consultations today in Brussels and the Commission claiming they will announce a regulated end-date for conformance with SEPA instruments by end of year.

That is good as, with no business case at all to justify using SEPA instruments today, something needs to be done.

As Gertrude herself admitted: “one of the biggest challenges was the design of SDD and, one year on, it still has no practical usage.”

Indeed.

In fact, in the later panel discussion on SDDs explicitly, there were some interesting comments made particularly by Karoline von Richthofen, Global Head of Payment Markets for Deutsche Bank. First, she made clear that there are cultural differences between France, Germany and Italy in relation to transitioning to SDD and you cannot treat all of them the same.

For example, Germany’s transition is challenged by IBAN. In France, it is not as the French account numbering system was a mess before and so IBAN has been a blessing there. In France and Italy it is far more to do with repudiation and revocation of an incorrect direct debit amount that is the issue.

Therefore each country should be dealt with differently

This was a point raised in my own panel session.

My panel was focused upon the challenges to corporate for transaction banking, and consisted of

• Michael Hofmann, Branch Manager Germany, ABN AMRO Bank N.V., Frankfurt a.M.
• S. Rajgopal, Director, Head of Product Management, Standard Chartered Bank, Frankfurt a.M.
• Stefan Scheidgen, Head of Cash Management/Billing, Deutsche Post Renten Service, Cologne
• Alain Rividi, Treasury Program Manager Europe, IBM France, Paris

Michael Hoffman reinforced Karoline’s point by saying that he was in charge of the operations across Netherlands and Germany, and that the two countries are radically different.

In the Netherlands, everything is electronic and has moved to epay systems like iDEAL. In Germany, online banking and epayments are recognised but not nearly used as much as in the Netherlands due to concerns amongst citizens and businesses of the security and safety of online systems.

This raised an interesting question as you then have border overlaps, such as Northern Germany and the Netherlands, and Southern Germany and France.

A point underscored by an Austrian bank who could not understand what the hell were the demands of the Italian banks.

This led to other interesting dialogue.

For example, where is the demand for cross-border direct debits?

Karoline says it is from two camps:

Business-to-Business (B2B) which see the efficiencies and, for Business-to-Consumer (B2C) as an arbitrage of fees, where corporates in France want to collect consumer payments in Germany if the bank fees are less.

The latter point is particularly important in these border areas of France, Spain, Germany and Italy.

Equally, Annie-Claude Jacquet, Head of Products and Transversal Projects for HSBC France pointed out that such take-up would be limited in France for SDDs as: “5% of IBANs are incorrect which means that the rejects on SEPA payments are three times higher than on domestic payments for SCTs and is the reason why SDD is not taking off.”

Hmmmm ... teething troubles or long-term issue?

A final point worth noting on the practicalities of using SEPA instruments was raised by Stefan Scheidgen of Deutsche Post who gave a fascinating case study of their issues as a corporate user.

Deutsche Post has been used as a frontrunner for SEPA migration, and is moving all of their pension payments across to SCT formats.

That’s 26 million pension payments per month of which 24 million are domestic.

They moved 300,000 payments across in November 2009 and now make over 4 million payments through SCTs per month.

The problems they encountered however were multiple, specifically:

Legacy data migration

The continual changes in the financial industry

The requirements for global transaction processing

On the first point, a pension systems runs with account data that can be traced back over almost half a century for a pensioner, which creates big challenges due to multiple bank account formats over the years. Therefore, the legacy data migration from BBAN to IBAN was a big issue for the company, and although most banks offer some sort of data reconciliation services to the corporate clients, these are not consistent and do not cover all the bases.

The continual changes in the financial industry and the use of payments, for example, the move to new online and mobile payments, are causing problems. Just the migration to SEPA instruments within the banks and implementation of IBAN is an issue for example. Stefan believes there are far more frequent system changes and failures today than before, with five banks recently failing to deliver cross-border payment capabilities on time.

For these reason, it causes issues back to the corporate, with some banks limited the number of payments that can be communicated in each batch file to under 100,000. That sounds ok, but if Deutsche Post are to process 26 million pension payments per month at end of month, that’s more than 26 transaction files that have to be sent through on the last day of the month, cut and diced to suit the banks’ rather than the corporates’ payment processing capabilities. The reconciliation on those files is also a huge headache.

Finally, there are requirements from a corporate user to have an SGPA, Single Global Payments Area, rather than just a European one as the issue is global connectivity to payments systems, not just those within Europe.

The global processing requirements have not been addressed and most banks that call themselves Global Transaction Banks are just using this as a marketing label than a real capability. For example, they may be able to process across lots of regional hubs, but then the last mile is always a stretch. It might be the Cote D’Ivoire or Mauritius or Lagos or somewhere, but there’s always a part of the global transaction chain the bank has not got covered.

All in all a fascinating discussion of the challenges on both sides of the payments chain and maybe something I’ll spend some more time discussing later this week.

Meantime, just spent four hours at a foggy Heathrow trying to get to La Coruna, Spain, and now up in the air so it’s time for some relaxation ... something that European banks sound vastly in need of today.

 

PSD and SEPA research results 2010

The FSClub released the outcome of this year's survey on the Payment Services Directive (PSD) and Single Euro Payments Area (SEPA) this morning, sponsored by Logica, Dovetail and Earthport.

This is the second year of the survey, and builds on last year's results.  

Download the full survey report (2MB PDF): Download Report 2010

Here's a summary of the news:

A year after the transposition of the PSD and implementation of SEPA, European payments professionals are overwhelmingly disappointed with the progress in harmonising and regulating an integrated European payments market. Meanwhile, new competitors are registering rapidly as new payments institutions and are creating major challenges for traditional banks.

• 322 people took the survey representing 42 nations globally
• 52 percent thought the European Union (EU) would stay together whilst 24 percent thought it would fail.
• 30 percent believe the euro is critical to keeping the EU together, compared to just 18 percent a year earlier.
• 78 percent state that the Eurozone will continue to expand across more countries and become a successful reserve currency alongside the US dollar
• Most people (57%) say the PSD transposition process has been unsuccessful, with 51 percent of bank respondents and 36 percent of non-banks believe that derogations actively hindered the transposition.
• 68 percent believe there will be a PSD Mark II to replace the deficiencies of the first.
• 54 percent say that SEPA is not succeeding compared to only 24 percent who think it is.
• Most innovation in payments is created either by non-bank payment institutions (35 percent of vote) or regulators (27 percent of vote).

For the second year, the Financial Services Club ran a survey of payments professionals worldwide to see how successful the implementation of the Payment Services Directive (PSD) and Single Euro Payments Area (SEPA) have been since the PSD transposition in November 2009 and implementation of SEPA’s full program of Credit Transfers (SCTs) and Direct Debits (SDDs) at that time.

This year’s survey is sponsored by Dovetail, Earthport and Logica, and was completed by over 320 people covering all of the Eurozone and more. Representatives of 42 nations took part during the summer of 2010.

European Union

With the backdrop of the EU’s member states of Portugal, Ireland, Greece and Spain, collectively nicknamed the PIGS, it is not surprising that many people thought the EU was having problems. Over half of respondents (52 percent) thought the EU would stay together, whilst almost a quarter (24 percent) thought it would fail. Interestingly, a third (30 percent) of the respondents believe that the euro is critical to keeping the EU together, compared to just 18 percent a year earlier. This is also a reflection of the importance of the Economic & Monetary Union in maintaining a stable Europe, with 78 percent of respondents stating that the Eurozone will continue to expand across more countries and become a successful reserve currency alongside the US dollar.

PSD

The responses were unsupportive of the PSD process, with 57 percent of respondents saying that the process had not been successful, with just a few issues related to the use of derogations in some countries. Unfortunately, these issues were significant with 51 percent of the 112 bank respondents and 36 percent of the rest (non-banks) stating that derogations had actively hindered the PSD transposition.

Other comments were made that, “The 'enshrining' of BIC & IBAN in the recitals of the PSD has been a huge mistake.” Another respondent noted: “There are many uncertainties around the PSD such as the interpretation of the PSD in Swiss banks, the PSD implementation in CEE, the speed of PSD implementation in Southern Europe, and lots of legal documents with conflicting contents.”

For these reasons, over two-thirds of respondents (68 percent) believe there will be a new PSD to replace the deficiencies of the first. However, many would rather have a continually adjusted Directive rather than new Directives drafted every few years.

Meanwhile, 66 percent of bank respondents had seen major change as a result of the PSD, compared to only 31 percent of the non-bank respondents. This is a reflection of the major change initiated by the PSD on banks internal systems and processes, and the launch of new competitors. For example, over 70 payments institutions (PIs) were cited by the survey’s respondents as being created since the introduction of the PSD. These included regular suspects such as PayPal and Western Union, to a few new entrants including Earthport and Voice Commerce.

SEPA

Respondents are less confident about their knowledge of SEPA this year. Only 55 percent felt that they understood SEPA well, compared to 62 percent last year. Maybe this is because they do not believe SEPA is working, with an average 54 percent saying that it is not succeeding compared to only 24 percent who think it is. Of the bankers who responded to this question, the percentages rise to 57 percent who think it is working whilst 27 percent think it is not.

The problem relates to a lack of benefits (17 percent), bank (18 percent) and corporate (16 percent) resistance to SEPA, limitation by countries through the use of derogations (17 percent) and, most importantly, the lack of an end-date (24 percent) meaning that there is no motivation to implement SEPA instruments.

This is why the majority of this year’s respondents think that the SEPA vision for “all Eurozone payments transactions to be processed as though they were domestic” will be achieved between 2014 and 2017 (43 percent of the vote). This is less optimistic than a year earlier, when 49 percent of respondents thought it would be achieved before 2014. Interestingly, only 11 percent of respondents a year ago thought that SEPA’s vision would be realised after 2017, compared to 34 percent this year.

Nick Ford, Global Consulting Payments lead at Logica, added that: “The survey results show that a majority of executives think that an integrated payments market is very important or even critical to Europe’s future. However, many are still unsure of the benefits of SEPA/PSD and think that the banks could do more to improve this position. I am convinced that with the right focus and an effective payments strategy, banks can welcome SEPA and other regulations. There is a huge opportunity here for banks to improve and further tailor their services to clients obviously keeping in mind the significant challenges and changes that it brings. Smart players in the industry will proactively address these challenges head on to create business opportunities that will help them differentiate and lead in the payments market.”

Innovation

Finally, the survey reviewed the views of respondents on innovation, with most innovation in payments created by either non-bank PIs (35 percent of vote) or regulators and policymakers (27 percent of vote). Less than nine percent of the respondents believe that banks create innovation, although this is disproportionately viewed between bankers, where 17 percent believe they are innovators, and non-banks where only 6 percent believe banks innovate.

This may be because banks are limited by issues of budget, with 41 percent of bankers surveyed stating that this is what stops them innovating.

In terms of innovation, the most innovative things our survey audience noted are real-time payments, mobile and contactless payments, and the convergence of payments processing into payments hubs. The least innovative things were felt to be anti-fraud measures using new biometrics, such as voice. This intrigues as one of the major new PIs cited in the survey was Voice Commerce, which uses voice biometrics for customer authentication and identification.

Chris Skinner, Chairman of the Financial Services Club and leader of the research project, comments: “Last year’s survey identified major cynicism about the implementation of the PSD, with many saying that derogations and optional services would cause confusion and a lack of parity. Unfortunately this has proven to be the case, as borne out by this year’s survey, but what concerns me more this year is that the cynicism has spread to SEPA. Banks and corporates just don’t get where it’s heading, and this lack of direction is caused by the absence of an end-date. Even with the SEPA Council and the Commission’s consultation on an end-date, we still don’t have one and, until we do, this headless chicken will remain just that.”

Background

The core community of survey respondents are members and associates of the Financial Services Club in the UK, which is why this community is the strongest with over a third of the participants. Of the 16 Eurozone nations, 13 member states participated and represent a major contingent in the survey, with 38% of the vote. Meanwhile, there are also many non-European nations also participating, including strong input from America, India and Hong Kong, as well as views as diverse as Kazakhstan to Malaysia, and Uruguay to the UAE.

In terms of who participated, the largest group is from the banks with over a third of the respondents from this constituency. Consultants and technology providers are the next largest group, and represent just under a third of the votes.

Three out of ten participants described themselves as “middle management”, whilst 38% were senior management or C-level and one in five were “consultants”.

Download the full survey report (2MB PDF): Download Report 2010

 

 

A brand new book on the PSD and SEPA

If you are unaware, a book has just been released by our good friend Ruth Wandhofer on the Payment Services Directive titled: EU Payments Integration - the Tale of SEPA, PSD and Other Milestones Along the Road.

Ruth is well known in the payments industry for her in-depth knowledge of the regulatory, market and competitive landscape in Europe and in particular as one of the foremost authorities on SEPA and the PSD. She is responsible for Market Policy and Strategy within the EMEA Global Transaction Services business of Citi and holds a number of senior external positions in the industry.

Here's the write-up of the book and you can order it here:

The Payment Services Directive (PSD) stands out as a hugely ambitious and strategically important regulatory intervention in the financial services arena. It is the legal lifeblood which is expected to sustain the Single Euro Payments Area (SEPA) and the broader integration of the EU payments market.

This book provides an insider’s view of the forces which have shaped SEPA and the PSD, written from the unique perspective of someone closely involved throughout the whole process. It uncovers the strategic, legal and practical implications of the full harmonisation agenda and provides an assessment of where these initiatives stand today. Furthermore, it explores parallel developments in other areas around the world that have been inspired by the European experiment.

Essential reading for all those involved in, or studying, the evolution of the European and global payment markets – and more generally for anyone interested in a topical and lively case study of EU integration and law-making in action.

People who like the book:

‘I very much welcome this timely and informative contribution to the debate on the integration of the Euro payments market.’ — Gertrude Tumpel-Gugerell, Member of the European Central Bank’s Executive Board

‘We are at a critical point in the evolution of the European payments landscape. This book comes at the right time to address the key strategic issues for the payments industry in Europe and in a broader global context.’ — Gerard Hartsink, Chair of the European Payments Council

CONTENTS:

Foreword by Gertrude Tumpel-Gugerell
Title I – The Opening Act: The beginning of the end … or just the end of the beginning?
Title II – EU Financial Regulation Explained: The Powers and the Pitfalls
Title III – SEPA: A reaction to EU Regulatory Activism: A New Hope
Title IV – PSD – a Parallel Universe to SEPA: The Odyssey from the First Beginnings to the Final Text
Title V – From Publication to Transposition - The Directive Dilemma: The Road to Nowhere
Title VI – SEPA: From Design to Launch: Finding Your Way through the SEPA Jungle
Title VII – Postlude: The Future

Oh, and if that's not enough, here's another book on the PSD and SEPA:

The Future of Finance After SEPA

by Chris Skinner 

SEPA was created by Europe’s banks in 2002 in response to regulations and plans drawn up by the European Commission from a meeting in Lisbon at the turn of the millennium. Consequently, SEPA has been assisted by new legislation, the PSD, which was agreed in 2007. The implementation of SEPA takes place in 2008 within the banking industry, with full operation in 2010, and will be a massive change to not just banking, but all aspects of finance and financial services across Europe and the globe.

This is because the vision for SEPA is that, by 2010, all euro payments are treated in the same way as domestic payments. In other words, European citizens and corporations enjoy a transparent market where there is no difference in charges for payments between Rome, Madrid, Paris and Munich. As a result, citizens, governments and corporations will have full access to finance transparently across 15 countries today and potentially 31 tomorrow. A United States of Europe, fuelled by fully integrated financing, will be different to the fragmented Europe of the past.

This book reviews the key implications and challenges of SEPA and the PSD across the European landscape, and the likely outcomes of SEPA for 2010 and beyond. The main themes that emerge are that many of Europe’s leading providers of payments infrastructures, which are often bankowned, will disappear and new payments providers and structures will emerge. Some of these will be evolutions and some will be revolutions. In addition, there will be major impacts upon those banks that cannot provide euro–services competitively in this new geographically competitive environment. The winners will reap major rewards, but there will be far more losers who will be merged or acquired.

With contributions from leading authorities, including:

• Anthony Kirby, the Reference Data User Group
• Ashley Dowson, the SEPA Consultancy
• Bo Harald, TietoEnator
• Bodil Nelsson and Mats Wallén, Bankgirocentralen
• Brenda O’Connell, Bank of Ireland
• Chris Pickles, BT
• Chris Skinner, the Financial Services Club and Balatro
• Daniel Szmukler, EBA CLEARING
• Daniele Danese, Banca Popolare di Verona
• David Doyle, EU Policy Advisor on Financial Markets
• Doctor John Ryan, CASS Business School
• Erkki Poutiainen, Nordea
• Eva King, the European Commission
• Geoffroy de Schrevel, SWIFT
• Gerard Hartsink, the European Payments Council
• Gianfranco Tabasso, the European Association of Corporate Treasurers
• Harry Leinonen, the Bank of Finland
• Heiko Schmiedel, the European Central Bank
• Henrik Parl, Eurogiro
• Hervé Postic, founder, UTSIT
• James Barclay, JPMorgan Chase
• John Bullard, IdenTrust
• John Chaplin, First Data
• Jonathan Williams, Experian Payments
• Juergen Weiss, Gartner
• Mark Hale, Barclays Bank
• Neil Burton, IBM
• Nick Senechal, VocaLink
• René Pelegero, PayPal
• Richard Spong, Sterling Commerce
• Robert Bradfield, Ernst & Young
• Ruth Wandhöfer, Citi
• Sean Fitzgerald, Sentinel
• Sharon Bowles, Member of the European Parliament
• Tom Buschman, TWIST

 

After the PSD and SEPA, has anything changed?

Last year, we performed a major survey in anticipation of the implementation of the PSD and SEPA Direct Debits, to see how the world viewed these areas.  This year, we're doing it again. 

Click here to take the survey.

After the PSD and SEPA, has anything changed?

Last year, we performed a major survey in anticipation of the implementation of the PSD and SEPA Direct Debits, to see how the world viewed these areas.

The research received over 350 responses from financial professionals worldwide, and found a general cynicism about the effectiveness of the PSD in particular, due to inconsistencies in interpretation due to legal options and opt-outs.

The survey for 2010 is now live and looks at the world after PSD and SEPA:

• Are they a success or failure?
• What innovations have these changes introduced?
• Who are the new competitors in payments processing?
• Has anything changed?

We would love to have your participation in this year’s survey.

Click here to take survey

By taking the survey – it’s just over 20 multiple choice questions and should take no more than 10 minutes to complete – you get the chance to WIN a free one year membership of the Financial Services Club.

You also will get a copy of the full results of the survey, which are due for release in early October, so please join in.

Click here to take survey

What happens to SEPA, Chi-x etc if the euro fails?

There’s the classic old joke about the European dream being a place where the police are English, the chefs are Italian, the car mechanics are German, the lovers are French and the bankers are all Swiss. The nightmare is that it is a place where the police are German, the chefs are English, the car mechanics are French, the lovers are Swiss and the bankers are Italians.

It seems that the nightmare is coming true, although the basket case is Greece and the bankers are German.

Last week’s surprising comments from German Chancellor Angela Merkel that “the euro is in danger” and “if the euro fails, Europe fails” sent shudders across the world’s markets, and probably made Brussels shake with rage.

But the Germans are shaking with rage. After Nicolas Sarkozy was rumoured to threaten Merkel with France’s withdrawal from the euro if she didn’t step up to the plate and support a Greek bailout, Germany’s citizens have been demonstrating their rage by printing deutsche marks whilst the national newspaper, Bild, is stirring anger towards the EU and the Greeks in particular with headlines such as:

• "How much more do we have to pump into this country?" April 26th
• "Why are we paying the luxury pensions of the Greeks?" April 27th
• "Greeks ready to cut back? They would rather strike!" April 28th

As I talk to German colleagues, they refer to Greece as the Golden Fleece and that they aren’t paying bills in Greek restaurants because they’ve prepaid to 2020.

All of this puts a huge strain on the European Union, in its fragile 53rd year of unity, particularly as Spain, Italy and Portugal are considered to be on a par with Greece by many, forming a Southern European Union called the PIGS [Portugal, Italy, Greece and Spain].

It raises a key question in my mind, and I’m sure all of the bankers I deal with: if the euro fails, what happens to the monetary union of banks, the Financial Services Action Plan and all those bank and insurance directives like Solvency II, MiFID and the PSD?

What happens to Chi-X, SEPA, the EBA and the rest?

In order to answer this question, you have to look at two key areas. First, is the economic and monetary union (EMU) broken? Second, if it is, do we throw away the eighteen years of change introduced by the agreement to launch the euro when the Maastricht Treaty was signed in February 1992?

Let’s take the first question: is the EMU broken?

We asked this question in 2005, when the French and Dutch threw out the EU Treaty. Answer: it is political union that they were rejecting, not economic union. Note: even with their rejection, and the Irish no vote, the Treaty became the Lisbon Treaty in 2010 regardless of such resistance. In other words, in the interests of the long-term vision of Europe, Europe wins.

Equally, America has taken years to gain its United status, starting with a nation of disparate states that had far less history than those of Europe.  Their Union was easier in comparison, and that still took years, so Europe’s union will take time and will face many more tests.

But this is the greatest test so far.

The size of this test should not be underestimated as it is the first time that we are seeing an economic union, resulting in a cascading effect upon money and politics. Historically, the tests for Europe have been mainly about how much power is ceded to Brussels. This test is showing the inter-relationship between economies and Germany’s anguish is that if they are to keep the vision of Europe in harmony, then they have to pay for it.

Therefore, returning to the rejection of the European constitution, that was a political rejection and when a country has an economic crisis, the monetary union means that other nations pay and, as a result, that political will is tested when one nation's tax dollars are taken to pay for another nation's debts.

That is why this challenge is so much greater than any before, because it is testing the political will of citizens, not just their ability to trade and compete.

The core issue though, is that it is not just the Greek economy and Greece that would leave the Union if they were allowed to fail.  It is the Union.

Should the Greek economy fail to honour their government bonds due to being economically bankrupt, the ratings agencies and banks would downgrade Spain, Portugal and Italy, and there would be a spiral effect. This means the European Union breaks apart.

That is why the Greek failure option is unpalatable ... but is the alternative palatable?

Why do we need a European Union?

Answer: Europe needs to be a Union to maintain its drive to be a regional superpower, and competitive commercially and economically with China and America. There’s the rub. If Europe fails, then the UK, Germany and France fail, as parity to compete internationally and intraregion becomes far more difficult.

This is why Greece needs the bailout and why Germans are paying.

It does not help Angela Merkel maintain her status or power hold in Germany – her popularity is sinking faster than the Titanic – but if Greece fails, it is felt that Europe may fail too. And that is not an option seen to be agreeable today.

Also, nations have been bailed out already.

Two years ago, Spanish banks received over €50 billion worth of ‘aid’, in the form of mortgage-backed securities with the European Central Bank (ECB), when they faced a property meltdown.

Did the Germans wail out about that bail out?

No.

Why?

Because it wasn’t on the front page of the Bild.

That bail out was smaller and less obvious, so no-one really noticed.

The Greek bailout is a bit bigger – €110 billion – admittedly, but it is supported by the IMF and is necessary for Europe’s future. ‘nuff said, although if you want to know more, Robert J Samuelson in the Washington Post provides a particularly good overview of why Europe needs to support Greece.

My summation is that Europe will survive this crisis, the euro will stay and the currently ridiculous pricing of US$1.24 to the euro will reverse within the next month or so, as forecasted by most economists.

But let’s look at the worst case scenario: what do we do if the euro does fail? Does it mean we unravel all we’ve done to date?

This is the second and, in some ways, more important question: is there a backup plan?

OK, if the Eurozone breaks apart, then it matters ... but it will not throw away all that has been built to date.

The banks will still want to use cross-border instruments that work. They will just bring back a margin to represent those cross-border movements whilst maintaining the efficiency of the infrastructure that has been built.

As Werner Steinmuller, Head of Global Transaction Services of Deutsche Bank, stated when we researched the Payment Services Directive (PSD) and the Single Euro Payments Area (SEPA) last year:

Deutsche Bank is in a comfortable situation. We spent quite a sizable amount on SEPA infrastructure and have a brand new system that is extremely capable of doing this that is also highly scalable. Others have not made this investment so this gives us a price advantage. We have built some conversion solutions for handling old volumes and now can run both old instruments and the new SEPA instruments so, if SEPA is coming, we are extremely well positioned. If SEPA fails, I can write off the investments and still win.

In other words, the SEPA process has forced the banks to build new infrastructure, new systems and new efficiencies in transaction processing. That will stay.  It does not go away if the euro goes away, as the new infrastructure is designed to handle efficient transactions, not euro payments.

So if we look at SEPA Credit Transfers and Direct Debits, the Euro Banking Association (EBA) and STEP2 ... it will all stay. The EBA will be a private consortium to operate efficient systems, rather than a government initiative to create efficiency, and it will stay. There will be a charge for this, and a charge that could provide a substantial return to the banks that created this infrastructure, but it will not go away.

The same will be true for Chi-X, and the capabilities electronic trading platforms have introduced into the European equities markets. Sure, some countries may want to block and reverse policies in these areas – Spain? – but the process of regional investing is unstoppable now. Goldmans, Merrill, BarCap and co, won’t want to see this go away, so it will remain.

Bottom-line: the efficiency of European payments and investing is in the interest of banks, corporates and institutions today, not just governments and policymakers.

So, if the euro fails, my answer is that the all the investment made by the financial markets in efficient systems will stay.

It will just be at a profit rather than a regulation.

Want to know the latest on SEPA?

If you're wondering what's happening with SEPA (the Single Euro Payments Area) then this interview with Gilbert Lichter, Secretary General of the Euro Banking Association (EBA) and CEO of EBA Clearing, provides a good overview of the latest and greatest:

Gilbert Lichter from Chris Skinner on Vimeo.

The interview took place after our recent FSClub meeting with Gilbert.