considerable hurdles
World Payments Report 2007, a collaborative study by banking and
insurance industry body the European Financial Management and
Marketing Association, consultancy and outsourcing service provider
Capgemini and Netherlands bank ABN AMRO, has highlighted a number
of stumbling blocks facing the implementation of the Single Euro
Payments Area (SEPA). In particular, the report stressed that none
of the eurozone countries assessed expects to achieve a critical
mass of SEPA payment instruments before the end of 2010.
Go deeper with GlobalData
Indeed, the report added, critical mass would be difficult to
achieve by the end of the January 2008 to December 2011 planned
migration period to SEPA unless incentives were provided by
regulators to encourage corporations and public sector bodies to
adopt SEPA payment instruments.
“Many domestically focused corporations are reluctant to work
towards SEPA implementation, arguing that it should be the
responsibility of banks and regulators to fulfil their business
requirements,” said Patrick Desmares, secretary general of EFMA.
“Regulatory as well as business incentives are therefore vital to
attract these parties to act.”
The report’s authors also noted that while six countries mention
critical mass in their SEPA migration plans, this is done “with
different degrees of analysis”. In addition, only one national plan
covers the important issue of transaction volumes associated with
critical mass.
“Reaching a critical mass of SEPA credit transfers and direct
debits quickly is key to keeping payments costs down and managing
the revenue impact of SEPA and of the Payment Services Directive,”
commented Bertrand Lavayssière, Capgemini’s MD of Global Financial
Services.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThe authors of the report believe critical mass should be set high
enough to ensure an irreversible move to SEPA instruments, and
suggest a range of 61 percent to 89 percent.
Of six eurozone countries studied in detail, the report noted that
85 percent of all non-cash payments are already made using
SEPA-type instruments (some form of direct debit, credit transfer
or card payment). Of those volumes, 13 percent are SEPA-compliant,
45 percent are not compliant but show “a manageable gap towards
compliance” and the remaining 42 percent fall “significantly short
of SEPA standards”.
The six countries studied were the Netherlands, Germany, France,
Spain, Italy and Austria, which together account for about 90
percent of non-cash transactions in the 12 eurozone
countries.
Also of concern to the report’s authors was that some countries
have expressed a desire to retain legacy payment instruments as
long as demand exists. This, they warned, could create mini-SEPAs.
The European Commission defines mini-SEPAs as a system whereby a
eurozone customer is offered one service in their home market and
another in the rest of the eurozone, a situation that is not in
line with SEPA’s objectives.
Challenges to replacing cash
Another SEPA objective is to increase the number of non-cash
payment transactions. However, cash remains the preferred payment
instrument, and there is still no visible initiative in Europe to
replace cash use, said the report’s authors. On the contrary, they
added, as ATMs improve and the amount of cash in circulation rises,
consumers increasingly find it easier to use cash.
SEPA has other implications, one of which involves how banks will
make the technical and operational changes required to become
SEPA-compliant. “Banks must urgently analyse the short-term impact
to comply with the January 2008 agenda both from a regulatory,
marketing and operational point of view,” commented Ann Cairns, CEO
of transaction banking at ABN AMRO. “They also need to assess
whether staying in the payments processing business will continue
to be profitable over the longer term.”
On this point, Lavayssière added: “SEPA provides the right momentum
for banks to think about strategically repositioning their payments
business.” He explained that given costly investments needed to
meet SEPA compliance, increasing competition from new players and
decreasing payment revenues, banks have to find “significant
levers” to preserve profitability. “Addressing sourcing options and
repositioning the payments business within a bank can provide these
opportunities in addition to cost improvements,” said
Lavayssière.
In total, European banks may stand to lose between 38 percent and
62 percent in payments-related revenues by 2010, a fall of between
€18 billion ($25 billion) and €29 billion, according to the
report.
