Executives from Deutsche Bank and Logica provided EPI with insight into their newly launched SEPA Connector outsourced service, which provides European banks with a cost-effective alternative to building their own SEPA solution at a point when many are facing both time and budgetary constraints
It seemed done and dusted. March’s plenary session of the European Payments Council (EPC) confirmed 2 November would be the launch date of the Single Euro Payments Area (SEPA) for direct debits. But, little over a month after the EPC meeting, yet another obstacle has appeared in what has been a tortuous journey since the first steps towards implementation of SEPA were taken in 2002.
The latest obstacle came in the form of an announcement by the French National SEPA Committee that France’s banking industry would not implement SEPA direct debits (SDD) until November 2010.
However, while the announcement by the French has provided ammunition for SEPA doomsayers, Michael Mueller, MD of wholesale solutions, global transaction banking at Deutsche Bank, believes it will cause no significant delay.
“The French decision will do little more than buy time for some banks,” Mueller told EPI. “November 2010 remains in place as the hard deadline for the establishment of SEPA reachability which all banks must meet.”
Though Mueller conceded SEPA has been subject to a significant degree of uncertainty, he stressed that decisions by the European Parliament and the EPC in recent months had ensured that the SEPA “is back on track.”
Running out of time
While France’s move may have bought some time for banks that have dragged their feet on implementation of SDD even a year is unlikely to be sufficient for a significant number of them to catch up.
“Many banks have run out of time,” said Nigel Turner, business development director responsible for payments at UK technology and business services company Logica. “A major SEPA debit solution can take between 12 and 18 months to implement.”
Turner added that there are, in any event, insufficient people with technical skills required to undertake SDD implementations across Europe’s entire banking industry within such a limited space of time.
Indicative of that challenge, there were 6,595 credit institutions active in payments in Europe at the end of 2008 according to Germany’s central bank the Deutsche Bundesbank.
SDD implementation costs also represent a big challenge, particularly during the current period of economic recession, noted Mueller.
More specifically an in-house SEPA direct debit solution can cost tens of millions of pounds, Paul Taylor, MD of VocaLink Europe told EPI in a recent interview.
For banks faced with time and/or cost challenges the answer could well be outsourcing. This is the thinking behind a strategic alliance between Deutsche Bank’s Global Transaction Banking division and Logica which culminated in May with the launch of an outsourced SEPA solution.
Marketed as the SEPA Connector, the new end-to-end service is powered by Logica’s All Payments Solution (LAPS) payments hub which can process the full range of payment types – retail, domestic, international, urgent/timed, single and mass payments – within a single deployment.
Banks opting for the service link in to the payments hub on a plug-and-play basis and can take the entire outsourced package or components of it.
Working with Logica, Deutsche Bank made an early decision to invest in a new SEPA-compliant processing system and already uses the LAPS payments hub to support its operations in 15 countries, said Mueller.
“What Deutsche has achieved is extremely complex,” stressed Turner. “Other banks have attempted this but failed.”
He added that a significant advantage enjoyed by the Deutsche/Logica SEPA solution is that it is already up and running.
“It is physically there to prove our claims,” said Turner.
For the SEPA Connector service, Deutsche and Logica adopted what Turner described as an industrialised approach. To this end the LAPS hub is highly scalable said Turner and already has the capacity to service even the largest global financial institutions.
To prove this, the LAPS hub was put to the test at US technology vendor Sun Microsystems’ performance testing facility in Scotland. For the benchmark test, Logica and Sun Microsystems recreated the payments environment according to the real requirements of a global bank, processing outgoing SEPA Credit Transfer requests to the Euro Banking Association. During the test LAPS achieved a processing capability in excess of 50 million payments per hour.
“The benchmark proves LAPS can process over 50 million transactions per hour, which exceeded the original test targets by a phenomenal 70 percent,” said Joaquin de Valenzuela, manager, global retail banking solution at Sun Microsystems.
According to the Deutsche Bundesbank the euro area’s 318 million inhabitants generate on average 210 million payments per day.
Banks must make a call
With time running out banks must make a call, said Mueller. Either they must choose to stay with their own in-house payments processing or outsource.
However, while outsourcing is accepted in other industries, for banks it requires a major cultural shift. What is required by banks is to define precisely what there objective is in the payments processing space.
For Deutsche Bank payments processing is viewed as a strategic activity, said Mueller. For many other banks it is merely a function that needs doing, he added.
Far better, it would seem, for banks that do not view payments processing as a strategic activity to outsource and be positioned to offer cutting edge payments products.
“By letting someone else look after the back-end infrastructure this will enable them to focus on building the front-end business where they can gain a real competitive advantage,” said Mueller.
Fortunately over the past year banks have begun to view outsourcing as a more acceptable alternative, he added. For SEPA, Mueller and Turner believe an over-riding ‘hard-date’ on which SEPA payments would replace all existing domestic payments is required.
“This would allow Deutsche to fully utilise the significant investment it has made in SEPA and switch off the legacy system,” said Mueller. “Running two systems in parallel is not conducive to efficiency,” he stressed.