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.
Go deeper with GlobalData
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.”
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By GlobalDataRunning 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.
