As 2010 draws to a close, the
European banking industry continues to work towards realising the
European Payments Council’s SEPA. Louise Naughton speaks to the
European Central Bank and industry figures charged with delivering
systems in line with the initiative to find out precisely where the
industry stands.
Go deeper with GlobalData
Are end dates required for the
Single European Payments Area initiative to achieve its potential?
Overwhelmingly the industry appears to say ‘yes’. Yet no draft
legislative proposals have been released. And the uncertainty that
arises from a lack of regulation seems to be growing and only
serves to be counter-productive to the SEPA concept and its
ultimate goal.
SEPA was born as a political
initiative in a bid to realise the harmonisation of European
payments following the introduction of the Euro in 1999. The scheme
aims to erase boundaries between countries in the European Union,
thus making cross-border and domestic payments operate in the same
way and to the same standards.
The European banking
industry, under the guidance of the European Payments Council
(EPC), has developed the SEPA direct debit and the SEPA credit
transfer (SCT) models, which launched in 2009 and 2008
respectively.
The European Central Bank (ECB)
says in its seventh SEPA progress report, Beyond Theory Into
Practice, published in October, “the slower than expected SEPA
migration indicates that adherence and reachability are not enough
to ensure timely migration”.
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By GlobalDataThe pan-European monetary
initiative has been relying on self-regulation thus far and has
received staunch opposition from consumers and SMEs alike.
Ahead of the European Commission’s
(EC) plan to release its first draft legislative proposal on
migration to SEPA on 15 December 2010 in a bid to bring clarity to
the process, we investigate what impact end-dates will have on
the SEPA schemes and what the lack of regulation may mean for the
European payments industry.
Self-regulation of the SEPA
initiative was only predicted to go so far. The ECB points out in
its report that, despite a number of milestones being reached on
the road to SEPA, migration as a self-regulatory process has not
achieved the required results. This means the banking industry’s
self-imposed deadline of December 2010 for SEPA instruments to be
in ‘general usage’ will not be met.
The ECB does not view
self-regulation as failing, however.
“Self-regulation is coming to its
natural end in a process of moving the industry from one set of
rules and standards to another,” said Wiebe Ruttenberg, head of the
market integration division and directorate of general payments and
market infrastructure at the ECB.
“This is a network industry so the
first mover will be at a disadvantage. The whole market has to move
to the new rules and standards and for that to happen a legislative
push is required.
“It is not the case that
self-regulation has been unsuccessful because the fact the
Commission is able to draft a proposal for end-dates means the
banks have done their job. It does have its limits but it has
proved very useful.”
One of the delays for the necessary
regulation may be attributed to the Commission’s view that the EPC
has acted as a private body in its development of SEPA and not as a
standards body.
The repercussions of this mean the
commission feels it cannot endorse the schemes as developed by the
EPC as it claims it would be the same as endorsing a monopoly.
Ruth Wandhöfer, head of payments
strategy and market policy, global transaction services at Citi,
claims this is a dangerous misconception.
She argues once the Commission said
a consultation with the competition body would be required in light
of this perception, it then opened the floodgates for all the
industry stakeholders to approach the commission and ask for
different variants of the SEPA projects to be endorsed – not
exactly the original goal of the SEPA initiative.
Change in
scope
This led to the creation of the
Commission’s ‘essential requirements’ – later revised to ‘technical
requirements’, which is made up of a set of articles on
reachability and IBANs (International Bank Account Number).
Wandhöfer says, although the SEPA
schemes have been developed by banks for banks and are not
necessarily catered for non-bank payment providers, this doesn’t
mean there should be a break from the original SEPA concept.
“Instead of labelling the
regulation as a bank-specific regulation to enable more competition
into the banking industry, we are now in a limbo state where the
technical requirements that have been established are not in line
with the rulebooks at all,” said Wandhöfer.
“The selection of the technical
requirements the Commission has proposed are nonsensical as there
are too many loop-holes allowing an individual bank or European
market to use slightly different schemes than that of SEPA.
“This will lead to a fragmented
European market and will enable domestic markets to remain closed
to competition.”
Wandhöfer cites the Finnish market
as a prime example of the dangers that can arise from the lack of
clarity that is drawn from the lack of regulation. She says Finland
is one of the only countries to fully embrace SEPA and has
announced plans to migrate to the SCT by the end of next year.
Any ‘add-on’s’ or modifications
that any market makes to the SEPA scheme are warned by the
Commission not to conflict with each other or the original SEPA
schemes.
Nevertheless financial institutions
in Finland have decided to modify various fields and Wandhöfer says
the Finnish SEPA is already looking different to the European
SEPA.
“The lack of regulation risks other
markets that are looking to embrace SEPA to make up their own rules
which will mean there will be no harmonised market,” she says.
The lack of regulation or
‘end-dates’ may also be used as an excuse for financial
institutions reluctant to progress their SEPA products and invest
time and funds into the initiative.
“It has been a combination of an
excuse in some cases and a genuine justification in others,” said
Simon Newstead, head of FI market and business strategy, global
transaction services at the Royal Bank of Scotland.”People building
their business cases for SEPA migration want the certainty of an
end-date to know when to make their strategic investment.”
Some way to go
Paul Stanley, vice-president of
e-payments processing provider First Data, agrees with Newstead and
claims there is a long way to go before the majority of banks
implement SEPA-compliant solutions like those that First Data has
developed.
He says end-dates are only part of
the story as there needs to be a recognition of the payment
provider’s need for a commercial rationale for investment into SEPA
products and to answer the questions as to how the SEPA initiative
makes payment processes better, cheaper and more effective for the
bank?
Newstead says the question
surrounding end-dates is a secondary matter and a few years here or
there makes little to no difference to the outcome of SEPA.
Contradictory maybe, but when the
more pressing matter of whether the Commission is committed to the
original SEPA concept rears its head, suddenly industry players no
longer want end dates but want a certainty that the Commission
hasn’t given up on the SEPA vision. A certainty they don’t mind
waiting for.
Whereas once before the industry
was waiting on end-dates for migration, it now doesn’t know what it
is migrating to – and the lack of control by the European
authorities has to accept responsibility for this.
“If the regulation [the Commission]
will deliver is not going to achieve migration to SEPA schemes but
to some, arguably, questionable mix of newly standardised variants
across the European markets that will maintain the status quo of
payments, then we are better off not having any regulation,” says
Wandhöfer.
Ruttenberg of the ECB doesn’t agree
with this statement and cannot see why the Commission would move
away from the original SEPA concept this late in the game.
“You cannot ask a regulator to
simply rubber stamp what you have done,” he said.
“The ECB should stay as close as
possible to what has been prepared by the market and any changes to
this, if any, should be limited. I do not share the sentiment that
the Commission is trying to change the direction of SEPA.”
Wandhöfer accuses the Commission of
trying to “pass the buck” as soon as possible because it is
uncomfortable with the position of having to satisfy the desires of
different markets that have opposing views. She fears it is looking
to rush the proposal through as quickly as possible so as not to be
responsible anymore.
“Setting an end-date will provide
legal certainty, encourage SEPA investment, avoid the operating
duel payments systems and brings forward the substantial future
benefits of SEPA,” said Chantal Hughes, EC spokesperson for
internal markets and services.
“We intend to bring forward a
proposal for an end-date in the next couple of weeks.”
Hanging in the
balance
When we asked industry players
what were the biggest challenges SEPA faced in 2011, the question
was met with either an exasperated sigh or laughter.
When the actual concept of SEPA
appears to be hanging in the balance it is very difficult for
people to see past that.
The SEPA initiative has come to a
crossroads and it is very difficult to say what road it will
take.
It is wrought with uncertainty and
the lack of clarity and regulation threatens to derail the entire
project.
As we went to press the content and
impact of the draft legislative proposal is unknown but it seems
clear some control and tough decision-making is required by the
Commission if SEPA is to progress.
Legislation will not please everybody but that should not be the
objective – making sure that the project facilitates a harmonised
European market should be the ultimate aim and for that to happen
the Commission cannot afford to waiver.
Since CI and EPI went to press, the Commission has announced
end-dates for SEPA migration. Industry figures claim “Full
clarity on the subject has still not been achieved but this is
indeed a significant step on the road to a full SEPA. And for that,
it should be a cause of some celebration.”
For the full story please click here: EC
proposes EU-wide SEPA deadlines
