SEPA's Corporate Roadblock

By Maria Bruno-Britz, Bank Systems & Technology

As if they didn't have enough on their plate in Europe, it turns out that certain entities will not be ready to launch payments instruments related to the single euro payments area (SEPA) initiative-chiefly public administrations and corporates. This was the key finding of the third annual World Payments Report, issued by Capgemini, ABN AMRO, and the European Financial Management & Marketing Association (EFMA).As if they didn't have enough on their plate in Europe, it turns out that certain entities will not be ready to launch payments instruments related to the single euro payments area (SEPA) initiative-chiefly public administrations and corporates. This was the key finding of the third annual World Payments Report, issued by Capgemini, ABN AMRO, and the European Financial Management & Marketing Association (EFMA).

The report, now in its third year, considers world payments trends, with a particular emphasis on developments towards SEPA in Europe. According to this year's findings, the public sector could contribute 29 percent of the required volumes to reach critical mass for the new SEPA credit transfers and direct debits. Further, if corporate payments volumes for these instruments were added, then critical mass of SEPA transactions could be reached or even exceeded by 2010, says the report.

The researchers analyzed SEPA implementation and migration plans published earlier in 2007 for the 13 current eurozone countries and found that none expects to achieve a critical mass of SEPA payments before the agreed deadline in just over three years. Some countries would even like to retain legacy payments as long as demand exists. This is bad news for banks, as they would be required to maintain the old systems and run them in parallel with the new SEPA-compliant ones, leading to further costs and IT bloat.

"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 Managing Director of Global Financial Services, in a statement. "For banks, slow adoption translates into increased costs as a result of maintaining both legacy and new payments services."

I suppose such stumbling blocks are to be expected when dealing with changes that will affect a great deal of people-a continent, in SEPA's case. It just illustrates even more the importance of banks to the adoption of SEPA. Not all of them are thrilled about the new initiative. The payoffs of expending the effort to become compliant with SEPA do not outweigh the expense and hassle of SEPA implementation. Banks know they'll start losing money once cross-border payments fees become more regulated. According to the report, banks will see direct payments revenues decline by between 38 percent and 62 percent in some parts of the market by 2012.

But banks are beginning to understand the kind of role they wish to play in a SEPA-enabled Europe. While there are those that are just doing the bare minimum to remain compliant, there are others that will simply be left in the dust for an inability to make the necessary investments. At the other end of the spectrum are top 10 financial institutions that see SEPA as a huge opportunity to make money through white labeling payments services for smaller banks.

Even more important, if results from the World Payments report are any indication, is that banks in Europe must continue to educate their corporate clients (and, eventually, consumers) on what SEPA is and what the benefits will be for them by embracing the new standard. It's great if the banks make the compliance deadline, but if corporate customers aren't on board too, then only one portion of the puzzle will be complete.Study shows corporates in Europe note quite uready to go live with SEPA.