The eighth World Payments Report (WPR) was released last week, and so far we have summarised in Part One, the Non-Cash Trends, and in Part Two, the Regulatory Trends. Today, we have extracted a summary of the section that updates on SEPA.Mandated deadline of February 2014 is set for SEPA Credit Transfers and Direct Debits
A deadline for migrating to SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD) has been set at February 1, 2014. The certainty of a firm deadline should trigger a major increase in adoption rates for these instruments, though the potential for inconsistent interpretation of the standards could still be an issue.
As of April 2012, 4,559 banks representing more than 95% of payments volumes in Europe were reachable for SCT transactions, but the SCT indicator (SCT transactions as a percentage of total Eurozone credit transfers) was just 27.2% at the end of March 2012. Still, usage is expected to pick up in the remainder of 2012, ahead of the 2014 deadline.
The SDD adoption rate has been very low (0.4%), but is also likely to increase significantly given the legal certainty brought about by the mandated deadline. As of February 2012, 3,928 PSPs representing more than 80% of SEPA payments volume were reachable for SDD core (for consumers) and 3,447 PSPs for SDD B2B. Corporations have been slow to embrace SDD in the absence of a firm deadline, and because they were unsure whether their own customers would be reachable or whether banks could support them in the migration process. Banks, for their part, have been tentative about committing to SDD capabilities without proof there will be corporate uptake.
The SEPA Cards Framework (SCF) remains in the early implementation phase, with high-level principles developed by the EPC to govern issuers, acquirers, card schemes, and operators. Adoption of the associated EMV standards (chip technology to combat fraud) has risen steadily since they were introduced in 2008, and by December 2011, 79.7% of all transactions at point-of-sale (POS) terminals were EMV-compliant. Of total transactions, compliance was 90.43% for cards, 92.96% for POS terminals, and 96.28% for ATMs (automated teller machines) in the Eurozone.
While the SCT/SDD migration deadline has added some certainty to SEPA, stakeholders are still grappling with various elements of implementation, including the following:
Disparate interpretations. A common understanding of the detailed requirements of the SEPA regulation is critical, but it is not a given. The work being led by the European Banking Federation to develop guidance on these key points of potential ambiguity has been important, helping to enable a set of common implementation planning assumptions.
Persistent uncertainty. Members do not have to finalize the exemptions they are requesting under the various Member State transition period options until February 2013, making it problematic for PSPs and corporates to plan with complete certainty until then. Multinationals, for instance, cannot make firm plans for their entire organization until they know exactly what regime will prevail in each country.
Technical readiness. While there are guiding principles on technical standards, there are currently many variants of the technical messaging, raising the possibility that interoperability may not be assured.
The main focus of SEPA implementation for now will be to raise awareness to help drive migration, and have a detailed plan ready by the end of 2012. Beyond that, the payments industry can start to look toward the Digital Agenda in Europe, and see how SCT and SDD can be leveraged to drive innovation in the financial supply chain.
You can order a copy of the full report from EFMA, and the summary of each section is below: