The Financial Services Club's Blog

This house believes that SEPA does matter ... or does it?

We had a great debate at the FSClub the other day, with the provocative title: “this house believes that SEPA (the Single Euro Payments Area) does matter”.

The evening was chaired by the more than capable Bob Lyddon, who coordinates the IBOS Association secretariat, and four panel members who ‘played’ parts in being proposes and opposer of the motion.

Proposing the motion were two leading European Proponents: Gilbert Lichter, CEO of the Euro Banking Association (EBA) Clearing Company that runs STEP2, a Pan-European ACH; and Fred Bär, Managing Director for Euro Services at Vocalink.

Opposing the motion were two devilish Brits, set up in the form of Paul Smee, Chief Executive of the UK Payments Council; and Simon Bailey, who is currently starring in 'The Phantom Of The Opera', at Her Majesty's Theatre where he plays the role of Raoul.

Pardon?

Whoops, sorry, it’s not that Simon Bailey. It’s Simon Bailey of Logica ... an easy mistake to make.

On the night, Bob kicked off the motion by making clear that there are four immutable facts about SEPA which were not up for debate. These are that there is no end-date set as of today (although I think one is coming); the Core and B2B SEPA Direct Debits schemes are in production; the fact that there is no requirement for central bank reporting for transactions under €50,000 is good for efficiency; and cross-border direct debit and credit transfer euro transactions must now cost the same as domestic transactions.

With those four foundation points, Bob then asked Gilbert to take the floor.

Gilbert gave a resoundingly balanced view, stating that the old days of cross-border margins and operations were a luxury. The way correspondent banks worked and the form filling required for cross-border payments were a big issue in inhibiting trade across Europe, and those days are now gone as European Commission Regulation 924/2009 makes it clear that every bank in Europe must now be reachable for SEPA Direct Debits.

As these changes will alter the behaviours of payments processors and payments users, innovations will follow, as innovation follows buying behaviours. By way of example, Gilbert cited Spain where SEPA payments have increased from 3.5% of transactions to 13.6% in the last quarter.

All of this means that SEPA does matter, because it is fundamentally changing European commerce and pushes banks to the management table.

Paul Smee responded with a worrying opening line that SEPA reminded him of the old Samuel Johnson saying that ‘a woman's preaching is like a dog's walking on his hind legs. It is not done well; but you are surprised to find it done at all’.

There was a sharp intake of breath as, in today’s politically correct world, Paul should really have substituted the word ‘dog’ for ‘bitch’ [editor: stop there!].

Paul’s comment was far more relevant to SEPA than the incorrectness of the statement however, in that if SEPA were that needed, then how come there haven’t been any SEPA street parties yet to celebrate. Again, I would claim that there have been a few ... but then SIBOS, EBA Days and IPS aren’t exactly street parties are they, as we all celebrate inside bars of the world but, there you go.

Paul continued by saying that the reason for the lack of celebrations is down to the fact that:

• SEPA is not critical and nor are payments. No-one wakes up thinking about how important any of this is, unless you abolish cheques;

• SEPA doesn’t matter because it has been a top-down process driven by politicians with no user involvement. The European Payments Council (EPC) must engage with the user communities, such as those represented by the UK Payments Council, for this to succeed; and

• SEPA is not working because, based upon the UK’s experience with the Faster Payments Service, if you have a regulatory mandate involving technology change, IT will support this but the business community will not. In other words, SEPA needs a business requirement to succeed, not just a technology change.

A few heckles raised meant that it was time for the seconder of the motion, Fred Bär, to respond to Paul’s comments.

Fred began with comments that banks do innovate, with the direct debit being a good example, but it can take a long time to be pervasive especially when there are so many constituencies, groups and actors involved (was he referring to Simon?). That is why it will take twenty years for a baby of this size to be born. Nevertheless, the fact that it is so difficult – with IBAN and BIC usage being a good case in point – does not make it worthless and SEPA is worthwhile and does matter.

However, it could have mattered more if the launch of the infrastructure was supported by a regulation that mattered. Unfortunately, this regulation – the Payments Services Directive – lost all credibility just as things were moving forward, and when we were at a point when the regulation needed to be more credible than ever before.

Then the Phantom that is Simon stood up and delivered the most damning attack on the program of all of the evening’s speakers who, remember, are all playing ‘a part’ in the program and do not necessarily believe the views they are presenting.

Anyways, Simon began by asking what exactly is SEPA, and to whom exactly is it supposed to matter for? His point is that there is no common definition of SEPA, as demonstrated by some referring to it as the Single Euro Payments Area and others the Single European Payments Area.

There is no clarity of ownership, which is why there is no ownership; there is no legal representation and the legislation meant to provide clarification is unclear; there is no business case for SEPA with users, the ACHs, the corporations or the banks and, where there is a business case such as with einvoicing, it has nothing to do with SEPA.

All in all, it is just a political need that is driving SEPA and nothing else. So what is SEPA? No-one knows, so how can it matter?

Bob then opened the evening to an open discussion with the audience, who asked intriguing questions, such as: “where are the imperatives for SEPA? What will make this happen?” and put the provocative point, such as: “SEPA doesn’t matter because there are far more important things taking over the agenda today, like Obama’s banking reforms, balance sheet capitalisation and liquidity”.

I think my favourite comment had to be from one panel member though, which was that SEPA seems to be moving in ever decreasing circles “having started with a vision and ended with a committee”.

Anyways, we concluded the evening with a vote and, surprisingly, the motion was carried by a single vote.

So yes, this house does believe that SEPA matters ... just.

Meantime, returning to the theme of the Phantom, the sequel to the Phantom of the Opera comes out soon. It’s called: Love Never Dies, and I wonder if that’s what we’ll see with SEPA.

SEPA Never Dies; it just goes on and on and on and on and on and on and on and on and on and on and on and on and on and on and on and on ... bring on the end-date ...

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Today is SEPA day, wa-hey!

So, finally, November 2nd and here we are.

SEPA day!

SEPA direct debits go live today and the PSD was transposed successfully across all of Europe to become law yesterday.

Apart from a few countries who missed the deadline.

Obviously, Sweden who have always said April because the chap who was meant to transpose it left. 

But did I hear Poland, Estonia and Greece are late? 

And who said Portugal, Spain and Italy?

And what's that about Belgium in February, Finland in May?

Oh yes, and even if the authorities are late in transposing in each nation, there's also a lot of cynicism amongst the institutions of course. 

Many "banking and consumer associations say they have serious concerns that SEPA will open the way for more fraud and unfair pricing on payments", and "only 2,600 of Europe's 8,000 banks will be ready for the launch of SEPA's direct debit scheme on 2 November" according to Euractiv. 

Our own recent research found Europe to be a land of payments confusion, with 58% of the 350 survey respondents saying that the PSD is being transposed inconsistently and 63% stating that this is because of different interpretations at the country level; only 13% believe it is being implemented correctly.

No wonder Elemer Tertak, director of financial institutionsat the European Commission, said: "SEPA is a slow burner, not a chain reaction."

Too right.

Meanwhile, in a conversation with Craig Ramsey of ACI Worldwide and Jonathan Williams of Experian Payments, we got into some idea of how this may play out.

Q: What does the launch of SEPA DD mean for the future of the Eurozone?

Craig: The launch of SEPA Direct Debits is a continuation of politicians’ desire for a single euro economy. It marks the next step of the SEPA initiative. However, in the greater scheme of things this introduction of SDD is unlikely to have a major impact on the way that people do business or who they bank with. Most of the customers that had a cross-border payment issue have already positioned themselves to reduce their costs.

Q: Why has there been such a delay and below-expected industry take up SEPA?

Jonathan: The key challenge here is the lack of added-value which is preventing corporate customers from migrating. At the recent Sibos conference in Hong Kong, Andrew Long from HSBC stated that customers need SEPA to be relevant to them to create demand and then migration. He suggested that SEPA was driven only by politicians and that we as an industry should find out what the market wants and then tailor the rules to fit. If SEPA was perceived as a value-added alternative there might have been less debate and no need for an enforced end date as customers would want to migrate.

Disagreements around interchange fees have also been a further setback for the European payments framework, culminating in French Banking Federation (FBF) suspending work on SEPA payment services.

For corporates who are already finding it difficult to see the benefits of SEPA, the discussion around interchange fees is likely to mean higher transaction costs, an unappealing prospect in the current economic downturn.

The lack of awareness around the SEPA migration requirements also stretches to conversion from domestic account numbering systems to the European BIC and IBAN system.

It is still clear that national legacy systems will be a barrier to take-up which means that few banks and their corporate customers are likely to be prepared for SEPA and some of the obstacles associated with the conversion from the Basic Bank Account Number (BBAN) to IBANs. However, by cleansing and validating BBAN details before conversion into IBANs and by validating existing IBANs on the database, both banks and corporates will be able to get around some of the hurdles in migrating to SEPA and truly herald the arrival of the scheme.

So what have we learnt from this? Who should take responsibility for governance of the initiative? Who should be responsible for developing and implementing the standards and systems needed? The answers to these questions are not clear with the European Commission proposing a new governance structure for SEPA and the project not yet nearing completion.

Q: Do we need stricter deadlines for SEPA migration?

Jonathan: The confusion about the timeframes for an end-date of legacy payment systems added to the lack of interest and urgency regarding implementation of the SEPA framework on the side of banks and corporates alike. Only setting a fixed end-date can provide the impetus needed to force the financial services industry into motion. While we can at least agree on what we mean by an end-date - the time when all domestic clearing has moved across to SEPA standards - there are still disagreements over how to address the country variations, or "additional optional services", perceived to be necessary to migrate domestic clearing harmoniously.

Q: How will it change the way we pay when it is here?

Craig: If you are a customer in the Eurozone, the launch could encourage the use of Direct Debits. However the trend towards electronic payments from traditional schemes will not be advanced by SEPA, as it is already happening regardless.

Q: What are the benefits and opportunities?

Jonathan: SEPA is bringing markets closer together and increasing cross-border opportunities for corporate organisations and banks alike. SEPA Direct Debits in particular will enable direct debit originators to collect pan-European direct debits from any of the SEPA countries using a single direct debit service instead of the country-specific services that currently exist. For banks and corporates the SEPA initiative will provide opportunities to improve end-to-end Straight Through Processing, reduce processing and transaction costs and expand markets. Those planning to make use of the initiative will benefit from greater efficiency in terms of consolidating their systems and rationalising the number of bank accounts they hold as well as having a common standard for direct debit transactions in Euro countries. Those corporates which need to make payments to and receive payments from the European Economic Area will benefit from this more standardised approach to payment transactions.

Q: What does it mean for banks?

Craig: Banks have had to spend a lot of money preparing for the launch of SEPA Direct Debits without a strong business case and with no guaranteed return on investment. However, the launch date itself will not have a large effect while an end-date for migration to SEPA products from legacy products will have a much greater impact. In the short-term, they will have to support both SEPA products and legacy products simultaneously, which will be an extra strain on profit margins. At least once an end-date is set, banks will be able to plan the move away from supporting multiple products.

Q: What does it mean for payment processors?

Craig: Certain aspects of SEPA Direct Debits are commodities that banks could potentially buy in from payments processors. This could add further business viability for banks to move towards outsourcing and cloud computing business models.

  

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What is Innovation in Payments (Part Two)

Last week, I blogged about innovations in payments from a consumer's perspective, and followed it up yesterday with an ancillary note.

In this second part, I thought I would take a closer look at what is innovatory in the corporate world of payments.

Many of us would immediately start talking about e-invoicing, supply chains and working capital. Sure, there is some innovation in those areas but the picture is bigger than this.

First, a little clarity of definitions, as per my lingo.

Commercial payments are the domain of the large transaction banks and their multinational and global clients. These are the mega corporations of the world we refer to affectionately as corporates. 

It is not exclusively owned by these banks, as there are many national companies with domestic banks providing commercial banking very nicely thank you ... it's just that my mind wanders off into global processors with global clients when I think about commercial payments.

This is because there is a big change taking place here.

Until recently, these corporates had been fairly undemanding of their banks.

They were happy to have the odd lunch with their banker, who would fine dine and ego-boost them for an hour or two every month.

Taking their treasury operations, charging solid fees for transactions and generally making a good mint out of cross-border payments was food and drink to the banker.

This is where the money was to be made without stretching too far or too hard.

In particular, get the corporate to do their dealings through the bank via a proprietary link and you had ‘em for life.

After all, once the corporates general ledgers were hard wired to the bank’s systems, it was all but suicide for the corporate engine to switch to anyone else.  This was especially true as the savings made just would not be worth the effort involved.  A few cents here and a few pence there, per transaction, goes hardly unnoticed in the global wheels of commerce.

That was until standards arrived.

Standards.

The bug-bear of some, the bane of many and the blessing for the few.

The few who can work out how to leverage scale and exploit standards for volume savings.

This is what SWIFT do well – exploit standards for volume savings – but, until recently, SWIFT’s volume savings were purely gifted to the banking community. The corporate was still waiting for the benefit.

This is the struggle that has been taking place within the SWIFT community for the past decade and, to a lesser extent, still rages today.

How do you give savings to the corporate and how do you allow corporates to exploit standards, when all it does is erode margins for their current payments provider and allows the corporate to become a rate tart with easy switching to any other bank.

Tough.

The days of proprietary lock-ins are over.

SWIFT has recognised this and are ever more embracing of the corporate community for this reason.

Forget payments, transaction and messaging ... SWIFT's future is all around secure information exchange between banks, between businesses and, you never know, but one day in the future maybe even between individuals.

And banks are now scrabbling harder and harder to keep their corporate clients happy and well served for this reason.

Some of us would say, “isn’t that how it’s supposed to be?  Shouldn't banks always serve their customer well?” ...

... yeah, but it hasn't been that way in the past because once you got the sucker, they couldn't get away.

But now they can and so let's look at what the banks are doing to serve their corporate clients better.

This was a question posed by Gary Wright, Director for International Payments with Royal Bank of Scotland last week at the Financial Services Club.

The evening focused upon the opportunities and issues with real-time payments and this is the innovation in corporate banking and payments that is taking place today, as we speak.

Real-time.

Real-time money movements intra-corporate and inter-corporate, intra-bank and inter-bank.

Real-time payments across borders and continents.

Real-time trade flows of information and risk.

Real-time.

That’s where the corporate money is at.

For a bank, you see, the old world of reporting as the bank wanted, when the bank wanted, how the bank wanted and what the bank wanted to report, was how it worked.

There was no incentive to leverage the information flows the bank had access to, which was a privilege. Banks have access to masses of trade data you see, but where was the incentive to tap into that data?

For many, with customers locked in via proprietary network connections that were hard-wired into back office systems, the incentive just was not there.

But today, with open networking via cloud-based systems that plug and play into SAP and ORACLE Enterprise Resource Planning suites of software, there is a huge incentive for a bank to re-engineer itself back into the corporate value-chain.

And that’s exactly what banks are starting to deliver.

So Gary joined an esteemed panel of industry payments experts, including:

• Chris Pickles, Head of Marketing for Financial Markets & Wholesale Banking with BT Global Services;
• Jonathan Williams, Strategy Director for Experian Payments;
• Martin Wilson, Chief Commercial Officer for VocaLink; and
• Tom Buschman, Chairman of TWIST Standards and CEO of EDGE.

It was an interesting debate and Gary, as mentioned, began by posing what do corporates really, really want, a-zig a-zig ah!

Gary answered this with a great slide. Just one slide, but a real goodie.

Here it is:

What this slide shows is the range of drivers that corporates have towards real-time services and improved delivery of services from the payments provider.

The fact is that working capital is the issue.

Without good visibility and transparency of working capital, corporates are stymied into a vacuum of ignorance.

It reminded me of a debate I had about four years ago where we talked about cash pooling and netting. One software firm had created a system that provided a real-time view of every corporate client of the bank’s cash positions globally.

With the click of button, the bank’s risk managers could see which clients were exposed where and when, and manage the situation.

The problem the software vendor had is that no bank wanted their system.

Why would a bank spend millions on a system that told them their clients were possibly exposed in real-time?

Intra-day or end-of-day would do.

That’s why the system wasn’t selling.

But guess what.

Turn that on its head and start talking about real-time cash management for corporate treasury today as an information service and guess what? You’ve got a winner.

The corporate treasurer mindful of his global financial positioning loves the idea of real-time.

And this is what banks are now buying into as a value-add service that differentiates them from the pack.

The more real-time service, the more real-time information, the more real-time movement to decrease fraud and risks, the more real-time capability to see how to improve ROI and decrease losses, the more a corporate client will love ya’.

And that’s what banks want.

Not to be loved ... but to keep their corporate client.

The other guys on the panel reinforced this view, but you have to be a member of the Financial Services Club to find out what they said.

Just to give you a glimpse however, I asked each panellist to see how they saw the future of payments and real-time at the end of the one hour panel discussion and here is what they said:

As you can see, the audience were riveted!

Anyways, the net:net on innovations in transaction services for commercial banking is that if you aren’t enriching your clients with real-time information services about their use of your bank’s services ... then you’re missing a trick because the competition is doing just that.

And by the way, e-invoicing and related innovations in supply chain management play right into that space too.

p.s. Martin Wilson articulated much more detail on this panel about the research VocaLink released at SIBOS on Faster Payments. If you want a copy, just click here.

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Is there any innovation here? Nope

After the innotribe stuff, it was off to a panel debate about “payments innovation”.

This session was described as follows:

“The crisis has put the emphasis back on traditional banking and sources of revenue, with payments coming to the fore again. Yet payments are also seen as a commoditised, legacy business where scale is everything. Into this business come a series of new market demands which might change this such as same day retail payments, e-payments, mobile payments, contactless cards and real-time finality. How will these new opportunities develop and will they be profitable new forms of business? Can banks afford to develop new channels individually or will they need to co-operate further? Will non-bank players use technology to challenge banks for their new payments service business?”

Bearing in mind that innotribe was all about innovation, it is obvious why this session was of interest to me.

This session was chaired by Robert Heisterborg, Global Head of Payments and Cash Management at ING, with a panel comprising:

• Rajesh Mehta, Managing Director, Head of Treasury and Trade Solutions, EMEA Global Transaction Services, Citi ;
• David Sear, Divisional Managing Director, Travelex Global Business Payments ;
• Marcus Treacher, Head of electronic banking and e-Commerce, Global Transaction Banking, HSBC; and
• Russ Waterhouse, Executive Vice President of Products and Development, The Clearing House.

Here's a summary of how it went:

Robert Heisterborg:

Who’s driving innovation?

Rajesh Mehta:

The innovation drivers I can see include:

• the miniaturisation of payments - especially as there’s more P2P taking place;
• government’s needs, especially in current economic climate;
• banks seeing payments as a product rather than looking at payments as a business in its own right, which is what non-banks do;
• regulatory change; and
• risk management.

Citi in particular is focusing upon prepaid cards and mobile as key new innovation areas.

Marcus Treacher:

Often the idea of the innovator is not the way it works in reality. My favourite example is the ATM which was introduced as an automated teller in branches and it failed. In desperation, the developers decided to try the machine outside the branch and it took off. That was an accident, but one that created success.

Russ Waterhouse:

As a market infrastructure we’re the last place people would normally look for innovation, but we have to do this because it is required, expected and needed amongst our clients and community. The challenge to do this is that many of us benefit from the inconsistencies in the markets, and we have to rethink our business models if we are to take advantage of creating innovation through more consistency.

David Sear:

When we refer to payments innovation, the only example normally mentioned is PayPal and I’m a little tired of hearing about PayPal. They’ve been around over ten years now, so get over it. PayPal have a billion dollars of revenue in Europe alone so their innovation has happened, they have achieved change and they’re here to stay.

Now, as a consumer, I may not want PayPal because I find it difficult to use. It’s clunky and doesn’t provide me with the security I want. For example, a recent US survey by Nielsen found that 81% of consumers would prefer a P2P payment instrument provided by their bank. So we have to do a little better particularly as there is a trillion dollars of ecommerce out there each year, and 20% of that is cross-border.

Prepaid cards are becoming a mainstream in the payments landscape, and that’s another key innovation we are tracking.

Equally, I’ve heard lots of people talking about convergence this week and I’d like to see that. In particular, I would like to see the end of the back street money transfer agent. Bank2Bank and Card2Card services, such as Visa money transfer cards, should mean that AML will go away into a different place.

Robert Heisterborg then asked the audience: “We have been here for a week, is there enough innovation at SIBOS?” and over 80% of the audience said ‘No’. Where were all of you when the innotribe sessions were running all week????

We then started looking forwards to the future of payments.

Rajesh Mehta:

The future landscape for payments will fall into three camps:

• Large global players with the advantage of scale;
• Niche specialist players with a vertical focused advantage, e.g. payment practitioners for the health industry or the pensions industry; and
• Hybrids who are capable of innovating themselves but acquire capability, distribution and technologies from partners who do this better than we do

Robert Heisterborg then referenced an ING trial in m-payments in Romania that found the average transaction value of a mobile payment to be €2.44. Therefore, is mobile the cash killer?

David Sear:

A decade ago we talked about micropayments killing cash on the internet and it hasn’t happened. For example, Google has announced a micropayment service for content recently but these sorts of developments are all about ‘if we build it, they will come’. It’s not what consumers want though. Consumers don’t want to pay for content and Google’s announcement of micropayments for content will therefore not necessarily work.

Rajesh Mehta:

How can you say that David when, in Africa you have four times the number of mobile telephones than bank accounts? How come you don’t think m-pay will happen?

David Sear:

Because consumers are asking for other forms of payment that are more traditional, such as prepaid cards in Africa rather than mobile.

Rajesh Mehta:

What will drive the mobile is banking the unbanked rather than the payment itself. However, once banked, then mobile payments will come.

The audience were then invited to ask questions and the first was about the fact that Nokia have 1.3 billion telephones out there and relations with all the carriers. The fact that they’ve partnered with Obopay should be seen as a threat should it not?

Rajesh Mehta:

No, as they are working with the banks on this. We’ve created a financial cloud at Citi for example, as a super settlement mechanism for the kind of needs of Nokia. It’s a settlement and clearing role and there’s always going to be collaboration with a bank on these things, so the question is really about the last mile. The last mile is all about who wants the connection for something as ubiquitous as a toothbrush, which is what the mobile is these days. For this, do I need to own the last mile? Do I need to compete with others there? Or do I enable that capability and collaborate? There’s always room for collaboration.

All in all, it was an interesting discussion but the fact that the panel talked mainly about prepaid and mobile, but no real discussion of SEPA innovations around einvoicing or contactless payments was an oversight, so I asked about contactless.

Of course, the panel said that it was not purposefully missed off the list, and that this is going to be embraced.

My take on this: for ING, Citi and HSBC, contactless technology is still off the radar or it would have been referred to more strongly. Would have been interesting to see Octopus or Barclaycard or Visa PayWave or others, as thee form factor of contactless mobile or contactless watches (forget cards) is far more innovative as a consumer payment service than a mobile payment using SMS or something (which is where most banks focus first).

Net:net, and being honest, there was no real discussion of innovations here but the panel talked more about stuff that has been bubbling away for years in the form of prepaid cards and mobile payments. Even if they had talked about SEPA einvoicing and contactless, it’s not really innovatory.

What would be truly innovatory would have been to discuss the next generation of payments using wireless technologies to pay without any physical devices involved.

Now, that is revolutionary and I’ve got a whole nine yards on that innovation.

Anyone wanna hear it?

PSD and SEPA research results

The research results into the Payment Services Directive and Single Euro Payments Area are now officially released. 

 

BLOG ENTRY SPONSORED BY:

 

 

PRESS RELEASE:

EUROPEAN PAYMENTS: A LAND OF CONFUSION
Major research project reveals the flaws in Europe’s ambitions

European payments are about to be dramatically changed through a new European Directive for Payments and the completion of the Single Euro Payments Area scheme for direct debits, but there are alarming differences in country interpretations and implementation, as revealed by the largest research study of this market to date

London, September 8th, 2009 – With the Payment Services Directive (PSD) due to come into force on 1st November 2009 and the Single Euro Payments Area (SEPA) Direct Debit (SDD) scheme to follow on 2nd November, Europe should be at the start of a transparent, harmonised and integrated market for payments and payment processing. Instead, Europe’s policymakers, banks, corporates and infrastructure providers have become increasingly frustrated with 58% of them saying that the PSD is being transposed inconsistently and 63% stating that this is because of different interpretations at the country level. Only 13% believe it is being implemented correctly, according to a major European research report published today by The Financial Services Club, sponsored by BT, Earthport and Logica.

The research surveyed over 350 global payments professionals about SEPA and the PSD’s progress, as well as conducting over 25 in-depth interviews with the key organisations involved, including the European Commission, European Central Bank, European Payments Council, Euro Banking Association and European Association of Corporate Treasurers, as well as leading banks, infrastructures, payment institutions, corporates, vendors, consultancies and more.

In particular, the following personnel agreed to be quoted in the final report:

• Ashley Dowson, Chairman, the SEPA Consultancy
  
• Daniele Danese, Payments Manager, Banco Populari de Verona
  
• Dermot Nolan, Head of Payments Strategy, Planning & Change, Bank of Ireland
  
• Frank Taal, General Manager, Wholesale Banking Product Management, Payments and Cash Management, ING
  
• Gerard Hartsink, Chairman, European Payments Council
  
• Gianfranco Tabasso, Chairman, the European Association of Corporate Treasurers (EACT)
  
• Gilbert Lichter, Chief Executive, EBA
  
• Harry Newman, Head of Banks and Payments Market Infrastructures, SWIFT
  
• Jad Khallouf, Chief Executive, STET
  
• Lázaro Campos, Chief Executive, SWIFT
  
• Leon Isaacs, Chief Executive, the International Association of Money Transfer Networks (IAMTN)
  
• Martin O’Donovan, Technical Director, the Association of Corporate Treasurers
  
• Martin Wilson, Chief Commercial Officer, VocaLink
  
• Massimo Battistella, Manager, Accounts Receivables, Administration, Finance & Control, Telecom Italia
  
• Michael Steinbach, Chairman, Equens
  
• Paul Smee, Chief Executive, UK Payments Council
  
• Vincent Brennan, Head of Group Payments, Bank of Ireland
  
• Werner Steinmuller, Head of Global Transaction Services, Deutsche Bank

for which we thank them.

The conclusion of the research is that European member states are implementing the Payment Services Directive in a completely inconsistent manner which threatens to derail the progress of the Single Euro Payments Area. Certain member states were particularly cited as at issue more than others, with Germany and Italy seen to be a particular issue.  Sweden are also at issue, as they cannot implement the PSD until April 2010 due to skills issues.

On a more positive note, participants do expect new payments institutions to gain market share, particularly money transfer service providers, and that these changes have motivated many banks to look for more innovative services for their clients, particularly around corporate information services, e-payments, m-payments and e-invoicing.

Overall, the findings suggest that Europe’s payments program is moving in the right direction, but is still too slow and fragmented to achieve the objectives of true harmonisation without more co-ordination and management between the Commission, ECB and EPC, with the member states banks, policymakers, corporations and citizens.

For example, Werner Steinmuller, Head of Global Transaction Services for Deutsche Bank, states that: “Efficient markets need efficient payments systems. If it’s not happening, then it’s a crossroad for SEPA and the PSD, that may stop these changes succeeding.”

Chris Skinner, Chairman of the Financial Services Club and leader of the research project, adds: “European payment initiatives have come a long way over the past seven years, in the bid to achieve a harmonised financial market.

However, the time, cost and gradual process has slowed to the point of boredom and frustration for many involved and there is now a big concern that a further period of static vacuum, as the PSD irons out its inconsistencies, could undermine the achievements of the SEPA program.”

Key Findings

58% of survey respondents say that the PSD is being transposed inconsistently and 63% state that this is because of different interpretations at the country level; only 13% believe it is being implemented correctly.

64% of banks and 67% of infrastructure providers believe the interpretation at country level is an issue.

61% of respondents believe this program is ‘critical’ (18%) or ‘very important’ (43%) to Europe’s future.

35% believe the benefits are that it will make European commerce ‘seamless and simple, with less banks and fewer barriers to cross border trade’, whilst 18% felt the major benefit was to ‘allow international corporations to rationalise their bank relationships’, and 13% that it would create a Eurozone as ‘large and competitive as America or China’.

14% said the main driver of the harmonisation program is for the ‘benefits’, with 19% voting for the ‘cost savings’ and 15% for ‘increased competition’; but the single largest group were the 38% who believe this is purely ‘politics’ being driven out by the European Commission’s agenda.

58% of Germans saying it is political compared to 23% of Italians. Equally, 42% of the banks state it is political compared to 25% of the technology firms. In fact, the only group that had a wildly different view were those from outside Europe, with 23% of the non-European voters believing that the changes are focused upon ‘benefits’ and 18% for ‘innovations’.

37% of respondents believe the biggest barrier to the PSD’s success is ‘national protectionism’.

28% of respondents say their banks are leading the way or being supportive of SEPA, and a further 55% say their banks are implementing SEPA according to the rules; 17% believe their banks are either avoiding or delaying SEPA.

21% of this survey’s respondents think that the date for the SEPA vision to be fully realised could be as soon as 2012, but most think sometime thereafter with 23% saying 2015 and 11% sometime after 2018.

When asked why SEPA Credit Transfers (SCT) are taking so long to take-off, the clear answer (27% of respondents) is that it is because there is no motivation because there is no end-date. A further 22% felt it was because everyone is unsure of the benefits that can be gained from SCTs.

When asked who was most supportive of the SEPA agenda, bankers voted for the European Commission (46%) first, rather than themselves (27%).

When asked: “how ready are your banks for the implementation of SDDs in your country?”

• Belgium: 13 out of 15 respondents said ready (87%)
• Germany: 20 out of 24 respondents said ready (83%)
• Austria: 10 out of 12 respondents said ready (83%)
• Italy: 10 out of 12 respondents said ready (83%)

• Spain: 6 out of 8 respondents said not ready (75%)
• Ireland: 11 out of 18 respondents said not ready (61%)
• Sweden: 4 out of 8 respondents said not ready (50%)
• France: 4 out of 8 respondents said not ready (50%)
• UK: 36 out of 78 respondents said not ready (46%)
• Netherlands: 4 out of 9 respondents said not ready (44%)

When asked: “How well prepared do you believe your national authorities are for the implementation of the Payment Services Directive on 1st November 2009?” the survey found that only 15% of country-based respondents felt their country was ‘very ready’; 23% felt ‘quite ready’; 30% ‘just about ready; 27%, ‘not really ready’; and 6% ‘not ready at all’.

When asked: “How is your country implementing the PSD?”

• 7% of respondents say their country is implementing the full PSD with no changes;
• 60% state they are implementing the full PSD with changes that are permitted;
• 19% are implementing part of the PSD, but the important parts (10% with no changes and 9% with changes that are permitted);
• 10% are transposing with changes that are not permitted; and
• 4% are not implementing the PSD at all.

CONCLUSIONS

The Payment Services Directive is flawed in both its drafting and transposition

The 23 Additional Optional Services (AOS) along with derogations (the ability to interpret legal terms for local implmentation) mean that Member States have inconsistencies over how currencies are treated and whether they are in or out of PSD’s coverage (the ‘leg-in’ / ‘leg-out’ issue); how small businesses are classified as consumers or corporates; how payment accounts are defined; how direct debit products are defined; and more.

Every country is using AOS and derogation to protect historical products, services and infrastructures.

This inconsistency means that there is no harmonisation across Europe’s payments instruments, even though this is a maximum harmonisation directive.

It is highly likely that 2012, when the European Commission review the transposition and implementation of the PSD, that a revised PSD will be drafted eliminating AOS and other anomalies, such as multilateral interchange fees on cross-border direct debits.

The result is that the PSD will not support an integrated and harmonised European payments marketplace until 2013 or beyond.

The Single Euro Payments Area is progressing but too slowly.

SEPA’s clearly gained momentum as banks convert core systems to use the new schemes and formats; by way of example, SEPA Credit Transfers have more than doubled in volume from under 2% of all credit transfers in the Eurozone in May 2009 to almost 5% by August 2009.

SEPA is still progressing far too slowly to be convincing however, and when SEPA Direct Debits come into play in November 2009, if the new schemes are not demonstrating critical mass within an eighteen month timeframe, then the SEPA program will be deemed to have failed.

SEPA has strong support amongst the banking community, but not amongst corporates and other end-users; this support needs to be promoted through political weight of force by ensuring all member state public authorities and utilities migrate to the use of SEPA instruments during 2010 and by the introduction of an end-date for SEPA migration as a regulatory mandate.

The SEPA end-date is expected to be around the end of 2013, but the migration of end users (corporates) and obsolescence of existing national infrastructures is not expected to happen until the end of the next decade (2018 or thereafter).

Ultimately, Europe’s payments program is definitely off course. How far off course is just dependent upon which way you look at it.

Three reports are now available that substantiate this research:

“The State of the European Payments Marketplace: the progress of SEPA and the PSD, a Qualified View”, provides a summary of the survey results, alongside all the commentary received from both those persons interviewed, and the survey respondents. This document is suitable for those who want a pure view of the results and commentary of the markets. Report: 186 pages.  

“The State of the European Payments Marketplace: the progress of SEPA and the PSD, a Quantified View” presents the survey in presentation format, with in depth analysis at an institutional and country level. This document is suitable for those who want PowerPoint slides that give them the detailed analysis of the survey results at an institutional and country level. Only a small part of this data is included in the Qualified view. Report: 170 pages. 

“The State of the European Payments Marketplace: the progress of SEPA and the PSD, a Data View” presents the survey in spreadsheet format, with in depth analysis at an institutional and country level. This document is suitable for those who want all of the data that went into the Quantified View’s slides so that they can make their own charts. Only a small part of this data is included in the Qualified view. Report: 210 pages.

Free copy of management summary of qualitative analysis (19 page pdf, 300kb)

Download Survey Summary

Free copy of key answers to quantitative views (27 page pdf, 1.5mb)

Download Results Summary

For the full reports, with several hundred pages of further analysis, the reports can be purchased individually on a single user licence basis.  A 20% discount per report is provided on the purchase of two reports and 33% for the purchase of all three.

Buy reports with VAT (UK purchasers)

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The reports can be purchased without VAT. This option only applies to purchasers outside the European Union, or EU customers outside the UK who email a valid EU VAT code to admin@balatroltd.com.

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Upon purchase you will be contacted with details of how to electronically access these reports.  If you require a printed copy of the reports, a £100 premium applies to the pricing of each report ordered to cover paper production and land mail costs.  If you would prefer a printed copy, please contact admin@balatroltd.com.

A corporate licence is also available if you require a multi-user licence for these reports to share amongst staff internally.  If you would like to purchase a corporate licence, please contact admin@balatroltd.com.

Warning of SEPA Direct Debit failure

End users of payment systems in Europe released a report today airing their concerns that the Single Euro Payments Area (SEPA) Direct Debit (SDD) to be launched on November 2nd will prove unpopular unless steps are taken to reflect users' needs.

The concerns are based around companies having to make arrangements to access the SDD scheme country by country, and each country having variations in their use of the scheme.  Equally, a precondition for switching to the SDD is that the service is available in the country, matches with other cross-border services and exceeds the existing schemes.

The report released today has been produced by the End User Committee associations, which comprise:

• the European Association of Corporate Treasurers (EACT);
• the Confederation of European Business (BUSINESSEUROPE);
• the European Association of Crafts and SMEs (UEAPME);
• Bureau Européen des Unions de Consommateurs (BEUC);
• EuroCommerce, the European wholesaler and retailer organisation;
• the European insurance and reinsurance federation (CEA);
• the European e-commerce and Mail Order Trade Association (EMOTA); and
• the European Federation of Magazine Publishers (FAEP).

This significant grouping of end users state that: “SEPA risks failure unless corrections are made.”

Their 64 page report can be downloaded here.

Note: the survey we are running on SEPA and the PSD adds to this report, with over 300 participants completing the survey so far.  If you haven't completed it yet, just click here. 

  

The Finanser is sponsored by Vocalink and Cisco:
 
For details of sponsorship email us.

PSD and SEPA research

It’s July 1st and we are pleased to announce that, during the summer, the Financial Services Club is running an in-depth analysis and research project about the country-level plans for the transposition of the Payment Services Directive (PSD) on 1st November 2009 and the implementation of SEPA Direct Debits (SDD) on 2nd November.

The research will be released the week before SIBOS in Hong Kong in September and, as part of this, we have an online 25 question survey which all readers of the Finanser are invited to complete.

If you participate in the survey you will automatically receive a copy of the final research report in September and, for those who enter their email address, three winners will get a copy of the book: “the Future of Finance after SEPA” and one lucky person will be given an honorarium to the Financial Services Club to be able to attend any of our meetings in the future for free!

Now there’s an offer you can’t refuse.

If you would like to participate, then just complete our survey, which should take you less than ten minutes, by clicking here.

  

The Finanser is sponsored by Vocalink and Cisco:

For details of sponsorship email us.

The danger that SEPA may not happen

I was invited to a conference this week and given the title of the talk as: “Why there’s a very real danger that SEPA may not happen”.

As a good European who believes in the PSD and SEPA, I declined to discuss this and invited my long-time acquaintance Sir Jonathan Brit to speak on my behalf.

Sir Jonathan “Johnny” Brit is the eighth generation of Brit’s to Chair Fusty Bank UK plc, which recently appeared in this blog talking about mobile telephones.

He is one of the old guard, highly bigoted and patriotic, anti-European British people, normally referred to as an ‘old fart’ ... although not normally to his face.

I wrote most of his speech down for readers of the Finanser to see what a typical British old fart thinks about SEPA.

However, before you read his speech, please note that the views he expresses are not my own.   For example, he seems to think that that it's purely a political plot by the French and Germans to take over Europe's financial infrastructures via the EBA and ECB respectively which is why no-one has any urgency to implement.  This is why nothing's happened yet, after ten years, and that the lack of leadership, corporate inclusion, end-dates and more, means it is not working.

Not sure I agree with these views so, if you are interested in my views, the Financial Services Club is conducting research into bank, corporate and national readiness for the implementation of SEPA and the PSD during the summer for a publication to be released in September 2009.

If you are interested in participating or sponsoring this research, please contact admin@balatroltd.com.

Meantime, over to you, Sir Jonathan.

Biography: Sir Jonathan “Johnny” Brit is the eighth generation of Brit’s to Chair Fusty Bank UK plc since its founding in 1842, as a bank serving the colonial empire of Britain. Johnny entered the bank as a mailroom errand boy in 1972 and rose through the ranks to take over from his father, Sir James “Jimmy” Brit the Third in 1988. Now, Johnny has handed the reins of the bank to his son, Gerald “Gerry” Brit in order to take the Chairmanship role this year. Johnny is married to Jenny Brit, and has three boys, two German Shepherds, an estate in the country and several mansions overseas in the Windies and India.

Good afternoon.

My name is Johnny Brit, Chairman of Fusty Bank UK plc.

Of course, we’re not actually based in the UK for tax reasons, but it makes sense to have a registered office there as our people trust us more that way.

Now then, I’ve been asked here today to talk about this SEPA thing, which stands for Silly European Payments Agenda I believe.

I’ve got to be careful when I say that, as I ran this past our PR and legal folks and they’ve made sure that everything I’m going to say is politically correct.

That’s why I need to get some things out in the open before we start as I know that you all take this thing very seriously but I ask myself, after almost ten years of all your faffing about trying to work out what it is, whether you are really serious about this stuff.

I don’t think so.

Now we all know why, don’t we?

Yes, because it’s just a Stupid European Political Agenda isn’t it?

It's politics

This SEPA thing and all that stuff about a Payment Services Directive was only dreamed up by the poor political eurocrats in Brussels because they couldn’t pay for their books and cups of tea without incurring cross-border charges.

That’s why this thing came about and that’s why it’s here.

It’s nothing to do with saving costs and increasing efficiencies, which is what the politico’s claim ... but only because that sounds good. No.

It’s just to reduce their own unnecessary expenses of having to live in boring old Brussels whilst paying for a nice penthouse villa on the Riviera or chic bordello in Bermondsey.

That’s the truth of it.

I know it’s true, you know it’s true, and as a political agenda we can pretty much ignore it can’t we because, by the time they get around to realising we haven’t done it, they’ll no longer be MEPs and the new lot come in and we can mess them around too can’t we.

Now certainly that’s what we’ve been doing over here in Blighty – ignoring it that is – and I thought most of you European Johnny’s had been doing the same which is why nothing has happened.

But then I cannot believe how much of a dust-up there has been about this over the past ten years.

I mean you’ve had conferences, meetings, committees, working parties, conventions … you name it and you’ve had it. All about this silly euro thingy and these associated SEPA and PSD bits.

And for how long have you been doing this?

Ten years!

A decade of what?

Pwah! This all began ten years ago for god’s sake and what have you got?

Sure, there’s been the Regulation 2560 which banned razor blades and biro’s.

Sorry? Oh I didn’t realise. I thought you said “I ban BIC”, not IBAN BIC.

Well, either way, IBANs and BICs haven’t happened have they?

Certainly, most of the corporates we deal with haven’t implemented these ... but that’s because we do it for them as it is a sure-fire way to keep our business customers locked into the bank.

In fact, I don’t want them to change their SAP and ledger systems to work with IBANs and BICs as they will then have portability of their bank account.

That may be what the eurocrats want, but I don’t want that so they can just go and stuff their standards up their rears, as I’m keeping my customers locked into Account Numbers and Sort Codes. We’ll handle the IBAN and Biccies.

I guess that is why, after ten years, less than 2% of all potential Eurozone credit transfer payments are migrated onto these new SEPA Credit Transfer (SCT) services, as there is no critical mass or need for this amongst the people we serve.

Funnily enough, fewer than 2% of all credit transfer volumes in 15 months would mean that to get to the total market space SEPA is meant to reach would take 100 years.

A century to achieve critical mass?

Sounds about right to me as that means SEPA won’t happen in my lifetime.

That’s also why in ten years, there’s no legal structure in place, no movement of other electronic payments, and just an inconsistent idea that there might be some sort of standardised direct debit thingy.

Ten years and I think that you, like me, have just been ignoring this thing hoping that those Brussely Eurocrats will go away and stop worrying about their travels around Europe and bank fees.

Trouble is, they haven’t gone away, have they?

That’s why we are all eagerly waiting the Payment Services Directive in November or, as we call it, the Psssttt or the Okey-Kokey Directive. Y’know, you put your left leg-in and your right leg-out, so no-one knows which leg is which and then we can charge lots for it.

November 2009

Now everyone thinks that we have all been waiting for the Psssttt, because then direct debits can come in on November 2nd and suddenly there will be lots and lots of volume.  That's because all the businesses and authorities of Europe will place all their payments and transfers electronically through standardised systems and infrastructures.

Complete baloney of course, as most of our corporate customers haven’t been consulted about this. I mean, we did allow them in the room didn’t we, but only as long as they didn’t say anything or for as long as we could ignore them.

That’s why corporates had no representation on any of our committees and discussion groups, but we are here to serve them of course ... just as long as we can keep them locked in to our bank and not someone else’s.

So now we have these deadlines, with 1st November 2009 looming large as the date when things really things start … but then things won’t finish as we have no end dates, do we?

We have no end dates because no-one can agree on this euro thing – who’s in and who’s out – and because we have no leadership.

No-one is forcing this through because the leadership has to come from the politicians, and the politicians don't want to rock the boats in their home countries over something that's not a domestic issue.   

After all, how many cross-border payments do we make?  Less than 2%!

That's why the politicians don’t want to upset their home countries and create a backlash.

It's a French and German plot

The Germans may want SEPA as they have the European Central Bank but German banks don’t want it because they have no central infrastructures; the French want it because the EBA is based in Paris and offer a PEACH, but French banks don’t want it because it will damage their fee rates; the Italians are trying to work out what a Euro is; the Spanish are asleep and saying 'manana'; and the rest of Europe are trying to work out what the hell the other guys are up to.

Meanwhile, the Dutch are leading the whole thing because they’re the only people who speak the main languages of Europe. It would have been the Swiss otherwise, but they’re not in Europe so they had to bow out by default.

Typical jolly European beanies.

And even with all of that, they can’t agree.

I mean, the PSD is meant to be a hard deadline date for implementation by 1st November 2009 and the Swedish, who will have the Presidency of the European Union by then, have already said they cannot implement it.  But at least the Swedish are honest, as the rest of the countries are just keeping quiet and pretending.

For example, look at the French.

They go and push for all this stuff and put all the infrastructure in Paris – yes, the EBA who run all this SEPA stuff, where are they based? Paris! – and then, after all that, what do the French go and do? They say “non” and totally ignore it all.

Oh yes, and just in case you missed it this was the announcement of France not bothering with SEPA Direct Debits until November 2010.

Typical francais I say, especially as they announce this the day after the European Payments Council agreed all the banks of Europe would have these direct debity thingies in place by November 2009.

Sacre Coeur, mon dieu and grande m*rde.

Anyways, the French SEPA Committee, made up of the Banque de France and the French Banking Federation, are probably following Monsieur Sarkozy’s lead and thought: "C*sse-toi".  And at least I’ve read "La Princesse de Cleves".

Anyways, this is normal French thinking and short of bunging a few tractors across the Channel Tunnel to block electronic payments moving across borders, the French can only stick to their guns and try to ignore this silly political agenda.

Which brings me to another thing.

What is SEPA for anyway?

All it does is create a nice large zone for the Germans and French, who don’t want it, to control the finances of the Spanish, Italians and rest, which is a good reason for not being in the euro isn’t it?

I mean this SEPA thing is only good for 2 countries isn’t it?

Sure, there are 16 countries in the Eurozone but, after the recent credit crisis, you’ve got the Germans controlling interest rates, the French controlling the infrastructure, and the Spanish, Italians and rest all suffering with crippling unemployment and stagnation with no hope of getting out of it.

That’s why there are no end dates because we all want to keep our national infrastructures in place just in case. Just in case we have to go back to French francs, Italian lira, Spanish pesetas and Deutsche marks.

And the British?

This is why we British are not in the Eurozone for very good reasons, the utmost of which is our right to retain our sovereignty. The Queen is very important to this island and represents our long heritage of ruling the world which is why everyone speaks English, even the French.

So, we need to retain our sovereignty and stay out of the euro for this reason.

In summary, after ten years we’ve got a little bit of something and a lot of nothing.

No end dates, no leadership and no mandate to make this change happen.

Ten years!

The Americans put a man on the moon in six years. Their moonshot was announced in 1963 and achieved in 1969.

In six years, Americans can put a man on the moon and in Europe in ten years we can’t even get an agreement on a direct debit.

That’s why we here in Fusty Bank UK plc are outsourcing all of our Eurozone payments to our trusted allies ... NACHA.

Thank you and goodbye.

Please note once again that the views expressed in this blog entry are not my own but Johnny Brit's.

If you are interested in what is happening with SEPA and the PSD, the Financial Services Club is conducting research into bank, corporate and national readiness for their implementation for a publication to be released in September 2009. If you are interested in participating or sponsoring this research, please contact admin@balatroltd.com.

SEPA and the PSD: broken but not dead

I haven't written much about SEPA, the Single Euro Payments Area, lately because there's not been much to update although the last time I did, I asked the question: "Are SEPA and the PSD completely broken?"

However, there is now some news as I was with Gerard Hartsink in Hong Kong and Ruth Wandhofer in Frankfurt over the past fortnight and gained a healthy injection of knowledge about the last SEPA and Payment Services Directive (PSD) views.

Gerard Hartsink is Chairman of the European Payments Council (EPC) and Senior Vice President with ABN AMRO.  He is well known as the driving force behind making all of the SEPA plan work, and speaks regularly at forums worldwide as well as being a contributor to the SEPA Book.

Here's Gerard in Hong Kong discussing SEPA and SEPA Direct Debits (SDD):

One thing Gerard made clear is that the SDD program is important but has been challenging. 

This is illustrated by the issues of interchange fees for direct debits being introduced, such that each country can migrate towards SDD structures.  The importance of this is that different countries have different needs and charging structures, and a temporary period of interchange allows each country to slowly migrate towards harmonisation. 

For example, France has historically charged €0.12c per direct debit whilst most countries offer such processing for free through cross-subsidisation.  Under the SDD interchange rules, France has to reduce this charge by almost a third and, over time, to zero charging.  There's a challenge.

Meanwhile, Italy has a totally different product with floats and dating structures that allow Italian banks to generate significant margin on direct debit processing.  This will also be eradicated by SDD and PSD rules.

With France and Italy dealing with significant differences in charging and processing, it's no wonder that no end-date for SEPA migration has been agreed yet.

This point was picked up by Ruth Wandhofer, Vice President for Cash Management in Europe within Citi's Global Transaction Services Divison. 

Ruth also chairs the meetings across the banks implementing the Payment Services Directive and is heavily embroiled in negotiating the implementation plans for both SEPA and the PSD.

Ruth discusses the details of SEPA and the Payment Services Directive at the European Banking Forum in Frankfurt last week**:

The net:net of Gerard and Ruth's comments implies that the program has stalled.

I said this last year, and say it again.

SEPA Credit Transfers are picking up a pace, but it's slow.  Only 1.9% of all credit transfers use the SCT structure today.

e-invoicing is taking off as a specialist interest area, but nothing has yet been agreed or is in place, and it is unlikely to be until 2012 or later. 

The Payment Services Directive (PSD) is agreed and is being transposed by most nations, except Sweden.  Even with transposition, each country has its own PSD flavour so we have 27 flavours of harmonisation.  That's not a standard.

Meanwhile, the SEPA Direct Debit program will start this year.  Hopefully it starts in November, when the PSD gets transposed, but it's not guaranteed.  This is to be determined at an EPC meeting on 31st March where the banks will agree whether November is do-able or not.

Finally, there's no migration or end-date mandate for any of the above and, until there is, this program is a road to nowhere.

That's why Gertrude Tumpell-Gugerell of the ECB made the call for an end-date at the PARSIFAL meeting I attended in Frankfurt last week:

"We need a migration end date from which on onwards only the European payment instruments will exist. We all know that it is inefficient and costly if two schemes continue to run in parallel for a prolonged period of time. Dual processing does not generate the economies of scale that the SEPA is able to deliver and hampers stakeholders in fully reaping its benefits. Maintaining national instruments implies that fragmentation along national borders is preserved, and that the integration of the European retail market has failed. Thus, working towards the establishment of a migration end date is deemed of the utmost importance to make the SEPA a success."

My aim is not to be negative in portraying things this way, as it's all been moved in the right direction slowly but surely over the last decade, but there's the rub.  It's taken a decade to get to the point outlined above and with the banking system in meltdown, some banks seem to view all of this as irrelevant anyway.

Hopefully, the EPC meeting on 31st March will prove this wrong.

** the European Banking Forum is an event which takes place annually and began as a joint event between the Financial Services Club and VIB Events in 2008.  The Forum is open to all bankers to attend for free, with sponsorship and other opportunities availalbe for those interested in jioning from outsaide the banking community.

All videos and presentations are available to FSClub members in full.

2nd February: DHL's accounts receivables transformation

The next meeting of the Financial Services Club will be held on 2nd February with Brian Thumwood, e-Billing Programme Manager for DHL, discussing DHL's experiences with e-Invoicing in practice.

DHL have completely transformed their accounts receivables processes using e-invoicing innovations, with major benefits as a result, including faster payments and less days sales outstanding. 

Brian will discuss this experience in detail, covering:

• The practicalities of a major pan-European rollout of e-invoicing
• Why DHL decided to re-engineer the accounts receivable functions
• Where were the efficiency barriers?
• Creating the electronic interfaces
• Achieving supplier adoption 
• Measuring the results

If you want to come, just register.

European Regulators scramble to plug the gaps

David Doyle, policy expert on European financial markets, discussed the latest European financial services legislative movements at the Financial Services Club yesterday.

David began with an outline of the priorities for the Czech Presidency of the European Union, which runs through to June:

• review of the Capital Requirements Directive for the capital adequacy of investment firms and credit institutions;
• negotiations of the Solvency II Directive regulating the insurance sector;
• regulation of credit rating agencies;
• a new Directive for electronic money institutions;
• review of the regulation on cross-border payments in euro;
• review of the Market Abuse Directive;
• a New Prospectus Directive;
• UCITS IV; and
• updating the International Financial Reporting Standards (IFRS).

I guess having so many priorities is not surprising, given the events of the past six months, but this list is too long and the priorities are too many. Therefore, David focused upon the changes to Solvency II and the revised Capital Requirements Directive (CRD).

These are significant changes to the original implementation of Basel II in Europe. For example, the new rules for the CRD were put forward on 1st October 2008, two weeks after Lehman Brothers collapse:

“The European Commission has put forward a revision of EU rules on capital requirements for banks that is designed to reinforce the stability of the financial system, reduce risk exposure and improve supervision of banks that operate in more than one EU country. Under the new rules, banks will be restricted in lending beyond a certain limit to any one party, while national supervisory authorities will have a better overview of the activities of cross-border banking groups. The proposal, which amends the existing Capital Requirements Directives, reflects extensive consultation with international partners, Member States and industry. It now passes to the European Parliament and the Council of Ministers for consideration.”

The critical changes include improving the:

• management of large exposures, particularly by introducing restrictions in interbank exposures;
• supervision of cross-border banking groups through a collegiate of supervisors;
• assessment of the quality of banks' capital through 'hybrid' capital rules incorporating both equity and debt elements;
• liquidity risk management: for banking groups that operate in multiple EU countries; and
• risk management for securitised products through new rules on securitised debt.

There are some major points raised here. For example:

• the concept that banks must not be allowed to lend more than 25% of the their capital;

• that regulators across all markets work together to monitor the activities of key cross-border groups and, bearing in mind that over 70% of all cross-border activities are transacted by only 45 financial institutions, this may mean more stringent regulation through both home and host oversight;

• a need to retain a minimum 5%of capital for anything that is securitised, with some still asking for this to be raised to 15%;

and more.

The thing is that this is all being fast-tracked, with the intention of sign-off in the European Parliament for the revised CRD by April 2009.

That’s fast and raises the concerns of irrational and ill-thought through regulation, rather than better regulation. However, bearing in mind that there are MEP elections in June and a new Commission selected in November, when Charlie McCreevy leaves office, and you can see why they want to get this through in time for implementation.

David proceeded to analyse developments in other areas, such as:

• the EU’s divergent policies on credit rating agencies, who will be banned from providing any advisory services as well as providing complete transparency of the models, methodologies and key assumptions on which they base their ratings;

• the Electronic Money Directive which will enforce same day payments for euro-based direct debits and credit transfers, but will not apply to mobile operators (why not?); and

• the fact that the Commission now has Hedge Funds and Private Equity in their line of sight, as well as short selling and dark pool equities trading, with a new Directive likely to target this area.

David’s analysis was wide and deep, which is the reason why I invited him to address our meeting. He concluded with the fact that there are estimated to be 123 regulatory supervisors across the EU, who will now work as a collegiate to enforce these rules under a single EU Regulatory Authority.

The single EU regulatory authority has been a challenge for a long time, and with recent developments looks increasingly likely.

We finished the evening with questions that focused upon principles-based versus rules-based regulations; the world after Charlie McCreevy and whether there will be big changes if a non-Northern Commissioner is selected; Davos, the G8 and the G20, and the whole challenge of domestic versus regional versus global regulatory co-ordination.

The conclusion is that regulators are scrambling to plug the gaps and issues created in recent days. Their fast-track actions may not be the right ones long-term but are the necessary ones for the short-term.

We also announced the fact that the Financial Services Club is launching a European Financial Regulatory Advisory Group.  If any of you are interested in learning more about these developments, just let me know.

David is known across Europe as a leading expert on EU financial market regulation and has an in-depth understanding and knowledge of the critical aspects we face today such as MiFID and SEPA. He is a former diplomat with over 20 years of service on mainland Europe and an EU Policy Expert on Financial Markets.

Photography: Tom Groenfeldt

einvoicing heaven or hell ...

I mentioned the SEPA conference last week and only now have had the chance to write up its’ follow-on event, a one-day meeting focused upon e-invoicing.

The e-invoicing conference was far more optimistic than the SEPA event, probably because it focused upon creating revenue-generating services for banks.

First and foremost, a definition of e-invoicing always helps, and the EU Council Directive 2001/115/EC of 20 December 2001 provides the base definition of e-invoicing:

“The sending of invoices ‘by electronic means’ i.e. transmission or making available to the receiver and storage using electronic equipment for processing (including digital compression) and storage of data, and employing wires, radio transmission, optical technologies and other electronic means.”

With that definition in mind, the programme kicked off with David Ellard of the European Commission who held out the tantalising morsels of savings and benefits for corporates, citing various studies that demonstrate e-invoicing will save the EU €40 billion per year (Cap Gemini) and €24 per invoice to process (EACT) or more.

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