Cash management debate: SEPA: A new model for Europe?

Debate participants

JL One of the most important developments in cash management is SEPA. What does it mean for suppliers and customers?

FT, ING The single euro payment area (SEPA) is an initiative of the European Commission. The banking community – the European Payments Council (EPC) – focuses on the 12 countries that have the euro, but the political debate includes the 25 countries of the European Union. SEPA’s objective is that the difference between domestic and international payments will disappear within intra-euro countries. There are three initiatives: the European credit transfer scheme, the pan-European direct debit scheme and the domestic debit card scheme. These products should enter the market by January 2008. Then we get a two-year transition period. By 2010, momentum should force volumes to switch from domestic to European schemes. The migration will be complete by about 2013. That’s the official roadmap of the EPC, but we have a lot of work to do to meet that timeline.

HD, Citigroup The impact will vary across the region. The idea is that corporates or consumers will be able to reach the banks that they want to pay money into through a single piece of infrastructure. We will go from 12 national associations and sets of products with 12 different sets of rules, governance, regulations and products, to a single infrastructure with a single governance and a single set of products. There will be further price compression. New product development to complement the commoditized payments service will be key.

SM, Deutsche Bank SEPA will remove the current complexities of centralized cash management in Europe and will further drive rationalization, harmonization and standardization. Scale and the capacity to invest in new value-added products to differentiate oneself become the key to a bank’s survival. There are clear opportunities in the long run for certain banks.

PP, AFTE Also, a new legal framework will define the duties and rights of the payment system users, providers and the banks. This should be implemented by 2008, the date at which the products could be optional. Once the directive is voted in, each country will have one or two years to implement the directive within its own national rules.

FT, ING Well, it is relatively easy to come to an implementation profile for European credit transfer, but not for European direct debit. There are so many issues to be resolved, and so few specifications and rules have been agreed.

OB, Volkswagen I think there’s another reason. There is a feeling that the EPC product offering – the proposed direct debit and credit transfers schemes – is not as good as what we have currently on a national level. Even if it’s available, people won’t move.

FT, ING We don’t have to change that much if the banks take a scheme like Maestro or Visa. Provided it has been checked legally and with the competition authorities, it is relatively easy to migrate to one of those international schemes.

FT, ING Corporates with high payment volumes in the more expensive countries will benefit from the more competitive price levels of countries like the Netherlands and Belgium. Institutions and government bodies who make a lot of payments may also benefit from that shift towards the lower priced areas.

SM, Deutsche Bank The benefits of SEPA will vary among corporates, depending on their regional profile. The larger their presence in the euro countries, the greater the benefits of regional harmonization and the greater the possibilities of centralized management of flows. SEPA may accelerate the current trend of payment factories and shared service centres by facilitating their operations.

PM, SFS But will we benefit? We expected to gain from standardization such as the introduction of Iban [the international bank account number]. But in fact although we’ve been informed about it, nobody has told consumers how to use it.

HD, Citigroup At the moment Iban can only be used for cross-border payments in most countries, and these represent 2% or less of total payment traffic. The inertia is the pace at which national clearing associations adopt it as the standard. As a result, many corporates don’t routinely collect their Ibans and BICs [bank identifier codes] for their domestic vendors because they can’t use it.

PM, SFS True, but subsidiaries that use our central payment factory don’t know whether we are executing a domestic or a cross-border payment. We pay wherever payment is cheapest. We might make supplier payments to Portugal from a completely different country. Our payment factory will require Iban for all those countries with incoming payments. What we then send out to the banks is something completely different because large organizations like ours have payment accounts in each country.

OB, Volkswagen Banks say there are no volumes in cross-border payments. Of course there aren’t because the infrastructure is so badly organized that we have to work around it so it doesn’t seem like a cross-border payment. We need a standardized, efficient infrastructure.

PM, SFS Of course. If there is a domestic European market then we will use just one euro account to pay from. In Europe, we still differentiate between resident and non-resident accounts, and if you read Resolution 2560, the only reason for this differentiation is reporting obligations. The corporates have to ask for Iban and BIC numbers for payments in Iban countries. Then whether the transaction is done locally or cross-border is up to the infrastructure the banks offer on a pan-European basis.

AW, ABN Amro I think your frustrations are the same as the banks: for the next few years we too will have to live with both domestic clearing systems and SEPA. We want to be able to have Iban and BIC throughout Europe, because it’s straight-through processing for us, and we can then pass on the benefits to our clients. I think Luxembourg, Italy and Spain have indicated that they will be migrating their domestic traffic to EBA Step 2, and we expect that many of the others will be encouraged to consider doing the same.