After sitting in on a few sessions at the International Payments Summit 2011 — and in particular the excellent Chatham House session chaired by Forum friend Ruth Wandhofer of Citi — I have to say that in all honesty my professional opinion is that it’s a mess. The ECB predicted that SEPA would erode payment margins in Europe by 5-10% (eventually) but that banks and customers would benefit from lower costs in the long run. Yet the cost burden is crushing. According Equens, there are 200 different formats for SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) messages. They further estimate that since both the XML message formats and the EPC rulebooks are updated every year, it means 20-30,000 man-days per annum just to maintain the software. And that’s for just one processor. What’s more, SEPA is reducing competition (and therefore increasing costs) in local markets long before the projected cost savings arrive.
One way to do something to bring on these cost savings might be to enforce and end date. When I had the honour of chairing ECB board member Gertrude Tumpel-Gugerell in Brussels last November, she said that an end-date for SEPA would be her first New Year’s resolution for 2011. Well all I can say after IPS 2011, is good luck Gertrude. If there is going to be an agreed end-date this year, I’d lay a pound to a penny that it will be 2019. Frankly, who knows what will have happened to the payments business by then?
Gertrude and others have said that one of the goals of SEPA was to encourage innovation to the payment sector, but has it? Tom Noyes excellent analysis of the current environment ends with three key constraints on innovation.
Innovators are dependent on local national relationships to launch a product;[From Payments Innovation in Europe « FinVentures]
SEPA creates harmonization, but country specific laws and regulatory guidance are unique;
ECB initiatives (ex. See ELMI) create opportunities for non-bank participation in payments, but SEPA has removed all margin from the business.
I’m not so sure about that last point. SEPA has removed all of the margin if you are bank, but if you are not a bank and are not dependent on their high-cost, highly-regulated infrastructure. All of these issues mean that I can’t help but let an evil thought wander in to myconsciousness, a thought-crime of the most serious degree. What is SEPA doesn’t happen? What if it ends up defining the standard for pan-European payment infrastructure that is vanishing? Worse still, what if there are sinister forces at work to torpedo the project?
The EC will “effectively derail the entire Sepa project” if upcoming regulatory intervention on migration end dates does not include deadlines for phasing out national schemes, says the European Payments Council.[From Finextra: EC migration plans would ‘derail the entire Sepa project’ – EPC]
I don’t want to bore foreign readers with the ins and outs of the relationship between the Commission and the EPC, but I will say that it is not good. If the Commission regulatory “intervention” were to be to mandate the EPC rulebooks with a fixed deadline, then banks (I’m pretty sure, having spoken to quite a few bankers about this) would grin and bear it. In some countries (eg, Germany) it might be an unpopular decision, but it would get done. Instead, the Commission seem to want to tinker with what the EPC has been going but without an end date? Why? (Answer: because they are politicians responding to national interests.)
Personally, I think the Commission are derailing the train taking us to lower costs in other ways as well, such as by forcing retailers to accept euro coins and high-value euro banknotes, thus promoting the least efficient and most expensive payment mechanism instead of electronic alternatives that would be better for society.