By Anita Hawser
Proponents of the Single Euro Payments Area are
considering stringent measures to encourage companies to hop on
As eurozone countries busy themselves implementing liquidity
measures designed to calm market fears about sovereign debt
problems in member states, it is clear to anyone watching the drama
unfold in Europe that national interests are still dominant,
despite the fact that member states share a single currency.
Although the transition to the single currency in January 1999 went
off with barely a hitch, it now appears that the euro has hit a
rocky patch-a situation few perhaps envisaged, where the systemic
risk implications of sovereign debt problems in one country begin
spilling over into others.
But it not just the euro that is in trouble. In the wake of the
single currency's introduction the European Commission and the
European Central Bank (ECB) painted a vision of a more united
Europe, which shared not only a currency but also
more-cost-efficient pan-European payment mechanisms, effectively
treating what is today considered a cross-border payment as a
domestic payment. European banks responded to this challenge by
forming the European Payments Council (EPC), which was charged with
drafting the new pan-European payment schemes that would help
realize the Single Euro Payments Area (SEPA) vision.
In January 2008, SEPA credit transfers, based on the EPC schemes,
went live and after some delays SEPA direct debits were finally
launched in November 2009. But adoption of the new payment
instruments has been slow, with SEPA credit transfers accounting
for just over 9% of all transfers in the eurozone and SEPA direct
debits accounting for less than 1% of the total. So is SEPA on a
road to nowhere, as one study recently suggested? Well, it depends
who you talk to, but it is certainly reasonable to conclude that
SEPA has come to a fork in the road, and no one is quite sure what
direction it will go off in.
The EC has come to the realization that voluntary SEPA migration is
not working, and many organizations involved in the project,
including the European parliament, banks that have invested heavily
in the EPC's SEPA schemes and companies that have yet to migrate to
the new payment standards, are calling for the Commission to
mandate an end date for full migration to SEPA. In its seventh
progress report on SEPA, published last October, the ECB said "much
has been achieved in implementing SEPA," with more than 4,400 banks
adopting SEPA credit transfers and over 3,000 banks opting for
direct debits. However, for SEPA to be a success, it said, further
legislative action was needed. "In this respect, a mandatory
timeline for the migration to SEPA payment instruments will
significantly accelerate the pace of transition, enabling SEPA to
be completed, preferably, by the end of 2012 for credit transfers
and by the end of 2013 for direct debits," the report stated.
Daniela Russo, director general for payments and market
infrastructures at the ECB, says an end date alone is not enough.
She explains, "We need to convince users [SEPA] is advantageous.
Banks did not give adequate information about SEPA's advantages."
Those advantages include lower costs for users, reduction of
execution times for payments from five days to two days and
companies' not having to maintain multiple bank accounts in order
to make payments in different European countries.
Gerard Hartsink, the chairman of the EPC, says banks cannot make
SEPA work on their own. "If the buy side is not accepting of SEPA,
it will never fly," he points out. SEPA implementation in each
country is managed by national SEPA committees. But in some
countries, Hartsink says, the public sector is not working with
buyside and sellside firms, so it is unclear what their view is on
Yet Giorgio De Rita, managing director of DigitPA, the Italian
public administration, claims most public administrations do not
believe payments reform is critical, so they are loath to lead SEPA
adoption-particularly as doing so will require substantial IT
changes on their part. Hartsink, however, is encouraged by the
formation of the SEPA Council, which is made up of buyside and
sellside firms as well as public sector representatives. "My
expectation is that SEPA Council will stimulate the upgrade of
[implementation] teams at the national level," he says.
Others are less optimistic. Alessandro Rivera, director general of
financial and banking system and legal affairs at Italy's finance
ministry, believes SEPA migration could take up to 30 years. "We
could reach it within 15 to 20 years, but I don't believe this is
tolerable," he stated at the SEPA conference in Milan. Full
migration to SEPA within 30 years may sound a bit far-fetched, but
it is abundantly clear that European policymakers and the banks
underestimated what it would take to get businesses to abandon
existing domestic payment schemes.
The recent financial crisis also helped delay SEPA migration. "The
crisis has led to a de-prioritization of the SEPA project," says
Ruth Wandhöfer, head of payments strategy and market policy, EMEA,
at Citi Global Transaction Services. "At the moment we're in a
difficult dynamic where the financial crisis led to fragmentation
back to national rules, while [SEPA] is really about integrating
one single market in Europe." Gilbert Lichter, CEO of financial
market infrastructure provider EBA Clearing, describes the
financial crisis as lost years for the SEPA migration. "We should
not lose sight of the difficulties that came up during this process
to SEPA," he said.
One of those difficulties was a curveball the EC threw halfway
through the SEPA implementation project when it made it clear that
the EPC schemes should not be the only game in town. "It would be
convenient to just cut and paste the EPC schemes," said EC
representative Michael Thom, "but that does not address concerns on
the user side about giving a private body [the EPC] a monopoly for
retail payments. Will that stop future innovation? And what about
The Commission is under increasing pressure from end-user groups to
ensure SEPA is a market-led, not a bank-led, project. Given these
criticisms, the EC now appears to favor an "essential requirements"
approach, which means that instead of mandating full migration to
the EPC schemes, it will mandate only essential or technical
requirements for SEPA. At SWIFT's annual customer conference in
Amsterdam last October, Hartsink of the EPC said he was shocked to
hear the Commission may allow for alternative domestic legacy
payment systems, "because from the start the message was, migrate
to the same [SEPA] schemes and technical standards." He later
expanded on this, saying that leaving the door open for existing
national payment schemes to become SEPA-compliant would cause
fragmentation and punish early movers.
Despite the plethora of challenges that remain for SEPA, Lichter of
EBA Clearing, which provides infrastructure for clearing low-value
payments in the eurozone, is optimistic about SEPA's prospects.
"Corporates were not coming forward with appetite [for SEPA credit
transfers], but this is now happening," he said. "Only impatient
people are pessimistic about SEPA."