SEPA became a reality just 1 year ago, on 28th January 2008. On that date, the first real deliverable, the SEPA Credit Transfer was launched. It is now time to look back on a year of operation, and to look forward to the second year and further onwards.
On the positive side, EBA Clearing, the operators of the STEP2 clearing system for SEPA Credit Transfers report that there are now connected to 113 Direct Participants and close to 4,012 Indirect Participants, representing more than 5,260 financial institutions. Thus it provides clearing reachability to 100% of banks in 17 countries of Europe (including Ireland), and over 90% in 12 further countries. Two countries, Norway and Denmark have lower levels of connectivity to STEP2.
The average daily volume of SEPA credit transfers passing through this system in December 2008 was 269,744.
However, across Europe, banks' progress in translating SEPA into services for customers has been slow. There appears to be little enthusiasm among banks to actually bring SEPA services to customers. The slow pace has a lot to do with banks getting very little business benefit from the changes. About two per cent of Euro payment transfers in the Sepa region are cross-border payments, so there is not much of a business case for banks to justify the investment they are going to have to make to adapt their payment systems. Many may see SEPA as a political agenda foisted on them from the European Commission and the European Central Bank, trying to push through an ideal of a united Europe without considering the difficulties of actually having to bring the system about.
As Europe slides into recession and banks’ capital is squeezed, the case for making the required investment is being even further undermined.
To compound the difficulties, it appears that all is not well in the voluntary arrangements put in place by the banking industry to manage the SEPA project. In mid-year, the Secretary-General of the European Payments Council unexpectedly resigned. Subsequent ECB reports show that he did not have available to him sufficient resources for the task in hand. Later in the year, there was open revolt, as the French Banking Federation suspended its participation in SEPA. But as we go to press, there are reports that the interchange issue is about to be settled, with an interim arrangement of 8.8 cents per direct debit. Ominously, it appears that if agreement is not reached soon, then SEPA will be delayed again.
The year ahead
It appears that all countries are on schedule for the transposition of the Payment Services Directive (PSD) into national law. Ireland is no exception, and additionally, it is likely that Ireland will bring forward legislation to facilitate the conversion of local direct debits into Sepa Direct Debits.
The PSD will introduce a fundamental new concept to the payments business:-
Current banking law requires that any institution which accepts and manages customer deposits must hold a banking license. Payment services are considered as ancilliary services within banking.
The PSD requires that any institution (other than a bank or other exempted institution) which provides payment services must be licensed, and the acceptance and management of customer funds in specified circumstances is an ancillary service of that payment institution.
Additionally, the PSD will specify a wide range of conduct of business rules for the operation of payment services.
The SEPA Direct Debit is due to be launched in November. This will provide the capability for banks to offer cross-border direct debits, for both once-off and recurring payments. Over time, all direct debits, both domestic and cross-border, will be transferred to the SEPA procedure.
And the longer term
There is an increasing number of commentators who now believe that the full completion of the SEPA project, including full harmonisation of payment systems will not be achieved in a reasonable timeframe unless a project termination date is set now. Dates of 2012, 2013, and 2014 have been suggested, and 2014 seems to have the widest support. It is possible that if such a termination date is not agreed within the voluntary SEPA project, then the termination date may be imposed by directive.
