The success of the Single Euro Payments Area (SEPA) is heavily dependent on the speed and quality of national migration and implementation plans, finds this yearâs World Payments Report from Capgemini, ABN AMRO and EFMA. The use of âSEPA-typeâ instruments differs widely across the countries studied and plans must be aligned across Europe to ensure a consistent SEPA implementation in time for the 2008 deadline, according to the study.
While alignment of national plans will be critically important, the report concludes that a âcritical massâ of SEPA-compliant products could be successfully achieved during the migration period starting in January 2008. In the six eurozone countries studied, 85% of all non-cash payments are already made using SEPA-type instruments (some form of direct debit, credit transfer, or card payment). Of those volumes, 13% are already SEPA-compliant, while 45% are not compliant but show a manageable gap towards compliance. The remaining 42% currently fall significantly short of SEPA standards.
The existence of significant gaps between the SEPA requirements and current national practices means the road to implementation and migration will be challenging. Banking communities will have to define clear implementation and migration plans; while on the European level, the European Payments Council must ensure that the national plans are aligned to avoid a new European fragmentation, the report argues.
Banks may stand to lose 38-62% in payments-related revenues (a decrease of EUR18 billion to EUR29 billion by 2010) according to the report. As a result, banks face the challenge of minimising internal costs, upgrading their pricing strategies, and creating incentives (in particular for consumers) to move to more cost-effective electronic payment solutions to preserve profitability.
While some unresolved issues remain with regard to the Rulebooks for SEPA payment instruments, the tools are now in place for banks to start their preparations for the SEPA implementation in January 2008. âThe implementation and migration journey to SEPA will not be easy. Banks will need to address their pricing strategies and sourcing options for payment activities and for some, this
will mean strategically repositioning their whole payments business,â said Ann Cairns, Chief Executive Officer, Transaction Banking, ABN AMRO. âDespite these challenges, the building blocks are now in place to make SEPA achievable. Ultimately SEPA will benefit the payments market.â
The SEPA objective of developing and increasing the number of non-cash payment transactions is yet to be realised, the report finds. The shift towards non-cash payment transactions differs across European countries and there is no overall evidence that European countries are converging towards higher volumes of non-cash payments.
The impact of SEPA is causing banks to carefully consider how they will make the technical and operational changes required to become compliant. Ann Cairns comments: âBanks must urgently analyze the short term impact to comply with the January 2008 agenda both from a regulatory, marketing and operational point of view. They also need to assess whether staying in the payments processing business will continue to be profitable over the longer term.â
Bertrand LavayssiÃ¨re, Managing Director, Global Financial Services, Capgemini adds: âSEPA provides the right momentum for banks to think about strategically repositioning their payments business. Given costly investments needed to meet SEPA compliance, increasing competition from new players and decreasing payment revenues, banks have to find significant levers to preserve their profitability. Addressing sourcing options and repositioning the payments business within a bank can provide these opportunities in addition to cost improvements.â
In its second edition, the World Payments Report 2006 covers nine countries, reviews current national payment instruments and takes a look at their evolution over the last five years with respect to SEPA compliance. The report explores the relationship of cash volumes by country, the number of non-cash transactions and how payments pricing inefficiencies are affecting the payments business.
The 2006 World Payments Report includes hard and soft competition scenarios and a new active scenario that benchmarks European non-cash payments use across countries, where both volume increases and potential revenue opportunities are explored.