Banks involved in the creation of a Single Euro Payment Area in Europe must view it as an opportunity to rebuild a payments system from scratch instead of as an overly complex challenge in which applying new standards to an old system will suffice, a new report by Boston-based research firm Celent asserts.
The effort to establish the euro as the standard currency to enable European countries to be more competitive internationally and make it easier to conduct cross-border business represents “complexity unparalleled in any other European vision,” writes Celent analyst Gareth Lodge the report “SEPA Redux–Understanding How We Got Here.”
That complexity has the banks involved in SEPA preparation “buried in the details almost from the outset,” leaving them unable to focus on the bigger picture of what an overhaul of the existing system will mean for Europe, Lodge notes in his report.
Numerous governing bodies in the European payments industry studied the SEPA concept years before the initiative was officially launched in 2008, establishing the European Commission as SEPA regulator. The commission expects to announce in the coming months a deadline for banks and payment gateways to have systems in place to accept euros electronically in cross-border transactions, Lodge, a London-based industry analyst, tells PaymentsSource.
However, banks lack focus because they generally cannot agree on the details, including whether SEPA can succeed and whether the payment system needs a complete overhaul or just adjustments to existing policies, the report states.
SEPA will have global implications. The recent cap on debit interchange in the U.S. was a direct result of similar market interventions first seen in Europe as part of the bigger picture surrounding SEPA, the report notes.
Banks should view SEPA as a step in a process to achieve a broader political vision in which Europe could compete more effectively in other regions of the world by strengthening how it conducts business internally with a strong, single market, the report surmises.
However, governing bodies have varying viewpoints on what a single market would represent in a global economy, with no specific body having a complete system in place that would give it authority to mandate an entire payment-system transformation, Lodge writes.
The European Commission views SEPA as a wide-ranging European issue affecting all countries, while the European Central Bank refers more often to the Eurozone, comprised of 17 countries currently using the euro. Ultimately, some changes that apply to payments in euros also will apply to countries do not use the euro, Lodge writes.
The report points out the European Payments Council represents the interests of the banks and coordinates the industry’s responses to SEPA developments because banks “have to serve all masters” and the issues were growing increasingly complex.
Besides the technical aspects of developing a new payment scheme with SEPA, the payment structures and standards also face a cultural adjustment based on how each country views payment tools, the report states.
Using direct debit as an example, the report notes Germany has an aversion to debt and believes if a consumer owes a company for goods and services, the company should take the money from the person’s account. However, the United Kingdom views direct debit as a budgeting tool for both consumers and businesses to make cash flow predictable, whereas Italy views it as a way for businesses to borrow money against future payments.
Even a debit card, which is more global in nature, has more than 200 specific features used in one or more European countries, but is not standard throughout Europe. This represents one of the more difficult tasks in making the SEPA concept of “meaningless borders” become a reality, the report adds.
Some SEPA debates have called for a third significant payment scheme in Europe to go with Visa Inc. and MasterCard Worldwide because some Europeans view it as a sign of weakness to rely on the two major card companies from the United States and their payment systems, thus diminishing the SEPA goal of making Europe more competitive, the report says.
But financial institutions ingrained in the use of the major card brands have a different viewpoint, Lodge contends.
“The banks don’t believe this is a weakness, and they don’t see a business case for a third scheme. Plus they own parts of Visa and MasterCard anyway and don’t view them as U.S. companies,” Lodge adds.
As anxious as those in the banking industry are to learn about SEPA deadlines and requirements while continuing to try to find a consensus on standards, the same cannot be said of the general public in Europe, Lodge says.
“The European Commission showed its naivety early on when it said European citizens would be so impressed with the new SEPA schemes that they would demand to use them,” Lodge says. “Unsurprisingly, that hasn't happened. Not only do they not know about them, they don't care when they do.”
Because discussions have taken place for 10 years, SEPA has become its own industry with numerous conferences held and books published as it works toward new standards, networks and business models in a European payments system, Lodge wrote.
Growing concern over Europe’s ongoing debt crisis and its affect on SEPA likely would not deter the European Commission from moving forward with the initiative, Lodge says (
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