Securities Services

Progress on implementing the Single Euro Payments Area (SEPA) has stalled. Many in the European banking industry are awaiting the SEPA end date regulation, which promises to confirm the deadline for migrating domestic payments instruments to SEPA, before readying themselves for the change. Yet this narrow deadline-focused vision fails to acknowledge that SEPA presents a major opportunity for European banks, although also a potential threat.

Certainly, SEPA will reshape the market and, post SEPA, all participants will need to re-establish their market position in the payments industry. Volatility in the eurozone has supported those financial institutions lacking urgency when it comes to implementing SEPA payment tools. The focus of banks has legitimately turned towards their balance sheets rather than enabling SEPA payments. However, institutions must recognise that progress towards standardised payments will continue unaffected by the ‘financial crisis’ — making waiting for a resolution to the eurozone crisis a risky tactic with respect to the long-term prospects of their payments processing business.                                   

Undoubtedly, SEPA migration will lead to considerable costs, consisting of administrative expenses, training of staff and heavy investment in technology with the capacity to support SEPA payment instruments. And of course, some banks may be unable or unwilling to meet these costs in the current climate. In such cases, finding a suitable global banking partner — one that possesses the technological expertise and SEPA know-how to assist in developing strategies and deploying payments solutions — will become essential if they wish to remain competitive.    

New competition , new strategy                                               

In fact, SEPA is likely to herald increased competition by lowering the barriers for non-bank payments institutions to enter the market. The lure of high-value SEPA revenue will attract new players, which could result in banks that are unprepared for SEPA being reduced to providing the least profitable services such as compliance and settlement. And it is these ambitious new institutions that pose the greatest threat to the traditional role of banks in this area. Thomas Egner, a director at Commerzbank and the bank’s representative at the European Payments Council (EPC) Plenary supports this view — stating that: “Given that there are numerous institutions in the market that regard SEPA as an opportunity to win market share, banks that delay their SEPA migration may find themselves unwittingly helping others achieve that objective”.                                   

 

Of course, migration is a complex process (another reason many delay). Given this, it is vital to choose a banking partner with the expertise to advise on both the wider SEPA strategy and the nuances of adoption. Some banks may choose to acquire their own proprietary systems to process payments in-house. While others may seek to minimise costs and risks by outsourcing SEPA migration to the banks with the technological capabilities of providing efficient SEPA Credit Transfer and Direct Debit services.
 

Certainly, those European banks committed to SEPA and with the weight and reach to develop the technology required for efficient migration — including Commerzbank — have taken the lead with respect to offering other financial institutions their experience and expertise for SEPA adoption. Those that don’t want the lead should weigh the various options, but should not ignore the inevitable march towards SEPA adoption. SEPA will make the market more competitive and banks who fail to act risk their futures as leading payments providers to the more forward-looking competitors now entering the market.