Europe's banks face operational risks and compliance headaches as the European Commission mulls over end-dates for Sepa migration
BRUSSELS - The European Commission is looking to reset deadlines for complete migration to the Single Euro Payments Area (Sepa), which is still mired in its implementation process and lacks enthusiastic compliance from the payments industry.
The Commission's new consultation document considers setting new end-dates for Sepa migration of existing payment products - credit transfers were introduced on January 28, 2008 and the November 2 direct debit deadline is fast approaching.
"Significant progress has been made on the road to Sepa since 2002, but migration remains slow," said internal market commissioner Charlie McCreevy. "We should therefore assess whether some deadlines should be defined for the migration to the new Sepa credit transfers and direct debits."
One of Sepa's aims - passed through its legislative vehicle the Payment Services Directive - is to open up the European Union's internal market to increased competition by making cross-border payments free and fast.
The Commission's paper says the European Payments Council (EPC) initially expected a critical mass of credit transfers and direct debits transactions would migrate to Sepa before 2011.
In March, credit transfers represented 2.9% of the total of credit transfers in euros in the eurozone - revealing Sepa-compliant methods are only being used for cross-border payments.
"One of the main reasons for this slow uptake is the lack of a Sepa end-date," says Richard Davies, director of payments products at UK IT firm Logica. "Most banks are still running both Sepa and domestic operations, and opt for quick-fix solutions rather than a long-term strategy for gaining competitive advantage through a modern, flexible and compliant payments architecture."
Overhauling industry infrastructure to allow Sepa-compliant payments will require huge investment by banks, which will need to make systems compatible with technical requirements by whatever end-date is decided upon.
By setting a fixed end-date to migration, the EU is effectively turning the heat on those banks refusing to confront the costs of Sepa and resisting complete migration.
"Banks failing to provide competitive Sepa offerings will quickly find themselves losing their corporate clients," says Davies at Logica. "Institutions that can offer a range of value-added services for Sepa direct debits, however, will be best placed to win a lucrative share in the corporate market."
Reputational risks of falling behind also exist. Those banks ahead of the field can outsource their successful Sepa-compliant services to smaller firms unable to comply, increasing their market share.
Those firms caught in non-compliance will ultimately confront the biggest costs. "The costs of constantly updating, running and maintaining separate systems should not be underestimated," says Davies. "Most importantly, dated systems are not designed to cope with shifting regulations such as Sepa."
"Ultimately, it's up to the EU and the EPC to define the Sepa end-date," he says. "Outlining the full conversion to Sepa instruments will move things forward, ramping up the chances of the initiative's success, and supporting the banks in creating a stable and transparent payments environment.
"It's important for banks to bear in mind, however, that resources and suitable solutions in the marketplace are finite; if they leave their compliance obligations to the last minute, they will struggle to meet the deadline."
The Commission says it wants feedback from all relevant stakeholders by August 3 before setting final migration deadlines.
Click here to read the consultation document.
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