The Single Euro Payments Area is an initiative with big objectives and tight deadlines. But some industry observers say the move to SEPA won't happen soon.
"SEPA has a deadline of January 2008 for the first implementation date, but that will likely be missed, like it was for EMV," said Rob Evans, director of self-service industry marketing for Dayton, Ohio-based NCR Corp. in the Americas. "It will take 15 years, realistically, to get there. And, from a legal perspective, I think the dates are way off."
SEPA aims to "harmonize" payment products and services, in terms of format as well as fee structures and processing platforms, provided by banks in the EU. The EU has about 35 different domestic automated clearing houses, each carrying its own standards and fee structures — similar to the differing fee structures pushed by Visa Inc. and MasterCard Worldwide in the United States.
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For the time being, the average cost per cashless transaction in the EU remains high.
The thinking behind SEPA makes sense: In order for the EU to compete financially with other, more unified, nations such as the United States, it needs a standard processing system. That unification perspective has been proved positive by the economic strength of the euro. Now Europe's SEPA supporters expect a similar strength to fuel card usage in the so-called eurozone.
A single payments area is a logical next step, says Michael Engel, director of business development for Paderborn, Germany-based Wincor Nixdorf International.
"It is expected to boost the economy, because the fees that consumers now pay to other countries, when they make purchases with debit or credit, for instance, that require funds to go from bank to bank, will no longer exist," he said. "It won't cost consumers as much to make cashless transactions; ultimately, interchange and fees for payments will change dramatically."
What is SEPA?
SEPA introduces uniform schemes for all countries in the eurozone, those that use the euro for payment-credit transfers, direct debits and card transactions.
According to SEPA, all retail cross-border payments worth up to €50,000 have to be treated as national payments, and SEPA focuses on both the joining of payment instruments and their infrastructures. But the deadlines are tight: By Jan. 1, 2008, banks must be able to handle both SEPA and existing domestic products; by the end of 2010, banks are expected to use only SEPA schemes. Domestic schemes, therefore, are expected to be either converted or eliminated.
SEPA will make all electronic payments — credit, debit, money transfer or direct debit — the same as domestic payments within a single country. The proposed Payment Services Directive, which provides the foundation for the creation of a single market for payments, provides the legal framework.
But banks have been slow to move on SEPA requirements. And while most banks in the EU say they prefer less regulation, many also believe that it is unlikely that the 2010 deadline will be met without use of legislative powers.
A regulatory push?
SEPA is being pushed by suggested deadlines, not incentives or mandates — a move that will likely lead to delayed adoption, Evans says.
Similar to Triple DES, Evans expects Visa and MasterCard to decide on a date and competitive cost structure for SEPA.
The European Savings Bank Group has openly criticized the European Commission, the executive branch of the EU, for its SEPA vision. The Commission proposes legislation and oversees the day-to-day running of the EU. It has been criticized by ESBG for its haste, where SEPA is concerned.
ESBG, an international banking association that covers about a third of the retail-banking market in Europe, says it's not buying the Commission's claims that the adoption of a single-payments infrastructure will improve payment transactions in Europe.
In early 2006, ESBG released a paper that highlighted the group's perspective on SEPA's shortcomings. First, ESBG said the Commission was too hasty in its plans to "reform" banking in Europe, not fully understanding all of the intricacies that banking institutes and networks have been well versed in for years.
Second, ESBG said the Commission's expectations that SEPA would provide gains and savings in society were completely unfounded: "Neither an impact assessment nor a cost-benefit analysis comparing the costs and savings from SEPA — and the time necessary to realize the latter — has been produced by the Commission so far to provide a solid basis for such a statement," the ESBG wrote in a comment it published in February 2006.
And, third, the Commission's plan to move Europe to a society where cashless transactions dominate is unrealistic, ESBG said. While the Commission claimed that move to SEPA and "the integration of the non-cash payment systems in Europe is the logical follow-up to the introduction of the euro," ESBG said the Commission ignored the important role cash continues to play in Europe, where five out of every six transactions, on average, still involve cash.
"Whilst dematerializing ‘order to cash' processes is an important society project, it does not form part of the current SEPA activities," ESBG said. "The industry has strongly committed itself to deliver the core pan-European payment schemes … within very tight deadlines. Given that this commitment represents a mammoth task in itself, it is at least questionable why the Commission implies that the quoted benefits (which included being a springboard for e-invoicing that could save the EU economy between €50 and €100 by 2010) can be realized by 2010."
| To learn more about SEPA … The European Payments Council is the decision-making and coordination body of the European banking industry in relation to payments |
A vision for a cashless society sounds nice in theory, but makes little sense in practice, Wincor's Engel says.
Money transfers, interchange fees, bill payments, etc., are lucrative revenue streams for banks in the EU, he said. With SEPA, that stream will evaporate, and banks will be looking for ways to make up the income loss. Engel says that loss could lead to increased interest in advanced functions, such as mobile-phone top-up, at the ATM or other self-service device.
"We think there is real opportunity there," Engel said.
But as Evans points out, the cuts in interchange also impact the ATM. He said most banks are gearing up for a 60 percent cut in interchange, since Maestro/MasterCard and Visa are pushing for the lowest overall rate. That will adversely impact the proliferation of ATMs in developing European markets, such as CEE, since independent deployers (and banks, for that matter) aren't likely to place more ATMs if they can't net income from interchange fees.
