Introduction
The whole payments sector is experiencing an unprecedented rate of change, bringing considerable flux and undermining traditional models. New technology is proving a catalyst, so that existing participants, including the banks, are struggling to keep up. Plenty of new players have made their mark or are trying to do so, whether Paypal in the e-commerce space, would-be rivals to Visa and MasterCard, mobile operators, or niche payment specialists seeking to harness new models and technology. How is this all panning out and what is it likely to mean for providers and consumers?
Regulations
Regulators across the globe have been scrutinising the payments market for some time, not only from the perspective of high- level competition but also with regards to more granular aspects of this including customer service, complaint handling, chargebacks, fees, and terms and conditions. But are new regulations accelerating the changes, holding them back or having little or no effect? It depends which area of payments is under discussion. In some, the regulatory efforts appear unable to keep up. Rapid change is being driven by market forces – consumer requirements, supply and demand – not by regulators. It is through this route that we might reach the ideal of an efficient, transparent, borderless payment scheme across e-commerce in all its different forms. ‘So it’s Paypal for everyone,’ as one banker has observed. How about SEPA? More or less everyone understands
the theory of SEPA but as the reality continues to unfold, often slowly, it seems there is increasingly a disconnect. It involves around 7000 banks and over 25 national payment transaction systems, with many national formats, supporting around 75 billion payments per annum, according to the European Central Bank (ECB). There are also ERP formats and client-specific ones. Ultimately, it is intended that making and receiving euro payments both within and across national boundaries should be as easy, reliable, competitive and efficient as current national payments. Strategic goals include increased competition, with lower prices, greater European leverage and the potential to consolidate accounts across Europe.
The European Payments Council (EPC) defines and implements the SEPA instruments and standards, through tools such as rulebooks, data formats (based on ISO 20022) and implementation guidelines. The European Commission and ECB monitor and facilitate SEPA, including through the
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harmonised legal framework as embodied within the Payment Services Directive (PSD). Ironically, on the one-hand, SEPA looks to be a hindrance to
progress. First, there are the cost implications of compliance, not only related to becoming compliant in the first place but then keeping up with the arduous changes to standards and rules. The dynamics and impact of SEPA for the banks can be viewed in monetary terms. The ECB, in August 2007, estimated the short- and medium-term investments would be between €5.2 billion and €7.7 billion and at the same time predicted that payment revenue after 2010 was likely to decline by between €18 billion and €29 billion. The costs would come from replacing or changing domestic core processing systems, replacement of card bases, and adapting accounting engines. All in all, the SEPA regulations and related infrastructure investments were predicted to result in a five to ten per cent margin reduction.
In terms of staying compliant, the lack of standardisation is also a cost burden. For instance, Equens has to deal with different interfaces and processes, and it identified 200 formats for SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD). That means cost, so too the ever-moving nature of the target. ISO/XML standards are updated every year, so too the EPC’s rules. The updates hit at different times and there is no fixed schedule. Equens estimated that the annual effort to stay SCT and SDD compliant is 10-15,000 man-days apiece. Within one clearing and settlement mechanism (CSM), SEPA is now commonly referred to as MEPA, with the ‘M’ standing for Multiple. It places a big burden on processors, even more so on individual banks which cannot spread the cost across multiple users. Another significant SEPA issue is that the payments landscape onto which SEPA is being mapped is a widely diverse one. For direct debits, for instance, Germany has heavy reliance; for cheques, France still has large numbers; and credit card usage is much higher in the UK than in many other countries. There are marked differences in the number of transactions per person and in the rates of growth as well as in the payment systems, standards, rules and formats. In many countries, the credit transfer and direct debit schemes that were intended for closure were far more functionally rich and less expensive than the SEPA equivalents. Relatively sophisticated countries such as Austria and Finland have certainly found that their national formats for end-to-end domestic payments are more capable than SEPA. Another significant difference between countries is the
source of payment-related revenue. According to figures from McKinsey, a whopping 37 per cent of UK banks’ fees in 2008 came from penalties and incidents, compared to 18 per cent from maintenance (annual or monthly fees) and 45 per cent
Payment Systems & Suppliers Report |
www.ibsintelligence.com
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