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I am former editor of The Banker, a Financial Times publication. I joined the publication in August 2015 as transaction banking and technology editor, was promoted to deputy editor in September 2016 and then to managing editor in April 2019. The crowning glory was my appointment as editor in March 2021, the first female editor in the publication's history. Previously I was features editor at Profit&Loss, editorial director of Treasury Today and editor of gtnews.com. I also worked on Banking Technology, Computer Weekly and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Friday 24 July 2009

SEPA compliance by 2010 unlikely

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Two industry reports clearly show that the cost of SEPA compliance is greater than previously expected and banks are feeling the pinch as they effectively spend more money to lose revenue.

European financial institutions are looking less likely to be able to become compliant with the standards of the Single Euro Payments Area by the deadline of the end of 2010. A survey by consulting and outsourcing firm Accenture found that only 37% of organisations believe that their internal platforms will be fully SEPA-compliant before SEPA implementation starts in 2008. Despite much investment in systems, almost two thirds of banks and processors will seek interim solutions to ensure compliance in the run-up to the European Payments Council’s deadline for full SEPA compliance: 27% are expected to use converter solutions, 19% expected to seek solutions from third parties and 16% to develop standalone SEPA compliant products.

The second World Payments Report, from Capgemini, ABN Amro and the European Financial Management and Marketing Association, found that more than four out of 10 of payment instruments will not be SEPA compliant by the 2010 deadline. Although a “critical mass” of SEPA compliant products could be achieved during the migration period starting in January 2008, Bertrand Lavayssière, managing director, Global Financial Services, Capgemini, said that to reach the end game of free product sales needs a migration plan to overcome national differences.

The existence of significant gaps between the SEPA requirements and current national practices means the road to implementation and migration will be challenging. Banking communities will have to define clear implementation and migration plans; while on the European level, the European Payments Council must ensure that the national plans are aligned to avoid a new European fragmentation, the report argues.

The report also found that implementing SEPA may reduce payment revenues by €18 to €29 billion (48 to 62%), which is in line with its findings last year. Looking at different ways that financial institutions could re-coup the revenue losses from payments, the researchers suggested that banks could boost transaction volumes at a higher growth rates than current ones and therefore increase revenues by €8 billion (18%), but said that this will not fundamentally outweigh revenue losses.

“The implementation and migration journey to SEPA will not be easy. Banks will need to address their pricing strategies and sourcing options for payment activities and for some, this will mean strategically repositioning their whole payments business,” said Ann Cairns, chief executive, Transaction Banking, ABN AMRO. “Despite these challenges, the building blocks are now in place to make SEPA achievable. Ultimately SEPA will benefit the payments market.”

Yet financial institutions may feel that the money they are spending on SEPA compliance is going down a black hole — and the hole is getting bigger along the way. Accenture research found that 40% of the bank respondents expect to invest between €11 and €50 million for ACH-type capabilities over the next five years, and 34% said they would expect to spend a similar amount for card processing systems.

Extrapolating these results indicates a total spend on payments capabilities over the next five years by Europe’s 90 largest banks of more than €3 billion, according to Noel Gordon, managing director of Accenture’s Banking practice in Europe, Africa and Latin America. This exceeds a previous estimate from TowerGroup (May 2005) of €8 billion across all of Europe.

“This data indicates that regulatory compliance threatens to overload the industry by soaking up so many resources,” Gordon said. “Several executives indicated in interviews that they were worried that SEPA might actually stifle product innovation — just the opposite of what’s intended.”

The scale and complexity of change around SEPA is taxing banks’ and processors’ IT divisions and restricting investment in new product innovation, said the Accenture report. 60% of respondents said that systems change is now being driven primarily by regulation and SEPA, rather than by competitive market forces. Regulation and standards compliance are the most important internal issue, with several banks claiming 60% to 70% of their new spend on IT resources now being committed to their implementation.

Capgemini’s Lavayssière summed up the effects SEPA will have on the financial services industry: “SEPA provides the right momentum for banks to think about strategically repositioning their payments business. Given costly investments needed to meet SEPA compliance, increasing competition from new players and decreasing payment revenues, banks have to find significant levers to preserve their profitability. Addressing sourcing options and repositioning the payments business within a bank can provide these opportunities in addition to cost improvements.”

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