Friday, May 22, 2009

PSD and SEPA Implementations

SEPA implementation

In particular, there are issues with the SEPA model.

This was illustrated by two questions put to delegates at the start of the IPS 2009 sessions on SEPA implementation, that received overwhelming agreement: we need to create new cooperative models with the involvement of all market participants – banks, users, suppliers and regulators (70%); and we need to widen our vision of the types of services and infrastructures we should provide, such as e-billing, e-invoicing and supply chain data (75%).

Rob Jonker, Senior Product Manager, Global Payments, Deutsche Bank said the SEPA business case for corporates was still very minor. Large corporates do view SEPA as part of a bigger picture and potentially strategic, but the lack of an end date was a problem.

Mario de Lorenzo, Director of Payments Systems, SIA-SSB, said banks’ payments architectures must evolve in order to optimise processes and reduce costs. Standards would enable innovative services to be developed that can increase revenues and reduce time to market.

A key message that emerged from the sessions on SEPA was the need for better communication between banks and corporates.

Ashley Dowson, Chairman of The SEPA Consultancy, said the leadership of the political agenda had “disappeared” during the past few years. “SEPA customers were excluded from discussions for too long and are now too vocal. There must be a balance between banks and their users. Banks need to stretch their budgets to provide the services that are required, but corporates mustn’t request certain services merely to antagonise banks.”

Martine Brachet, Head of Interbank Relationships, Payment Services Division, Société Générale reminded delegates that SDDs were very complex and “there will be many lessons to be learned in November when they become a reality”. She also assured delegates that the French banking community had begun work on SDDs, having recently received clarification about multilateral interchange fees (MIFs). “The French banking community felt it was better to undertake all of the necessary preparation for SDDs before doing things we maybe could not manage.” France has committed to introduce SDDs in November 2010.

The MIF issue was important when it came to SEPA for cards as well. Norbert Bielefeld, Deputy Director, Payments and Securities, European Savings Bank Group, World Savings Banks Institute, reminded delegates of the principles of MIFs. “Interchange was successful in building and developing the cards business. If one of the objectives of SEPA is to have market transformation, you cannot have that without continued innovation. It is very difficult to innovate without investment and without MIFs this will be a real challenge.”

SEPA was introducing a more cooperative approach in the payments industry said Manfred Schuck, Executive Advisor to the Board of Directors at Equens. “Before SEPA was introduced, we had more than 30 different local infrastructures servicing only national markets. There will be a network community in the future comprised of partners. I think the number of infrastructure providers that will survive can be counted on the fingers of one hand.”

Marc Niederkorn, Director, McKinsey and Co, said SEPA would happen – something that a year ago he would have said with more caution. “SEPA will encourage interesting new economic models because banks will need to cut costs and increase efficiency. I think we will see much more outsourcing of operations that are difficult to manage inhouse, which is good news for the banks that can propose centralisation and network management.”

Jad Khallouf, Chief Executive Officer, STET, said SEPA expectations had been mismanaged. “You have to face up to SEPA if you are to survive but it is a huge challenge. Corporates are not ready, not only because of the lack of an end date. Like banks, they are striving to survive in the current economic turmoil.”

PSD Implementation

With the Payment Services Directive (PSD) due to come into effect from 1 November this year, Ruth Wandhofer, Head of Payments Strategy, EMEA Global Transaction Services, Citi, said there were still a number of challenges with the PSD, particularly for banks operating in more than one country across Europe.

“Most banks can tackle the customer communications aspect of the PSD at the last minute, but making the required system and procedure changes is more of a long-term project and some people are running slightly late on this.”

The overriding message that came out of the day was that the PSD cannot be reversed and financial institutions need to deal with it. As Dermot Turing, Partner, International Financial Institutions and Markets Group at Clifford Chance said: “It’s too late to argue about the content of the PSD. What law firms need to do now is help to interpret the PSD in a consistent way that minimises system and client-facing burdens.”

Daniela Umstätter, National Expert, Retail Issues, Consumer Policy and Payment Systems DG, European Commission said she was puzzled that uncertainty remained in the market about the transposition of the PSD into national law. “We are well on track with the PSD. Only one state, Sweden, has a problem with transposition and we will be helping them out. In general, the PSD is a fully harmonised directive, there is no room for interpretation and where there is, we are trying to solve it.”

John Burns, Senior Associate Retail Policy, Financial Services Authority had an uncompromising view: “The industry says complying with the PSD is difficult. We understand that, but the law is there and will have to be dealt with. Saying it is difficult doesn’t get us beyond what the law is.”

The PSD does present difficulties to banks, particularly those that operate in more than one country. Only the UK and Bulgaria have so far issued new payments laws based on the PSD. Concerns were raised about the treatment of leg-out transactions when no currency conversion was involved, what was meant by making funds immediately available, how to deal with late payments, charge codes for corporates, execution times for card payments and the impact of being non-compliant.

Bjorn Flismark, Senior Vice President, Global Transaction Services, SEB said the PSD changes a great deal for banks, imposing rules where previously they were used to doing “what they wanted or what they thought they could get away with”. Complying with D+1 on payments would require banks to consider new business models and how to charge customers in the future. “Those that have relied on float income in the past will be asking how they can replace this.” However, once systems have been changed “at a terrible cost”, banks will in the longer-term enjoy cheaper processing and simpler rules to live by.

Martin O’Donovan, Assistant Director, Policy and Technical, Association of Corporate Treasurers said from a corporate perspective, whether it takes one or three days for a payment to arrive is not crucial; having certainty is. The possibility of corporate opt-outs from certain provisions is being discussed among corporate treasurers and O’Donovan said many treasurers were taking stock of banking services and how they differ from country to country. “We are advising our members to ensure that they understand what they have so they can talk to banks in a meaningful way about opt-outs.”

Changes in law don’t make for a new market, it is business opportunities that do, Dr Thaer Sabri, Chief Executive, Electronic Money Association, reminded delegates. “If the PSD creates opportunities for a deluge of new payment institutions to come on to the market you would have to ask are these business opportunities that banks have left open? Money remitters, merchant acquirers and some third-party processors may all see opportunities in extending services. At the same time, some banks might hive-off their payments businesses and create specialist subsidiaries.”

Participants in the boot camp were left in little doubt that the PSD would have a significant impact on their payments operations. And as Burns pointed out, with countries outside the EU and EEA looking at the PSD, it may well be that in the future representatives from financial institutions elsewhere in the world will be mulling over the same questions.



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