November 01, 2006

Just 37 percent of European banks will be ready for SEPA (Single Euro Payments Area) in 2008, according to a survey conducted by Accenture (Chicago) of 47 major European banks aimed at gauging the progress the industry is making with regard to the European cross-border payments directive. However, the 37 percent figure actually is quite understandable given the money banks need to spend to become SEPA compliant, contends Accenture's Antonio Iglesias, senior executive, head of payments for Europe, Africa and Latin America. "Banks are being prudent in terms of undertaking these investments," he explains.

The good news, though, is that there was a marked change among bankers in their attitudes toward SEPA compared to last year. Iglesias notes that the majority of those polled (74 percent) now view SEPA as more of an opportunity than a threat, regardless of the costs involved. "They see SEPA as something tangible, concrete," he says. "We're definitely seeing a better attitude."

Looking Better All the Time

One of the main drivers behind this turnaround is the market itself, explains Iglesias. "Corporates want to simplify their relationships with their banks, and retail customers want the same service levels across Europe," he says. As a result, savvy banks are jumping on any opportunities to improve their payments infrastructures.

In fact, many financial institutions already were preparing to restructure their payments systems, according to Iglesias, but SEPA's appearance is accelerating their efforts. "SEPA is helping the larger banks to justify the cost allocations in their budgets, too," he relates.

There is no doubt that banks are reaching deep into their pockets because of SEPA. Accenture estimates that the top 100 European banks will shell out more than US$3.7 billion to become compliant. According to Iglesias, the larger banks that operate in a mainframe-based environment are consolidating their systems using the same technology and IT operations facilities, while keeping the mainframe-based infrastructure; players in the mid-tier and below are using interim solutions from interbank associations or white label services to deploy more quickly.

In the near term, at least, one approach is not necessarily better than the other, stresses Iglesias. It really comes down to the volume a bank processes, he says. "These interim solutions are valid for meeting compliance in 2008, 2009 and 2010," Iglesias notes. "But these will all disappear when the interbank associations consolidate into larger, more-efficient solutions and players," he adds.

Iglesias points out that despite improved industry preparedness, fears that the new directive will stifle innovation still trouble many bankers. But, "This struggle around innovation is more on the operations side than on the business side since the business side has a more clear vision of the possibilities around SEPA," he says. As a result, according to Iglesias, SEPA should bring together players from IT and the business side. "IT sometimes cannot run at the same pace" as the business, Iglesias says.

SEPA Fallout

  • Euro-zone banks expect to spend more than non-euro-zone counterparts over the next five years on changes to their payments infrastructures.

  • The most challenging business-product change will be implementing SEPA Direct Debit.

  • Only seven of the 15 ACHs and only seven of the 11 domestic interbank card processors in Europe will survive beyond 2010.

  • Domestic debit card schemes are unlikely to exist as independent entities by 2010.

  • Only four national debit schemes out of the current 11 will exist independently by 2010.

  • Consolidation may make market entry difficult for new industry players.

    Source: Accenture

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