At first glance, the Euro-pean Commission’s efforts to create an efficient single European payments area (SEPA), would seem a purely European affair. But increasingly, non-European banks are beginning to feel unease over the impact SEPA will have on them.
The aim of SEPA is to enable Europeans to make payments in the eurozone as securely, quickly and efficiently as payments within national borders. Differences between the levels of service for domestic and cross-border retail payments are to be eliminated by 2010 and banks cannot charge more for cross-border card payments, ATM withdrawals and credit transfers of up to €12,500 than for corresponding national payments. From January 1, this threshold will be lifted to €50,000.
These rules will apply to all banks undertaking euro payments, whether based in Europe or not. The European banking industry set up the European Payments Council (EPC) as the governance structure to guide and implement the SEPA project.
Maurice Cleaves, head of product management for JPMorgan Treasury Services in Europe, the Middle East and Africa, says some of the rules and regulations being set by the EPC about how banks should act in a single European payments area are having an impact on banks and payment businesses outside Europe. “Not all of these organisations understand why certain rules are being introduced,” he says. “Some banks and payments providers in the US and Asia, for example, feel these rules are being imposed where they don’t fit in with local market practice and that is becoming a challenge.”
Iban complications
One concern for non-European banks is the use of international bank account numbers (Ibans) of the beneficiary bank, which must be shown on statements. The Iban is a series of alphanumeric characters that uniquely identifies a customer’s account held at a bank anywhere in the world. Iban, along with the bank identifier code (BIC), are major components in delivering straight-through processing (STP) in the European payments world.
Says Joerg Pinkernell, head of financial institutions payments, settlement and outsourcing solutions at ABN AMRO: “While banks like ABN AMRO process more than 80% of their euro traffic already with Ibans, there will be a challenge for banks from outside the eurozone, where businesses know little about Ibans.”
Mr Cleaves says one of the main problems is that banks often have problems getting hold of the right Iban – there is no central point to find these account identifiers. Therefore, sometimes payments in euros won’t have the Iban and the bank will be charged a fee for repair of a non-STP payment. “Another problem is that there is more than one Iban standard, which is bizarre, given it is supposed to be a single standard. SWIFT could play a role in globalising the standard.”
Mr Cleaves is not alone in identifying a role for the Brussels-based financial messaging co-operative. Jackie Keogh, head of banking markets and solutions at SWIFT, says SEPA provides a “significant opportunity for SWIFT because we are already dominant in the cross-border market and also in high-value payments because of the adoption of SWIFT by real-time gross-settlement systems”.
EC pressure
SEPA represents the biggest transformation of the European retail payments landscape ever, says Ms Keogh. Banks are under a lot of pressure from the European Commission and the European Central Bank to transform payments and clearing infrastructures to make sure customers can get the same level of products, services and prices for cross-border as for domestic payments.
“A key element of SWIFT’s 2006 strategy was to move into the retail payments space and SWIFTNet File Act was one of the tools we developed to enter that space. We also have a working relationship with the EBA; we are an infrastructure provider for Step2, which is the first European system to comply with the SEPA requirements for credit transfers.”
Mark Davies, director of international product management, Royal Bank of Scotland, says there has been some concern about whether the EPC has the resources to manage the changes being introduced, which is an area in which SWIFT could potentially play a role. “SWIFT has the resources and experience with security, standards and running a major network. The fact that SEPA schemes will be separate from the infrastructures potentially plays into SWIFT’s hands to provide the infrastructure over which these schemes can be run.”
SWIFT became involved in the high-value space about nine years ago and there are now roughly 30 RTGS systems using SWIFT standards and infrastructure, says Ms Keogh. Many banks are members of 10 or more RTGS systems and are able to use the same infrastructure and standards, regardless of the geography in which they operate. Ms Keogh says this has been a big help for banks and that if SWIFT can replicate its high-value payments role in the low-value space it could “realise huge cost savings for the industry”.
Target2, the euro settlement system, is using a combination of SWIFTNet infrastructure, FIN MT standards and some of the new XML message standards, many of which are for real-time reporting, which is a huge enhancement to RTGS systems, says Ms Keogh. The new standards will help the systems to increase the regularity and quality of their reporting.
SWIFT is also playing a major role in standards development for SEPA, having been chosen as the standards authority for the development of SEPA-compliant standards. The co-operative has already developed the MT103+ and new XML standards for credit transfers, and has signed a MoU with the EPC to develop new XML-based standards for direct debits, which will be introduced by the EPC at the end of next year.
Eric Sepkes, vice-president and director of global financial institution strategy, Citigroup, says SWIFT’s primary role with regard to SEPA is on the standards side. He does not feel there is a wider role. “SEPA is a European issue and therefore involves a smaller group of banks than SWIFT represents as a whole,” he says.
Eric Sepkes: SEPA is a European issue so SWIFT does not have a wider role
ABN AMRO’s Mr Pinkernell agrees: “SEPA is a very euro-centric discussion and I don’t think the European Commission will allow non-eurozone interest groups to have a major influence, other than raising some concerns. Would the US Fed allow people outside of the US to influence US regulations?”
But not everyone agrees with these views. “The EPC was set up for a specific need – to organise European banks for SEPA. SEPA is now encroaching outside Europe and the ability to discuss these issues globally may be welcomed by some banks,” says Mr Cleaves. SWIFT, with 7500 member banks worldwide, provides a global forum in which to discuss such issues.
SWIFT’s goal in the high-value payments area is to reinforce its strong position as a standards body and infrastructure provider, says Ms Keogh. “In the retail market, we are looking to help the market capture the benefits the high-value market has taken for granted. We are at a different stage of development in the two markets; there is more common ground in the high-value area than in the low-value area.
“Most RTGS systems are owned by the central banks, which have a good record of collaboration, whereas on the retail side the ACHs tend to be owned by groups of banks and are more commercial organisations. They are less driven by a common spirit and goal.
“SWIFT hopes to bring its idea of community into that area and will look to help banks converge their thoughts in this space and act as a facilitator.”
