Major European banks can profit from Europe's new cross
border payments system if they overhaul their core legacy payments
systems.
But uncertainty about the level of demand for the
Single European Payments Area (Sepa) payments among European
businesses will limit the number of banks prepared to upgrade their
IT systems.
Sepa makes cross border payments in Europe as straightforward as
making a payment within a country. It was
introduced in January last year and will become a legal
requirement for payment processors in November. From 2 November
this year, all companies that process payments will have to have
embarked on SEPA compliance.
A combination of harmonising the payments market through SEPA
and using SEPA as a platform for e-invoicing could lead to savings
to European businesess of £268bn over the first six years,
according to a European Commission study published last year.
Banks, which will have to offer customers Sepa services, are
taking one of two tracks. They are either overhauling their
payments systems to process Sepa payments for themselves or
are planning to use white label services provided by other
banks.
But comprehensive research carried out across Europe by
financial services think-tank, the Financial Services Club, has
revealed uncertainties about Sepa and the potential demand for SEPA
services.
According to the study, only 13% of over 350 global payment
professionals believe Sepa is being implemented correctly. It also
revealed inconsistencies about how the system, which aims to make
cross border payments seamless, is being implemented by individual
European states. And at least one large European bank said its
major customers do not make cross border payments services.
Chris Skinner, chairman at the Financial Services Club, says
Sepa compliance will be as challenging as the arrival of the Faster
Payments system in May 2008.
"Most banks do not have the budget to overhaul payments systems.
The majority will just have the systems in place to receive SEPA
payments but will use other banks to process them."
He says it will be a fee earner for some banks.
Banks investing in Sepa payments processing systems include RBS,
ING, Deutsche Bank and Citibank.
IT services firm Logica has provided consultancy services for
Deutsche Bank on its Sepa project. Simon Bailey, director payments
and transaction banking at Logica says the German bank
re-engineered its entire payments infrastructure to offer Sepa
transactions as a service. The bank has re-used many systems but
made them Sepa-compliant, he said. And it is linking other banks to
its Sepa processing systems to support its outsourcing of Sepa
transactions.
Bailey says uncertainties over the payment volumes are making it
difficult for IT planners to create Sepa strategies. Volumes have
been lower than expected and when they will increase is unclear.
"There is a lot of uncertainty about the volumes of Sepa payments
that will be demanded. Banks will not be cost competitive if they
cannot get large volumes."
He predicts most of Europe's banks will outsource payment
processing, unless payment volumes grow.
Claude Roeltgen, CIO at BayernLB - a small bank based in
Luxemburg - says the bank will use the Sepa services offered by
other banks. He says smaller banks have to specialise in adding
value through advice rather than high-volume payment processing.
"Sepa will have a big impact on banks that do a lot of processing
but we are not doing anything ourselves."
Michael Mueller, managing director of wholesale solutions,
global transaction banking at Deutsche Bank, says meeting Sepa
compliance places further strain on legacy technology for many
banks.
European legislation is complicated at the best of times.
Changing legacy systems at large banks is likewise challenging.
Combine the two in this case and you need a payments business IT
strategy that pans five years.