SEPA is (finally) live: 5 lessons learned

Tuesday, 19 August 2014 00:00

SEPA took a long time to implement, but since August 1st it has finally become a reality. Time to reflect and see what this project which took over 12 years to materialize has taught us. SEPA in Review: 5 lessons for the payments industry to learn while we're anticipating upcoming regulations such PSD2, Data Protection, Internet Security etc..


August is typically a quiet holiday month in Europe: shops are closed, parliaments take a break. Not much happens on the domestic front. However, this year, August is quite an exceptional month: as Michel Barnier, EU Commissioner for the single market, stated in his speech on 1 August: “A big part of the Single Euro Payments Area has become reality. In all euro countries citizens have now available a common and simple way to pay at home and across borders: SEPA credit transfers (SCT) and SEPA direct debit (SDD). Faster and safer transfers between bank accounts in the euro area will benefit the European economies at large.“


Twelve Years of Effort 

Admittedly, implementing SEPA took a long time. At least 12 years went by since the European Payments Council (which then represented the European banking industry) started work on realising the vision of a single European payments market where cross-border payments can be processed as efficiently and safely and at the same price as domestic euro payments from one single euro bank account.  SEPA was expected to result in reduced transaction costs, making it as easy to buy or sell goods and services from providers across national borders, thus spurring competition and fostering growth.


This vision has now become reality in 18 euro countries. Non-euro countries will adapt their euro payments to SEPA standards and rules by October 2016. After that date, a total of 34 European countries comprising approximately 500 million citizens and 20 million businesses reap the benefits of a harmonised euro payments area.

Although SEPA is not over yet – follow-up work needs to take place – there are important lessons to be learned from the SEPA experience.


Lesson # 1: Payments are much more complex than generally assumed

Today there are 18 countries which use the euro as sole legal tender. When the SEPA project started in 2002, the area was much smaller since several countries had not adopted the euro yet. But even then, the differences between national payment types, national payment formats and specific national practices in, say, France, Germany, Spain, Italy were significant. Only when discussions started about which particular payment instruments were prevalent in each country, which specific payment types should and could be harmonized on a pan-European basis, which payment types were so country-specific that they should be excluded from SEPA, and how all that should be done, did the enormity and complexity of the project became apparent. 


Lesson # 2: Regulation can provide a much-needed push

For several years, European banks rejected the notion of regulation in the payments market. In their opinion voluntary efforts were sufficient to move the fragmented European payments market towards harmonisation. Although much effort was expended, the process was slow. Communicating the future benefits of SEPA was just not effective enough. As long as corporates and banks could continue to use their current payment arrangements, many stakeholders were reluctant to invest time and resources in starting a SEPA project or driving it forward. So, when the SEPA Regulation was finally adopted in 2012 and set a mandatory “end date” of 2014 for transition to SEPA, it was met with a certain relief: at least there was now certainty. The need to start a SEPA project and drive it forward became obvious.


Lesson # 3: Payments is not just about changes in IT systems

In the early stages of migrating to SEPA, the breadth of the project was severely underestimated. Introducing new payment formats and rules was perceived to be a project for the IT and Operations departments of a bank or corporate only. Moreover, the term “harmonising the payments environment” was often misunderstood as concerning only cross-border payments. Therefore, corporates without or with only few cross-border payments thought migrating to SEPA might take little effort, a few weeks of work at best.  Over time published estimates that migrating to SEPA might take 18-24 months´ effort increased the awareness of the complexity of SEPA.  And slowly many stakeholders discovered that all areas of an enterprise were touched by SEPA – from Sales and Marketing to Legal, Compliance, Human Resources, etc.  – and not just IT and Operations.


Lesson # 4: Regulation can be a catalyst for realising business benefits

Many complaints and much criticism were voiced when the regulatory need to move to SEPA rules and formats became obvious. SEPA was perceived as a cost burden only, a project which no one wanted and no one would benefit from. However, strategic thinkers among banks and corporates soon discovered that the regulatory push had a positive side effect: by introducing new rules and formats one could simultaneously review processes and procedures, re-think business strategies, reconsider platforms and payment systems. Several companies therefore started to retire and replace legacy systems, to streamline processes, set new business strategies, and overhaul and simplify operational procedures. The cost of the mandated changes could be more than offset by the savings which resulted from the overhaul of processes, procedures, and systems.


Lesson # 5:  Complex projects are seldom complete – they must become business as usual 

Although a major milestone has now been achieved, SEPA is not over yet. Much SEPA-related work will continue over the next years. Especially during the run-up to the SEPA end date of 1 August 2014 it became clear that the SEPA rules and specifications contained gaps, lack of clarity, redundancies and weaknesses. Payment types which were originally not within SEPA scope are now being made SEPA-compliant. No wonder that much review, consultation, and discussion is currently taking place. It makes therefore eminent sense to continue to employ staff who were active in the SEPA implementation. Strategically thinking banks and corporate have integrated their SEPA-related efforts into business as usual.


In conclusion, the SEPA project offers important lessons to be learned. These may well be useful when implementing future projects. And these are already appearing on the horizon: the Payment Services Directive 2, Internet Security, Data Protection and others will keep banks and corporates on their (regulatory) toes for years to come.  

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