SEPA marches on


5 December 2011


With the eurozone debt crisis dominating the headlines, it’s easy to forget that life in the EU goes on. Gerard Hartsink, chairman of the European Payments Council, discusses with Rod James continuing SEPA implementation, the difficulties of getting all finance ministers to sing from the same hymn sheet and how the recent push for greater integration could work to SEPA’s advantage.


A lot can happen in the space of a few weeks, particularly in the eurozone, which seems to be going through a phase of quantum change. November has seen the resignation of two long-standing prime ministers plus a raft of ratings agency downgrades, while countries once thought solid find their bond yields rising to historic highs. What seemed unthinkable a few months ago, that one country or more might abandon the euro or even the EU, now seems a genuine possibility.

The response to these events has varied from country to country. In the UK, a strong current of euro-scepticism is emerging, particularly from the backbenches of the largest political party in the ruling coalition, the Conservatives. In Greece, which faces years of EU-imposed austerity, simmering resentment has spilt on to the streets. The overriding sense, however, particularly among the bloc's most influential countries, is that closer political and economic union is the only way out of the crisis.

French President Nicolas Sarkozy has called for the European Central Bank to become the lender of last resort in an effort to calm jittery bond markets. Germany's Prime Minister Angela Merkel, although reluctant to back that idea, has expressed a strong desire for "not less Europe, but more" to deal with the continent's "most difficult hours since World War Two". This is a view shared by Gerard Hartsink, chairman of the European Payments Council (EPC), who sees projects such as SEPA as integral to achieving greater integration.

"SEPA is even more important now because it reinforces the euro project," says Hartsink. "The changes we are making will lead to a more open market unless public authorities decide to stop the euro, which I very much doubt because of the clear signals coming from the very highest level. The public sector has spoken - we will continue with SEPA even more strongly than before."

"The changes will lead to a more open market, unless public authorities decide to stop the euro, which I very much doubt."

Hartsink is clearly determined, despite the long list of problems SEPA implementation has faced. On the day of our discussion he is travelling from the Netherlands to the EU's Brussels headquarters to deal with the latest of these - an anti-trust investigation launched by the European Commission.

E-payments controversy

Competition commissioner Joaquín Almunia says the investigation will try to uncover whether big players in Europe's banking sector are blocking other companies from entering the standardised e-payments realm. Although the source of the complaint that led to the investigation has not been revealed, it's likely to be a small, non-bank payment provider. Hartsink refutes the allegations and also seeks to clarify certain details included in the Commission press release that brought the investigation to light.

"You see the press release of the Commission and notice that it is missing an important detail," he explains. "In the letter we received from the Commission on the opening of the investigation, the complaint is only that an organisation is not part of one of our working groups and would like to be - nothing more.

"However, the Commission press release on the opening of the investigation also introduces the new concept of 'payment providers' - which are not regulated in the Payment Services Directive - and their access to the market. This is a separate issue. It was surprising to us that, just a day before the start of the EPC plenary session and after months of consultation with the Commission on work in the area of online payments, we should receive this notice from the Commission."

The EPC plenary consists of 74 members representing banks, banking communities and payment institutions in the 32 SEPA countries. Some players in the payments industry have accused it of having a "flawed governance model" made up of the wrong bodies and inaccessible to new entrants.

Hartsink denies this, emphasising the inclusive nature of the EPC's consultation processes. He goes on to suggest that the Commission, through publishing the press release in question, may have had an unduly negative influence on members of the EPC plenary.

"There is a document called 'State of Play of DG Competition of June 2008', which is three pages long and covers the subject of inclusion and consultation," he continues. "We acted according to the rules the Commission set itself, so it's bizarre that, just one day prior to considering launching a public consultation on a draft for a possible e-payment framework, this incomplete Commission press release was published. It caused concern for several of our members, so when the vote to move to the consultation stage was carried out we had some no-votes, abstentions and a few people even leaving the room. The competition authorities should have made themselves clear."

For all the confusion around press releases, there are clear issues to be settled. The EPC plenary decided against the creation of a single e-payment scheme, taking into account the popularity of numerous card schemes and national e-payment channels. At the same time, the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) recommendations, which cover issues regarding the security of payments, stipulate that an appropriate legal basis such as a contract must be in place if a counterparty is to accept the authentication tool of another.

"We are well aware that there are many card-based and local e-payment solutions," Hartsink says. "iDEAL in the Netherlands, for example, has more than 25,000 merchants. There is nothing wrong with this, but some of these groups take a political position that any bank should accept their authentication tools. Of course, banks accept their own authentication tools, card-based or otherwise, and they accept the tools of a scheme they are participating in, but they should not be obliged to accept the authentication tools of a company with which they have no contract. Without a contract it becomes very difficult to manage risk from end to end."

Sluggish implementation

Hartsink concedes that misalignment between the public policies of the different interested parties has led to a slow implementation process. He believes, however, that the nature of the payments business makes it much more difficult to liberalise than other sectors. It is "not a project of banks, but one of society" and hence some difficulties are to be expected.

Hartsink comments: "Mr Almunia gave a speech in Frankfurt in which he said: 'We will open up the payment network for other players.' He also said: 'It's what we did in the telecoms industry and it led to better services and more innovation.' Of course, these are good things, but comparing the payments industry with telecoms is a bit bizarre. Making phone calls from A to B is not the same as moving funds between bank accounts. That's why the public sector was always keen that those who hold the funds of customers - banks and payment institutions - should be heavily regulated to protect the client."

Poor communication can also be a problem. By failing to properly explain the benefits of SEPA and the ins and outs of the implementation process, Hartsink thinks that some public sector representatives do the project a disservice. Some may even be swaying with the prevailing breeze.

"The public sector was always keen that those who hold the funds of customers should be heavily regulated."

"We are sometimes disappointed by the behaviour of the public sector," Hartsink says. "When ministers of finance are in Brussels they are all in agreement, but when they are back home they sing a different tune - not so much to the banks but to the customers of banks. Several governors from the 17 eurozone countries have never made a public speech about SEPA or tried to communicate with business or consumer organisations. So what's wrong? This is the glass-half-empty perspective, but some communities are not telling the story that they agreed in Brussels and Frankfurt."

Overambitious end dates?

On the plus side, Hartsink is pleased with the progress made in certain countries. In Luxembourg, the transition is 100% complete, with Finland expected to be fully compliant by the end of the year. As yet, around 4,000 banks are able to deliver SEPA-based services - an admittedly impressive figure. The EPC will continue to provide encouragement for the laggards, but Hartsink stresses that there is only so much it can do.

"The EPC takes care of rule books and frameworks - that's our job," he says. "Communication, migration, planning and implementation are the responsibility of national SEPA committees, for the simple reason that each model is different. In France and Portugal, for example, the consumer will be faced with the consequences of the regulatory abolition of a transaction-based direct debit fee, while in other countries it's often the reverse. Business models might change as a result of SEPA, and national committees need to be aware."

Ultimately, Hartsink believes, the impetus for change won't exist until a legally binding end date is in place. In a network industry, everybody has to make the transition at once and it is unsurprising that smaller, national banks have been less willing to push the issue than multinationals (who will also have felt pressure from the public sector). Right now, the EPC and European Parliament advocate a single end date for both credit transfer and direct debit, while the Commission is in favour of two separate cut-off points. Either way, Hartsink warns against the adoption of an overambitious time frame.

"The Commission's current proposal is an end date of February 2013 for credit transfer and February 2014 for direct debit," he says. "My gut feeling, based on the position taken by Germany, is that it is better to move the cut-off point to 2014. In the end, corporates, small and medium-sized enterprises, and public administrations will all have to adapt their systems and processes. And let's just say that some countries are not as far along as Luxembourg and Finland!"

On a more confident note, Hartsink believes the differences between the three government bodies will be settled soon and that the end date will be set in stone by the close of the year.

"I spoke to [chair of the European Parliament's Committee on Economic and Monetary Affairs] Sharon Bowles and asked when she thought the end date will be delivered," he says. "Probably by the end of this year, was her reply. If the EPC, European Parliament and the Commission can align... it will only take two or three small steps to solve this issue."

For years banks and legislators have been conscious of the need to set an end date, yet steps in that direction continue to be slow. Even if the date is set soon, the benefits of SEPA need to be better explained for a smooth transition to take place. Renewed political will, particularly on the part of Germany and France, to create a more integrated Europe, could provide the boost the SEPA project needs.

Renewed political will, particularly on the part of Germany and France, to create a more integrated Europe, could provide the boost the SEPA project needs to move forward..
Gerard Hartsink is chair of the European Payments Council.