Three years after the transposition of the Payment Services Directive and implementation of the Single Euro Payments Area, European payments professionals answered questions on their transition. Chris Skinner, chair of The Financial Services Club, shares the survey’s findings.
For the fourth year, the Financial Services Club ran a survey of payments professionals worldwide to see how successful the implementation of the Payment Services Directive (PSD) and Single Euro Payments Area (SEPA) have been since the PSD transposition in November 2009 and implementation of SEPA's full programme of credit transfers (SCTs) and direct debits (SDDs). The survey ran between March and April 2012, and was undertaken by 355 participants across 53 countries.
Exploring SEPA developments in the EU
For the past two years, the EU has suffered issues due to sovereign debt exposures in key nations. The survey opened with the critical question of whether the EU will survive or fragment. 6% of respondents felt it was as strong as ever, and 42% agreed that, although it was struggling, the Economic and Monetary Union was as strong as ever.
The views on the future of Europe were more positive this year, with just under half of all respondents voting positively, a 2% rise on 2011. Similarly, when asked how important the euro is as a currency to Europe's future, two thirds of survey respondents (67%) stated that it was either critical or very important to Europe's future.
Notably, the number of people voting that the euro was critical to Europe's future rose to 25% from 17% last year, although the general quantity of votes was around the same, with seven out of ten survey respondents consistently voting that the euro and an integrated payments market were critical or very important to Europe's future.
Europeans and UK citizens were divided on this point, with Europeans overwhelmingly believing that the euro as a currency was critical to Europe's future: 87% voted that it was critical or very important to Europe's future compared with just 49% of UK respondents. Taking out the UK votes, non-eurozone respondents were also less supportive of the euro than eurozone respondents, with only 19% of the countries outside the eurozone believing it is critical to Europe's future compared with 44% inside the eurozone.
Impact of the PSD and SEPA
In the second section, the views of participants with regards to the implementation of the PSD and SEPA were tracked. Almost half of this year's participants (49%) believed that the PSD has had no impact as yet.
Regarding the revision of the PSD - the text is currently under review - we asked which areas should be prioritised and four came out as key: a move to same-day payments (D+0); forcing public authorities to adopt SEPA instruments; policing the implementation of the PSD; and ensuring the PSD text is transposed accurately by member states.
Interestingly, the banking community had a slightly different view to the non-bank financial institutions and payments processors on D+0 real-time or faster payments, with banks voting that real-time payments were important for client servicing needs. Payment processors, however, felt this was important and voted that real-time was more important to increasing cross-border commerce.
Surprisingly, the banking community is less positive about SEPA this year than it was in 2011. What this clearly demonstrates is that most people involved in payments are unsure of where and what SEPA is achieving right now.
The payments markets will be forced to migrate to SEPA, thanks to the end date. In February 2012, the European Parliament set a deadline of 1 February 2014 for changeover to SCT and SDD for all member states using the euro as their currency, and 30 October 2016 for non-euro member states. Therefore, when asked when the SEPA vision of all eurozone payments transactions being processed as though they were domestic would be realised, almost half (46%) believed this would be between 2014 and 2017.
As this is the first survey since the European Parliament voted overwhelmingly in favour of adopting the SEPA end-date regulation, we would have expected a higher vote for the SEPA vision to be achieved between 2014 and 2017.
So, will SEPA end dates make a big difference to its success? 47% of respondents believed they would, while 16% thought not; last year, 50% thought end dates would make a big difference, while 22% thought not. The change in the vote during the past year shows a distinct move among respondents to the 'maybe' camp, which implies that the introduction of end dates is still questionable.
The third section of the study reviewed the relationship between banks and their corporate clients in light of the financial crisis and the implementation of the PSD and SEPA. We began by asking whether SEPA had had an impact on corporate payments efficiency and processing. 74% of respondents felt that SEPA was having a positive effect on corporate-to-bank payments processing, an increase of 5% over the 2011 study.
When asked if banks understood their corporate customer's needs, 68% of respondents said 'yes'. Here, there was a clear dichotomy of views, with over 87% of bank respondents thinking that they really understood their customer's needs compared with 65% of non-bank respondents. Perhaps most surprising was the extreme positivity of the banking community, with 83% saying they understood their corporate client's needs, and 58% feeling there was no improvement required in their understanding.
Looking at bank relationships, we delved a little deeper to see whether their services met customer needs generally, by asking if banks' business models for payments processing met customer needs. Not surprisingly, banks thought they did and non-bank respondents thought not; however, the disparity was not just large, but significant, split half and half.
A particularly noteworthy comment made the point that banks' business models have their roots in the middle of the last century, before mass migration of labour and the internet. Fast growth in e and m-commerce, the ubiquity of global mobile communications infrastructure, and consumers with massively changed expectations driven by technology will demand new business models.
This led to the final question in this section: which area has the highest growth potential for bank services? Again, banks and non-banks gave strikingly different answers. Banks highlighted services to improve the efficiency of collections and payments processing, and additional information services such as real-time alerts and reporting, reconciliation data, forecasting as priority. Non-bank payments processors agreed, but also ranked driving down the cost of processing as key.
The final section discussed different aspects of liquidity risk. As most of these questions related to banks rather than non-banks, this section purely provided the views of the banks to these areas.
Over half the banks said that liquidity mattered more today than ever before due to balance sheet pressures within both banks and corporates, along with a third citing regulatory change as key.
If liquidity management is key, do banks know their future financial exposures in the case of a liquidity shock event? Seven out of ten banks said yes, and they are able to do this. 15% are reporting liquidity in real-time, another 12% have automated this area, while another 15% can find the answer, but it is not automated or easy.
The final question of the survey followed through further on liquidity by asking if banks could quantify their intraday exposure to individual counterparties during the day. Again, 69% answered the question positively, with one in ten able to do so in real time and two in ten through automated solutions. This is also strikingly different to last year's survey, where 82% of respondents answered the question positively, with four in ten saying they were able to do so through automated solutions.