Two years after it was introduced, the Single Euro Payments Area (SEPA) has had a truly transformative effect on the European payments landscape. Patrick Kingsland speaks to Javier Santamaría, chair of the European Payments Council, about improving the original scheme and the next steps in payments integration.
Ask Javier Santamaría, chair of the European Payments Council (EPC), how he feels about the Single Euro Payments Area’s (SEPA) progress over the past two years and you’d be forgiven for thinking the EPC’s job was practically over.
“It took a long time – more than ten years of effort, discussion and overcoming obstacles,” he says, “but in the end, I think the result is something to be proud of. The impact has been huge. We are talking about literally billions of transactions now being processed under the same standards and under the same scheme.”
Ask banks how they feel about SEPA and you’d probably get the same impression.
“It was a catalyst for change for banks and their clients,” Rob Allighan, euro payables and receivables product director, EMEA, at the Bank of America Merrill Lynch (BAML), recently told Banking Technology. “SEPA forced them to think about new ways of rationalising treasury operations. BAML saw SEPA as an opportunity for change, and we committed to it right from the start. SEPA has now become the modus operandi for our clients to make efficient euro receivables and payables.”
But resting on their laurels isn’t something Santamaría and his colleagues at the EPC seem to do very well, despite the ringing endorsements. This year, two major new deadlines have been keeping the team more than busy. In February, exceptions granted back in 2014 for certain member states were ended and, on 31 October, SEPA became a reality for non-euro countries.
“It means that euro transactions, even in non-euro countries, will also comply with the regulation,” Santamaría says. “I think we can now say that after 2016, SEPA is a wider reality. Yes, the major effort was achieved in 2014, but these are the following phases needed to fully accomplish the feat.”
A single focus
On top of the new deadlines, the EPC has also been working hard to consult on the existing SEPA scheme. In September, stakeholders from across the European Union (EU) were invited to offer their advice in a major consultation. “We are very much aware of the need to continuously improve our outcomes and schemes with the involvement of all the stakeholders,” Santamaría says. “It’s really important for us to be seen as cooperative not only within the payment service provider (PSP) environment, but also with the users and the overall stakeholder universe.”
One of the major issues discussed at that consultation was how to improve the space between customers and banks. “When firms send in their files, banks need to apply the same standards and implementation guidelines,” Santamaría says. “So far, the implementation guidelines have been optional. We are now considering whether to improve and enhance harmonisation by making that mandatory. So it may well happen that banks and PSPs will be obliged to offer this interface according to the same standard.”
Another topic discussed at the consultation was adding more information to credit transfers. “We are thinking of a procedure where additional information can be sent to the cloud and fetched at the destination. This might sound like a detail but many say it is very important for them to find a solution on how to do it, either by having a standardised interface between banks and customers, or by sending and receiving complementary additional information between the two commercial partners. These are the kinds of things we are now analysing and deciding whether or not to implement.”
The governance model
To match the enthusiasm stakeholders have shown in discussing and improving the SEPA project, the EPC has worked hard over the past few years to develop a governance model that is capable of including as many voices as possible.
“In 2002, we were a child of the time,” Santamaría says, describing the organisation’s earlier model. “The needs and objectives back then were obviously very different. After more than ten years, we felt that things had changed. We were becoming a more mature organisation with different members that knew each other much better. So we decided to simplify our internal machinery and procedures to make the EPC more effective, and become much more transparent and accessible to third parties. The payment ecosystem is a very complex one; it is not just the direct participants that are involved and interested in the outcomes; many other parties are also taking part in the ecosystem.”
So what changes did the EPC introduce to make interaction with these stakeholders easier?
“First, we made the association much more open to accept different kinds of payments,” Santamaría says. “At the beginning, it was only banks and bank associations, but now we accept any kind of PSP as a member of the association. Second, we intensified our channels and our interaction with stakeholders, especially technical stakeholders and solution providers. They are interested in being there at the beginning of the process to be able to deliver what they need to.
“That is a lesson we learned when launching the schemes: the solution providers were not aware of the details and, in some cases, there was a tension. The other part is to bring the EPC closer to end users, which include retailers, consumers and corporates. All of these groups are interested in the work of the EPC because it is relevant to their activities, and to the business of paying and collecting payments. Again, it is very much about creating an open dialogue.”
One of the most important next steps in the harmonisation of payments across the EU is the move towards a real-time, instant payments scheme, which the Euro Retail Payments Board (ERPB) defines as “electronic retail payment solutions” that will be available 24/7/365 and will result in “immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account... within seconds of payment initiation.” The scheme – driven by new technology like smartphones and the rise of electronic commerce – is scheduled to be published in late 2016 and fully introduced a year later, in November 2017.
“I think instant payments will become close to a substitute for cash,” Santamaría says. “We want to make sure the transfer of money is immediate and that it will be available 24 hours a day, seven days a week, all year. As a consequence, payments will be easier and faster, and it will help not only individuals but also business customers improve their cash-flow management, working capital and liquidity management. Instant payments will also be useful because they will spread digital interactions between PSPs and their clients. It is not only good for the final users; it is also good for the payment institutions and their clients. The difficulty lies in making a very large set of parties and stakeholders agree on a plan and a final objective, but we are really aiming to gain from further efficiencies in the payment systems here.”
The end goal
While introducing the instant-payments scheme remains the main focus for the EPC going forward, it isn’t the only thing the group is hoping to introduce in the coming years. “We are still working on what we call the SEPA card standardisation volume,” Santamaría says. “The latest volume, which was published in January 2014, will be implemented in January 2017. The next volume was put to a public consultation recently, and will be reviewed soon and published later this year with a view to implementing it by December 2019. Beyond that, mobile card-based contactless payments are also in our pipeline. We have all contributed to the ERPB and also published a white paper on the topic. Obviously, the mobile payment environment is very complex – there are various different technologies, and a large number of businesses and stakeholders involved in the ecosystem – but we are certainly making progress in that area.”
It’s a daunting list when you put it together and a further sign – if you still need one – that while the EPC may have achieved a large part of its original remit, it’ll be a few more years yet before staff can really start to relax. “Certainly, there might be a temptation to rest on our laurels,” Santamaría says, “but that is a temptation we should quickly get rid of. I think the EPC is more necessary than ever.”