SEPA: a race against time

9 December 2013

With the SEPA end-date just around the corner, banks are being urged to ensure that they have the right infrastructure in place. Ross Davies talks to SEB’s Paula da Silva, head of working capital management and deputy head of transaction banking, about best practices and the need for the industry to keep its finger on the pulse of new technology.

It's occasionally difficult to discern whether the much-discussed topic of the Single European Payments Area (SEPA) is a font of optimism or dread for the banking industry.

The deadline for SEPA migration, by which corporates and banks in the eurozone are obliged to migrate and consolidate their payment processing systems on a common platform, looms ever closer - 1 February 2014, to put a fine point on it.

Yet, as has been reported by Future Banking on a frequent basis over the past few years, adoption figures remain negligible. According to data collated and released by the European Central Bank (ECB) in May, credit transfers in Europe stood at 43.7%; direct debits accounted for a paltry 2.7%.

"Banks need to continually look at the best ways of integrating their infrastructure."

The ECB will be crossing their proverbial fingers that there will be a late surge in implementation and the phasing-out of legacy systems. For those that don't, the price could be particularly deleterious. While there is no legal penalty for those that go beyond the deadline, corporates that do so risk being unable to make or collect payments, as well as incurring processing costs.

Some figures have ascribed the dilatoriness to a case of the corporate community simply not knowing where to begin, particularly with regard to investing in the right technology. Worse still, there are misgivings that some financial institutions - particularly SMEs - have scant awareness of what the basic concept of SEPA actually typifies.

Outsourcing SEPA transactions

One option players have is to outsource their payments processing and make use of external technological support. Leading Nordic corporate bank SEB did just that back in 2009.

By partnering with Equens, the pan-European payment processor, it has already successfully outsourced all of its SEPA direct debit transactions.

"When we signed an agreement with Equens back in 2009, it was a major investment," says Paula da Silva, head of working capital management and deputy head of transaction banking at SEB. "Taking that decision has definitely made us more flexible today, meaning that we are fully SEPA-compliant."

The same can't be said of some of SEB's competitors. The group is also in the enviable position of having a strong presence in Finland, the continent's leading SEPA exponent; the country completed its migration to credit transfers across the board in October 2011.

Its success is widely attributed to getting an early start in the process and a readiness to accept common standard solutions and continuous dialogue between all players concerned, including the Federation of Finnish Financial Services (FFFS).

"We take great pleasure in having Finland in the group, given how well the country has adapted to SEPA," states da Silva. "This has allowed us to gain a lot of early ground in understanding the need to transfer data into the required XML format."

Investments in payments processing

But it would be misleading to accuse SEB of managing to stay ahead of the curve through fortuity alone. Under the pragmatic custodianship of CEO Annika Falkengren - who was recently voted European Banker of the Year - the group has been lauded over the investments it has made in its wider payments processing infrastructure.

SEB also makes use of a shared services centre in Riga, Latvia, opened in 2006. As well as providing business support services to customers spanning nine countries, it was established as a means of ramping up efficiency through standardised processes and competence centralisation.

"The field of mobile payment, in particular, continues to grow in sophistication."

"It's incredibly important to have a good and smooth-running process," says da Silva. "Sending our payment operations to Riga, which we did a while back, has continued to give us a fantastic opportunity to leverage that. Banks - and this doesn't just go for SEB, but everyone - need to continually look at the best ways of integrating their infrastructure."

Make mention of infrastructure and you cannot overestimate the importance of innovation. Yet, while technology gathers apace on a macro scale, the banking industry has been accused by some of shilly-shallying in implementing the best architecture.

In a recent interview with Future Banking, Jean-Francois Groff, one of the early pioneers of the web, and CEO of mobile payments company Mobino, stated: "The IT revolution exists in a more advanced state, outside the banks, and I think they are experiencing difficulties in reconciling these two networks. There's a concern over privacy and secrecy, and proprietary networks within the banks, not to mention relationships between them and the regulators."

Mobile future

That's not to say that the industry is in the midst of technological stasis. The field of mobile payment, in particular, continues to grow in sophistication - customers can today use their smartphone cameras to deposit funds.

It's a development that hasn't escaped SEB's attention, as da Silva explains. "There is no doubt about it - mobile is the future," she says. "So, we do offer apps, such as Mobile Bank, which can be downloaded onto your iPhone, Android and Windows Phone, and through which you can check your account balance, make domestic payments and view e-invoices. We've been proactive in this area."

Mobile's value also lies in the interaction it can create between banks and their clients. But, this in turn, has also prompted concerns over potential security breaches, particularly when it comes to voice biometrics.

New technology

In response, SEB makes use of a security device, Mobile-ID, through which customers can log into their online banking using a digital signature.

"It's not all about voice biometrics," says da Silva. "Validation can come through thumb or eye contact, but the point is that the mobile area is becoming increasingly sophisticated, especially with new camera technology on the horizon. This allows easy access for customers and is something that banks should develop together."

According to da Silva, the greatest challenge for SEB has been the emergence of non-bank payment players such as PayPal and Google Wallet, which operate outside of traditional banking regulatory frameworks.

"It’s not all about voice biometrics; validation can come through thumb or eye contact."

"The regulatory climate is slightly skewed right now," she claims. "Players such as PayPal, which don't have banking licences, are not being regulated in the same way that we are. It's an issue, because, ultimately, it's to the detriment of banks."

So, are banks in danger of being outflanked by said mobile network operators and companies?

"At the moment, we aren't keeping up with them," da Silva answers. "It's a major issue - not just for us, but the entire banking industry."

Whether it's migrating to the SEPA platform or developing mobile payment and wallet services, banks will have their work cut out over the coming months. And with 1 February fast approaching, many players would do well to follow SEB's lead and invest accordingly.

Paula da Silva is head of working capital management and deputy head of transaction banking at SEB.