Time to unearth the gold of SEPA: Equens - CEO Michael Steinbach
As the largest pan-European payment processor, Equens is leading the market for future-proof payments and card processing solutions. CEO Michael Steinbach explains to Future Banking how to mine SEPA for successful transactions.
To the outside world, it looks like SEPA is done. Within the financial sector, we know better. In eight out of ten cases, the required adaptations were implemented within the payments infrastructures of the individual banks. From an end-to-end perspective, the situation is quite different; SEPA is not yet implemented in applications and sub-applications, and it is quite a challenge to do that because you are touching on legacy systems, where you don't know what to expect. However, it is urgent to take action as non and near banks such as PayPal and Apple threaten to grab an ever larger piece of the cake.
There is also good news: consumers still rely on traditional banks as trusted parties. So with a joint effort it will be possible to overcome the challenges and unearth the gold of SEPA in the way that was envisaged at the outset.
Reconsider the business model
For more than a year, banks across Europe have been seriously reconsidering their business and operating models. The alternatives are to buy software, or to team up with an IT service company that helps to replace existing systems and to implement state-of-the-art applications. However, this is not a structural change, as you still have your SEPA rule book every year, and have to take care of implementing new rules and regulations. A third alternative is sourcing. It is at least worthwhile to consider it seriously in an unprejudiced way and compare it with doing everything by yourself.
140 different SEPA formats
The situation to take action becomes more urgent if we look at how you have to transfer money from one euro country to another via a bank. You have to fill in at least two screens with a lot of information, which is completely different from a domestic payment. This was not the objective of SEPA. Compare this with PayPal, where you can transfer money globally from country to country by filling out just four lines. Then there is the difference in SEPA formats from country to country and even between different banks in the same country.
The landscape here is not harmonised yet because the SEPA implementation guidelines offer room for interpretation. As a result, Equens processes over 120 different SEPA format variants on a daily basis.
Where are the cost advantages?
It was envisaged that within one domestic SEPA area, corporates could use one account for the eurozone; competition would increase and prices for payments would go down. This high-synergy potential with an integrated SEPA area has not taken off from the ground so far. There is still a lot more potential if we start working on a harmonised end-to-end SEPA payment system.
Competitors at the horizon
The last, but certainly not least, point we should pay attention to is the commercial opportunities for banks. In a perfect SEPA world, a bank from one euro country can also offer its services in other euro countries. However, these possibilities are not sufficiently explored.
Of course, there are always exceptions to the rule, but there is still a lot to do. Non and near banks such as PayPal, Apple, Alibaba's Alipay and Facebook are becoming serious competitors to the traditional financial industry, predominantly in payments around e-commerce and m-commerce. Therefore, a comprehensive joint approach out of which banks can then develop their individual propositions is needed, but based on common ground.
Stay in the driving seat
A good platform for take-off can be the Euro Retail Payments Board (ERPB), where banks, associations, the EPC and national banks are represented. The approach and the work plan will hopefully be sufficiently decisive to really improve time to market. If we don't succeed in this, the non and near banks will take over the driving seat.
Still, banks, notwithstanding all criticism, have their advantages and their benefits with the public. With iDEAL, which was developed by the banks, the Netherlands gives a good example of what you can jointly achieve. It is further proof of a service that could be used by the whole of Europe, but unfortunately this is not how Europe works yet.
In other areas, the industry is making some progress. One of the most recent developments is real-time payments, or instant payments. In Europe, the EPC got the task from the ECB and the ERPB to come up with a business model, but there are several surveys that conclude that implementing real-time payments in a bank will be more expensive than implementing the euro. Do we really need real-time payments for low-value credit transfers? Maybe not. But this is the wrong question. We are living in a real-time world where customer demands are instantly fulfilled. The real champions in the payments world don't ask this question, they just provide the service.
ISO 20022 as the global standard?
What one hopes and expects is that the work on real-time payments in the ERPB and the EPC will lead to a standard, and hopefully, the SEPA standard ISO 20022. Then there is a big chance that this also becomes a standard outside Europe, because most of the implementations in other countries are based on it already.
The occasion to join forces
Isn't this also an excellent occasion for banks to structurally change their business model? Last year, Equens changed its organisation fundamentally from a mixture of a functional and country organisation to a complete consistent functional organisation. This enables it to use the company's skills and capabilities optimally; to focus on the clients' future needs, especially in the e/m-commerce world; and to play its role as the trusted partner for handling payments in a seamless, secure and efficient way.
Benefits of a common facility
One example is the routing platform Equens developed last year. Via this platform, it is able to facilitate new types of transactions such as e-mandates, e-payments such as iDEAL and MyBank, and e-identity transactions. The fact that all these different types of transactions can be handled via one and the same platform makes it an attractive and easily to maintain future-proof solution.
Several banks have already contracted Equens as their service provider for e-mandates, benefitting from the economies of scale from a common facility and without having to worry about keeping a complex system up to date.
Bring joint power into action
To reap the full benefits of SEPA, there is work to be done, and the most efficient and effective way to do this is to team up with other banks and/or with a service provider instead of each bank trying to solve each topic alone. The financial industry still has a very strong position. Let's jointly bring this power into action.