Slow Credit Transfer Migration Could Delay Sepa
April 28, 2008
Three months since European banks were to move credit transfer payments onto the Single Euro Payment Area (Sepa) system, progress has been slow and observers are asking whether the initiative could be held back.
Sepa, which is intended to harmonize cross-border payment schemes for eurozone countries, is scheduled to be fully in place by 2010--national systems are running in parallel with the new infrastructure for two years to ease the process. Direct debit services, initially slated to go live with credit transfer payments, were delayed due to some European Union members' late adoption of the Payment Service Directive.
"The biggest issue for direct debits is mandates, or authorizing the debits," said Nancy Atkinson, analyst with Boston-based Aite Group. "Sepa is transferring responsibility from banks to corporations to manage and store debit mandates. Pre-Sepa, most debtors provided mandates to their banks to debit their accounts and pay the creditors at the creditors' banks. Under Sepa, the relationship becomes similar to the direct debit scheme in the U.S."
Thus far, midsized U.S. banks may have encountered more difficulties than banks in the eurozone. "Some of the regional U.S. banks have found some surprises," said Atkinson, "mainly because they weren't really prepared for Sepa and didn't realize the full consequences" of having to supply international bank account numbers (IBANs) and bank identification codes (BICs) for payment transfers. Many have been hit with customer fees: "If you don't send the right information, the receiving bank has the right to charge a penalty," she said, usually in the form of a per-message charge.
JP Morgan Chase & Co.'s treasury services unit, in a January 2007 research note posted on its Web site, said that according to the Interbank Convention on Payments (ICP), "the intermediary bank receiving payments or the beneficiary bank is entitled to charge for the additional work resulting from transactions that do not meet the ICP's prescribed standards. ... These charges will be passed on to the corporate customer."
Some in the industry fear that eurozone transparency could foster fragmentation outside of it. "I keep seeing signs of fragmentation that are troubling," said Roy DeCicco, JP Morgan's SVP of industry issues and payment systems, at the Swift Operations Forum for the Americas in New York this month. "I think the market participants in Sepa have done a fantastic job. But the global initiatives they have are focused on Europe."
"Beyond the introduction of Sepa and the credit transfer and the direct debit, the EPC [European Payments Council] e-invoicing working group is focused on rules and standards for Europe," added DeCicco. "I wish this could apply for all global markets, because some of what they're doing will clearly have play in the U.S. market, the Asian market and so on."
One criticism leveled at the EPC, the industry group created to support Sepa implementation, is that the corporate treasurers on whom the initiative's success depends were not brought into the process early enough. Banks engaged corporate clients only after system design had begun and technical solutions had been put in place.
Twist Billing Standard
As Sepa moves ahead, Twist, or the Treasury Workstation Integration Standards Team, an organization in which corporate users have had a much greater role, has been adding functionality to the payment space. Barclays Bank recently became the first U.K. bank to use Twist BSB 3.1, a protocol that allows the bank's customers to confirm fees electronically. Denmark's Danske Bank in September adopted BSB, or bank services billing.
