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SEPA promising more than it is delivering

“Some things just don’t work with SEPA.”

This was the view expressed by Ruth Wandhofer, global head of regulatory and market strategy, treasury and trade solutions at Citi, in April when she spoke at the International Payments Summit in London. She added: “The SEPA market needs to be harmonised before we can even think about using the more advanced technologies such as mobile payments that are happening in local markets.”



Merchants currently require different technology platforms for cross-border transactions. Of course, they would all love one standard system so as to integrate all their payment platforms. That was the initial aim of SEPA, to achieve agreement on a common set of data to be exchanged in a common syntax. One language was needed for financial communications throughout the EU.

The problem in the EU, of course, is that the payment systems differ between member states. This is what makes cross-border transaction processing so complex.

Novate enables acceptance of all message types

Aviso’s Novate product makes it easier for systems to accept any message type. One product to accept all payments types and messages, sounds good doesn’t it?

There are 19 formats of XML messaging allowed in the EU at the moment. EU territories have their own standards for terminals and messaging: the UK accepts APACS while Germany accepts GICC. The US, meanwhile, predominantly accepts messages in the ISO 8583 format.

According to the EPC (European Payments Council) the SEPA data formats are based on the global ISO 20022 message standards. ISO 20022 seeks to provide cost-effective financial communication with a view of facilitating interoperability with existing message protocols. ISO 20022 is, effectively, a standard to develop standards.

However, this financial utopia is still a long way from becoming a reality. Remember too that non-Eurozone countries (that’s ten of the 28 EU member states) have until 2016 to become SEPA-compliant.

SEPA migration is not moving at the required pace and this is prolonging the transaction processing pain for all involved in the payment ecosystem.

SEPA: it’s not all doom and gloom

Ad van der Poel, of Bank of America Merrill Lynch, recently revealed his view of a SEPA future: “This type of transformation [SEPA] would have an enormous impact on timelines and efficiency, and as a result on accounts receivable and accounts payable—and that means working capital. That’s much more XML than SEPA, but SEPA is the start of that XML implementation. This will be a 10-year, maybe even a 20-year, process. But that is where I think we’re heading.”

Payment cards have become the most widely used cashless payment instrument in the EU with nearly 40 billion payments in 2012. This figure is included in an April 2014 ECB report titled ‘Card Payments in Europe – A Renewed Focus on SEPA for Cards’.

The SEPA Regulation had initially bookmarked February 1, 2014, as the point at which all national credit transfers and direct debits in euro were to be made under the same format: SEPA credit transfers and SEPA direct debits.

As of May 2014 some €803 million in SEPA credit transfers (97% of all transactions) were in the SEPA format. The figures for SEPA direct debits were €706 million, or 86% of all SEPA Direct Debits.

Theoretically, with SEPA fully embraced, one euro bank account would suffice for any end user – company and consumer alike.

An amendment to the SEPA Regulation introduced a transition period of six months – until August 1, 2014 – to ensure minimal disruption for consumers and businesses. During this period, banks and payment institutions will still be able to process payments that differ from the SEPA standard.

Key findings from a PWC report, titled ‘Economic analysis of SEPA – Benefits and opportunities ready to be unlocked by stakeholders’ and released in early 2014, include:

  • Potential yearly savings to all stakeholders of €21.9 billion – a recurring annual benefit resulting from price convergence and process efficiency;
  • A reduction of up to 9 million bank accounts, resulting from more efficient corporate euro cash-management infrastructures;
  • Up to €227 billion in credit lines and released liquidity, resulting from enhanced cash pooling and more efficient clearing;
  • Around 16.5 million companies and over 6,000 banks and clearing houses in the EU-16 Member States unlocking up to 973,000 man-years that are currently involved in various steps of the payment and reconciliation processes, as a result of more transparent and standardised information and the rationalisation of corporate bank account infrastructures; and
  • Indirect additional benefits from, for example, the adoption of e-invoicing; the extended use of XML ISO 20022 (the standard for financial services messaging); companies’ wider use of in-house banking and payment factories; a SEPA-cards framework; mobile payments; and alternative sourcing by companies and consumers due to the redefinition of the Eurozone as a domestic financial market (SEPA 2.0).

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