Nov 29 , 2010

European payments: Major research conducted by FS Club reveals disappointment in SEPA and the PSD

London--A year after the transposition of the PSD and implementation of SEPA, European payments professionals are overwhelmingly disappointed with the progress in harmonising and regulating an integrated European payments market. Meanwhile, new competitors are registering rapidly as new payments institutions and are creating major challenges for traditional banks.

> 322 people took the survey, representing 42 nations globally.
> 52% think the European Union (EU) while stay together, whilst 24% think it will fail.
> 30% believe the euro is critical to keeping the EU together, compared to just 18% a year earlier.
> 78% state that the Eurozone will continue to expand across more countries and become a successful reserve currency alongside the US dollar.
> 85% say the PSD transposition process has been successful, although 51% of bank respondents and 36% of non-banks believe that derogations actively hindered the transposition.
> 68% believe there will be a PSD Mark II to replace the deficiencies of the first.
> 54% say that SEPA is not succeeding compared to only 24% who think it is.

For the second year, the Financial Services Club ran a survey of payments professionals worldwide to see how successful the implementation of the Payment Services Directive (PSD) and Single Euro Payments Area (SEPA) have been since the PSD transposition in November 2009 and implementation of SEPA's full program of Credit Transfers (SCTs) and Direct Debits (SDDs) at that time.

This year's survey is sponsored by Logica and was completed by over 320 people covering all of the Eurozone and more. Representatives of 42 nations took part during the summer of 2010.

European Union
With the backdrop of the EU's member states of Greece, Ireland, Portugal and Spain, it is not surprising that many people thought the EU was having problems. Over half of respondents (52%) thought the EU would stay together, whilst almost a quarter (24%) thought it would fail. Interestingly, a third (30%) of the respondents believe that the euro is critical to keeping the EU together, compared to just 18% a year earlier.

This is also a reflection of the importance of the Economic & Monetary Union in maintaining a stable Europe, with 78% of respondents stating that the Eurozone will continue to expand across more countries and become a successful reserve currency alongside the US dollar.

PSD
The responses were supportive of the PSD process, with 85% of respondents saying that the process had been successful, with just a few issues related to the use of derogations in some countries. Unfortunately, these issues were significant with 51% of the 112 bank respondents and 36% of the rest (non-banks) stating that derogations had actively hindered the PSD transposition.

Other comments were made that, "The 'enshrining' of BIC & IBAN in the recitals of the PSD has been a huge mistake."

Another respondent noted: "There are many uncertainties around the PSD such as the interpretation of the PSD in Swiss banks, the PSD implementation in CEE, the speed of PSD implementation in Southern Europe, and lots of legal documents with conflicting contents."

For these reasons, over two-thirds of respondents (68%) believe there will be a new PSD to replace the deficiencies of the first. However, many would rather have a continually adjusted Directive rather than new Directives drafted every few years.

Meanwhile, 66% of bank respondents had seen major change as a result of the PSD, compared to only 31% of the non-bank respondents. This is a reflection of the major change initiated by the PSD on banks internal systems and processes, and the launch of new competitors. For example, over 70 payments institutions (PIs) were cited by the survey's respondents as being created since the introduction of the PSD. These included regular suspects such as PayPal and Western Union, to a few new entrants including Earthport.

SEPA
Respondents are less confident about their knowledge of SEPA this year.
Only 55% felt that they understood SEPA well, compared to 62% last year.
Maybe this is because they do not believe SEPA is working, with an average 54% saying that it is not succeeding compared to only 24% who think it is.
Of the bankers who responded to this question, the percentages rise to 57% who think it is working whilst 27% think it is not.

The problem relates to a lack of benefits (17%), bank (18%) and corporate
(16%) resistance to SEPA, limitation by countries through the use of derogations (17%) and, most importantly, the lack of an end-date (24%) meaning that there is no motivation to implement SEPA instruments.
This is why the majority of this year's respondents think that the SEPA vision for "all Eurozone payments transactions to be processed as though they were domestic" will be achieved between 2014 and 2017 (43% of the vote). This is less optimistic than a year earlier, when 49% of respondents thought it would be achieved before 2014. Interestingly, only 11% of respondents a year ago thought that SEPA's vision would be realised after 2017, compared to 34% this year.

Nick Ford, Global Consulting Payments lead at Logica, added that: "The survey results show that a majority of executives think that an integrated payments market is very important or even critical to Europe's future.
However, many are still unsure of the benefits of SEPA/PSD and think that the banks could do more to improve this position. I am convinced that with the right focus and an effective payments strategy, banks can welcome SEPA and other regulations. There is a huge opportunity here for banks to improve and further tailor their services to clients, obviously keeping in mind the significant challenges and changes that it brings. Smart players in the industry will proactively address these challenges head on to create business opportunities that will help them differentiate and lead in the payments market."

Innovation
Finally, the survey reviewed the views of respondents on innovation, with most innovation in payments created by either non-bank PIs (35% of vote) or regulators and policymakers (27% of vote). Less than 9% of the respondents believe that banks create innovation, although this is disproportionately viewed between bankers, where 17% believe they are innovators, and non-banks where only 6% believe banks innovate.

This may be because banks are limited by issues of budget, with 41% of bankers surveyed stating that this is what stops them innovating.

In terms of innovation, the most innovative things our survey audience noted are real-time payments, mobile and contactless payments, and the convergence of payments processing into payments hubs. The least innovative things were felt to be anti-fraud measures using new biometrics, such as voice. This intrigues as one of the major new PIs cited in the survey was Voice Commerce, which uses voice biometrics for
customer authentication and identification.

Chris Skinner, Chairman of the Financial Services Club and leader of the research project, comments: "Last year's survey identified major cynicism about the implementation of the PSD, with many saying that derogations and optional services would cause confusion and a lack of parity. Unfortunately this has proven to be the case, as borne out by this year's survey, but what concerns me more this year is that the cynicism has spread to SEPA. Banks and corporates just don't get where it's heading, and this lack of direction is caused by the absence of an end date. Even with the SEPA Council and the Commission's consultation on an end-date, we still don't have one and, until we do, this headless chicken will remain just that."

Research background
The core community of survey respondents are members and associates of the Financial Services Club in the UK, which is why this community is the strongest with over a third of the participants. Of the 16 Eurozone nations,
13 member states participated and represent a major contingent in the survey, with 38% of the vote. Meanwhile, there are also many non-European nations also participating, including strong input from America, India and Hong Kong, as well as views as diverse as Kazakhstan to Malaysia, and Uruguay to the UAE.

In terms of who participated, the largest group is from the banks with over a third of the respondents from this constituency. Consultants and technology providers are the next largest group, and represent just under a third of the votes. Three out of ten participants described themselves as "middle management", whilst 38% were senior management or C-level and one in five were "consultants".

The Financial Services Club is a unique service aimed at Senior Executives and Decision Makers from banks, insurance companies, technology firms, consultancies ... in fact, any firm that is interested in understanding and planning for the future operating environment for the UK Financial Services markets.

Bridging the gap between today and tomorrow, the club provides a unique insight into the future of the financial markets, providing a forum for hundreds of senior professionals within the market. The club runs between ten to fifteen events every year and the blue chip speaker list is designed to incorporate all aspects of the industry, from practitioners, to legislators and futurists.

Logica is a business and technology service company, employing 39,000 people. It provides business consulting, systems integration and outsourcing to clients around the world, including many of Europe's largest businesses.
Logica creates value for clients by successfully integrating people, business and technology. It is committed to long term collaboration, applying insight to create innovative answers to clients' business needs.