Migration date to SCT and SDD schemes must be set - ECB's Tumpel-Gugerell

Over a year after its launch, the Sepa credit transfer (SCT) scheme still only accounts for less than two per cent of total CT volume in the euro area, prompting ECB executive board member Gertrude Tumpel-Gugerell to call for a definitive date for migration from national systems.

"We need a migration end date from which on onwards only the European payment instruments will exist. We all know that it is inefficient and costly if two schemes continue to run in parallel for a prolonged period of time," says Tumpel-Gugerell in a speech to a workshop organised by Parsifal Frankfurt.

Almost all of the 4500 banks active in the payment business in Europe are now able to offer and process SCTs. Likewise, most retail payment infrastructures that were processing credit transfers in euros have become SCT scheme-compliant.

Yet, despite the fact the Sepa project has been ongoing for about seven years and that a lot of product design and standardisation work has been undertaken, the practical implementation continues to be slow - just 1.9% of total credit transfer volume in the euro area are SCT transactions.

Tumpel-Gugerell says banks see the responsibility for take-up on the side of corporations and public administrations. But, despite claiming to see the benefits of Sepa, firms are still taking a cautious approach to implementation.

Many cite the difficulties associated with obtaining Iban and BIC information as a major obstacle, although Tumpel-Gugerell says this should be overcome through the provision of good quality services for deriving Iban from national account numbers and reliable directory services.

Says Tumpel-Gugerell: "Maintaining national instruments implies that fragmentation along national borders is preserved, and that the integration of the European retail market has failed. Thus, working towards the establishment of a migration end date is deemed of the utmost importance to make the Sepa a success."

With the SCT scheme witnessing slow take-up, Tumpel-Gugerell also raises fears about the launch of the Sepa direct debit (SDD) scheme, slated for 1 November.

She warns "solutions are required for practical implementation issues such as the ongoing legal validity of existing direct debit mandates, reachability of direct debit payees and in particular the multilateral interchange fee".

The EC is challenging the need for this transaction fee and Tumpel-Gugerell says it needs to continue working with the banking sector and ECB because the "issue needs be resolved urgently so as not to endanger the launch of the SDD".

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Comments: (2)

A Finextra member 19 March, 2009, 14:32

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Of course, there has to be an end date for the legacy credit transfers and Direct Debits, so that the SCTs and SDDs can take off, but that is only part of the story. The financial services industry as a whole needs to focus on educating corporates about the benefits of SEPA, such as the savings that they will be able to make through the new, harmonised payments market; the corresponding reduction in payment costs; improved cash flow; and the ability to rationalise their operations. This will help drive a demand for these services, which will in turn make them more attractive for banks, and increase their use. The business case for corporates needs to be clear.

There should be an end date, absolutely, but it shouldn't be used by the banks to avoid what should be their obligation to help build the business case for the end-user.

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A Finextra member 30 March, 2009, 15:20

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The take-up of SEPA Credit Transfer has been very slow among corporates and not much faster amongst banks, potentially due to the fact that banks may not have the right data to enable them to put their corporates transactions across as SEPA transactions. As such, data conversion is a necessary step for all transactions which can be SEPA-compliant to be SEPA transactions.

However, at this stage while domestic schemes have not yet migrated to SEPA instruments, there are few opportunities for banks to grow customer transactions beyond the 1-2 per cent of cross-border. Therefore, the business case for corporates is minimal, especially as there is no direct, financial incentive involved for them to move to SEPA payment instruments and at this stage, not all banks accept SEPA Credit Transfers or the new SEPA Direct Debit instruments.

What the banks need to start shouting about and what the corporates need to realise is that it is possible to take advantage of the SEPA schemes without a large investment. Once corporates take full advantage of the opportunities for efficiency and consolidation SEPA creates, such as reductions in cost and rationalisation of their number of bank accounts, they will be able to benefit from a more standardised approach to Europe's payment systems and potentially grow their international customer base.

With the upcoming SEPA Direct Debits deadline, Europe's banks also need to look at the opportunities SDDs will create for their corporate customers and start communicating these to them, particularly as it requires the harmonisation of all EU members' legal framework for payments in line with the Payment Service Directive (PSD).

It is still clear that national legacy systems will be a barrier to take-up which means that few banks and their corporate customers are likely to be prepared for SEPA and some of the obstacles associated with the conversion from the Basic Bank Account Number (BBAN) to IBANs. However, by cleansing and validating BBAN details before conversion into IBANs and by validating existing IBANs on the database, both banks and corporates will be able to get around some of the hurdles in migrating to SEPA and truly herald the arrival of the scheme