SEPA end dates: what's the opportunity?

The EU Commission’s proposals on end dates for SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) have been widely publicised. These could be as early as 2012 and 2013 – although I would question whether it’s more likely to end up as 2013 and 2014. Either way, as soon as the legislation is passed, we will finally have some realistic SEPA end dates to head towards.

With this in mind, and SEPA a hot topic for the impending EBA day, many are asking ‘just what will this mean for banks?’

Firstly; it’s important to understand that reactions to SEPA will vary, depending on an institution’s size and reach.

When we’re talking about large, international, European banks, then the opportunity has to be outsourcing SEPA services to smaller institutions. Take Deutsche Bank as an example. It realised the need to make a technology investment – and now the bank offers not only SEPA payments to its customers, but also outsourced services to other banks. Deutsche alone now processes more than three million SCTs and SDDs every month.

For smaller institutions, there are still benefits to be found. Many may choose to outsource their SEPA processing to a larger bank, or share a SEPA platform – as happens with banks in Luxembourg. Others may see a lower cost of ownership in keeping their SEPA systems in-house and either developing their own solution or buying a product. Either way, there are clear opportunities. New markets can be opened up, and banks that were used to just operating domestically will find it much easier to broach previously untapped regions.

The most lucrative, and immediate prospect, though, is to be found in corporates.  Whereas most national direct debit schemes currently leave mandate management up to the banks, when SDDs take over, the responsibility will be pushed to the corporates.  Larger organisations, managing millions of mandates, will most likely opt to buy a technology solution and manage the mandates themselves. Smaller companies, or those who want to avoid integrating a new process into their systems, though, will turn to the banks to take care of these payments for them. This is a real chance for banks ahead of the curve to offer these organisations mandate management as a service and tap into a new revenue stream. SDDs will also give corporates new impetus to push direct debit as a payment method (they’re faster for a start, and include a one-off time-assured B2B option) – meaning ever higher volumes of SDDs to process, and more benefits for those banks managing these mandates.

Whatever financial institutions choose, they need to make sure they don’t fall into the classic trap when complying with new regulation: tacking extra systems on top of their existing processes. This will just result in one more siloed system which is relatively expensive and liable to go wrong when volumes rise. As Aite analyst Nancy Atkinson noted on a recent blog – this is a chance for banks to consolidate their payments systems. Banks should look to see how SEPA will affect them individually, and what type of opportunities they should be going after. If I had to proffer one thought, it would be that if you wait for the lobbying to be over and the end dates to be finally set, you will already be behind the curve. While your competitors are busy selling their new services, you will be rushing just to achieve minimal compliance. Banks should act now and find the benefits in change.