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Story URL: http://www.silicon.com/financialservices/0,3800010322,39344714,00.htm

Sepa adoption 'could take five years'
Credit crunch delays take up of cross-border payments standard

By Julian Goldsmith

Published: Tuesday 18 November 2008

Despite calls for a deadline forcing corporates to sign up to the Single Euro Payments Area (Sepa), it could be another five years before the directive is fully adopted.

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According to reports, the European Central Bank's (ECB) executive board member Gertrude Tumpel-Gugerell said a deadline should be set for implementing Sepa and switching off legacy payment systems.

In a statement last month, Tumpel-Gugerell said: "Banks and regulation authorities will discuss what is the best way forward. The migration end-date(s) should be communicated in early 2009."

However, according to business solutions manager Paul Styles at electronic payments systems supplier ACI Worldwide, Sepa take up has ground to a halt, following the economic slowdown across Europe, because banks have found it difficult to build a business case enticing enough to persuade corporates to come onboard.

He told silicon.com Sepa development has been driven by the banking industry under a mandate from the EU to foster a single financial services market but that the framework for adoption has not taken into account the needs of corporates.

"Against the current economic backdrop and without a cut-off point to aim for, banks and corporates are struggling to make a business case for a changeover. There must be a consensus which, while not easy to achieve, will be essential if the deadline doesn't become another regulatory diary date those involved feel is impossible to meet. The move to Sepa will incur a prohibitive cost if a deadline is set too early," he said.

Styles warned against a phased approach for migrating to Sepa, which he said would create a fragmented market across the region - instead, he favours a 'big bang' approach.

"We will need a three-, if not five-year lead to make sure banks are ready for a switch on this sort of scale," Styles added.

Gareth Lodge, regional research director European payments for consultancy Tower Group, agreed the take up of Sepa instruments has been slow, even among banks, since Sepa was launched in January this year.

He told silicon.com that although Sepa has become politically important to the notion of a single European market, the economic climate has caused national banking industries to become more focused on home markets at the expense of the cross border initiative.

For Sepa to be adopted there needs to be more clarity on timeframes, Lodge added: "A three-year lead for turning off legacy systems is not far off the mark."

System integrator Logica's director of payments Simon Bailey also agreed on the need for a deadline against the backdrop of slow take up.

"Without an end-date [for legacy payments systems] there is no Sepa. There may be an issue of who has the authority to set one, but a deadline is required," he told silicon.com.

A more realistic timeframe for the shut off of legacy systems is between 2012 and 2015, Bailey predicts.

According to Experian Payments director of product strategy, Jonathan Williams, a timeframe of between 2011 and 2012 is more likely.

"The question will be who will enforce this deadline? High on the list is the ECB, but it will also need some political drive from the European Parliament," he added.

The ECB was unavailable for comment.