Emergency threatens the change

The aim of the changeover: In the SEPA area, customers should no longer be able to distinguish between national and cross-border payments. So much for the theory - but it gets complicated in practice.

SEPA affects around 500 million people in 32 countries and requires a clean planning, migration and communication process from both banks and companies.

In an interview with E-3 Magazine, banking consultant and payments expert Bernd Richter, partner at the consultancy Capco, outlines the challenges and opportunities facing banks and companies.

E-3: Let's start with an analysis of the situation. How far along are banks and companies in Germany and other countries?

Bernd Richter: Both parties still have a lot of homework to do. In our transformation mandates with banks on SEPA, two aspects become abundantly clear. Firstly, banks are currently working on so many regulatory issues that many have obviously prioritized SEPA comparatively low.

And this is a great danger for the banks. Because if they don't step on the gas now, they will lose many customers next year. On the other hand, it is clear that the vast majority of banks are merely reacting to the legal requirements and trying to implement the stipulated content of the rule books instead of taking action themselves.

The status quo, which banks will have to meet by February 1, 2014, does not even begin to develop the potential that SEPA will have - for banks and companies alike.

E-3: What is in store for companies?

Judge: In simple terms, SEPA is divided into two areas. On the one hand
the SEPA credit transfer, or SEPA CT for short. The second is the upcoming SEPA direct debit, or SEPA DD for short.

The same rules will apply to both areas in the eurozone from February 1 next year - at least on paper. In this payment area, customers will no longer be able to distinguish between national and cross-border payments.

In order to be fit for SEPA as a company, in addition to converting and optimizing the connection and data processing, it is also necessary to check whether and how the direct debit consents are transformed.

In future, companies will have to document and administer SEPA direct debit mandates, i.e. legitimization for the execution of a SEPA direct debit. Depending on the business model and number of customers, this may involve a high implementation effort.

E-3: What is your general assessment of the situation at the companies?

Judge: Capco's consulting services focus specifically on banks and financial service providers, so my assessment of companies' SEPA readiness is purely from a personal perspective.

I fear that companies still have a rocky road ahead of them. Even though they receive comparatively little support in their efforts from their house banks. Their speed of implementation and communication is often in need of improvement.

E-3: Hand on heart: How far along are the banks?

Judge: We are seeing some banks that are astonishingly advanced and innovative. However, we are also mandated by many financial institutions where things are burning brightly because almost nothing has happened yet.

In view of the data from the European Central Bank, I doubt whether the majority of banks will be ready in time to serve all customers by the deadline. Incidentally, the figures prove this.

According to the ECB, only six percent of banks in Germany had fulfilled the SEPA CT requirements by the end of the third quarter of 2012, and SEPA DD not even one percent.

The situation is much better in Belgium, where over 60 percent of banks are SEPA CT compliant and just under 15 percent for SEPA DD. In my opinion, this is due to pressure from the respective government as to how strongly SEPA is pushed or not.

E-3: What does that mean at the end of the day?

Judge: The bottom line is that many, but by no means all, banks in Europe will be compliant by the deadline - but only on paper. And the vast majority of banks will only be able to meet this minimum requirement for a fraction of companies, if at all.

As a result, we are very likely to see major shifts in customer relationships. In my view, a wave of companies switching to banks that are very advanced and can also explain and sell the potential of SEPA in a comprehensible way is almost inevitable.

E-3: However, switching banks is not an everyday process. Should CFOs really concern themselves with this topic because of SEPA?

Judge: From the customer's point of view, it always makes sense to compare offers. And the CFOs must invest with the COOs in order to be able to present SEPA. Accordingly, it makes sense to leverage the actual potential of SEPA. And this is only possible with a house bank that has the corresponding offers available.

E-3: Could this also strengthen companies?

Judge: Yes, SEPA plays into the pockets of companies and strengthens their position. After the introduction, they will only need one account in the entire eurozone, they will be able to centralize their accounting, there will be massive working capital opportunities and much more.

However, SEPA becomes particularly exciting for companies when additional services, so-called "value added services", are used and merged with their own SAP or ERP systems.

E-3: Can you give us an example?

Judge: For example, it would be extremely helpful for many companies if images or even videos could be added to the intended use in addition to text and invoice coordinates.

Have the goods arrived? Are there any complaints? This information is fed into the ERP and CRM systems in real time, evaluated and triggers corresponding processes.

E-3: Is such a scenario really conceivable - from a bank?

Judge: Absolutely. I am already seeing and experiencing the first concepts of this kind in my consulting mandates. But only at a few banks. The pressure to innovate in terms of "value added services", as in the entire payment market, rarely comes from banks.

As a rule, formerly pure technology providers are driving developments - and therefore banks ahead of them. Paypal, Everbill and Traxpay are already very good at combining information with payment and the speed factor.

In parallel to existing bank-based payment transactions, they often offer a cost-effective alternative payment infrastructure that processes payments in real time rather than within one or two days, as was previously the case.

Seven days a week, 24 hours a day. This leads to a new balance of power. Until a few years ago, payment transactions were a monopoly for banks in Europe. Now, however, new players are entering the playing field.

As a result, CFOs should start talking to their bank now and find out what will be feasible on February 1. And whether this will also apply to their own company. And otherwise obtain other offers.

E-3: What do banks need to do to avoid running the risk of losing the customer relationships they have built up?

Judge: It is surprising to me that banks are not starting to forge alliances for SEPA and beyond. It would be conceivable and obvious to plan the development of a modern SEPA application model in cooperation with other banks and to share the development and migration costs - and thus defend innovation against the technology providers.

However, practice shows that banks continue to go their own way. It is therefore all the more necessary to act quickly, to be strategic and visionary and, above all, to optimize communication with customers. Because anyone who waits or hopes that customers will ask questions about SEPA as late as possible or not at all will be in for a rude awakening in 2014.

E-3: Thank you very much for the interview.