Gertrude Tumpel-Gugerell: Going the extra mile to be ready for SEPA
Speech by Ms Gertrude Tumpel-Gugerell, Member of the Executive Board of the European
Central Bank, at the 10th Euro Finance Week-SEPA Summit: "Ready for SEPA?", Frankfurt
am Main, 19 November 2007.
* * *
Ladies and Gentlemen,
It is a great honour for me to open this conference, the SEPA Summit, which is organised for
the second time in Frankfurt as part of the Euro Finance Week. Special attention in this
year's Euro Finance Week is given to the integration of European financial markets in a
common regulatory framework. Indeed, the title of this Week "European Finance and
Insurance between Regulation and Innovation" is directly related to the SEPA project as
SEPA is all about harmonisation, modernisation and innovation.
It is also a great pleasure to welcome you to Frankfurt, the city of the euro. Frankfurt is often
characterised as the smallest metropolis in the world, in which there is a lot to discover at
close hand. Indeed, Frankfurt is a European meeting place and an intersection for trade and
finance. A perhaps lesser-known fact is that Frankfurt is also an important intersection for
telecommunication and internet providers, as major data networks cross here. Indeed, 90%
of German and 35% of European internet traffic is channelled through Frankfurt. We are,
therefore, at the right location to discuss SEPA and the development of the European
payment markets in the years to come.
I would like today to express the views and expectations of the Eurosystem on the SEPA
project. But let me first take a brief look at past achievements. The 2006 SEPA Summit
focused mainly on building up all relevant stakeholders' commitment to SEPA. Last year, the
President of the ECB and myself underlined the opportunities which financial integration in
general and SEPA in particular could bring to the economy. We also concluded that much
more had to be done to reap these benefits. I specifically called for a closer involvement and
dialogue with all stakeholders.
Since then a lot of progress has been made and I am glad to see that, in general, the SEPA
project is well on track. The basic SEPA components for euro payments have been
developed, such as the SEPA credit transfer and the SEPA direct debit, as has the
regulatory framework under the Payment Services Directive. Each national community has
set up a forum for stakeholders to discuss the upcoming changes related to SEPA, and a
European forum has been established.
It is also impressive to see that many banks have made substantial preparations in order to
launch the SEPA credit transfer in January 2008. It is expected that over 80% of banks
representing the majority of credit transfer transactions (over 90%) will be operationally
ready. The banks will demonstrate their commitment to SEPA at a signing event at the end of
today.
Financial integration is also progressing well in other fields. It is a particular coincidence that
TARGET2, the next generation of the Eurosystem's large value payment system, will be
launched today. TARGET2 is an important milestone. It will offer Europe a more uniform
wholesale payment infrastructure, with a harmonised service level and a single price
structure. Thus, TARGET2 is another good example of progress in the creation of a common
payments area.
Let's now turn to this year's SEPA Summit, which is called "Ready for SEPA?", and rightly
so. In my view, this question is not limited to the mere operational readiness of the industry to
offer SEPA payments. I consider the topic of this conference to be broader. The question
should perhaps be understood as, is the industry ready to create a "truly integrated" Single
Euro Payments Area?
The ECB sees SEPA as a major catalyst for more financial integration in Europe. SEPA will
influence the payment landscape in Europe for many years to come and this will involve a
rethink by all the parties involved. Indeed, it is not enough to defend current market positions or
current practices. Rather, the point is that SEPA will benefit those who bring innovative
services to their customers. SEPA will benefit those who are future oriented.
Today I would like to focus in particular on two issues, both of which are much discussed by
banks and which are needed to create a truly integrated SEPA. The two main questions are,
first, what about the readiness of customers? And second, what about the readiness of other
payment instruments, in particular payment cards?
Let me first give you my views on the readiness of the customer.
Readiness of customers?
A parallel can be drawn with another major project, namely the changeover to the euro notes
and coins in 2002. Indeed, as with SEPA, many of the preparations for the euro changeover
were not visible to the citizens, as they were carried out by technical experts. Furthermore,
the banknotes' security features were disclosed only four months before the launch. As with
SEPA, it was difficult to predict how the customer would react.
On the other hand, well before the euro changeover took place, the central banking
community discussed customer readiness in depth with the aim to ensure acceptance of the
euro notes and coins. Well in advance of 2002, the Eurosystem started organising a
"partnership programme" that involved the main bodies in the various sectors. This
partnership programme emerged from the "megaphone idea" and the understanding that
communication on the changeover to the euro had to be at national level by the national
public authorities, banking communities and end-user associations. Each sector was
encouraged to inform their target groups. Indeed, as if with a "megaphone", the Eurosystem
passed on a common set of key messages to target groups, and they in turn passed on the
information to others. Applying the principle of subsidiarity in this context proved itself as the
correct way to deal with differences in culture, language and institutional setting.
Another characteristic of the changeover was related to the timetable. All countries set an
end date for the euro changeover, the dates were not harmonised. In some participating
Member States the official changeover period was kept very short; in others it covered a
maximum period of two months. Despite the absence of a harmonised timetable, the euro
changeover in 2002 was a major success, and the whole changeover process was almost
completed after only two weeks.1 This clearly shows that the clarity of the information on the
end date given in the information campaigns had been key, and customers in fact did not
want to wait until that final date to begin using the euro.
The experiences of the euro changeover are very relevant for the SEPA project, which is
comparable in size, complexity and political relevance. I see, in particular, two main lessons
to be learned from the changeover.
First, more communication on SEPA is needed. I am not implying that the industry should
carry out a similar launch campaign, but the industry should step up its efforts to foster
customer readiness. To be as successful as the euro changeover, the SEPA project must
build up a closer "partnership" with stakeholders.
Some national communities have already closely involved the end-users, and have published
reports on the developments of the different stakeholders. In Germany, for example, I have
noticed that some of the larger banks have begun an advertising campaign on SEPA. I
encourage other communities to follow these examples.
Let me also be clear on one related point: Banks should not try "misusing" SEPA, and
blaming SEPA for any unpleasant changes. In that case, we could end up with a similar
debate on perceived price increases as we did after the introduction of the euro. This would
help nobody - neither the industry nor the customers.
Second, the industry should be clearer on the timetable for the "dual circulation" period of its
instruments. The request for clarity on the end date also comes from end-user associations.
Interesting in this respect is the ECB's recent study in cooperation with the banking industry
analysing the economic impact of SEPA.2 The study confirms that two main forces will come
to play. On the one hand, cross-border competition and new market participants could affect
the revenue side of banks. On the other, automation and electronic processes will enable
banks to achieve efficiency gains and cost reductions. The study concludes that the dual
implementation phase of SEPA should be as short as possible. As initial investments and
higher adaptation costs are necessary in the short run, it is for the banks to decide how they
will adapt to the new environment in the medium to long term. Indeed, a shorter changeover
to SEPA will allow banks to focus more on their offering of innovative products in the medium
to long term.
One of the more active SEPA communities, France, has already indicated an expected end
date. This is a positive example, and other communities should follow. Should, however,
banks need more preparation when they move to the new SEPA framework, the ECB and
the European Commission stand ready to consider supporting measures, including
regulation, if required.
Let me now turn to the readiness of the industry for SEPA card payments. I will briefly
present some of the ECB's views on cards. Later today the panel will provide their views on
the new cards landscape in SEPA and I am looking forward to an interesting discussion.
Readiness of SEPA card payments?
Card payments are closely monitored by the Eurosystem because they are now the most
popular non-cash payment instrument in the euro area. According to our Blue Book statistics,
more than 15 billion card payments were made in the euro area in 2006.3 Between 2000 and
2006, we also noticed that the use of cards increased more quickly than the use of other
instruments. The use of cards increased at an impressive rate of 15% per annum.
The impact of any changes in the card market is significant for all stakeholders. Given that
the overall cost of payments at a point of sale ranges between 0.4% and 0.65% of GDP4, it is
clear that any development in the card market also has major implications for the economy.
An increased use of cards will reduce some of the costs related to other payments, such as
cash.
On several occasions, the Eurosystem has voiced its expectations regarding SEPA for cards.
In particular, the card schemes should offer consumer choice, operate in competitive markets
and avoid geographical segmentation. In doing so, the Eurosystem expects that the SEPA
for cards offers high efficiency and low prices derived from current best practices.
In my view, a clear long term strategy of a SEPA for cards is not yet developed. The
Eurosystem expects at least one new European card scheme which can compete with the
international schemes in the SEPA environment. I'll address this issue more in depth in the
following panel.
What I would like to stress, however, is that the Eurosystem welcomes the progress that has
been made towards standardisation for cards, which, when implemented, will lead to the
creation of a European market for terminals and for cards acquiring. The Eurosystem also
welcomes the efforts of the international card schemes in preparing for SEPA and the SEPA
changes they have already announced. I also hope that the European Commission will soon
formulate its view on interchange fees, so that uncertainties in this field are removed.
Before I conclude, I would like to concentrate on an important additional issue: innovation.
Innovation
As I stressed at the beginning of my speech, SEPA is all about harmonisation, modernisation
and innovation. The SEPA project has come a long way, but the process is far from being
completed. More modernisation and innovation is needed. The information and
communication technology is continuously evolving and we cannot lean back and watch.
SEPA must evolve, and the SEPA products should be complemented with value-added
services allowing customers to make payments, fast, easy and secure and, most importantly,
as much as possible paper-free. I am here talking about initiation and confirmation services.
Combining these services with the SEPA payments will make the payment process fully
electronic. End-users will spend less time on payments - and less time also means less
money! We refer to this perspective as the next stage of the SEPA project: eSEPA.
eSEPA promises significant financial benefits for banks and customers via:
• Cost savings
•
Added revenue
•
Customer retention through value-added differentiation.
Let me quickly run through three examples:
1. SEPA online payments
The European Payments Council (EPC) has worked on a project that enables online
merchants to offer their customers a convenient, well-know payment solution. It could
become one of the convincing responses of the European banking industry to the
competitive challenge posed by PayPal and similar new types of payment service providers. I
would explicitly like to encourage the banking industry, and especially the EPC, to step up
the work on the new payment methods.
2. Mobile payments
This is a market segment where the development in Europe is still in its infancy - although
high expectations had been raised a few years ago. On a global level, m-payment initiatives
have now gained strong new momentum.
The GSM Association has announced the next steps of its Pay-Buy-Mobile initiative. This
initiative builds on the infrastructure of the major credit card companies and aims at enabling
global interoperability between contactless chip cards and point of sale terminals.
At the same time the EPC is looking for viable models of m-payment solutions for the SEPA
market. Potential benefits could be for example an even higher level of payment
convenience, speed and security experienced by the users. These types of benefits are the
reason why I think that the EPC's official dialogue with the mobile industry should start soon,
to define viable cooperative models and standards for this area.
3. E-invoicing
I mention e-invoicing in the context of eSEPA because it offers a vast potential of benefits to
users and providers alike. For the private consumers, the most significant advantage may be
convenience: just imagine that you receive your invoices electronically and can directly
initiate their payments with one tick or click. This is already reality in some countries, but
should become available across SEPA.
Even more benefits are possible for corporates, since settling paper invoices is usually a very
cost-intensive process. Just imagine that 97.5% of all invoices worldwide are estimated to be
paper-based!
Let's think about the average unit cost for a biller per invoice and the average unit cost for a
payer. Incoming invoices need to be copied, forwarded, entered into different systems and
stored - i.e. touched and managed by a large number of hands and transported physically
between all of them. These procedures - and also potential mistakes happening along the
handling chain - can be significantly changed by introducing electronic invoices that allow
seamless automated handling, including direct links e.g. to payment functions. Approximately
27 billion invoices per annum are being produced in the EU. It is obvious that any change
leading to their more efficient handling quickly results in billions of possible savings per year
for the European economy.
How to foster the development of European E-Invoicing has become an important topic for
the European Commission, who is currently setting up an official working group to coordinate
the standardisation approaches, to address the legal barriers as well as issues of trust and
operational risk..
Let me now briefly conclude.
Conclusion
With just a few months before the launch of SEPA, banks are making preparations in order to
be ready. I have been closely enough involved to see the tremendous efforts made by the
banking industry, and I expect that the vast majority of banks will be operationally ready for
SEPA.
Operational readiness is, however, not enough. Indeed, SEPA is the next step of the euro.
January 2008 will only be the start of this process. SEPA will enhance pan-European
competition and foster integration, consolidation and innovation. SEPA requires us to take a
broad view that goes beyond operational readiness.
In the coming months, we need to go the extra mile and make an additional effort to ensure
the readiness of customers and the card payments market. We also need to think about the
next steps. And there are, indeed, important further steps in this process. Creative solutions
will pay off!
Some years ago SEPA was an idea. In 70 days, SEPA will be reality.
I wish you an open and fruitful conference.
Thank you for your attention.