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June 2007

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SEPA debate continues

Our April editorial provoked an exchange of correspondence with the EACT.

Olivier Brissaud, Board Member, European Associations of Corporate Treasurers Chairman ATEB, Treasury for Financial Professionals in Belgium, wrote:

Reading your last editorial I was very surprised that you would spread this story about pan-European payments being just 3% of the total payment’s volume. As you must know, as you speak for corporates, it is like that precisely because the payment/clearing systems are not interoperable and thus all international corporates have developed workarounds in order to cope with the inefficiencies of the payments industry in the cross border area. Banks used to use this argument against SEPA because they make a huge amount of money from system inefficiencies. SEPA is not perfect – and we know it – but a serious magazine like you should not spread these figures without further explanation.

Richard Parkinson, our Managing Director responded:

Dear Olivier

Thank you very much for your comments. SEPA is a good initiative and will eventually lead to efficient cross border payment mechanisms. But the point that we were trying to make is that there is a problem because 97% of European payments are being made cheaply and relatively efficiently using domestic clearing systems. I agree that this is partly because corporates with larger volumes of cross border payments have found ways to access local clearing systems. But it is precisely because these solutions work that the desire to move these payment into SEPA schemes will be limited.

There are also massive volumes of domestic payments being made on efficient local systems using local bank account numbers (with no BICS or IBANS on record). There appears to be no great reason for the remitters to route these payments through SEPA schemes either.

So there is a danger that there will be enormous inertia and few of these payments will migrate willingly to SEPA schemes which as we know have been built to relative low specifications. The few more attractive features of these schemes are now being described as additional optional services.

As to the 3% figure, do you agree with this figure which does seem to be unchallenged? Do you have any detail on what the number would be if the cross border payments being made by accessing domestic schemes were included?

Olivier Brissaud then replied:

Thanks Richard for this kind response. I was not saying that 3% is not true. I just keep thinking that if corporations like mine would not have put quick fixes in place to access local clearings this figure would be a lot higher. I am not in a position to quantify what the figure would be. These quick fixes are linked to treasury systems or ERP’s that have to be renewed or upgraded regularly, at least every 5 years. So that means that next time, before investing again in workarounds, we will have to ask the question whether the existing cross-border payments’ product offering are efficient enough. If so, we can anticipate a fair amount of savings and the banks will get their part of this cake through AOS (additional optional services). But, this is fair enough: good service deserves a fair price. Now we have an expensive and relatively poor service.

By the way European banks know that in the longer run this is very good for them as well. Can you imagine what it can cost to run per different payment applications and systems in each country? The banking community is not completely in tune on this issue, like in many others by the way. Local and regional institutions will, I agree, have to invest with an expectation of very low return. So they will have to consider outsourcing their payment services to bigger banks. Good business for those big chaps! Always go for efficiency because in the long run it pays. That is what I believe.