All for one and one for all

EBA CLEARING’s EURO1, STEP1 and STEP2 systems are set to provide unsurpassed clearing and settlement services across the region, spanning a diverse set of industry sectors.

EBA CLEARING was established in June 1998 by 52 major European and international banks with the mission to own and operate the EURO1 large-value payment system. Today, it encompasses 70 shareholder banks and its EURO1, STEP1 and STEP2 systems are set to provide unsurpassed clearing and settlement services across the region, spanning a diverse set of industry sectors. FST invited the EBA to tell us more about some of the recent milestones in the development of a Single European Payments Area (SEPA).

At EBA Clearing, we’re very happy to see our processing volumes increasing across all three systems – Euro1, Step1 and Step2, which indicates a significant growth trend in the general payments market, in which we have an important share. In the last few years, that growth rate has been on average around eight percent, while in our case it is a little over-proportionate at 10 percent or higher, year to year.

SEPA is a cross-industry movement, with stakeholders from numerous areas – including the Commission, the Central Bank, the EPC, the private sector, operators and associations such as ourselves that represent banks in the European payment environment, as well as corporations and other government authorities responsible for payments. It basically involves everyone associated with the sending and receiving of payments.

Industry backing
The ambition to achieve SEPA throughout Europe is more or less consistent throughout the whole banking sector. While some in the banking community have yet to implement our processing platform for SEPA, it isn’t necessarily due to a lack of enthusiasm about the movement. For many banks there are still many obstacles to overcome – whether they be technical or legal issues, or perhaps delays in their internal decision-making processes.

Of course, individuals within individual banks will have varying opinions about how quickly this movement should happen or how deeply SEPA needs to be imbedded. But the integration process itself is something that has strong political backing.

Banks understand that they cannot avoid the issue, and realise that they must provide their customers with the opportunity to make SEPA compliant payments by 2008. Payments must be formatted to the standards identified by SEPA, in particular those standards in line with the rulebooks and schemes developed by the European Payments Council for credit transfers and direct debits, but also concerning the level of service and convenience provided to customers.

Ultimately, it falls at the feet of individual banks to decide how fast they want to move with this, but we expect to see the majority reaching one ring of SEPA by 2008 – whether they get right to the core or just an outer ring is determined by each bank.

Short-term investment, long-term gain
The issue of where and when banks will see the benefits of SEPA is a very contentious issue right now, because many of those benefits exist in the medium and long term. In the short term, it will requires a number of investments, which cannot be easily recouped by banks in the short term.

The situation is a very similar one to the euro changeover in terms of the necessary effort, intellectual expertise and practical handling. It is a very complex project and involves many layers and functions within a bank. Looking back to the time of the euro changeover, there were many differing opinions about whether or not it was the right thing to do. However, ultimately that is a decision made by politicians. It is not a business case matter, but one of overcoming the obstacles and siloes that exist between systems today. It aims to create an integrated payments market with the view of having a better and more efficient financial market.

The banks are, of course an integral player in this as they shape the industry, but it does not concern banks alone. Corporations that use the financial services must also adjust their internal systems and practices, while the consumer, will have to abide by certain information provision rules in order to make this payments system possible. As a result, there is a huge information and education campaign to accompany SEPA. Only together can we reach this ambitious goal.

Creating the backbone
In a nutshell, SEPA aims to create a domestic payments market composed of the 12 eurozone countries, as well as other countries with significant euro payments. Importantly, SEPA should be a consumer experience; consumers should feel that cross-border payments through SEPA are no different to their domestic payments. With one single payments area there should be no difference between the two – it’s all domestic.

But achieving a consumer experience that is high standard and apparently seemless requires a great deal of integration when it comes to messaging, standards, technical infrastructure, instruments, etc. Currently, direct debits is something that doesn’t exist as a pan-European instrument, only locally in each country. To date, if you want to make a direct debit payment between countries banks have had their own arrangements and agreements about how to accomplish it. There has not been, until now, a single instrument that is recognised by everyone.

The European Payments Council created a scheme to help banks to build this instrument and that defines the parameters, so they have a common language for cross-border direct debits in the future. It also helps banks to create products and offers for their customers.

EBA Clearing, which provides the processing platform for these new instruments, sees this as a major step in the creation of SEPA. We are infrastructure builders, putting in pace the systems that help banks process these new instruments. It concerns the whole IT that surrounds the movement, enabling the processing to happen across the whole of Europe. That’s where our unique selling proposition lies and I don’t believe there is any other organisation in Europe that has the stretch and depth of processing capability that EBA Clearing has today.

Looking forward: vision and goals
We started out, in the initial phase of Step1, by putting in place a platform for cross-border payments. Now, we have signed up various communities for the processing of their payments – tackling those cross-border payments that need to become SEPA compliant and providing the architecture that is due to go live in November this year.

Shortly before 2008, we will successfully have in place the critical architecture necessary for processing direct debits. By that time, we will have a fully-fledged offering capable of processing a considerable chunk of the European payment traffic.

However, we have never said that we want to become the only processor or operator for such payments. We want to provide banks with a one-stop-shop for payments, with an offering that is so well integrated that all banks in Europe will be assured of receiving the payments they should. While today, we cover 22 countries, our ambition is to extend those distribution capabilities across all the entire EU and spanning all financial sectors – savings banks, corporate and private banks and both small and large institutions. That would be a unique achievement and one that we believe to be necessary.