Thursday, September 21, 2006

Cap Gemini World Payments Report 2006 is out and identifies the real issues at stake !

Download the Cap Gemini World Payments Report 2006 and find out that it is actually quite good. The consultants are not afraid to draw conclusions such as:
To preserve payments revenues, banks in Europe must improve their pricing strategies. Current pricing does not reflect banksĂ‚’ internal costs, and fails to provide incentives for consumers to use cost-effective payments solutions. Banks should be considering how to stimulate cost-effective means, such as electronic payments, at the expense of inefficient services like cash withdrawals and cheques. Banks should also consider introducing transaction-based pricing alongside fixed-fee packages.

And another good thing is that they stipulate the interrelatedness between the (very much delayed) work on the Payment Service Directive (PSD) and the implementation of EPC-standards. They clearly outline that without the PSD, introducing SEPA would be cumbersome, costly and useless. Their own observation:
The SEPA requires national legislative change, since it would be challenging, if not impossible, to launch SEPA products.
And the quote from outsiders:
But is the PSD really a prerequisite to the SEPA, anyway? Absolutely, according to EU Internal Market Commissioner Charlie McCreevy, who has said, "No Payments Directive, no SEPA".

Effectively, for insiders, this is quite an outspoken report. At present all resources in Europe are busy getting EPC-products in place and getting the Payment Service Directive finalized. And the Commission itself has already announced that January 1 2009 would be the earliest likely date for the implementation of the PSD. This makes one wonder why banks would want to rush in to meet a January 1 2008 deadline for EPC-products?

Why indeed...?

Let's look at the European central banks' project Target 2: that should have been ready well before 2008, but is delayed with about one year. And then the European Commissions' Payment Service Directive: should have been implemented in 2008, but my personal estimate is that 1, January 2010 is more likely (across Europe). Meanwhile EPC are still on track, getting ready for introduction/reachability of EPC-products by 1.1.2008, largely out of fear for further regulation.

Now what good is the use of introducing for example a cross-border direct debit for eurocountries on 1.1.2008 if - other than expected- there is no harmonised legal framework? The consequence is that each individual bank has to revise/analyze contract law in at least 12 countries to be able to offer the product as of 1.1.2008. And, on top of all, each time a member states implements the local PSD-regime, the banks must revise their relevant local contract terms accordingly. So that's about one contract change in 2 months on average during the years 2008-2009.

While theoretically speaking one would be right to argue that there are no legal impediments to stop banks from introducing EPC-direct debits as of 1.2.008 it is quite clear that such a thing would be a complete and utter waste of time and resources from a practical perspective. It is far better to await Europe-wide implementation of the PSD in 2010.

So another why occurs to me. Why is it that at the present moment in time such a delay in SEPA/EPC work would be the most welcome, efficient, socially optimal and (alas) unlikely outcome at the same time?

My guess is that there's quite a bit of tunnelvision and prestige involved in the SEPA and European project. As a result, it is quite unlikely that all those CEO's, Regulators, Commissioners, presidents in high places drop their prestige/image reasoning. They intend to bang the drum and hit banks with tough talk and are unwilling to reverse course as a matter of prestige. And their staff are not going to make them one bit smarter either: never disturb the dreamers at the top with real-life reality at the bottom. Because that will undoubtedly cost you your yearly performance bonus and your career. So staff is silent while top dogs dream on.

Ideally all involved policy makers and top dogs at E(S)CB and Commission would live up to the fact that they are being paid by all tax payers, and wake up one day with the courage to say to their own top dogs: we ourselves failed hugely in delivering our bit of SEPA (TARGET2/PSD) on time. So why demand from banks to maintain the old deadline and incur a bunch of useless investments? Any first year student in project management can explain why that is the most foolish thing to do.

Perhaps a final retoric exercise may help increase awareness and help all involved policy makers and top dogs to drop the prestige concerns.
1. Appreciate that it took more than 50 years to get with the EU where we are now.
2. Appreciate that building Europe is a long term institutional growth process.
3. In which all kinds of projects (such as getting a EU constitution agreed) face all kinds of delays.
4. And then ask yourself the many billion euro dollar question:
Why would we bother about 2 years delay in delevering a true European Payment Space?

Repeat steps 1 to 4 of the exercise until something begins to dawn in your mind.
Take a deep breath and proceed to:
5. Imagine that the year is 2030 and we look back in the history books. Grandchildren come up to old grandpa/grandma and ask about the good old time of fragmented domestic payments in Europe. Ask yourself the control-question:
Would any one of our grandchildren ever really care if we tell them that the EPC-work and SEPA started in 2010 and not in 2008?

6. Now experience:




Let us be reasonable, let us not stop the work on PSD, EPC-standards and Target2, but let us save ourselves a lot of energy/resources and let us delay the implementation of all market projects some 2 more years to the latest deadline of PSD-implementation in Europe (2010). So that we can tell our grandchildren proudly that in our time we significantly helped the customers and the public in Europe by putting common sense before prestige and delaying the SEPA-work to allow for smooth and cheap changeovers and market driven establishment of the Single Euro Payment Area.