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From theory to practice: let’s roll out the cables

Speech by Gertrude Tumpel-Gugerell,
Member of the Executive Board of the ECB
Off-site meeting of the European Payments Council
Durbuy, 7 September 2006


Thank you very much for inviting me to present the ECB’s view of the Single Euro Payments Area (SEPA). As all good things come in threes, I am happy to have come to Durbuy for the third time to provide the ECB’s assessment of how the project is evolving.

Each time I come here I am charmed by the beauty of the town and the valley, and only realise when driving here how remote this place actually is from main roads and cities.

Nowadays remoteness simply means that it takes a bit longer and is maybe a little less convenient to reach a place. This was of course not always the case. In the past, remoteness meant that places were largely closed off from the flows of political news and the streams of commercial trade.

These days we have forgotten just how innovative the introduction of electronic telegraphy was. Although I would like to speak to you about SEPA tonight, allow me to quickly revisit the introduction of electronic telegraphy because I think that one can draw an interesting parallel to the current juncture of the SEPA project.

In 1837 Samuel Morse made a great invention: based on existing developments in electromagnetic transmission he developed a telegraphy and code system that would allow messages to be transmitted via electronic connections over large distances in a quick and simple way. A revolutionary idea was born and a user-friendly device developed.

Soon the new invention spread all over Europe and the US. In many countries post offices took over and created a dense network of telegraphic lines. The new system was a quantum leap from the traditional letter and created a new communication space where distances lost much of their relevance. While originally based on national borders full access was very soon achieved across Europe. Clever entrepreneurs seized the opportunities that the new system offered. In 1851 Paul Julius Reuter founded a news agency in London that used telegraphic transmission to inform clients about important developments – almost in real time. William Siemens launched, together with a private consortium, an overland connection between London and Calcutta in 1870. While a letter had originally taken 60 days, a message from London could now reach Calcutta within half an hour.

The SEPA project introduces standards that will help Europe to overcome borders and grow closer together, just like telegraphy did over 150 years ago. Similar to Morse you have developed standards and devices that will soon allow a citizen of Durbuy to issue a direct debit to a business partner on the Greek island of Crete. I want to congratulate you on this achievement. But just as Morse realised, standards and instruments alone are not sufficient, as the success of the invention hinges on its implementation. Therefore, I want to encourage you to roll out the cable and establish the connections all over Europe.

In my speech tonight, I will first look into the future of retail payments in Europe from a broader angle. SEPA offers many opportunities that go beyond the common standards and instruments that have now been developed. I will then assess how the two main objectives of SEPA, i.e. SEPA for citizens in 2008 and SEPA for infrastructure in 2010, have evolved. I will also analyse where, in my opinion, we need to focus more in order to achieve the SEPA goals on time.

The 2008 starting date of SEPA for citizens is fast approaching. With just over a year to go, we have to conclude the debate about what the SEPA means and why it is important. Our focus must now be on putting the SEPA objectives into practice.

This requires a different approach. We have to involve a broader range of market actors at national level, and we have to create more publicity.

SEPA and the future of retail payments in Europe

As I stated in my speech two years ago, I expect SEPA to be an important contribution to the financial integration of Europe.

By creating a competitive environment and by exploiting economies of scale, the goals of the Lisbon agenda of promoting productivity, growth and employment within Europe will be supported.

However, this will only happen if SEPA is not seen only as a conversion project that allows banks to maintain their current national models and processes by implementing converters on top of them.

SEPA is not just about euro area standardisation, it is also about the future of the retail payments market in Europe.

Realising SEPA is not the end of a process but the beginning of a common market in this field.

Exploiting new business opportunities

I am convinced that the retail payments market in Europe offers more business opportunities than payments alone.

Even if payments themselves are processed efficiently by banks, payment initiation and reconciliation may require considerable work on the part of the payer and payee. Let me give you some examples of current restrictions and difficulties and how they can be overcome.

For payers, the channels for immediate payment initiation are currently rather limited. Payers need to be near a computer with internet access, an ATM or a branch of their bank to initiate a payment. In future, payments could be enabled through additional channels, e.g. mobile telephones, allowing customers to make payments from wherever they are – provided there is a connection to the mobile network of course!

Another issue for payers is that, currently, they have to make an effort to copy data from invoices into payment initiation forms, with the risk of making mistakes. E-invoices would already present the data in the correct format. In this way, one click would be all that was needed for a payment to be made.

Furthermore, payments for internet retail purchases could be standardised to make them safer and more user and retailer-friendly.

Corporations could make substantial savings from a paper-free bill presentation and e-reconciliation process.

Progress in information and communications technology could be used to offer customers convenient, secure and efficient services that make their lives easier and allow them to free resources. Customers could make cost-savings, reduce their risk, and save liquidity. This is a win-win situation for service providers and customers alike.

I would therefore encourage the EPC to step up its activities on e- and m-payments.

If European banks are not interested in these business opportunities, non-banks or banks from outside Europe will crowd in and reap the benefits.

Let’s have a look now at the current state of play.

From design to implementation - where does the SEPA project stand?

Last year I carried out an assessment of the progress achieved in the SEPA project and identified some areas where further efforts are required.

To follow up on this assessment, I would say that work has advanced satisfactorily on some issues, but that there are also some areas of concern. Let me first examine the SEPA instruments which should be available in a little over a year.

SEPA Credit Transfer

Overall, work on the SEPA credit transfer and its implementation is well on track.

A standard for priority payments has been developed by the EBA. It will be offered by a pilot group of banks, which will report back on the success of this initiative. I would like to note, however, that it is important that this service is a non-proprietary, open standard, available to all banks. To meet this requirement, it should ultimately be endorsed by the EPC.

As regards the initiation of credit transfers, I support the implementation of SEPA standards in all initiation channels, e.g. internet banking, ATMs, paper-based forms. Customers cannot be expected to use different standards depending on the medium they use for payment initiation. Harmonisation of the “look and feel” of the input mask on paper, internet and ATMs would enable customers to switch more easily from familiar paper-based forms to electronic initiation.

Although I fully agree that, to the extent possible, payment initiation should be done electronically, it has to be acknowledged that a minority of private customers will continue to require paper-based forms to be submitted. Paper forms will not have disappeared by 2010, and the requirements of all customers need to be taken into account.

SEPA Direct Debit

Last year I mentioned the importance of achieving full reachability as one of the major success criteria for the SEPA Direct Debit.

I am now pleased to note that the EPC Plenary will address the issue in its September meeting with the aim of passing a resolution at the end of this year.

I am also pleased to note that a proposal on alternative mandate handling by the debtor bank, the so-called DMF, has been developed. I expect that there will be interest by customers in this solution, and it is therefore important that it is made widely available. But more recently I have also heard complaints about how complex this makes things for banks. More efforts might therefore be required to keep handling costs under control.

However, I expect the banking industry to continue taking up users’ requirements. For instance, the implementation of e-signatures or other adequate authentication methods should be studied to facilitate the mandate-handling process.

SEPA for cards

The implementation of the SEPA for cards is an area where more progress has been expected. Therefore, I will stress three aspects that need to be urgently tackled to establish a true SEPA for cards.

One of these issues is standardisation. In this respect, the EPC’s plan to focus on the identification of appropriate technical standards is very welcome. I would encourage the EPC to set up a clear time-frame for this work, which is compatible with the timetable of the SEPA project, and to guarantee that the proposed standardisation will be open and future looking.

Another issue is SEPA compliance for card schemes. There seem to be substantial misunderstandings in the market about basic concepts of SEPA compliance. In this respect, I would encourage banks to take a long-term view on their business strategy and not to sacrifice efficient business models. A plausible long-term business strategy is acceptable even if it is not fully SEPA compliant from the beginning.

Finally, competition aspects need to be addressed. There is still uncertainty about the interchange fee. I expect that the European Commission will clarify the issue as soon as possible. In the meantime, banks should not take decisions on the future of card schemes based on the current level of interchange fees. To be explicit, SEPA should not lead to a quasi-monopolistic situation in the cards market. Instead, competition should be fostered by the removal of any technical, legal or commercial barriers. The ECB will support technical and/or business initiatives that contribute to competition in the cards market.


With regard to the second SEPA objective, namely the SEPA for infrastructure in 2010, I am pleased to note that the phased development I outlined last year has been adopted by the industry.

Interoperability and consolidation by means of competition have been recognised as a market reality. The initiative taken by the European Automated Clearing House Association (EACHA) on an interoperability framework is welcomed by the Eurosystem. I cannot stress enough the importance of the cooperation between the EPC and the EACHA.

To put interoperability into practice, it has to be ensured that vested interests of individual market players do not hinder market development. I have some concerns about the fact that the EBA is not part of the market infrastructure initiative to agree on pan-European technical interoperability. In my view, this is a suboptimal situation as only full interoperability will provide full choice to users.

What is less acknowledged still is the need to phase out national instruments. Here, I trust that the cost of processing two sets of instruments in parallel will speed up the migration process.


The successful implementation and migration of the SEPA instruments depend heavily on payment-related standardisation. It is recognised that the EPC has achieved some key agreements that should help to maximise the end-to-end straight-through-processing of payment orders.

In particular, the Eurosystem welcomes the adoption of the UNIFI standards and the Data Model.

However, work still needs to be done to define and make available all the standards necessary for a safe and efficient functioning of SEPA. The Eurosystem addressed the priorities considered important for standardisation of the different payment instruments, infrastructures and account identifiers in a letter to the EPC in June and expects these priorities to be dealt with accordingly.

I will now turn to the main focus of our attention: SEPA implementation and migration.

SEPA implementation

During the conceptual phase of SEPA, work has been concentrated to a large extent in euro area-wide fora. These fora had established efficient organisational structures of representation.

In order to successfully conduct SEPA implementation at the national level, an organisational structure representing all stakeholders needs to be set up in each country of the euro area.

I am pleased that a number of euro area countries, such as Belgium, Spain, Ireland, the Netherlands and Finland, have set a good example and already have formal implementation and migration plans in place. Others are currently in the process of finalising such plans.

Implementation and migration plans must be in place and I would like to mention that it is important that all relevant stakeholders are involved in the national organisational structures.

National central banks support and monitor the implementation process. Naturally, the level of involvement varies due to the different roles of the NCBs in the euro area countries.

Another group of important stakeholders to be involved in SEPA implementation are public authorities.

I acknowledge that involvement of the public authorities in SEPA is a crucial issue, and can assure you that the Eurosystem is actively pursuing the task of promoting SEPA among them. SEPA figures prominently on next week’s agenda of the Financial Services Committee (FSC), one of the consultative committees of the Economic and Financial Affairs Council (ECOFIN). The banking community has requested the commitment of public authorities to the SEPA project.

Moving away from the stakeholders to be involved in SEPA implementation, let me turn to some issues which I regard as essential in the implementation process: testing, legal issues and communication.


The Eurosystem is pleased that the EPC is developing a testing strategy, and that the proposal to define the SEPA acceptance criteria, test scenarios, reporting requirements and monitoring procedure will be discussed at the next EPC Plenary so that the actual testing can start in 2007.

In the operational area, national central banks will conduct SEPA testing if they operate a retail payments system.

The Eurosystem stands ready to monitor the testing process and to provide support.

Harmonisation of legal framework

In my opinion, the Finnish Presidency’s compromise proposal on the Directive of Payment Services in the Internal Market is a good step forward, showing that politicians are joining forces to bring about progress in the implementation of the Directive.

One issue of concern for us is the proposed derogation for so-called “modern mass payments” when provided at national level. In my opinion, this will create more complexity and uncertainty than benefits.

I am aware that market participants are discussing a possible delay of the implementation of the PSD in national legislation.

In reaction to that, I must say that legal evaluations of national legislation have so far not shown any major obstacles to the implementation of SEPA instruments if the the PSD is not in place.

From an efficiency perspective, too, it is important for you that the preparatory work goes on without delay, so that SEPA can be launched on 1 January 2008. Systems in transition are more costly than switching to new models early on. Do not give anyone the chance to blame you for not implementing SEPA in time!

When comparing the implementation process of the PSD with another major directive in banking, namely Basel II, I draw confidence from the fact that although the actual implementation of the Directive took several years, banks moved ahead by anticipating its requirements. As a result, those banks that had already taken up the requirements were in a more favourable position when the actual Directive came into force.


With regard to the communication strategy, I am more confident now that progress has been made than I was one year ago.

The EPC’s storyboard was a first step in the right direction. Now, its contents need to be transposed into targeted messages and real-life examples for the retail clients.

This transposition will have to be done at national level to adequately address the particular interests and concerns of each national banking community.

The Eurosystem supports the communication efforts vis-à-vis SEPA in a number of ways.

In November, the ECB will organise a SEPA congress in Frankfurt with accompanying information material. Several high-level speakers such as Mr Trichet, Mr McCreevy and CEOs of the banking industry and large corporations will give keynote speeches on “SEPA – opportunities by change”.

The Eurosystem will work with the European Commission and the EPC on a coordinated communications policy.


In conclusion, I can say that in the last 12 months, the progress made has been impressive, and I would like to congratulate you on that.

However, I would like to stress again that in spite of good progress in the design phase, some issues of concern remain, in particular in the SEPA for cards. Do not fool yourselves that you as EPC can escape the issue cards. You have responsibility at least in the field of standards. Merchants and competition authorities have their eye on the issue and experience in the United States gives a preview of what is likely to happen here. The Eurosystem will have a close look at the current work on cards’ standards and will be alert as to possible movements towards a quasi-monopolistic situation in general.

Moving from the design to the implementation phase of SEPA now requires a different working approach and the involvement of a broader range of market actors and the public. Here, I wish to highlight in particular issues related to testing, the harmonisation of the legal framework and the communication strategy.

Public authorities can play a decisive role in the coming months. Their commitment to use SEPA instruments from January 2008 would quickly encourage others. However, we have not yet got the message through: the wide scope and the manifold benefits of the SEPA project are not yet fully accepted. We need to use the coming months to win over the authorities and to make the public sector an early mover.

Time and tide wait for no man. Although the creation and deepening of the European Union has not happened overnight, we as European citizens simply take it for granted now. To us, it is a daily reality of our life. The same will happen with SEPA. Step by step, we will move forward to 2008 and 2010. Once those dates have passed, SEPA will be with us and we will no longer be able to imagine Europe without it. I also wish to stress that implementing and migrating to SEPA is not the end but just the beginning of the future of the retail payments business in Europe.

Coming back to the example of telegraphy, it is clear that those pioneers like Reuter and Siemens who thought beyond existing set-ups and seized the opportunity of the new system were rewarded. Retail payments business, which may be seen by some as a “bread-and-butter” business, allows for creativity in developing new service offers based on progress in information and communication technology

I would warmly encourage you to take up this challenge.

Thank you very much for your attention.


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