On Bananas and the Integration of Euro Payments

The SEPA commitment of EU governments

26 October 10

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can only be achieved if major customers of euro payment services such as public administrations become dedicated SEPA customers. Engagement of public administrations, however, requires active support by governments. The enthusiasm expressed for SEPA by EU government officials on their occasional visits to Brussels is in most cases less prominent  once they are back home - where SEPA is suddenly  denounced as yet another EU-let's-standardise-the-curvature-of-the banana-initiative. Herman Segers clarifies: failure by EU governments to create the incentives needed for SEPA implementation by the public sector deprives individual consumers and the EU retail payments market as a whole of substantial and tangible benefits.

Is an banana project or not - that is the question

The scenario is familiar: EU government repres entatives descend upon Brussels to intone Beethoven's Ode to Joy - hands on their eager European hearts, eyes firmly set on the dawn of the most competitive knowledge based economy globally (that would be the EU internal market1) rising above the generally grey Belgian horizon. That other scenario is familiar as well: safely back home these same EU government representatives immediately mutate into the national variation of Robin Hood, ready to blame "Brussels" for pushing yet another superfluous integration initiative followed by fervent declarations to defend the home-grown banana against overambitious EU officials. (For some further amusing and truly kafkaesque reading please refer to Commission Regulation (EC) No 2257/94 laying down quality standards for bananas; in particular Annex II, B (ii) on the characteristics of "Class I" EU bananas2).

Now, neglecting for a minute the fact that these EU officials are generally put into office by those national governments that like to paint them as some alien body snatchers who silently took over EU affairs, the point is granted that EU integration initiatives may vary as regards their individual level of common sense. Perhaps the quality of life of the European citizen and the global competitiveness of the internal market do not hinge primarily on a regulation that determines the curvature of the EU banana.

The question is whether the integration of euro retail payments e.g. the introduction of the Single Euro Payments Area (SEPA), is yet another policy-maker-driven banana initiative. Only if this would be the case could the lack of support by some EU governments for SEPA be excused.

SEPA - much ado about nothing?

In a recent speech Gertrude Tumpel-Gugerell, member of the Executive Board of the European Central Bank (ECB) , reiterated the importance of EU financial integration3. According to the ECB's definition, financial markets are considered integrated if all agents face the same set of rules, are treated equally and have equal access to financial products.

In the view of the ECB, financial integration "not only contributes to the smooth and effective transmission of the single monetary policy throughout the euro area, but also to the smooth operation of the underlying payment systems. Financial integration also increases the depth and liquidity of financial markets, and consequently enhances the resilience of the European financial system. It also offers greater scope for geographical risk diversification, promoting consumption and income risk sharing. Integrated financial markets help to realise the full economic potential of the European Union, as recalled in the Lisbon Strategy. Financial integration contributes to the development of the financial system by increasing competition and expanding markets, which results in lower intermediation costs and a more efficient allocation of capital. These effects, in turn, raise the potential for long-term non-inflationary economic growth."

To measure the degree of financial integration, the ECB monitors related progress in the areas of clearing and settlement infrastructures for payments and securities, on the one hand,  and retail payment markets on the other.4 "The integration of the European retail payments market has yet to be achieved," states Ms Tumpel-Gugerell. "The creation of a Single Euro Payments Area (SEPA) will enable customers to make cashless payments throughout the euro area with a single set of payment instruments from a single bank account, regardless of their location. The Eurosystem considers the SEPA as an extremely important project for the European financial integration."

As you like it or show me the money

In addition to these systemic benefits that SEPA holds for the EU financial market, the integration of euro payments promises very tangible advantages for individual consumers and enterprises as a result of increased competition in the payments services sector: according to a study conducted at the request of the European Commission in early 2008, the replacement of existing national payment systems by SEPA holds a market potential of up to €123 billion in benefits over six years for the users of payments services5 - provided that migration to the new SEPA payment instruments takes place rapidly. On the other hand, if migration is slow, losses could amount to €43 billion. The European Commission also points out that depending on the success of SEPA uptake benefits for consumers may vary from €12 per head in a period of six years up to €1296.

In light of these facts the restraint so far demonstrated by most EU governments as regards SEPA implementation translates into immediate losses in particular for consumers.

Something is rotten in the state of...

In February 2009 the EU Finance Ministers gathering for the Economic and Financial Affairs Council (ECOFIN) stated that "significant efforts are required to accelerate the current slow rate of SEPA migration" and invited "users, in particular those with high volumes such as public authorities [...] to demonstrate a high commitment to the use of SEPA products domestically. In this respect, public authorities have a key responsibility.7"  In the manner described above, some EU Finance Ministers, however, have rather perfected the art of issuing lofty ECOFIN declarations in Brussels while hiding behind the banana theory when it comes to SEPA implementation by public administrations on national level.

According to the Annual Progress Report on the State of SEPA Preparedness in 2008 recently published by the European Commission, only 46 percent of all public administrations that responded to the related survey had appointed a SEPA manager with responsibility for SEPA migration. Notably, six euro area Member States have not reported any coordination of SEPA migration by public administrations at all. These results confirm the findings of the SEPA Survey 2008 stating that the public sector underperforms compared to all other sectors as regards SEPA implementation8.

EU governments: the taming of the shrew (measure for measure)

Going forward, the commitment of EU governments to the SEPA project will be judged exclusively based on the progress of SEPA implementation by public administrations on national, regional and local level. The welcomes the intended "Score Board" to be published by the European Commission illustrating such progress (or the lack thereof). Availability of the following measures to be put in place by governments in particular in the 16 euro countries could be monitored:

  • Demonstration of SEPA leadership in the national SEPA committees
  • Agreement on end-dates for migration of the public administrations to SEPA payment instruments
  • Allocation of resources for SEPA communication, implementation and migration in annual budgets now
  • Requirement to use SEPA standards in public procurements for payment services allowing banks to deliver SEPA payments services to any public administration in the SEPA area
  • Availability of incentives to facilitate the change-over from legacy euro payment instruments to SEPA for the business community - such as granting tax breaks for early movers, for example
  • Solutions to ensure the continued legal validity of existing direct debit mandates under the SEPA Direct Debit Scheme

A failure by governments to actively engage in the SEPA process cannot be excused by denouncing the SEPA project as yet another EU banana initiative - that would be confusing apples with oranges.



1The Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process, is an action and development plan for the European Union. Its aim is to make the EU "the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth (...)". It was set out by the European Council in Lisbon in March 2000 (Wikipedia).

2Bananas in this class must be of good quality. They must display the characteristics typical of the variety and/or commercial type. However, the following slight defects of the fingers are allowed, provided they do not impair the general appearance of each hand or cluster, its quality, its keeping quality or the presentation of the package: slight defects in shape, slight skin defects due to rubbing and other slight superficial blemishes not covering a total of more than 2 cm2 of the surface of the finger. Under no circumstances may such slight defects affect the flesh of the fruit.

3The Quest for the Holy Grail? - European Financial Integration: Achievements and Hurdles. Speech by Getrude Tumpel-Gugerell, Member of the Executive Board of the ECB. Workshop on "Securing the Future Critical Financial ICT-Infrastructure (CFI)" organized by Parsifal. Frankfurt, 16 March 2009.

4Retail payments are mainly consumer payments of relatively low value and urgency (ECB Payments and Markets Glossary)

5Capgemini. SEPA: potential benefits at stake (published 2008)

7Press Release of the Council of the European Union. Council Conclusions on SEPA. 2922th Economic and Financial Affairs meeting. Brussels. 10 February 2009.

8Atos Consulting and Deloitte: The SEPA Survey 2008 - a study on the awareness of and readiness for SEPA amongst corporates and public organisations in the euro area.


Herman Segers is the Secretary General of the EPC.

Related articles in this Newsletter:

Missing in Action, mostly. Public Sector lags behind in SEPA Implementation

ECOFIN Conclusions: Annual Progress Report on the State of SEPA Migration

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