Approach of the Dutch public sector
The Dutch State Treasury Agency, part of the Ministry of Finance, is responsible for the procurement and coordination of payment services for the whole of the Dutch Central Government. In 2008, when the payment services for the central government (excluding those of the Dutch tax authority) were put out to tender, it was decided that under the new contract, outgoing payments would be migrated to by the end of 2009. Within the central government, the Ministry of Finance is responsible for coordinating this initiative and setting the 2009 deadline; however there is no central steering body that plans and monitors the implementation of SEPA. Instead, the Financial and Economic Affairs directorate within each ministry is responsible and accountable for timely migration to SEPA and reports to the Ministry of Finance on its progress. As the central contracting party, the Ministry of Finance agrees on the overall migration strategy with the banks involved and IT partners, but project specific issues are dealt with by individual ministries.
To assist the central government departments in their migration efforts, the Ministry of Finance established the Dutch SEPA Platform for the Public Sector (SPPS) in June 2008. The aim of the platform is to promote the adoption of SEPA and to provide its members with a network for sharing knowledge and experience. It also offers a way for the participants to promote their interests among others in the Dutch SEPA Consultative Platform1 and acts as a single point of contact for general issues encountered by parties outside the public sector.
In order to encourage SEPA adoption outside the central government, other public entities were invited to join the platform as soon as SPPS was formed. Among them are (associations of) regional and local administrations, non-departmental public bodies and public sector pension funds, together representing over 95 percent of public sector payment volumes. While these public entities are fully responsible for their own timely migration to SEPA, their involvement in the SPPS was designed to ensure that they had engagement and support throughout the process.
In June 2010, the Ministry of Finance set up a steering committee together with the five largest public organisations measured by payment volumes. The Dutch Tax Authority, the Central Fine Collection Agency (CJIB), the executive agency of the Ministry of Education (DUO), which pays out student grants, the Sociale Verzekeringsbank (SVB) which pays out state pensions and child support and the Uitvoeringsinstituut Werknemersverzekeringen (UWV), which is responsible for the disbursement of unemployment and disability benefits, together represent roughly 340 million annual incoming and outgoing payment transactions. The committee also includes the municipality of Rotterdam, which was one of the first local administrations to implement SEPA. As the migration of each of these organisations is expected to have a significant impact on their respective customers, the aim of this steering committee is to work on a common approach and core message for external communication purposes and to provide a communication toolkit that organisations can use when migrating to SEPA. This approach enables all members of the committee to explain the transition to SEPA in a consistent way to debtors and creditors and avoids contradictory information and confusion. The core message will also be shared with other groups of users represented in the Dutch SEPA Consultative Platform and could serve as a starting point for a national communication campaign to prepare society at large for SEPA.
As stated previously, the initial goal was to migrate all outgoing payments of the central government2 by the end of 2009. Although this goal has not been fully reached, substantial progress has been made, making the Dutch Central Government one of the first large users of payment services to implement SEPA. Currently, eight out of eleven ministries have partially or fully migrated their domestic credit transfers to SEPA standards. Where migration is taking longer than planned, the majority of delays are due to the implementation of new enterprise resource planning (ERP) systems or required adjustments to the systems of current ERP platform providers. The real challenge however, is the migration of the Dutch tax administration, which has an annual volume of 140 million credit transfers and 100 million incoming payments, including 72 million direct debits. The size and complexity of both the IT environment and the organisation itself, together with the impact of SEPA migration on customers, means that full migration of the tax administration to SEPA Credit Transfer () and SEPA Direct Debit (SDD) is not expected before 2013.
Public institutions outside the central government are transitioning to SEPA as well. The Sociale Verzekeringsbank (SVB), which pays out state pensions and child support, already uses the SCT for one million cross border payments annually and is technically ready to migrate 42 million domestic credit transfers. SVB expects to fully migrate to SCT later this year, once it finalises the results of a risk analysis and a general communication campaign is in place to inform the public at large about SEPA. The municipalities of Rotterdam and The Hague, the second and third largest local administrations in the Netherlands, show good progress in preparing their IT environment for SEPA. Additionally, the municipality of The Hague, the Dutch Parliament and the Central Fine Collection Agency are participating in the SDD pilot of the Dutch Banking Association. The first SDD transactions are expected to be executed during the first quarter of 2011.
The adoption of SEPA by society at large; what is needed to make SEPA a success?
Although SEPA is expected to realise substantial economic benefits in the long term, there is an expectation that this will not be enough to lead to mass market adoption of the new standards3. Observing an "increasing recognition by all categories of stakeholders that a legally binding end-date may be necessary to achieve successful project completion"4, the Commission recently proposed a regulation to set an end-date for phasing out legacy payment products. This regulation will be a major step towards the realisation of a single market for euro payment services, forcing market participants to abolish national legacy euro payment schemes. To achieve successful completion however, it is important to establish the reasons for slow market uptake. A number of factors can explain the cautious approach towards SEPA; a few of these are examined below.
Firstly, the implementation of SEPA requires substantial IT investments on both sides of the market. In relatively efficient payment markets, such as the Dutch market, where the direct costs for using payment services and margins are modest, it will take longer to recover the cost of SEPA migration than is generally desirable for an investment decision. Secondly, SEPA products show little functional advantage over existing payment products. Their main feature is the same treatment of domestic and cross border payments. The innovative advantages that SEPA is expected to deliver, for example in the field of e-invoicing, have yet to materialise. Thirdly, in some countries, there is still a lack of clarity regarding the validity of existing direct debit mandates under the SDD scheme, which is an additional hurdle in the process of migration to SDD. Fourthly, low demand for the ISO 20022 XML message standards (the SEPA data formats)5, and differences in their interpretation and implementation by banks, have caused ERP providers to take a wait-and-see approach. This makes it more difficult for first movers to migrate to SEPA.
Finally, SEPA can best be described as a politically driven market initiative: as part of the realisation of the European Union's Lisbon Strategy, banks were urged to establish a set of harmonised electronic euro payment schemes within Europe. The banks took up this challenge by uniting themselves in the European Payments Council (), but initially users only played a modest part in the development of SEPA standards. To help overcome this, in mid 2007 the EPC established the Customer Stakeholders Forum (CSF), which provides organisations representing customer interests on a European level with the opportunity to engage in the development of the SEPA payment schemes. However, it was only in 2010 that users were involved in a more formal way, when the SEPA Council was established by the Commission and the ECB. The SEPA Council's mandate is nevertheless limited to the provision of guidance and statements and has no powers to impose binding measures6. Formal involvement of user representation in decision making processes would therefore be needed to create a broader social basis for the development of payment schemes within SEPA, as users are still dependent on the willingness of banks to take their needs into account.
It would also be highly desirable to see a more unified interpretation of the ISO 20022 XML message standards among payment service providers. The ambiguity that exists can lead to a requirement for users to make additional IT investments when switching banks. Not only does this hinder competition, but as governments are legally required to put their payment services out for tender, they are likely to be faced with one or more new banks (and subsequently various interpretations of the ISO 20022 XML message standards) every couple of years.
Proposed regulation establishing end dates is a major milestone on the road to SEPA
As a market driven approach has shown slow rates of SEPA migration, the end-date regulation proposed by the Commission will be a major milestone on the road to the integration of euro payment services. In order to really incentivise migration, however, it is desirable that the definitive end-dates are known as soon as possible, since a lot still needs to be done: payment service providers need to invest in processing capacity, users and IT companies need to scale up their implementation efforts and consumers and SMEs must be informed of the oncoming changes. On top of that, it is important to clarify the legal status of existing direct debit mandates in all countries. In short, the regulation is an important step, but not a sufficient one to make SEPA a success.
Friso Spinhoven works with the Dutch State Treasury Agency of the Ministry of Finance. He is SEPA Programme Manager for the Central Government and chairs the Dutch SEPA Platform for the Public Sector. This contribution has been written in a personal capacity.
Related articles in this issue:
Related articles in previous issues:
1The Dutch SEPA Consultative Platform is a working group of the National Forum on the Payment System (Maatschappelijk Overleg Betalingsverkeer or MOB) and was established to help make the Dutch launch of SEPA as smooth as possible, uniting the Dutch Central Bank, commercial banks and representatives of various user groups.
2Excluding those of the Dutch tax authority and the executive agency of the Ministry of Education
3See for example the 7th progress report by the European Central Bank: http://www.ecb.int/pub/pdf/other/singleeuropaymentsarea201010en.pdf?bc6e6db873419f8348fd0a75e7369694
4Paragraph 1 of the explanatory memorandum of the EC's proposal for a regulation, which can be found at http://ec.europa.eu/internal_market/payments/docs/sepa/com_2010_775_en.pdf
5The realisation of SEPA therefore requires agreement on a common set of data to be exchanged in a common syntax. The SEPA data formats as specified by the EPC for the exchange of SEPA payments like direct debits and credit transfers represent such a common data set. The SEPA data formats are based on the global ISO 20022 message standards.
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