Missing in Action, mostly

Missing in Action, mostly

Public sector lags behind in SEPA implementation

26 October 10

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migration of the public sector

In February 2009, the Council of Finance Ministers (ECOFIN), presented its first Annual Report on the State of SEPA Migration and stated that " remains a necessary and economically viable project. Therefore, it is of paramount importance to maintain migration momentum and ensure that the full benefits of the project are attained." The report primarily reflects the results of a survey launched by the European Commission on preparedness and migration by public administrations.

At this point, compared with all other sectors, the public sector appears to particularly under-perform in this regard.

The actual take-up of Credit Transfer ( ) by public administrations which responded to the survey represented no more than 5 per cent of all credit transfers performed in the payments market annually.

Consequently, many public administrations have not yet executed any at all, while others have used the new instrument only to a marginal extent (less than 1 per cent of all credit transfers). Earlier and faster adopters with a more significant volume are the Belgian Central Bank (8 per cent rate) and the Finance Ministry of Italy (5 per cent rate).

The front-runners: Luxemburg, Belgium and France

There are, however, positive exceptions: the public sector in Luxemburg achieved a 100 per cent rate for their domestic payments. Luxemburg benefits from the fact that domestic banks are already fully -compliant and have converted domestic public administration payments from the legacy national standard to the ISO 20022 XML messaging format (the data format). Since 1 January 2009, the Belgian federal public administrations exclusively use the Credit Transfer for all their financial transactions with citizens and corporates. In France, a committee representing all French government ministries has been established to coordinate, monitor and steer migration of public administrations at central government and local level as well as within social security entities. Other Member States might consider learning from the experiences gained in these countries where lessons learned on migration are already available.

Step up the pressure

Given the overall results of the Annual Progress Report on the State of Migration, European authorities are increasing the pressure with a view to remediate the situation.

The European Parliament approved on 12 March 2009 a motion on stressing the need to set an end-date for migration to the instruments by the public sector. The ECOFIN reiterated in its conclusions of 10 February 2009 that users, in particular those with high payment volumes such as public administrations, should demonstrate a high(er) commitment as regards implementation. The Finance Ministers thereby also acknowledged the crucial role of governments to ensure proper coordination of public sector migration at national level.

The European Central Bank (ECB) encourages public administrations to reference compliance in their tender procedures when contracting payment service providers. In addition, public administrations should take the lead in the roll-out of IBAN (International Account Number) and BIC (Bank Identifier Code), the only permissible account identifiers: websites, invoices and other stationary have to be updated to prominently feature IBAN and BIC of government entities receiving payments from citizens. The ECB itself has migrated its payroll to the standard, e.g. all ECB employees receive their salaries via Credit Transfer.

The most efficient way to promote engagement by the public administrations, however, is to convey the major long-term opportunities holds for them.

Increase payment efficiency

might become the basis for a state-of-the art payment infrastructure which could be leveraged to support the modernisation of government euro payment services. The schemes and common standards will enable the delivery of improved services to citizens in the 16 euro countries. allows for faster credit transfers in the public sector throughout the . From November 2009 onwards, the new Direct Debits can be used for domestic and cross border euro payments such as tax collections. compliant payment services will thereby provide a major opportunity for standardisation and rationalisation resulting in improved efficiency of payments and direct cost savings.

Drive forward the use of electronic payment instruments

Using electronic payment instruments like direct debits or (contactless) cards will accelerate the process of moving away from costly payment instruments such as collecting cash for public transport, for example. Migrating government payments and receipts away from paper-based and cash processes, in partnership with the banking sector, will further reduce the costs of the payment processes within public administrations.

Contribute to efficient e-government

could serve as a catalyst for the development of e-government services, which in turn would have a profound impact on the way the public sector conducts business making public administrations more service-oriented.

Make it happen: -wide public procurement and e-invoicing

could also play an important role in public e-procurement. In many Member States, the public sector currently upgrades their procurement policies in accordance with stringent rules, which are intended to remove existing barriers and open up new, non-discriminatory and competitive markets. That could strongly increase cross border payments through public purchasing across Europe. Moving public procurement online enables substantial savings on expenditure and transaction costs while removing barriers to trade. The recommends that the standards are a requirement in any public procurement process for delivering goods and services inclusive payment services to the public administrations in the euro area.

could be seen as an ideal launching pad for a successful European wide e-invoicing initiative designed to support more (cost) efficiency in other parts of the financial supply chain. Not only corporates but also public administrations will demand fully standardised invoicing solutions, which could be facilitated by full compliance. Whilst e-invoicing is out of scope of the , e-invoicing itself could be an important catalyst for the adoption of .

How banks can help

To facilitate implementation in the public sector, banks have an important role to play. Banks obviously have the responsibility to offer payment services that are attractive, competitively priced and retain at least the level of performance that current national products have. Banks should be able to deliver compelling value propositions enabling public administrations to reap the benefits of . The first Annual Migration Report of the ECOFIN showed that 42 per cent of the responding public administrations have so far not received any Credit Transfer offer from their bank.

Public administrations: call to action

Engagement of the public sector is paramount as it will directly contribute to creating the critical mass needed to realise the full benefits of . Given the wider benefits for society, public administrations should play a major role in kick-starting by setting an example for all customers. The time to act is now.

Gerard Hartsink is the Chair of the .

Related articles in this Newsletter:

On Bananas and the Integration of Euro Payments. The SEPA Commitment of Governments.

ECOFIN Council Conclusions: Annual Progress Report on the State of SEPA Migration. European Commission reports on migration by public administrations.



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