It’s a strange world that we live in when the European Parliament produces a directive 'the Payment Services Directive' (PSD) that actually prevents a solution (SEPA) in achieving the overall objectives set by the directive. This illogical situation is caused when the people making the directives and trying to build a harmonised EU market have little or no idea about how the market actually operates and the historical and long standing relationships that many services rely on.

Taken in isolation, there is not much wrong with the basic design of SEPA, as a solution to the political objectives. If implemented as it will certainly bring about harmony of pricing and services between domestic and cross border payments. A single market effect would materialise and the corporate or individuals having to pay against cross border invoices should expect improved timing, services and pricing but there the good news comes to a shuddering halt.

What’s written on paper and looks good does not necessarily mean that it works in reality. The really odd thing about SEPA is that it is a solution waiting for a market problem. Sure it performs well against the PSD but the PSD is a long way from the payments industry’s actual ability to comply with it.

The payments industry within each State within the European Union differs in many ways. No two States are exactly the same and there are major differences in systems, processes and procedures, relationships between players and the infrastructure of their governments. If all this was not bad enough the domestic laws within each EU State have various degrees of protection for their banks and their customers, something which has become even more obvious under the strain of the current financial crisis.

Clearly the European Parliament recognised the difficulty in transposing the PSD into domestic laws and they have written the articles as open as possible, to allow each EU State to adapt their laws and make the necessary rule changes for their own payment structures. The problem is that far too many EU States are still debating the PSD and it appears that many changes could be in the offing, creating not a directive but a tangled mess of legislative gobbledegook.

How then can SEPA be implemented to full effect, if the PSD is causing too many EU States to question and make changes? In effect the SEPA solution for the original PSD is now unacceptable to the Banks and to a lesser extent the corporates. Individuals are mainly unaware of SEPA and oblivious to the mess the PSD is creating. So we have a real problem that the PSD means one thing in Brussels but different things in many of the EU states.

Jonathan Williams of Experian Payments says: “The PSD that the banks wanted was purely to achieve the harmonisation which being competitive companies wanting to differentiate themselves, they cannot. The European Commission took the opportunity to look at payments regulation as well, something which is overdue. Both aspirations are laudable, but taken together they are hard to digest. “

It is through the services and technology offered by vendors like Experian that the banks and their corporate customers could release the full value of SEPA but this will only materialise if there is a stronger control of the PSD in Brussels. Member States have to be brought into line even if the PSD articles have to become very prescriptive.

Jonathan Williams of Experian Payments adds: “If each country looks at PSD implementation issues purely for what’s in its own, domestic interest, we will end up with many, similar but different versions. It is only if we make each country see that its own benefits are outweighed by a single, consistent view across Europe that we will achieve the full potential of SEPA. Because of the multiple national implementations of the PSD and the opt-ins and opt-outs we run the risk of a multi-coloured legal framework when what we wanted was a single utilitarian grey.”

There appears to be a fundamental issue for the European Parliament to solve with regard to the EU wide implementation of Directives.  The PSD is not the first and will not be the last Directive to be tripped up, when industry implementation projects across the EU, involve significant change in market structure and relationships within the market. These problems become magnified when there is a need to invest in new technology developments and where the customer is required to change practices or invest in new systems. Unless a clear business case is made the market users will drag their feet and lobby for change. This will slow the process towards the single financial market and eventually may lead to abandonment.     

By Gary Wright, M.S.I.