SEPA: So near but so what?

It seems we have been collectively preparing for the Single Euro Payments Area (SEPA) for quite some time now yet no one seems too pushed about it!

Essentially SEPA is designed to improve the efficiency of payments in Euros both cross-border and domestically. As part of this, new schemes for credit transfers and direct debits will replace existing payment schemes and existing payments will migrate to the new schemes.

With a February 2014 deadline – this actually means there’s only 100 days left for government, banks and businesses to migrate their existing euro credit transfer and direct debit schemes to the SEPA credit transfer (SCT) and SEPA direct debit (SDD) schemes.  According to the European Central Bank the changeover process is now entering ‘a critical phase.’

In the Irish market, it’s been very slow to gain momentum despite these impending deadlines.  An ISME survey from September revealed that only 58% of SMEs are aware of SEPA, 29% were unaware of the 1st February 2014 as the compliance date and little over half of the SME community (54%) have begun early planning or implementation of this new system.  In total just 19% are considered SEPA compliant.

With so many other pressures and challenges facing small business owners it’s easy to see how SEPA fell below the radar.  In light of everything going on for business, it’s not really that compelling - even I struggle to find something transformative or tangible about it.

No doubt consumers are feeling the same; it’s just not clear how it will affect them or indeed if it will benefit them at all.   SEPA promises to offer greater choice of service, competition and flexibility. So a consumer wishing to pay for services within any of the 33 European countries involved in SEPA can now do so using just one domestic account.  They will also be able to use the same payment card for all euro payments within the participating countries, making the use of cards more efficient.  It will also be easier to opt and pay for services provided by European companies such as telephone, insurance and utilities. 

Therefore consumers should enjoy the benefits of increased competition in both the payments and utilities market.  I wonder though, will they embrace these rights post SEPA?  Will we see consumers opening up new European bank accounts?  And what are the risks for consumers, particularly in regards to making cross-border direct debits? 

The ISME report also outlines risks posed by a "big bang" late migration. If everything is left to the last minute, there could be huge capacity issues by providers and software vendors.  Similarly this doesn’t leave adequate time for system testing and dealing with any issues during the changeover phase.  Ultimately this approach could cause operational risks, like disruptions in individual handling of payment orders.  The organization is embarking on a nationwide rally to inform and motivate SMEs to get moving in their preparations for the upcoming deadline.

If life post SEPA offers up increased efficiency, smoother payment processes and greater competitive pricing/choice for both businesses and consumers, why are we so unhurried in our pace to embrace this? It seems there is little understanding or urgency to get moving on this new payments era.

Source: Second SEPA Migration Report, October 2013, European Central Bank and ISME SME SEPA survey, September 2013 

My thoughts on the recent Realex Payments blog regarding our National Payment Plan..

There was an interesting post recently from Colm Lyon at Realex Payments on the National Payment Plan (http://www.realexpayments.ie/the-national-payments-plan-a-missed-opportunity).

I’d agree with him on many points.  The report is nearly two years in the making and for me it really isn’t decisive or potent enough in its approach. 

There are many dynamic payment companies –of all sizes –operating nationally and internationally that are based in Ireland.  We have a vibrant, innovative payments industry with great businesses led by great people.   This report doesn’t really reflect this!

This progressive cohort of businesspeople would prefer to be out there developing viable businesses rather than crafting such reports over a two-year timeframe.  Like me I’m sure they’ve seen a few National payment plans in their time and are pretty pessimistic about what can be achieved via this route.  I suspect that if we looked back at previous payment plans –and what was targeted –it might be a less than successful track record. 

Market change will come from dynamic people making things happen –unfortunately they tend not to be the people who spend time producing reports like this. 

Is an annual tax on credit and debit cards the most stupid tax in the world?

With tomorrow heralding a new budget here in Ireland, there is certainly time to reflect on the choices made at government level with regards to payment taxation.

In Ireland, the practice of imposing stamp duties –a tax on cards -is still alive and well.  This tax is charged by the government on credit and debit cards issued by the financial institutions in Ireland.  In reality financial institutions are actually levying the charge: they chose to pass it on to consumers. 

I’m struggling to understand why this tax still persists.

Whilst the rules can vary from card to card, there are standard charges levied for each customer.  For credit cards, stamp duty is payable annually at a rate of €30 on every credit card.  With regards to Debit and ATM cards, it is payable annually at a rate of €5.  For credit cards, the duty is applied to each account whereas for debit cards it is €2.50 where cards have been used at ATMs only, €2.50 where cards have been used at Point of Sale only and €5 is paid where cards have been used in both instances.

This €30 levy on credit cards represents a significant barrier to competition in the Irish credit card market.  This practice contributes to stagnation of switching in this marketplace - customers are reluctant to shell out another €30 to acquire a second credit card within a given year.

In total this tax amounts to approximately €107m for the Exchequer, not one of the more significant revenue streams.  The government claims to be fostering a modern, efficient payment system for the people of Ireland.  As part of this, they actively encourage people to use electronic forms of payment yet the continued existence of stamp duty is in direct contradiction.  This tax effectively penalizes the consumer for doing so! 

The National Payments Plan (NPP) completely fudges the matter.  Using obtuse language it advocates that stamp duty should be reformed “to ensure that more effective, efficient e-Payments such as debit cards are not discouraged” concluding that current stamp duty on debit and pre-paid cards should be “phased out.”  However there is no deadline date, and therefore no commitment to this definitely happening anytime soon. 

At this stage the NPP should clearly and explicitly call for the elimination of stamp duty.  It doesn’t make any sense – overall it discourages people from using e-payments, raises only a small amount of money for the Exchequer and above all else really annoys consumers and is anti-competitive! 

It’s well past time that these taxes are immediately abolished.

Sources:

http://www.finfacts.ie/irishfinancenews/article_102633.shtml and the National Payments Plan (NPP) 2013