The latest World Payments Report says, among
other points of interest, that 58 percent of banks already
outsource or plan to outsource part or all of their payments
activities within five years. Some 68 percent plan to offshore this
activity as well, whether back-office, IT or support functions,
writes Douglas Blakey.

The latest World Payments Report from Capgemini, ABN
AMRO and the European Financial Management & Marketing
Association (EFMA), the third so far, was published in
mid-September. While the report states that the “main uncertainties
regarding guidelines and rules for making the Single Euro Payments
Area (SEPA) a reality have been resolved”, a number of concerns

The report states, for instance, that the 2010 deadline remains at
risk. None of the eurozone countries expects to achieve a critical
mass of SEPA payments before the end of 2010, according to the
implementation and migration plans published by eurozone

In addition, some communities also expressed a desire to retain
legacy payments as long as demand exists which could create a
‘mini-SEPA’ whereby customers are offered one service in their home
market and another in the rest of the eurozone.

Perhaps one of the bigger hindrances to SEPA is the fact that,
while cards-based payment volumes are growing year-on-year, cash
remains the preferred payment instrument in Europe, and there is
still no visible initiative in Europe to replace cash usage. As
ATMs improve and the amount of cash in circulation rises, consumers
increasingly find it easier to use cash, states the report.

By 2012, cards will account for about 44 percent of all non-cash
transactions in Europe. Banks will need to review the option of a
new European card scheme as an alternative option to replace the
existing national schemes. “Europe [still] needs an ‘any card at
any terminal’ solution for a card market that is growing over 10
percent a year,” it adds.

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The significance of cards in the attempt to boost growth in
non-cash payments is consistently rising. The volume of card
transactions as a percentage of non-cash payments is expected to
grow to 44 percent in 2012 from 34 percent in 2005, according to
the report.

In order to facilitate more competition and further the reach of
cards as a method of payment across Europe, the European Payment
Council (EPC) has published the SEPA Cards Framework, which
supports EMV chip and PIN technology as the operational standard
across the EU. The report notes that, as of spring 2007, EMV
compliance for cards across Europe was at 42 percent, POS terminals
were at 47 percent and ATMs were at 61 percent.


One interesting recent development is that, while SEPA has been
trying to curb national schemes in order to foster greater card
acceptance across the eurozone, this has made conditions more
favourable for the existing market duopoly of Visa and MasterCard
with their pan-European presence.

With their international reach, they are currently the most able to
comply with the SEPA Cards Framework. There are currently several
initiatives aimed at presenting an alternative to Visa and
MasterCard, most notably the Euro Alliance of Payment Schemes, an
attempt to co-ordinate existing European card schemes.

The EC and the European Central Bank are pushing for greater
transparency as well as value for consumers in the debit card
sector, and have been supportive of attempts to create a third

One of three strategies

Most banks will adopt one of three strategies to cope with the
introduction of SEPA – niche player, low-cost producer, or leader.
Banks rejecting or unable to execute one of these three strategies
will need to outsource (parts of) their payments processing

Some 58 percent of banks already outsource or plan to outsource
part or all of their payments activities within five years, and 68
percent plan to offshore this activity as well, whether
back-office, IT, or support functions. In most cases, banks have
not yet quantified SEPA’s impact.

“Non-European banks are seeing an opportunity to use SEPA to
reposition themselves quickly in the market. European banks, in
contrast, have a more relaxed vision of SEPA, either as a future
threat or as an opportunity,” says the report, adding that “most
banks do not consider potential new market entrants (processors and
telecoms) as a real competitive threat.”

European banks will face challenges to their competitive positions
as their direct payments revenue declines by between 38 to 62
percent in some parts of the market by 2012.

Volume growth varies by country, and non-bank stakeholders (such as
Automated Clearing Houses, corporates) might move up in the value
chain. Banks positioned among the top 10 in the 2012 European
market are expected to process approximately 5 billion transactions

Payment institutions will not present a serious competitive threat
to Europe’s 20 largest banks (responsible for 45 percent of
Europe’s payment volume) until 2011. Until then banks have free
field to secure their current position.

Overall, the 2007 World Payments Report says that
successful banks are turning to delivery models that rely on open
architectures to: enhance product offerings (such as flexibly add
white-label products to their portfolios quickly enough to satisfy
clients); outsource payments processing to third parties, or
insource others’ corporate or financial institution payments via
customised services delivered in an efficient industrial model; and
permanently optimise this model by offering clients the most
competitive integrated services in the market.