In search of calmer waters

With a changing payments landscape, the very structure of banks seems to be a matter of great debate at the moment. On one side is the view of Governor of the Bank of England who believes that banks should be split into separate utility companies and risky ventures. The opposing view comes from the Group of 20, the Financial Stability Board and the Basel Committee which see little reason for any bank break-up and have issued proposals aimed primarily at raising the quantity and quality of banks’ capital to make future banking failures much less likely.

As such, there is an underlying belief on both sides that the payments business of the banks represents calmer waters, where risks are minimal, rewards are steady if not significant, and major upheavals are seldom seen.

However, the picture in Europe says otherwise...  

With the Payment Services Directive now in force and the launch of SEPA Direct Debits underway, there is still a high degree of confusion in the market. The banks and the countries themselves are at varied levels of preparedness for both the PSD and SDDs to be implemented. What contributes further to the lack of readiness is the fact that the SEPA Direct Debits are being launched into a market where the legacy direct debit instruments across Europe are still in play until some as yet indeterminate future date - a recipe to evoke resistance of both banks and their corporates.

In addition to the lack of a definite end-date for the switch over from legacy to new payment systems both the introduction of the PSD and SEPA DDs will have financial ramifications for the banks. Yet, there is no strong business case for the introduction of either, in particular as liquidity issues surrounding payments have come to the fore in the aftermath of the global credit crisis. This was reflected in the recent announcement from the German Savings Banks Association that they would only provide their customers with the SEPA Direct Debits if requested.

These are hardly ‘calmer waters’. The only possible bank response is to build the agility into their payment processes needed to be able to handle payments from any channel from start to finish.