SEPA represents a major opportunity to turn regulatory
compliance into
tangible business benefit
Executive Summary:
The dream of full European harmonisation is fast becoming
a reality. Increasingly, movement of labour
and goods is benefiting from the foundations laid nearly
half a century ago with the creation of the European
Economic Community, cemented through the Maastricht
treaty in 1992, and further enhanced with milestone
events such as the introduction of Euro note and coin
in 2002. Further collaboration on economic, environmental
and social improvement continues to build on the advances
made to date. The Single European Payment Area (SEPA)
plays an integral role in this development, bringing
with it both fundamental changes to the underlying infrastructure
of the banking industry and practical improvements in
the day-to-day trading activities of the European Community’s
corporate bodies and citizens.
Changes in regulation are potentially complex activities.
The need to strike a balance between common application
of the regulation and a workable process in each of
25 countries at present, and more in the near future
with further planned expansion in 2007, underscores
this. With potentially 500 million people affected by
the changes as EU citizens, and many more as trading
partners, care in both planning and execution of the
changes is of paramount importance. PIPC has an enviable
track record in delivering complex change programmes,
both in regulated and non-regulated environments across
a broad range of industry sectors including Financial
Services, Retail, Government and Public Sector, Telecommunications,
Technology and Oil, Gas & Utilities. Our approach
is pragmatic and focused on delivering tangible outcomes
that deliver business and customer benefit alongside
regulatory change. For this reason, PIPC is consistently
asked to support clients in delivering their mission-critical
initiatives.
Commercial advantage gained through efficient
delivery
Regulatory change programmes are often viewed
as the sole preserve of the Risk and Compliance departments,
and managed through a separate portfolio from the ‘business’
change initiatives. This disassociation with the business
creates a barrier to efficient delivery, driving up
cost and diluting sponsorship. Added to this, regulatory
change by the nature of its scale and ambition sets
compliance deadlines that lie far beyond the standard
business change horizon. This brings with it a ‘mobilisation
inertia’ which ultimately causes programmes to
become costly and complex as they begin too late and
then struggle to meet the deadline. SEPA requires a
collaborative effort between business units –as
the internal customer of the change- and risk and compliance
departments –who together with the project groups
will shape and deliver the change. Therefore, a fully
representative, business-wide Steering Committee must
take full and early ownership of the programme to ensure
the solution is fit for purpose.
In ever-more competitive markets, such as Financial
Services within Europe, with its recent flurry of mergers
and acquisitions, greater prominence of lower-cost channel
providers and increasingly sophisticated customers,
controlling cost in both programme and daily transaction
terms is critical. Although SEPA will be a mandatory
requirement, managing the cost of meeting the requirements
is a key concern for affected parties. Viewing the change
as an opportunity to deliver business benefits through
lower payment costs, and improved efficiency through
an effective programme structure, judiciously executed
in line with a clear plan, holds the key to success.
SEPA must be managed as a programme within the overall
change portfolio Successful programmes deliver benefits
in line with cost, timescale and quality objectives
set out in advance. As with any other change initiative,
SEPA must clearly establish at an early date how these
measures will be achieved. Given the defined window
for SEPA implementation running into 2010, careful thought
and planning must be invested in setting a series of
clearly defined milestones along the delivery route.
As with any other programme, proactive communication
–particularly around what will not change as well
as what will – is essential to involve and inform
relevant stakeholders within the business and customer
communities. PIPC’s approach to programme mobilisation
is to determine the ‘building blocks’ for
success at an early stage, and manage these rigorously
through to completion. The critical building blocks
for SEPA can be described as; 1. Stakeholders: who are
they, what is their interest and to what degree are
they involved 2. Outcomes: what are we aiming to deliver
from the programme to meet SEPA requirements and deliver
the business benefits? This is expressed in a ‘delivery
roadmap’ set out at an early stage 3. Programme
governance: ensuring appropriate controls and processes
are in place to manage risks and issues, dependencies
on other initiatives or entities are identified, and
a clear decisionmaking process is agreed at inception
4. Structure: the programme team is appropriately resourced
and funded to deliver the programme, and is integrated
within the overall change portfolio 5. Communication:
internal and external, inbound and outbound. This is
a critical function of the central Programme Management
Office (PMO) to provide timely, relevant and accurate
information to all interested parties.
The above diagram shows how
getting this right at the mobilisation
stage allows smooth and controlled
delivery, whereas failing to address
programme management
fundamentals at the outset creates a
‘wave of uncertainty’ during the
critical delivery phase.
Positive approach, positive outcome
As previously outlined, regulatory change programmes
often suffer from poor internal press and are reviewed
as cost-led, isolated initiatives that are rushed through
at the 11th hour. An up-front assessment of the market
opportunity to deliver lower-cost payment services to
corporate and individual customers as a result of meeting
the SEPA requirements is a prerequisite for successful
business engagement. There is an element of ‘do
as you would be done to’ in this sense. For a
regulatory change programme to be compared on an equal
footing with other business-led change initiatives,
it must play by the same rules. This requires a robust
business case to define exactly who will benefit from
the changes brought about by SEPA, what this will be
worth, and how the improvements will be measured.
A simple first step is to assess the requirement for
business and process change to meet the new regulation.
This current state review will undoubtedly highlight
impacts and dependencies on other existing programmes
of work focusing on the same areas. By coordinating
effort on process and system change within the overall
portfolio, time, cost and effort can be saved. This
seemingly obvious approach is often overlooked, partly
due to the polarisation of regulatory change initiatives
in the Risk and Compliance area, and the resulting poor
stakeholder engagement. Again, inclusion in the overall
change portfolio, robust governance and control through
the central PMO can easily avoid such a pitfall.
PIPC is focused on driving business benefit for its
clients, and has a strong track record of realising
substantial value from delivering successful programmes.
Taking a business case from concept to reality is core
to successful programme delivery. Our willingness to
share risk with our clients by underwriting benefit
realisation is testimony to our ability to deliver.
SEPA – part of your growth strategy?
The opportunity presented by a single process, pricing
model and delivery structure for payments within
the European Union is significant. Providers with business
interests in multiple European geographies
will be able to tap into substantial economies of scale.
This will enable them to pass on operational
savings to their customers in the form of lower prices,
a core tenet of the SEPA vision. From a customer
perspective, a single operating model for payments enables
individuals with pan-European interests (for
example, expanding SMEs, or the growing number of EU
citizens with second homes in other member
states) to make low-cost, straightforward payments using
the single passport function throughout the
Union. In addition, Financial Services institutions
with current or planned European operations will
benefit from a single payments model, scalable to accommodate
extension into further territories as both
they and the EU continue to expand.
SEPA has been likened to the introduction of Euro note
and coin in terms of the scale and reach of the
change it involves. As an opportunity, it could be likened
to the change in mindset brought about by what
is commonly referred to now as the ‘low-cost flight’
effect. Previously, many Europeans (and those in
countries with a strong tradition of domestic tourism
in particular) considered short breaks in Europe
travelling by air to be an unrealistic aspiration both
from an economic and a convenience standpoint.
With the advent of the low-cost airline, a massive shift
in customer perception was achieved. Suddenly,
myriad destinations were being served by affordable
flights making a shopping trip, ski holiday or social
visit a real option. The market grew exponentially,
with the lower-cost providers now operating more
flights to more destinations than the more established
flag-carriers. The customer demand for the
service grew, as new ‘uses’ for short-haul
European for travel emerged. Added to this, a substantial
substitution effect was evident, as market share was
gained from alternative transport means and spend
categories.
SEPA is a close parallel to the low-cost flight example
for the payments world. Opening up a simple,
convenient and affordable channel for making cross-border
transactions has the potential to greatly
increase the volume of payments made and in turn realise
the economies of scale sought by providers to
recover the investment costs. Demand clearly exists;
cheques are still in common use with around 9
billion drawn annually across Europe. Customer aversion
to cross-border payments currently centres
around cost, speed of delivery and absence of a single,
simple process to follow. For larger players with established
Europe-wide operations, the scale argument is a compelling
proposition. Smaller retail and
corporate financial service providers also stand to
gain significant revenue streams by offering costeffective
cross-border payment services to their customers. Perhaps
more importantly, any inability to
offer a comparable service as their larger counterparts
may drive customers and their business away.
;)
