The World Payments Report 2007 from Capgemini, ABN AMRO, and the European financial management and marketing association (Efma) highlights the need for banks to consolidate their position in the payments market quickly.

While banks can expect a share of the current growth in the payments market, their payments volumes are likely to grow at very different rates from now until 2012.

Positions will change. Some medium-sized payments banks may become big players, while some current leaders could lose their volume advantage.

Expensive scenario 

Ann Cairns, the CEO of Transaction Banking at ABN AMRO, points out that banks inside and outside Europe need to understand how SEPA will impact them and urgently make the strategic sourcing decisions to ensure they can compete.

She explains that a long migration to SEPA will be an expensive scenario. Building the SEPA is the largest payments industry initiative ever undertaken in Europe.

Not surprisingly, hurdles remain. There are outstanding issues related to legislative process, exact requirements and how SEPA will be implemented.

The migration of existing legacy instruments to SEPA, for instance, will be a daunting task in the absence of central management and control.

Then, the Payment Services Directive (PSD) must be transposed, converted into national law in each participating country, before 1 November 2009.

Critical mass 

At the same time, many questions on cards have yet to be resolved, and some corporate users of payments are also slow to embrace the benefits of SEPA. For their part, banks are working actively towards SEPA compliance.

The World Payments Report 2007 finds that the Eurozone countries do not expect to achieve a critical mass of SEPA payments volumes before the end of 2010.

Some countries have even expressed a desire to retain legacy payments while demand exists, a move that could create a sort of “mini-SEPA”, in which Eurozone customers are offered one service in their home market and another in the rest of the Eurozone.

Public sector and corporate adoption is vital for achieving the required critical mass of SEPA payments volumes, and for avoiding a mini-SEPA, the report shows. As a result, these stakeholders must be encouraged to participate promptly.

Today, the public sector user group accounts for approximately 15 per cent of total Eurozone payments, primarily credit transfers and direct debits, and this sector could contribute 29 per cent of the required volumes to reach a critical mass.

If corporates were added, the critical mass would be reached, or even exceeded.

New business opportunities 

Banks and regulators must answer the collective call to accelerate the decommissioning of remaining legacy payments, and avoid a long and costly period of two service offerings.

Market growth and portfolio protection create new business opportunities for banks.

The World Payments Report 2007 shows cash is still the predominant means of payment in Europe, and there are no visible plans to replace it.

On the contrary, as ATMs improve, and the amount of cash in circulation rises, consumers are finding it easier and easier to use cash, which remains the most widely accepted way to pay for low-value transactions.

Cash replacement should come from the SEPA debit card, but it remains to be seen if and when card acceptance by merchants across the SEPA area will rival the acceptance of cash.

Non-cash payments 

Other non-cash alternatives like e-wallets, contactless payments, and mobile payments are still in their  infancy.

Non-cash payments transaction volume grew at a sustained 6 per cent-7 per cent rate in 2001/05 in the 17 European countries surveyed in the report (vs. 5 per cent-6 per cent in the US), the report shows.