SEPA is a European Community (EC) regulatory directive which came into effect in January 2008. The aim is to create an integrated European commercial zone, where it is as easy to do business in any European country across borders as it is domestically. The objective of a Single Payments Area is to dismantle the payments barriers to trading across Europe's borders by harmonizing all products, of which payments is a major component. The implications of this are far wider than just creating a harmonized payments zone.
SEPA has three parts to it; credit transfers, debits and cards. All three phases have been mandated to be fully implemented by 2010. Although it is likely that this deadline will move to the right by at least 12 months, there is no question as to the importance placed on this directive being fully implemented within the coming years as it affects Europe's internal market.
SEPA will eliminate cross border payment fees within the euro zone and many banks for which payments have been a highly profitable area of the business are likely to feel the squeeze. It has been estimated by the World Payments Report that banks in Europe are expected to lose between 13-29 billion euros by 2010 on their payments revenues. Naturally they cannot simply drop their payments services as these are core to the business so banks are now looking for the cheapest way for them to continue to offer payments services to their customers. They have two options:
- Continue to run payments services in-house and try to reduce costs in line with reduced profits
- Outsource the payments activities to qualified third parties and reduce internal IT headcount or redeploy staff (qualified third parties would include large banks and specialized payments companies)
Given that there are few very large banks, it is likely that some of these will pick up significant payments business within the coming years. In addition, since there will also be a large number of small and medium sized banks which do not want to be tied to one of the larger banks, a number of independent payments companies are expected to see an increase in business from payments outsourcing.
To meet the SEPA opportunity, CMT is planning to acquire a number of the small companies which provide outsourced payments services. Given that the first phase of SEPA is credit transfers, companies associated with SWIFT are obvious targets. Typically, SWIFT Service and Business Partners are small companies which have historically serviced the in-house SWIFT Cross Border Transactions(CBTs) belonging to organizations on the SWIFT Network. As of 2003 when SWIFT opened up its network to large corporates and Non Bank Financial Institutions (NBFIs), these small service providers were given the right to operate SWIFT Service Bureaux to provide remote connectivity to the SWIFT Network.
Most of these Bureaux simply provide connectivity to SWIFT. Although this makes them interesting it does not make them valuable, particularly because they typically do not own the software which is used by their customers - they simply manage a service. What is important about them is that they effectively 'hook' into an area of the back office of their customers which is affected by SEPA allowing them to then offer SEPA solutions and more. Ultimately these companies can act as delivery platforms for a range of value-added services charged on a pay-as-you-go basis. SWIFT Bureaux are spread throughout the world making them ideal 'entry points' to new markets.