1. The document discusses the implications and opportunities presented by the implementation of the Single Euro Payments Area (SEPA) for banks and financial institutions. 2. SEPA will standardize credit transfers, direct debits, and card payments across Europe, representing significant changes to payments strategies, infrastructure, and compliance requirements for banks. 3. Banks face challenges such as high implementation costs, aging legacy systems, and new competitors, but may also benefit from opportunities like increased geographic reach and lower transaction costs.

1. Planning for SEPA
Implementation:
From Compliance to a Strategic Response

2. The Opportunities and considers this external change in member states plus Iceland,
light of the existing internal Lichtenstein, Norway and
Threats of a New Market context - commercial, operational Switzerland. It is impacting
Context and technical; and will separate national payments strategies,
The European Payment Services those who truly prosper within the industry infrastructure, companies'
Directive (PSD) will be transposed new post-SEPA and PSD compliance agendas, and in some
into law and come into force by environment. cases competitive strategy.
November 2009, and the Essentially, the change is resulting
requirements imposed by the EPC Payments Revolution: in new legal, business and
regarding the Single Euro Payments Single European technical responses to enable
Area (SEPA) means compliance borderless processing of credit
programmes are already well
Payments Area (SEPA) transfers, direct debits and card
underway. Inherently many of Regulatory Milestones payments across the Europe.
these programmes are driven to Nov 19th - TARGET2 Go-Live
reach minimal technical 28th Jan 2008 - SEPA Credit Key Findings - The
requirements for incoming and Transfers European Payments
outgoing payments messages, and May 27th 2008 - Faster Payments
many operate within business unit Nov 2009 - PSD Transposition to
Revolution: An
silos. Banks have anticipated that National Law & SEPA Direct Debits Accenture Survey
the cost of compliance will be high; Late 2009 - SEPA Cards • SEPA is costing banks
however these programmes Late 2010 - EMV Chip and PIN significantly more than expected
typically do not provide the scheme • 39% of banks and processors
optimal benefit because they fail to Set on the backdrop of increased plan to replace legacy payments
address the broader strategic threats globalisation and consolidation platforms
and opportunities. across the financial services sector, • The scale and complexity of
the European payments landscape change around SEPA is
The implications of the regulatory
is changing significantly due to overloading banks' and
change are significant -
regulatory catalysts. Developments processors' IT resources, and
compression of transactions fees
across the payments market are restricting investment in new
and float, pressure to reduce
being driven as politicians, product innovation
processing costs, data management
regulators, central banks,
challenges associated with • The pressure on financial
corporates, banks, and trade
transparency requirements, the institutions' business and
associations respond to mandates
threat of new market entrants as technical resources will continue
and initiatives such as the Payment
the 'Payments Institutions' category • Banks are concerned that SEPA
Services Directive, Faster Payments,
is explicitly created, and the Direct Debit implementation will
and the Single Euro Payments Area
institution of maximum execution be overly complicated
(SEPA). SEPA is the harmonisation
time for domestic and cross-border
project introduced by the European • Over 70% of banks surveyed
payments of D+3 through 1/1/2012
Payments Council (EPC), involving believe SEPA will ultimately
and D+1 thereafter. These impacts,
national payments schemes, and justify new internal payments
coupled with increasing customer
infrastructure implementing new infrastructure and enable
expectations in the commercial
standardised business and technical European expansion, despite the
segment, provide opportunities for
frameworks. Importantly, in an challenges surrounding the
savvy market players to lure
effort to increase competition in the purely commercial business case
lucrative corporates from their
processing sector, a core feature of for spending on SEPA
traditional domestic bank with
SEPA is a clear separation of the compliance
enhanced cash and liquidity
brand and scheme from the • Organisations have an
management propositions. Other
infrastructure and delivery system. expectation of only 37 percent
opportunities exist for M & A plays,
The reach of SEPA spans the 27 EU that their internal platforms will
and for payments insourcing. A
strategic response, in our view, be fully and independently SEPA
compliant before 1st January
2008
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3. • The greatest opportunities are Clearly the prospective benefits, Executives and managers are being
seen to be in the corporate include: revenue growth from confronted by decisions impacting
segment, with the result that extended geographic reach, every part of their payments
new SEPA payments revenue growth through increased business and IT department. Both a
propositions for corporate penetration with core domestic tactical and strategic response to
customers are being prioritised customer segments, lower cost-per- SEPA is required to achieve
and pursued ahead of those for transaction - primarily achieved compliance and stay competitive.
consumers through increased STP rates, and Strategic choices covering the
• Euro-zone banks will spend a the cost savings associated with growth agenda, market positioning,
higher proportion of their maintaining more simplified key service and product
payments platform budgets on payments platforms. propositions, and channel
SEPA than non-Eurozone banks sophistication will all impact
The second approach, Minimalistic revenues, costs and competitor
• With the advent of SEPA, Visa Compliance, as the name suggests, behaviour. Further difficulties are
and MasterCard are expected to is anchored to the principle of encountered when considering the
emerge as strong competitors to investment avoidance. Ironically, operating model to execute the
major US and European cards the scale of change involved will strategy. Should the bank retain
processing companies necessitate a compliance-related internal processing or outsource
spend for large banks estimated at
The SEPA Opportunity & €50M - €70 for business and
commoditised back-office to a
lower cost provider, or look to
Challenge technology initiatives. While achieve the scale required to in-
For banks, the market change is immediate-term savings are to be source payments?
forcing hard business decisions on had by doing as little as possible to
- geographic reach, use of internal achieve compliance, these players External Considerations
payments schemes and systems, are still conducting examinations
new products and services of strategy around conducting
& Context
offerings, new customer segments transactions. We have surfaced a • Decision required on rule books
to target, IT and channel number of key considerations and version to be used for
investment, operational constraints, regardless of approach requirements gathering. The
reorganisation, and governance. adopted, that are driven by internal Direct Debit Rulebook and
Clever innovation and new and external contextual factors (see Implementation Guide version
propositions will create value for sidebar - SEPA Considerations). 2.3 is now available, may no
customers, from consumers to longer be relevant for direct
There are significant challenges for debits in 2009.
corporates, and serve to replace the
banks as they proceed with
diminishing revenues from • Inconsistencies and omissions
addressing SEPA:
transactions fees and float. within the implementation
• Bank and processor market guides, when compared to ISO
Two approaches are being adopted
consolidation 20022
to address SEPA: Competitive
Investment and Minimalistic • Threat of new market entrants • Reachability requirements
Compliance. Those subscribing to • Poor supplier service levels assumptions must be made due
the former are seizing the • Imperfect information as to routing vagary within the rule
opportunity to extend their scheme rules are updated books
geographic reach by targeting non-
• Delivery within the timeframe • Assumptions and decisions are
domestic customer segments which
driven by the need to be required regarding bilateral
have historically been their most
compliant agreements and CSM
profitable at home. Also, this
• Lack of necessary skills to participation, especially in light
approach is often accompanied by
innovate of industry consolidation, to
the development of new customer-
minimise costly duplication and
centric value propositions and • Aging legacy technology
the risk of inconsistent customer
payments channel innovation, such coupled with implementing
service
as mobile-banking solutions. large scale platform refresh
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4. • Implications of the outputs from optional routing that may be solutions needed to onboard
the EPC working groups on e- costly to implement payments from smaller banks
Invoicing and mobile payments without unnecessary re-work.
• Customer-to-bank
• Potential institution of a third communication can be defined • Sophisticated regional and global
direct debit card scheme, and by the banks, because the payments solutions with
enabling 'any card at any rulebooks only provide a consistent pricing and high
terminal' recommendation - format and service levels are demanded -
technology must be decided cash and liquidity management,
• Clarification of central bank
reporting requirements for • Implications of SDD calendar shortened settlement cycles, and
payments over €10,000 logic: due date = settlement date high quality information.
= execution date
• Customer propositions regarding • We forecast a fragmentation of
the utilisation of the 140 • Possible implication on the the payments value chain and an
character field (such as providing minimum reserve requirements with emergence of value chain
their defined reference data for the central bank specialists and insourcers, with
ease of reconciliation) some positioning as lost cost
• Possible change of risk profile of
providers operating at scale.
• Application of national rules corporates that are allowed to
regarding tax residency and submit direct debits, as the new • Many Banks need to re-platform
account ownership process exposes banks to their payment systems. Multiple
increased credit risk single purpose applications
• Potential retention of national
payments infrastructure and • Compulsory acceptance of all combined with applications going
development of national AOS SEPA Direct Debits, regardless of out of maintenance, and a loss of
source bank critical tacit knowledge is
Accenture Point of View contributing to higher operational
• Creation of a database to enable risk and incr easing cost of
Internal Considerations & Context
routing to approximately 7,000 maintenance. Current payment
• Impacts within the branch
European banks systems are not flexible enough
network and operations of
payments processes, procedures We have recognised the to allow banks to react to
and workflow implications of SEPA and defined a sophisticated customer demands
clear point of view on the areas quickly and in a cost-efficient
• Consumer and small business - way.
upon which our clients need to
competitive responses for
focus:
revenue protection of national • Payment systems cannot be
retail and business banking • Cost pressure that is eroding examined in isolation. The
markets against new entry and margins means that costs for breadth of regulatory changes
fee erosion, and to address pan- core processing have to decrease (Third AML Directive, Solvency II,
European growth opportunities in order to maintain margins, MiFID, Faster Payments Basle II)
and STP rates must be increased. require modifications to several
• Corporates and large business -
A sourcing strategy should be systems and processes, and cost-
seizing opportunities to retain
defined to enable niche banks to savings can be achieved by
domestic clients through
minimize investment and future addressing them concurrently.
enhanced products / services
mix, while increasing pan- operating costs, while partnering
• Processing efficiencies must be
European footprint and providing to receive required service
driven from an improvement in
corporate solutions that allow levels. Transactions banks with
quality for the customer. In the
optimal payments initiation, sizeable volumes will develop
current environment there is
reporting and cash management the payments processing
often insufficient validation, and
capabilities required to insource
• Formulating an approach for maintenance of parameters is ad
payments, and the modular
handling paper-based credit hoc.
transfer payments post-SEPA
• Address Debit Mandate Flow -
3

5. • The onus is on the legislative Accenture Capabilities Selected Accenture SEPA
community to generate SEPA
momentum, by potentially by
Accenture is a global management Credentials
consulting, technology services and
mandating that public sector
outsourcing company. We have
payments are issued in SEPA
over 160,000 employees in 48 Leading Irish Bank
compliant formats, thus
countries, and annual revenues in SEPA Business Requirements
establishing the momentum
excess of $16B. Our Banking Gathering - Accenture were
required to reach the critical
practice in Europe employs over engaged to assist the Bank in the
mass of volumes required to
10,000 people. gathering of business requirements
reach the 'tipping point' at
which the decommissioning of to address the SEPA legislation.
Accenture possesses a great breadth
legacy systems makes sense. The scope of the overall programme
and depth of experience in the
spans payment origination,
payments area. In fact, we have
SEPA Technical Considerations maintenance, validation, extraction,
approximately 1,000 people
posting, clearing, settlement and
• Implications of the Direct Debit worldwide working on payments
reporting. The requirements
mandate and transactions related projects in Banking; and
gathering served as a part of an
databases within the current IT within Europe, we have over 700
overall organisational programme
infrastructure, and implications people supporting payments
to define a business operating
regarding interchange fees systems through outsourcing
model, and to implement the
arrangements and over 200 people
• Choice of XML parser technology change through the systems
working on consulting and system
for conversion and validation, development lifecycle. The
integration engagements for
especially in relation to requirements address such areas as:
electronic payments and cards in
performance and volume
major banks. For this work, we use • Payments value limits
• Consideration of approximately a variety of payments strategy
2700 attributes for handling, tools, reference architectures, • Validity time of mandates
especially since identical tags in process and operating models and
• Settlement of returns
different XML branches (different diagnostics (see Accenture SEPA
context) have different meanings Assets below). Our payments work • Timing of returns, rejects,
covers strategy, business reversals and refusals
• Channel enablement - decision
architectures, operating models, and
which channels to enable for
technical architectures. It also • Agency arrangements
SEPA XML messages
covers the management of physical
• Scalable architecture that can • Validation of outgoing remits /
cash and financial supply chain
support future expected growth mandates
optimisation. The implementation
of SEPA transaction volume of payments transformation • Mandate storage and de-
• Messages have to be sent to the programmes is a core capability at materialisation
debtor bank ahead of the actual Accenture, and we work across the
technical delivery lifecycle A process was utilised to
processing and booking,
implementing most of the major conceptualise current state, to apply
requiring the uncoupling of the
payments software platforms: ACI, deep knowledge of the SEPA
internal and external side of a
SAP PE, iFlex, Clear2Pay, rulebooks and implementation
given payment
Tietonator and Fundtech. guide (versions 2.2), and to
• Impacts on account management ultimately deliver the complete set
systems and statement printing We structure our engagement teams of business requirements, and
systems (correspondence), and with the optimal mix of functional, associated traceability matrix, to
possibly the Payments workflow technical / product experts and enable inward and outward bulk
as SDD requires an extension of industry specialists to formulate SCT and SDD functionality.
the payments system format solutions based on market relevant
strategies which incorporate
industry best practice.
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6. Leading Global Financial • Aligned proceses and • Requirements analysis and
Institution technology across the European specification based on client
IT landscape and business units. input
This top 10 European payments
processor, operating on a global Achieved the the on-schedule • Architecture / Technical Design,
scale, faced a number of challenges completion of a programme plan to Build and Test of SAP PE
in creating a holistic SEPA realise a central core payments
solution, and compliance for the • High-quality implementation
response, including a disparate
SEPA Credit Transfer deadline in adhering to SAP standard
technical environments due to a
January 2008. guidelines
number of mergers. Their
objectives, included: • Accenture has leveraged its
Large Pan-European Bank
global repository of proven
• Creation of a European core
As a payments insourcer this large methodologies, tools and assets
payments solutions for both
German bank processes for other to create a highly detailed and
SEPA Credit Transfer and SEPA
banks - totalling 5.3 billion complete specification for the
Direct Debit
transactions annually. Volumes of Payment Engine solution.
• Convergence of core payments payments handled account for
approximately 16% of all domestic Testing expertise in complex
architecture to realize a central
payments in Germany development scenarios has been
solution for multiple product
brought to bear to ensure a robust
lines
Key challenges facing the Bank solution throughout the
• Distributed development in included: implementation based on SAP PE
offshore delivery centres Core Release 2.2, and Accenture
• Payment volumes from other has been asked to make a proposal
Accenture partnered with the to Banks under cost pressure due on further systems integration
bring rigor and expertise to the to EU regulation on Single services.
programme in various areas: European Payments Area
Leading Austrian Bank
• Developed a solution blueprint • Reaching the goal of increased
and business requirements, ROI through insourcing A leading financial services
including an architecture design provider in Central Europe, and
• Meeting ambitious timeline for based in Austria, this bank is
focusing on systems integration
SEPA introduction in Q1/2008 Central Europe's foremost financial
and performing requirements
management Accenture has played a key role in services group providing banking,
the development of this mission investment, loans and insurance
• Leveraged expertise in complex services, and focuses on consumers
critical component of the bank's
project management by and small to medium-sized
technical infrastructure. Ongoing
executing a programme companies. The Group has
enhancement and implementation
planning exercise subsidiaries in a number of CEE
of the SAP Payment Engine
solution has necessitated project countries. In 2006 a group wide
• Led the programme
management expertise, with programme (GPI = Group Payments
management, including
particular emphasis on deep Initiative) was established to
coaching the client's own
expertise in relation the SEPA address the Single European
project managers throughout the
rulebooks and implementation Payments Area at a group level and
entire cycle of the project, and
guide as they relate to enhancing the bank's capabilities in
supporting build activities by
implementing SCT and SDD the area of payments (Group
driving the issue management
functionality. The SAP Payments Payments Initiative). The
process
Engine solution has aided in the programme started in January 2007
• Created test scenarios and test following areas: with the centralisation of cross-
cases border customer payments using
the Bank's existing payments
5

7. infrastructure (processing only) and payments to electronic cheque and SEPA Implementation
also took the first steps in creating high value low volume Support Tools
a central function. (RTGS/Wire) payments. The
development included requirements Accenture has developed a set of
Accenture was asked to support the and design iterations, and implementation tools ranging from
Bank's Programme Management to significant testing due to the XML parser performance
manage this complex multi-site complexity of functionality. The assessments, function maps, and
programme, especially in the areas software is being installed in a SEPA test files to detailed XML
of: major bank in Germany which is field mappings. These tools can be
operating as a payments used in implementation projects to
• Business case for
transaction insourcer for two other help to avoid common pitfalls and
implementation of a processing
major German banks and is to facilitate technology decision
hub for cross-border customer
marketed by SAP to banks making processes.
payments, including
quantification of benefits worldwide. Accenture continues to
Accenture SEPA Test Quick
maintain and further enhance the
Starter Kit
• Preparation of payments software - we have conducted
Accenture offers a test package to
strategy requirements gathering, analysis,
assess SEPA-compliance and
and design for SDD and SCT
• Programme planning operational readiness. This offering
functionality. The requirements
saves cost to assess SEPA
• Establishing programme and analysis, functional and technical
compliance, helps identify
project management structure: design are now complete using
opportunities to gain competitive
status reporting, scope version 2.2 of the rulebooks, and
advantage as well as ensures
management, issue and change construction and iterative testing of
completeness of the test approach
request management, meeting the SCT and SDD input/output
when assessing SEPA compliance.
facilitation, collaboration tools, formatters and processing rules is
The ready-to-use test kit contains a
etc. progressing on time.
test approach outline, test plan
including resource requirements
• Stakeholder management (C- Accenture SEPA Assets and usage, generic and easy to
level and below)
customise test cases, generic and
The Global Payments Initiative is SEPA Business Requirements easy to customise test data. We also
on time and budget for group provide support at various levels
Accenture offers a set of ready-to- depending on client requirements.
delivery.
use SEPA business requirements
Software Vendor that have been distilled out of the SAP Payments Engine SEPA
relevant SEPA documents (namely Accelerator
SAP engaged Accenture to develop EPC Rulebook, EPC Implementation The SAP Payments Engine SEPA
the SAP Payments Engine which is Guide, PSD) and have been Accelerator provides clients with a
part of SAP's core banking suite. combined with the experience of tactical solution to achieve
The SAP Payment Engine is several SEPA implementations to compliance by using existing
designed to be the central payment create an excellent foundation for domestic systems (namely
processing hub of a financial any SEPA business requirements payments systems and account
institution. The functionality of phase. The requirements also management systems) to interfacing
the Payment Engine encompasses include recommendations for the account management systems with
input/output formatting, routing, customer-to-bank space and parts of the Payments Engine
clearing, validation, and repair, for discuss the subject of currency functionality to send and receive
bulk and single message payments. conversion for SEPA transaction SEPA payments in parallel with
This allows the Payment Engine to from non-Euro accounts. domestic payment systems. It is a
cover a wide range of payments comparatively low risk solution as
products reaching from high it leaves existing processes
volume and low value (ACH) relatively untouched. Strategic
6

8. flexibility is enhanced as later increased supply of competitive
migration to the full Payments payment processors (both cards and
Engine solution is possible once full ACH); and the opportunities
implications of SEPA are known. associated with M & A plays,
payments insourcing business
Accenture European Payments models and new pan-European
Survey cash management propositions to
Accenture commissioned the lure corporates from their
European Payments Survey to traditional domestic bank.
create a clear picture of current
position of payments in Europe and Next Steps
the forces that will reshape the
Would you like to investigate the
industry over the next five years.
ideas in this paper more deeply by
Its scope encompasses Automated
identifying the most appropriate
Clearing Houses (credit transfers
response to this changing
and direct debits) and cards
regulatory environment? If so, the
payments (debit card and credit
next step is to gain an
card). The survey objectives
understanding of the depth and
included an examination of the
breadth of our SEPA offering, and
degree of change planned, the
to discuss how we might be of
expected impact of SEPA, and the
assistance as you navigate the
future shape of the industry. The
SEPA change. For more
survey also focused on how
information, please contact either:
Europe's banks and payments
processors intend to respond to Julian Skan
perceived opportunities and market Partner Banking Practice
changes. Accenture Financial Services
Julian.Skan@accenture.com
Conclusion Tel: +44(0)207 844 5125
SEPA is catalysing change and
driving innovation! The SEPA Dale Fickett
programme industry-wide will SEPA Lead - UK & Ireland
result in tremendous change for Accenture Strategy Consulting
banks and the wider European dale.s.fickett@accenture.com
payments industry. Banks initially Mobile: +353 87 998 2616
anticipate that the main impact to
be the high cost of compliance.
Many banks also predict the
collateral damage from SEPA
implementation will include a
substantial reduction in revenue
associated with transactions fees
and float, pressure to reduce the
costs of payments processing, data
management challenges due to
transparency requirements, and
reduced execution times on
European cross-border payments.
However, on the positive side,
banks will have access to an
7

9. About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company. Committed to
delivering innovation, Accenture
collaborates with its clients to help
them become high-performance
businesses and governments. With
deep industry and business process
expertise, broad global resources and a
proven track record, Accenture can
mobilize the right people, skills and
technologies to help clients improve
their performance. With approximately
170,000 people in 49 countries, the
company generated net revenues of
US$19.70 billion for the fiscal year
ended Aug. 31, 2007. Its home page is
www.accenture.com.
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High Performance Delivered
are trademarks of Accenture.