BRAXXON News - Single Euro Payment Area (SEPA)
What is SEPA – EU Directive 2560 / 2001?
SEPA is a major public policy initiative from the European Commission and the European Central Bank (ECB) designed to achieve processing efficiency for cross border euro payments, harmonisation of processes, a common legal framework, introduction of common business and technical standards, and reduced costs for customers. Essentially, the cost of a euro cross border payment to a customer will be the same as a domestic euro payment. SEPA will be introduced in a window extending from the 2008 to 2010 but after 2010 no domestic payment infrastructures will remain in place within the EU ‘in’ Member States.
Who’s ‘in’ and who’s ‘out’
The ‘in’ countries are those that formed the EMU area in 2000 / 2. The
The payment types included in SEPA
The three payment types included are Credit Transfer, Direct Debit and Card Payments. SEPA allows for two types of Credit Transfer, the Credeuro limited to a value not exceeding EUR50k and the Prieuro that is an urgent payment with same day value. Direct Debits will be brought into line across SEPA while Card Payments are required to be EMV (Eurocard / Mastercard / VISA) compliant.
The market implications of SEPA
It is expected that SEPA will be instrumental in accelerating the process of consolidation, merger and outsourcing / in-sourcing as banks find difficulty in committing to the level of investment necessary to enhance payment infrastructures but need to provide a service to customers while protecting market share. Some commentators envisage that after the introduction of SEPA the payments market will be dominated by as few as five major players.
Corporate customers comprise the key market for euro cross border payments and for their treasurers it is vital to know the precise expenditure for transferring funds. There will be no sentiment as they go for the most competitive package on offer.
Importantly, corporate customers will be able to simplify their cash management function if they can make all cross border and domestic euro payments using just one agent bank. This will also enable them to maximise investment opportunities and enjoy greater efficiency particularly with regard to reconciliation.
The challenges
Many banks will have to make a fundamental decision whether to:
- Withdraw from the payments business
- Compete in the SEPA environment and re-engineer systems and processes
- Outsource payments business
- Proceed with a combination of the above
But on what basis should such an important decision be made? Key factors are a) increase or protect market share; b) assess the suitability of existing operating model to deliver SEPA services; c) evaluate the capability of legacy systems to provide a suitable platform and finally, d) conclude whether a more radical approach is called for e.g. outsourcing. For the larger banks and in-sourcing specialists SEPA will provide an opportunity to tie-in customers for the long term.