SEPA – the good news or the bad?
Treasury Today has carried some critical editorial pieces on the SEPA (Single Euro Payments Area) project over the last few months and has highlighted some of the problems. Now is the time to reflect on the longer-term benefits of this important initiative.
SEPA is, of course, the single most important development in the European payment landscape in recent times. It is a politically mandated initiative that will fundamentally change how we do business in Europe. The introduction of the euro may have changed the notes and coins in many European countries and centralised control of the money supply, but SEPA goes much, much further. SEPA will introduce new clearing systems and new payment instruments which will totally replace existing domestic systems.
In the short-term, this will cause disruption to the users of payment systems who will have to move to the new systems – whether this happens quickly or slowly. The widely publicised need to use International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs) is just one aspect. Fundamentally the new payment types will do the same thing as the old but there will be small differences and rules will change, as will cut-off times and value dating. Some aspects of the new schemes, in their first incarnation, will be regarded as inferior to the old – the inevitable cost of harmonising disparate payment practices. It all seems to be a lot of hassle for no gain.
However, to take this view would be to ignore what is being achieved by this ambitious project. What is being built is an efficient (and cheap) single European payment infrastructure which will be of enormous value to corporate users and to private individuals. It will transform the way many of us do business and how we are able to make payments across Europe.
We will look back in a few years at this period of transition and wonder what all the fuss was about. Surely we have always been able to pay someone on the other side of Europe as easily as we make domestic payments today.
Realising SEPA is also presenting a fundamental challenge to the European banking industry. Corporates face the difficulties of obtaining IBANs and BICs and redesigning systems to store them. But this is nothing compared to the financial dilemma that the banks are facing. They are under a political directive to build a completely new payment system whilst still maintaining domestic schemes, and with no prospect of being paid to do it.
The EU directive specifies that most pan-European payments are to be handled at the same cost that domestic payments are today. Much more cost and no prospect of more income is not a healthy mix for any industry.
The best banks will survive and have already made plans to do so but expect other banks to exit the payments business and outsource or sell this aspect of their business to others. European payments will become even more of a ‘big boys’ game – the question is how many big boys there will be. Many banks will lose a lot of money before they realise they cannot survive.
Meanwhile, corporates will start to benefit from an integrated payment infrastructure that will make doing business across Europe easier and cheaper. That should be welcomed.
For more on SEPA please see Talking Treasury in this months magazine and our new Best Practice Handbook on European Cash Management which is published this month.