Europe Without Borders – Also for Payment Transactions
By Michael Steinbach
An essay out of the Yearbook 2011 of Frankfurt Main Finance
A unified eurozone for cashless payment transactions has been a reality since 2008 – only that it is not mandatory and is therefore little used. Now SEPA direct debits and transfers are to become obligatory. This will require investment in new infrastructure and present many opportunities.
Six years after the euro was introduced on 1 January 2002, the standardization of cashless payment transactions began in January 2008. The aim is to create a Single Euro Payments Area (SEPA) – a unified European payment transaction zone. Cashless payments in euros are to be settled in a standardized format between participating nations across Europe. Banking customers will no longer experiencee any differences between domestic and cross-border payments in euros. This will be particularly advantageous to companies active all over Europe. They would be able to centralize all their European payment transactions in a single country and settle them through a single bank. This would streamline the entire settlement process, simplify liquidity management and reduce transaction costs. Further savings would result for companies in the SEPA-zone, given that SEPA payments are only to cost as much as domestic payments. Starting in 2012, customers will have transferred amounts at their disposal after a maximum settlement period of one business day, which will additionally improve their liquidity. SEPA furthermore affords banks the possibility of offering their customers additional services, such as managing SEPA direct debit mandates or prior communication of direct debits that have already been received by the bank.
SEPA will be more widely adopted
But we are not quite there yet: Up until the present, framework condition such as formats, processing procedures and rules for cashless payment transactions have varied considerably from country to country. The single nations still regulate their payment transaction markets themselves. The standardized format has therefore not taken hold to the desired extent since SEPA credit transfers and direct debits were introduced. According to research conducted by the European Central Bank, SEPA credit transfers currently constitute a mere 9.6 % of total credit transfers in the eurozone. The transaction figures of payment service provider Equens bear this out: In 2010, they processed over 100 million SEPA transactions. However, this constitutes an infinitesimal percentage of the 9,7 bn in transactions processed by the company annually.
The reasons were many: In the case of direct debits, a legally reliable transition scenario from the old procedures to the new SEPA direct debit process has long been lacking. Only slight adoption of the new standard for transfers had been observed due to the obligatory use of the new but longer IBAN (International Bank Account Number) and BIC (Bank Identifier Code) instead of the customary bank
account number and sort code. The European bodies therefore wish to make SEPA payment obligatory by law.
Various different proposals have been under discussion at these EU bodies. Suggestions range from a transition period
following the law’s entering into effect to prescribing a fixed date for migrating to SEPA.
Experienced partners helping to implement the standard
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The Author:
Michael Steinbach is Chairman of the Board of Directors at Equens SE. He was Spokesman of the Board of Directors of the firm’s predecessor company, before becoming Deputy Chairman of the Board of Directors at Equens.
