Until this day, 30 different payment systems had been operating in the European area, thus rendering cross-border payments more expensive than domestic payments, and forcing European citizens (merchants, students, business) to maintain more than one “electronic wallets” –bank accounts-, one for each country of operation. With the introduction of SEPA national payments are aligned, and cross-border payments are treated in the same way as domestic payments, thus enabling consumers to maintain a single bank account for all Euro payments. SEPA is composed of four payment tools: SEPA credit transfer, SEPA direct debit, SEPA credit cards and SEPA cash, which is none other than the Euro.
The SEPA system is an innovation for the European banking industry, created at its own initiative and applicable to all electronic payments (direct debit, credit cards, credit transfer) of small Euro value. It is, therefore, a banking system aimed at the creation of a common and harmonized pan-European payment structure. SEPA’s basic objective is the promotion of European financial integration through a competitive payment market that will provide a higher level of payments, more effective products and cheaper solutions for the realization of cross-border payments. Under the SEPA system, customers will be using a single bank account and a set of standardized means with which they will carry out cross-border payments with the same cost, security and effectiveness as domestic payments, with a substantial profit for all sectors of the economy.
In particular, consumers will benefit as long as all cross-border payments are considered domestic. Payment cost will be reduced to a standard fee structure across Europe, benefiting citizens in countries with high cost. For instance, Italian banks charge 252€ a year for consumer payments whilst Dutch banks charge only 34€ a year. This disparity will disappear, with the expectation that the average cost for payment services for citizens will be around 100€ as a choice and competition amongst financial providers increases. In addition, those citizens who travel or own properties in other EU member states can now manage their requirements through a single bank account with standard charging and fee structures, encouraging more business and commerce across Europe.
Corporations, and especially multinationals, will be able to maintain a single SEPA account through which they will realize all of their payments and manage their assets effectively. The management of payments will be simplified since incoming and out coming payments will have the same form. With the unification of the management of payments, corporations with activities in the Euro zone will save money and time. Services of added value are also in order, such as e-invoicing and e-reconciliation, which will improve corporate accounting systems.
Last but not least, with SEPA, banks will deal with pan-European infrastructures for the clearing and settlement of payments. This will enable banks to reap over €10 billion in savings through the consolidation, rationalization and sharing of infrastructures. A further €5 billion will be saved through reduced cash usage as Europe citizens move towards increasing usage of cards, prepaid or other electronic payment transactions. Banks can also generate new revenue streams by moving towards new products and services. Finally, in this new SEPA environment banks are in position to extend their activities to Euro zone level, as they are able to offer services throughout the Euro zone. The completion is intensified and banks can negotiate with service providers under better terms. The banking market becomes more effective, and European financial integration is enforced.
The banking market becomes more effective, and European financial integration is enforced.
Notwithstanding, as regards to banks, the gain from their participation in the SEPA system will not be immediate. Firstly, the banking industry will be called to invest in its systems, so that they will correspond to those of SEPA. According to an ECB study, these investments will cost 5,2-7,7 billion Euros in total. The economic consequences will also depend on the level of the evolution and assimilation of SEPA, which can be classified as following:
– 1st level: Non-existence of SEPA;
– 2nd level: Parallel function of SEPA and current system;
– 3rd level: Only SEPA products;
– 4th level: Domination of SEPA electronic payments and reduction of the use of bills.
Studies have shown that the fourth level of electronic payment domination is the most profitable for banks, contrary to the second level, in which systems co-exist. For this reason banks, following their accession in the SEPA system, developed policies for the publicizing and spreading of SEPA products to their customers.
According to the timetable set by the European Payment Council, the first stage, the stage of design, started in 2004 and has reached completion. The second stage, which concerns the realization, started in 2006 and was completed late 2007. Today, we are in the final stage, the stage of the migration where the SEPA system co-exists with the old national system. It will be complete by the end of 2010, by which time the mass of transactions will have migrated to the SEPA system. However, European states will come under the SEPA systems in different periods, observing the stages mentioned previously. An important factor for the migration of countries to the SEPA system is the state of the current national payment system. Each member state has already developed a timetable for migration to SEPA under the aegis of EPC, which also controls the observation of the timetable.
In other words, the SEPA system responds to targets set in 2000 in Lisbon, that is a more globally competitive European economy. It also responds to the E-Europe program regarding the transition to digital economy, the expansion of electronic commerce, and the use of the Internet and mobile communications, as well as the interconnection of networks on a pan-European basis. It is, therefore, a program with references to the past, as it provides a boost to the four freedoms met in every aspect of everyday lives of European citizens, and the future, by setting the foundation for a widespread exploitation of the advantages of technology in the banking sector.
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