SEPA 2008: Euro sans frontiers

On 1 January 2001, with great fanfare, huge media interest and frenzied speculation about the availability (and stability) of the newly introduced notes and coins, the Euro became a reality. On 1 January 2008, with probably very little comment or media speculation, an arguably more significant change will occur: SEPA. The creation of a Single Euro Payment Area is a landmark in the development of the European single market, and on that day it will become as easy to send a payment from Milan to Frankfurt, as it is today to send a payment domestically.

Why is this change more significant? You might think it is a bold claim, but the impact of this huge liberalisation of the payment system will be unprecedented. The freedom to move money across the whole of the Eurozone quickly and conveniently will not only make it easier to pay a mortgage for a holiday home in another country within the zone. The real benefit is the likely impact on trade and European competitiveness.

In its recent ‘Incentives Paper’, the European Commission criticised the banking industry for seeing SEPA as a problem of compliance rather than genuine business opportunity. It believes that the proposed SEPA credit transfer and direct debit schemes have so far resulted in a lowest common denominator, rather than a best-of-breed scheme that blends the best features of all national schemes.

However, the banking industry faces different payment standards that are historically ‘national’ in character and, as such, any pan-European solution must balance functionality against something each participant can afford to deliver.

Voca is the processor behind over five billion payments per annum in the UK – over 90 percent of salary, benefit and pension payments, and more than 70 percent of household bill payments via Direct Debit. The company is one of the most advanced organisations providing payment services to banks in the world, built on an exemplary record in payment delivery stretching back 37 years.

There are 26 traditional ‘clearing companies’ across the Eurozone, but comparisons between them are somewhat misleading. Many of them process different kinds of payments, and every national direct debit Scheme is different. There are literally thousands of banks within the Eurozone, and many markets are fragmented and regionally focused. So, the challenge to realise this future is to respect these differences in the creation of a ‘single’ payment area.

Nonetheless, there are efficiencies to be gained for both banks and businesses as they move toward the realisation of this regulatory driven change. Multinational businesses and banks have the opportunity to consolidate their payments processing onto common platforms across the Eurozone. Worryingly, however, corporate awareness of SEPA and its potential benefits is quite low. Independent European research commissioned by Voca in 2005 – which questioned 800 professionals across four countries (France, Germany, Italy and the UK) – found that even within the Euro-in countries awareness of SEPA was at a mere 22 percent. In the UK that figure was just 15 percent.

You might describe such findings as understandable given the relatively low publicity afforded to SEPA to date. It is even more striking when contrasted with the fact that 81 percent of those interviewed believed that international payments were ‘very important’ to their company, and over half thought that the volumes would increase markedly in the next five years. As a result of the growing importance of such payments, 67 percent said that reducing the cost of making them was a very important issue to their business.

Banks face an extraordinary challenge. Research indicates that the introduction of SEPA will reduce revenues as prices are ‘normalised’ across the Eurozone, and banks will bear the cost of change across multiple geographies and national systems. SEPA implies a radical change for the economics of the payments industry and it is clear that there will be no simple solutions.

As a result, none of us can afford to take lightly the competitive threat and market opportunity that this huge change in payments creates for everyone involved. European businesses and banks outside of the Eurozone will have to have effective access to the SEPA, so that their business in mainland Europe is not threatened by a more efficient Euro-in economy that (in banking terms) will be much more like the United States in character. The financial services businesses of the City of London, for example, may find a much more dynamic and competitive market evolving in the Eurozone as money moves more quickly and effectively than before.

As someone closely involved in the payments industry, it is clear that established national payment utilities will be changed forever. Some may disappear altogether, some will fulfil different roles domestically within certain geographies and others will become multinational or regional processors, and may well be part of the global payments processors who send value across the world in a real-time environment. Money will then become truly as instant as email.

As the single biggest change that regulators, banks and corporates can embrace to grow European competitiveness and our GDP, making SEPA happen is paramount. However, in order to get there, today’s agenda must focus on practical preparation and investment in technologies that are flexible and interoperable enough to deliver a foundation for competitive payments in Europe. We believe, as one of the most efficient providers of payment services, regardless of currency and throughout the payment processing value chain, Voca’s capability is in place to massively reduce bank’s direct costs. This means that we, and other companies like us, will support the market’s move forward and the achievement a Euro sans frontiers.

About Voca

Voca is the provider of payment services to banks and corporates. The company, formerly BACS Limited, is a cornerstone of one of the world’s leading financial centres where it has built a trusted reputation and an extraordinary record for secure payment processing. Today, over 100,000 companies trust Voca with payments worth over €4.5 trillion a year, including all Direct Debits and over 90 percent of salaries in the UK.

Voca is recognised as a world expert in secure transactions, with unique payments data and processing experience that saves UK banks over €300 million a year with the rich technology it deploys.
For further information, please visit www.voca.com

About Marion
Since joining Voca in 2002, Marion King has developed the company’s impressive service record and transformed key aspects of the business, including its commercial strategy, governance structure, technology renewal programme, first joint venture OneVu and the launch of a new name and brand identity in October 2004.

Marion was previously MD of PeoplePC, following 14 years with Reuters in global leadership roles. At the time of leaving Reuters, Marion was the MD of Global Transactions leading a £400m business through product change and innovation. As Managing Director of Reuters Business Information, Marion created and led the division through a sales growth that defined its leading position in Europe. Her international experience was further enhanced from 1997 as Managing Director for Reuters East Asia operation.

Marion has been awarded the Freedom of the City of London and the Women in Banking and Finance 2004 Lifetime Achievement Award.