Some critics say that big US players will be the main beneficiaries of the latest cross-border regulations.
European payments players have had a few bricks thrown at them in the past few years. With the advent of the euro, they watched foreign exchange commissions on legacy European currency conversions vanish; now profits are being squeezed even further in the regulatory vice imposed by political and economic evolution.
From July 1, the European Parliament implemented a milestone regulation, agreed in December 2001, that eurozone cross-border payments of up to E12,500 must cost no more than domestic automated clearing house (ACH) payments. In 2005, the threshold will be raised to E50,000. When that happens, it will mean that more than 85% of cross-border commercial credit transfers will have to be priced at the domestic ACH level.
The days of expensive, opaque cross-border price tariffs are long-gone in Europe. Some industry participants have bandied around the sum of E1.2bn in lost revenue; others say this falls way below the true cost to banks. And some gloomy bankers argue that the bad news does not stop there – they expect the new regulation to combine with competitive pressures and have a knock-on effect on other currencies and payment values, both inside and outside of the EU.
Most are agreed on what the outcome of these pressures will be: industry consolidation. The only way to survive as a serious payments player will be to achieve scale. And only the global banks have the necessary resources to build and maintain global payment factories. In the same way that the number of banks in the dollar payments market shrank a few years ago, euro banking relationships stand on the verge of massive change.
There are two ways for consolidation to pan out: either global giants will buy up smaller regional outfits, or they will outsource their payments business to the big boys. But which big boy will a small to medium-sized bank err towards? On a truly global scale, there are really only a handful of players: Citigroup, JP Morgan and Deutsche Bank dominate; rapidly drawing level are HSBC and ABN Amro. Add to this list super-strong regional players such as BNP Paribas in Europe and Standard Chartered in Asia, both with increasingly large scale ambitions. Finally, Bank of America is also making serious headway in the business.
Many say if a strong domestic player in Europe wishes to outsource its payments but retain the client relationship, it will not ally with a bank that has a strong presence (and wants to increase its business) in the region. So a French domestic player will avoid potentially passing on its client relationships to BNP Paribas, Deutsche or ABN Amro. Instead, critics say, the business will go to JP Morgan or Citigroup
The EU’s changes have been pursued with the highest commercial ideals in mind, but in so doing, they may have inadvertently benefited largely US players with their legislation.
