The introduction of the EU standard payment requirements, one more step along the SEPA roadmap, will be one of the hot topics at the Sibos 2003 conference in Singapore this month.
On July 1, 2003, the intra-European Union payment order came into force making certain processing information mandatory for payments of up to E12,500. This is the first key regulation following the launch of the Single European Payments Area (SEPA) last year, which aims to rationalise 15 to 25 euro payment mechanisms by 2010, when the single currency will also mean a single payment mechanism. The completion of the SEPA roadmap will achieve two goals: make pan-European direct debits possible, and put the euro on a par with the US dollar as a trading currency by achieving a single world market.
By first tackling low-value cross-border payments, the EU standard payment requirements will have had the highest impact of the eight-year plan. The big bang approach to the introduction of the euro meant that banks had to upgrade their systems to include a new currency, but the old payment mechanisms remained in place.
Brussels regulation
The regulation now coming from Brussels to implement a single payment mechanism, and make the single currency more meaningful, is forcing banks to rethink their whole business strategy. In real terms, what the introduction of the standard payment requirements means for many banks is that an important revenue stream is gone. In Europe, banks will no longer be allowed to charge more for a cross-border payment than a domestic payment in Europe.
Step 2
In response to the need to provide low-cost cross-border payments in Europe, the Europe Banking Association has developed Step 2, a pan-European automatic clearing house (ACH) solution for processing bulk payments. Already live, and with more than 600 direct users signed up, the system offers direct access to a wide banking community, whose payment instructions, routed through to Step 2, are distributed to any bank operating in the EU. Routing files through to a central infrastructure enables banks to reduce costs related to processing customer payments.
While the initial target market is cross-border payments, the system will eventually integrate domestic traffic. However, the onus is still on the banks to invest in the technology needed to communicate with the ACH. To this end, Logica CMG, which built many of the real-time gross settlement systems in Europe, is now expanding its brief to include ACH technology.
Jerry Norton, director of strategy, international financial services, at Logica, says: “One key fall-out from the deregulation of the eurozone is a gradual convergence of low and high value payments. This will be seen in the fact that same-day payment will no longer be the reserve of high value payments. Banks are forgetting the customer and what the corporates want. A customer will choose the type of payment it needs – it doesn’t care about which route the payment takes, it only cares about the cost. The payments industry needs to address this.”
Real-time reality
If Europe is still catching on to the fact that the single currency has not meant a single payments infrastructure, the international payments industry is also lagging behind. While nostro payments are intra-day, the information on those payments is still end of day.
Real-time cash reporting, first mooted almost 10 years ago, looks set to become a reality that will change the international payments industry dramatically and irreversibly.
Relevant sessions
Tuesday October 214 -5.30pmReducing costs and improving efficiency of low value payments – can ACHs and other mechanisms deliver?
Wednesday October 222 – 3.30pmSeamless integration in payments – which initiatives really help to achieve STP?
