Single Euro Payments Area kicks in

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The new Single Euro Payments Area (SEPA) launched today (28 January) is widely expected to bring price reductions for consumers and offer new business opportunities for banks and payment operators across borders, according to a recent study.

The paper, by management consultancy A. T. Kearney, finds that following the SEPA launch, competition between banks will be “fierce” as it “triggers a complete overhaul of the payments landscape,” bringing enormous potential benefits for consumers.

Payment pricing models across the EU still vary considerably. While for consumers in Denmark, debit card transactions are free of charge, customers in France pay up to €40 in annual fees. Low-fee countries, such as Denmark, the Netherlands and Belgium are expected to face price increases, while other countries such as France might see falling prices for payments and card use.

While A. T. Kearney does not anticipate a “price war”, it does predict an overall “price reduction” and a move towards a “fair pricing structure”.

According to Internal Market Commissioner Charlie McCreevy, the estimated benefits could amount to €123 billion for payments, plus a further €238 billion if SEPA is used as a platform for electronic invoicing.

According to A. T. Kearney, banks will also be able to profit from the new system. The most efficient banks and payment providers in particular “can for the first time leverage their scale and cost positions to compete in other SEPA countries,” the study argues.

Payment processors are seen as the “clear winners of SEPA” as they have benefited from “banks’ new-found interest in outsourcing”. However, the study also notes that there are a number of short-term issues.

Meanwhile, the discussion about multilateral interchange fees (MIF) is still ongoing. Interchange fees are paid by the merchant’s bank to the cardholder’s bank during any point-of-sale transaction using a credit card, such as MasterCard or Visa. The Commission has taken an increasingly strict view of these fees and in December ruled against MasterCard’s MIF (see EURACTIV 20/12/07).

The payment industry, however, says that the unsettled issue of interchange could undermine the SEPA project and envisage their business models being brought into question. According to A. T. Kearney, payment card issuers could lose more than 50% in revenues.

The Single Euro Payments Area (SEPA), which becomes operational today (28 January 2008), is due to make EU-wide payments as cheap and easy as they are at national level. The European Payments Council (EPC) was set up to develop a common infrastructure and standards in a self-regulatory initiative from the banking industry.

In its conclusions last week (22 January), the Council called upon the industry to "redouble its efforts" to complete the SEPA project, which is supposed to replace the existing payment schemes by 2010 (see EURACTIV 23/01/08).

  • 28 Jan. 2008: SEPA becomes operational with the roll-out of new payment products.
  • 2010: Date by which all payment schemes are to be replaced by the new SEPA system.

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