Payment methods between the 25 EU member states vary wildly in legislative regulation, cost and service levels. It has been estimated that the many processes involved in cross-border EU payments are costing up to 3% of EU GDP. The proposed solution is one of such audacious scale; experts have predicted that, if successful, it will be more significant than the advent of the euro.
The European commissioner for internal market and services, Charlie McCreevy recently described Europe's payments system as "limping behind the physical distribution system".
"Today it can take five or more days for a euro payment to be made from one member state to another," he said "Whereas the lorry full of goods has already arrived days earlier."
"If we do not have efficient means of payment, then we cannot have an efficient single market," he added.
The European Commission and the European Central Bank proposed a framework of harmonised electronic payments processing in 2005, calling it the Single European Payments Area (SEPA).
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A lot of work has been done already, with major banks investing in the systems that will allow SEPA's introduction to everyday use. The implementation of these will begin next year, and continue until 2010, by which time, the EC says that everyone in Europe will be able to make cross-border payments "as easily and inexpensively as in their hometown".
However, there is still a role for UK finance executives to play if they want to have a say on how it all works. Tom Buschman, CEO of TWIST Standards, a lobby group set up to drive the implementation of SEPA in corporate interests, says that a number of forward thinking FDs have already begun to list of their requirements of the new system, and will present it to the banks. "I think a few clever corporates will be at the forefront of it, because then they can influence it in the right direction for themselves," he says.
Buschman urges any interested finance executive to get in on the action. "I think they should ask the CBI to help them with stipulating a number of key requirements," he says. "A lot of the work has been done; but now that the opportunity becomes clearer, and also the landscape is clearer, it just takes a few collective and inefficiency evasive driven directors to come together."
The consequences of not doing so will be hard to stomach for UK executives. "If they don't get involved what will happen, to be frank, is that the French will move ahead more quickly," warns Buschman. "Finance directors in France are already involved and have started to identify what they want to ask their banks," he adds.
"If UK directors don't do anything it means that the list will be drafted and defined by their French colleagues."
"So it's a matter of whether they would like to have an influence or not."
Life made easier
But what exactly what do they have to gain from this change? "There's an awful lot the banks could do for corporates in particular, but theyve got little incentive to do so in terms of low cost payments," says Dr Alistair Milne, former advisor to the Bank of England, and currently a lecturer in economics at the Cass Business School. "It's something which isn't just a question of payment transfer; its a question of integrating payments with the systems of invoicing, the tortuous process of chasing payments due and keeping track of trade credits.
"There are very large potential savings within the corporate world which depend on the banks playing ball and saying 'ok we're going to give you the systems which allow different companies to interact with each other smoothly'," he adds. "The trouble is there's not much profit in it for the banks so theyre not as keen as they might be."
However, banks have now agreed a framework with the European Commission and the European Central Bank, and have begun work on the systems that will eventually support SEPA. "The banks have focused their design on interbank processes," says Buschman "to reduce the cost of interbank transfers and not necessarily to do a lot to make it easier for companies to have a standardised interface through the banks."
The only incentive they have, he adds, is the pressure that the European business community can exert on them. "Corporates are very important for payments processing because 90% of payments are between a company and an individual or between companies," he says. "So the corporates embracing it either at the receiving end or at the paying end, will be very important to the success of the new service that the banks are now designing."
Looking at it in this way, UK business has an "excellent opportunity to clearly specify its requirements", he adds.
Responding to the inevitable: Benefits for everyone
The potential benefits of establishing a pan-European payments system extend beyond the large companies that trade across borders. "SEPA is an opportunity," says Milne.
"A lot of it depends on common standards, and having payments processing run in a certain way across the entire corporate space. SEPA can have consequences even for companies that are not much involved in the area of international payments.
"If UK plc jumps onto a set of standards which are SEPA based, it could actually have quite a lot of benefits for domestic payments processing. It won't just affect the international companies.
"Many companies are still tied on to the cheque, and prefer to receive payments that way," he says. "That's something that will maybe last for another while, but at some point we're going to pull the plug on the cheque. And a lot of companies are going to have to wake up to this fact.
"In the next two or three years Europe is going to be adopting a set of standards for credit transfers which will be quite precise in terms of how the IT is handled," he adds. "It makes sense for UK plc, as we get rid of the cheques, to adopt the same processes."
SEPA: Implementation timetable
