Life after SEPA
Banking will be completely transformed in 2014 for businesses and consumers alike. The impact of the Single Euro Payments Area will result in a new marketplace where bigger banks will be forced into stronger competition and smaller banks forced to cultivate their ‘local bank’ credentials, writes Kyle Ferguson.
The overriding aim of SEPA is to simplify systems used for making and receiving payments electronically. The idea is to create a single regional market for payments in the Eurozone instead of the current situation: many national markets with different rules and processes. Previous credit transfer and direct debit mandates will be replaced by standard SEPA procedures. Large businesses are expected to react by centralising their payment systems, leading to a rise in payment factories – a single hub from which all accounts payable transactions are made across the Eurozone, rather than via lots of different business units or subsidiaries in each market.
SEPA is a big investment requiring standardised bank account information and payment formats which will simplify the extremely, different local payment processes in place today. After the initial cost of change, businesses will look to benefit by centralising bank accounts and cash management processes, and reducing bank charges.
All members of the Eurozone will transfer to SEPA by February 2014. Non-euro members will have to make the transition by October 2016.
Regional vs. local
Large regional banks look at first glance to be the winners here. Although the homogenisation of payments processes will lead to greatly increased price competition, their scale and ability to spread overhead and development costs will allow them to dominate the payments space in corporate banking. This could result in a small number of regional banks competing for fewer, bigger parcels of business at a reduced average transaction cost. National banks would need to focus on their strengths as “local banks” as these are the players that can ostensibly do relationship banking better and offer local value add services.
An area of payments that should not be overlooked is how capable a bank is in providing clients with an effective expense management solution for employee travel and local ad-hoc business to business payments. A strong Corporate and Purchasing Card offering will differentiate a bank’s payments solutions and maintain a value add relationship with clients.
Another regulation to be aware of is the second version of the Payment Services Directive which will cap fees on credit card transactions and, if approved, could come in to force after 2015.
At the moment, transaction fees on cards are not limited and can reach as much as 3%. What PSD2 means is that these charges will be reduced to 0.3% on credit cards and 0.2% on debit cards. But corporate cards are an essential part of the business-to-business payments infrastructure and are excluded from this proposal. So corporate cards will provide an increasingly viable way to drive value in banking relationships.