Cicero Policy Briefer

Issue 22, March 2008

Introducing the Single European Payments Area

By Chris Jackson

The end of January 2008 saw the introduction of the Single European Payments Area (SEPA), which will enable customers to make cashless euro payments to anyone located anywhere in the euro area using only a single bank account and a single set of payment instruments. SEPA is a another piece of the single market jigsaw; but rather than being driven by the European Commission, it is a private sector initiative by the banking industry, which is heavily backed by the Commission and the European Central Bank. It aims to make euro payments across borders—whether by credit transfer, direct debit, or credit/debit card—as straightforward as domestic payments through the introduction of common payment protocols and systems.

The quotidian goal of SEPA is to ensure that, for example, an Italian citizen with a holiday home in Slovenia who wants to pay electricity bills there by direct debit should be able to do so directly from his Ljubljana-based bank account; meanwhile, a Polish holidaymaker visiting France should be able to use his Polish bank debit card to buy groceries in a Toulouse supermarket.

Whereas the catalyst for SEPA, the single currency, had an instant effect on consumers, businesses and member states, SEPA’s introduction to Europe has been somewhat less dramatic. Despite being rolled out across 31 countries1, with the first step being a harmonised system for credit transfers known as SCT (SEPA Credit Transfer), 4,000 banks signing up to SEPA and over £1 billion being sent in the first week of its introduction, the scheme still faces some difficulties.

It was envisioned that by 2010 a critical mass of payments would be sent through SEPA, but in a joint report by Capgemini, ABN AMRO and the European Financial Management and Marketing Association (EFMA), it is predicted that this target will be missed. The problem is that while the public sector could account for 29 per cent of the critical mass of transfers, this still leaves over 20 per cent of transfers to be made up from the private sector, who at present lack the appetite for SEPA. The problem is a circular one: the longer it takes for the critical mass to be achieved, the greater the cost for implementing SEPA – which in turn puts businesses off from using it.

In light of these findings and a desire to boost SEPA, the Commission announced on 26 February its plans to bring forward direct debit payments to this year, ahead of the 2009 deadline. This is hoped to boost SEPA payments and possibly make attaining the critical mass a reality by 2010.

The success of this venture is dependent on businesses embracing SEPA. If this occurs then it is predicted that SEPA could create a cumulative gain that could reach €123 billion in six years if just 16 EU countries supported common standards and systems. However, if the uptake is slow then it is possible that a cumulative loss of €43 billion to a disappointing gain of €51 billion by 2012 would be the result.

SEPA is arguably one of the EU’s most exciting, innovative developments: rather than being fuelled by the Commission or a Member State’s own agenda, it has been borne out of collective European business interests. Its presence in Europe’s economic architecture is a clear example of the unbounded power of integration; but for SEPA to be more than merely an interesting project it is essential that businesses across Europe embrace this development so that the predicted benefits can be accrued.

1. 27 EU member states, plus Switzerland, Iceland, Norway and Liechtenstein.

Chris Jackson can be contacted on +44 (0)20 7665 9530 or click here to email.