Putting the 'e' Into e-SEPA.(selected topic)(SEPA Credit Transfer )(Reprint)

The SEPA Credit Transfer (SCT) will be introduced on time on January, 28 2008, but the second basic service, the SEPA Direct Debit (SDD), is likely to be delayed. In theory, all national solutions for credit transfers and direct debits in euros will be phased out by 2010 and replaced by the SEPA instruments. Whether this will happen on time is a moot point, but what does this mean for corporate customers of banks?

As the prime movers of economic progress, corporates are constantly looking for new business opportunities throughout the eurozone and beyond, but they must also manage the cost of doing business. As always, it is a case of balancing the potential new revenues against costs, but as geographic reach increases, so does commercial risk. In principle, the position of the corporation should be greatly enhanced from January 2008; each company need only have a single euro account for all disbursements and collections and European banks will compete fiercely for this important business. Inevitably, this exerts downward pressure on transaction charge levels. Over time, a state of price equilibrium will prevail in the transactions market, probably somewhere around the level of the most competitive national price levels today.

Banks have deep and complex relationships with their corporate customers that extend far beyond transaction services so the reality of changing banks is a major consideration for any company. Nevertheless, prevailing market forces will tend to work in favor of all companies with significant exposure to Europe, so the rollout of SEPA should be a welcome change. Yet, the extent of the benefits depends on the starting point.

Generating Strategic Benefits

At present, Europe is far from being a level playing field in transactions. There are huge discrepancies in the transactional efficiencies of different regions through Europe; some estimates suggest a ratio of 1:8 between the most and least competitive transactions markets. So it is difficult to imagine that the reality of SEPA is anything but good news for most corporations, and ultimately for the European payments industry as a whole. If a company is active in many countries throughout the eurozone, it can consolidate its transaction business and lower its costs. All good news in principle, but initial SEPA services are likely to be quite basic and potential savings will depend on many other factors such as straight-through processing (STP) levels and other efficiency criteria.

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Transaction volumes are important too. As transactions are a non-core activity for corporations, any SEPA project may have to compete with many others. SEPA needs to be perceived as a significant opportunity providing a strategic advantage. So how can companies raise the profile of SEPA within their corporate strategy? One way to accelerate adoption is to start thinking beyond SEPA, towards 'e-SEPA.'