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Closer financial integration

The landmark Single Euro Payments Area (SEPA), which aims to remove the economic disincentives to the execution of cross-border non-cash transactions, has come into force throughout the European Union’s 27 member states, and four neighbouring countries. A natural progression from the adoption of the euro common currency in 1999, the development represents an advance in the realisation of the EU single market. The fight against discrimination in charges levied for domestic and international credit transfers assumed urgency when — ahead of the launch of euro coins and bank notes — the European Commission found that a €100 transfer attracted a 25 per cent commission. Following a subsequent regulation, cross-border credit transfers in euro denominations of small value, withdrawals from cash machines, and payments using credit and debit cards are all charged the same fee as domestic transactions. But indeterminate execution periods and unauthorised double-charging have remained sticking points, mainly owing to the coexistence of non-uniform national payment standards and rules. SEPA, in its first phase, stipulates a maximum of three business days for the settlement of cross-border credit transfers of unlimited value. Further, service providers are to ensure transparency for consumers by charging a separate fee. SEPA will extend to direct debits by late 2009 and eventually replace all national means of payment by 2012. Once it is fully operational, corporations and consumers will be able to conduct domestic as well as cross-border transactions in euros using a single bank account and retail businesses can process different card transactions through a single machine. These will considerably boost the EU core principles of free movement of persons, services, and goods.

Largely a banking sector initiative, SEPA seems a far cry from the industry’s scepticism of two decades ago over attempts to regulate international payment procedures. The heavy investments required for the switch-over from national to pan-EU service providers have evoked a rather cautious response from smaller banks and retailers. Demonstrating a more positive stance, about half of Europe’s banking industry, which handles 80 per cent of the transactions, has already signed up to the new initiative. The cost involved in operating the national and the common European systems in the transition period is a major incentive for a speedy and comprehensive roll-out of the SEPA. But more than the billions of euros that it promises in savings, the formation of SEPA is one of those measures that further reinforce the experience of the EU as a borderless reality for millions of ordinary citizens and international visitors.

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