SEPA will lose banks up to €29 billion says report

01 September 2005

The impact of the Single European Payments Area could reduce banks’ direct payments revenue by between €13 and €29 billion (30 to 60 per cent) below expected 2010 levels. In the worst-case SEPA scenario, banks need to lower their payments processing costs by 50 per cent or more simply to maintain current profitability.

That’s one of the key findings of the World Payments Report from Capgemini, ABN Amro and the European Financial Management and Marketing Association.

“Banks are going to have to dramatically reduce their payments processing costs — which in payments processing means economies of scale and reducing the number of exceptions so that as much as possible goes straight through,” said Michael Angus, vice president of Capgemini. “It is going to mean that banks are going to have to either build up the quantity that they are processing by insourcing, or medium and small sized banks are going to have to consider outsourcing some of their payments processing to someone that can create the scale whether it be a separate utility or another bank.”

The report looks at the challenges facing banks attempting to come into compliance by the year 2010. Other findings are:

• Competition and price transparency will benefit both corporations and consumers. However, multinational corporations will benefit more immediately, gaining from centralised liquidity, consolidated payments operations, and optimised payables and receivables processing.

• The current SEPA implementation program requires stronger European governance by public authorities and banks to avoid the real risk of delay or disappointment in the benefits SEPA yields.

• Banks positioned strategically to capitalise on the opportunities of the SEPA will be able to generate new revenue by offering their payments products across the Eurozone, attracting processing volume from other banks, and developing new client payment propositions. Merely being “SEPA compliant” will not be enough because cost reductions will not cover the combined effect of SEPA investments and revenue losses.

The report created detailed models of five countries, which represented 87 per cent of the current Eurozone payment volume, and then generalised it for the entire Eurozone based on the assumption that the SEPA objectives will be met in 2010. The five countries were: Netherlands, France, Germany, Italy and Spain. “We used the Netherlands as probably being the most advanced payments market; we used France as being the biggest payment volume and Germany as the second biggest. We used Italy and Spain both of which have relatively large payment volumes but are also in the position where their non-cash payments are going to grow very rapidly over the next few years,” said Angus.

Launching the report at Sibos 2005, Angus hopes it will raise the discussion about SEPA to the next level. “Capgemini has talked about these issues with senior bankers in public before — they understand that it becomes a business issue and an operational issue very quickly.”