How Single Euro Payments Area Benefits European Business
Earlier this year the European Commission introduced the Single Euro Payments Area (SEPA). This mechanism makes it possible for individuals, companies and other European economic agents to make both national and international electronic payments in Europe, within a standard framework of rights and obligations, and regardless of location. During a Continuous Education session for alumni, IESE Prof. Jorge Soley said that this gives individuals, businesses and public administrations greater liquidity. It also lowers the cost of finance and puts an end to the fragmentation of the retail payments market.
Savings on Commissions and Goodbye to Floating
The Single European Payments Area is made up of a total of 32 countries, 7,000 banks and 450 million consumers. If every banking institution were to publish the rates it charges for its services, the price of a domestic transfer or receipt would have to be the same as that charged for a European one - one that might, for instance, originate in Spain and be destined for Germany.
The idea is that payments and charges made across member states, and in euros (with the exception of cash transactions), should be as fast and simple as payments made within national borders. SEPA currently regulates bank transfers, standing orders and card payments.
SEPA has also done away with so-called bank floating so that transfers and receipts are credited the same day they are received. In parallel, debt payment periods have been extended such that the debtor can ask the bank to cancel a paid receipt during a period of 56 days, or 13 months, if it can be shown that it was an unauthorized receipt.
"SEPA is the biggest step towards European financial integration," says Soley. "This instrument integrates the European monetary market."
The aim of SEPA is to create a zone in which payments and charges are made in a competitive and innovative manner, thanks to a high level of service, efficient products and cheaper rates. These key improvements make the case for welcoming these new obligatory instruments as a major advance in payment processing.
Positive Effects for Business
Soley also cites the positive effects SEPA is creating for business. It has helped to drive exports by optimizing the use of debit and credit as a means of payment. At the same time, the use of bank checks has fallen, while the disappearance of bank floating has given companies more liquidity.
On the other hand, the Payment Services Directive II, which completed the implementation of the SEPA last August, has introduced the "nonbanking supplier" to payment services. These providers operate between the business and the bank managing the payment account, without using traditional cards. They are new bodies that have taken advantage of the existing legal vacuum and have begun to act as intermediaries between businesses and the buyers’ banks. They leverage existing banking infrastructure such as national or international clearing houses, bank accounts and bank payment services.
This is the case with companies such as PayPal or Apple Pay. These companies are putting an end to the bank’s monopoly as intermediaries in world payments. "A company should be able to take advantage of all of the possibilities that a service bank offers to improve its efficiency," says Soley.
"In spite of this, much remains to be done," says Beatriz Kissler. A member of Iberpay’s European Payments Council, Kissler points to the fact that at the end of 2016, the deadline will have passed for those countries that are not part of the European Union - Iceland, Monaco, Switzerland, Norway and Liechtenstein - to migrate to SEPA.
Kissler closed the session with a critical question. "Technology platforms and companies are already in the banking business. Do they threaten the monopoly of banking institutions?"