The second wave of European integration, which saw 10 new countries joining the European Union in May 2004, brings about major trade opportunities for European businesses.
One of the key issues faced by businesses doing cross border trade or setting up branches abroad is the management of their international payments.
The Czech Republic, the European Union’s largest trading partner, accounted for 68.3 per cent of exports and 60.1 per cent of imports in 2002. The entrance of the Czech Republic in the European Union on 1 May 2004 is expected to accelerate these trade flows.
The payment system infrastructure in the Czech Republic is provided by the Czech National Bank, commercial banks and the Czech Post Office. Three main commercial banks: CSOB (owned by KBC), Komercni Banka (owned by Société Générale) and Ceska Sporitelna (owned by Erste), cover 75 per cent of the payments’ market. Other large banks include HVB, Citibank, GE Capital and eBanka, ABN Amro, HSBC, ING, Commerz Bank, Deutsche Bank….
Domestic Payments
1 – Domestic payments between various banks within the Czech Republic and made in local currency (CZK – Czech crown, koruna) are cleared through the Czech National Bank, which operates the interbank payment and owns and operates the Czech Express Real-Time Interbank Gross Settlement (CERTIS) system.
The following types of transaction are handled in the CERTIS system:
- Accounting transactions (ie credit transfers, direct debits….)
- Non-accounting transactions (ie direct debit requests and credit transfer cancellation requests)
- Information and technical transactions.
Only licensed banks can be direct participants in the CERTIS system. They can attach one of two priority levels to the accounting transactions: “priority” or “standard”. It usually takes two to three days to move funds from a bank account in one local bank to a bank account in another local bank. Fees are marginal (15 euro cents).
There is no special large-value payment system in the Czech Republic. The CERTIS system processes all transactions in Czech korunas irrespective of their value.
2 – If both parties have their bank accounts at the same bank within the Czech Republic, payments between customers of the same bank are processed in the internal system of this bank without any involvement of CERTIS. If both customers have electronic banking systems in place, the transfer of any currency usually only takes a couple of minutes and is free of charge. Electronic banking is a very usual tool used by all companies, including SMEs. eBanka for example only communicates with its account holders by electronic means.
3 – If you transfer any foreign currency, including euros, between bank accounts held in different local banks within the Czech Republic, this is processed as an international wire which takes between three and seven days. Local banks process the payments though their correspondent banks abroad. These types of payments involve a fee for both parties. Fees usually represent 1 per cent of the amount of money transferred with a minimum of around EUR 7 and a maximum of EUR 35/45. (See chart)
Bigger Czech companies usually have bank accounts in Czech koruna and euro in several banks (usually two or three) and will always use the bank which offers the best conditions at the time. Rates of exchange offered and payment fees vary a lot from bank to bank.
There is a 31 December 2004 deadline for the Czech (and other accession states’) banks to meet specific requirements in order to be able to participate in European payment systems, including the Step 2 system, the first pan-European clearing system for bulk payments in euro which processes retail payments of up to EUR12,500 per transaction. Such payments will be then considered and processed as domestic payments. It is uncertain when Step 2 will be operational in the Czech Republic.
Cross-border Payments
Cross-border interbank payments are mainly carried out by means of correspondent banks and the SWIFT network.
UK-based companies have a choice of partners for payment to suppliers in the Czech Republic – banks and non-bank cross-border payments providers. When choosing a local provider in the UK, it is important to consider the amount of time that is needed to deliver the money to the supplier and fees involved. It is also important to understand how complicated the routing of the transfer will be (correspondent banks etc). Once the funds have come to the suppliers’ bank in the Czech Republic, they will be available to the supplier on the next day. Incoming fees vary from bank to bank.
It is a challenge for outsiders to compete with preferred banks for all that concerns dealing operations and international payments. The main competitive advantage of foreign exchange providers in the Czech Republic will be their service proposition: an individual approach to small and medium size businesses that local banks do not have.
