SEPA: A Challenge for Everyone
The European payment industry scenario has been constantly changing since 2003, when the euro became a reality and the gradual integration of new countries in the European Union began. From that point, the goal was to create a Single Euro Payment Area (SEPA), which would lower the cost and increase the transparency of cross-border payments. The European Commission charged the banking industry with the task, together with a warning that failure to complete the task would result in forced regulation. This process involved requesting and sharing common standards and rules for all the European countries and for those entering the European Union in the future.
With SEPA, the euro will circulate as freely and cost-effectively through a single retail payment infrastructure, as within previous national borders. This represents a major opportunity for all players within the economic scenario: banks, corporate, public administrations, citizens and service providers. SEPA is a reality which requires a “look beyond” vision.
Banks will have the possibility to reposition themselves, fostering fast and easy payments, transparency and efficiency, costs reduction through economies of scale, great competitiveness. All this thanks to a common procedure for both domestic and international payments. Corporates will have the opportunity to create a single homogeneous market allowing: better interaction, greater payments and the liquidity management efficiency, more information and knowledge exchange, increased competitiveness and reduced costs. Besides, they will have single recognized standards and invoice dematerialization.
A single homogeneous market will also allow all public administrations to have a more efficient relation with the financial system, harmonizing services in Europe and reducing costs. Service providers will be country neutral, offering open access to all direct and indirect banks and high level quality services based on international standards, connecting all the banks, integrating local traffic, assuring resilience and high SLAs.
For citizens it will mean cost saving, transparent and comparable pricing, no difference between local and intra-Europe payments, easy and always available services. For all these players a significant change will be represented by the payment speed, which will allow a differentiation of services: for example it will be possible to choose between real time money transfer and a two-to-three days’ transfer if needed.
One of the main challenges facing SEPA and the EU has been the enlargement of the European Union and the interconnections between the new acceding and candidate nations from Central and Eastern Europe. A modern, robust and efficient market infrastructure facilitates the development of secure and efficient financial markets and allows Eastern European countries a smooth integration into the European single market. The rationale behind the current emphasis on payment systems is twofold: on the one hand, to ensure that the acceding countries’ payment and securities clearing and settlement systems infrastructure is sufficiently robust with consequent systemic risks reduction and domino effects mitigation across the European Union, in the occurrence of problems. On the other hand, to assure their domestic infrastructures are sufficiently effective to ensure fair competition among all European Union market participants. A successful case study is represented by Romania.
One of the requests made to Romania to enter the European Union in 2007 was to automate its payment system. The country had a totally manual system till 2003, when Società Interbancaria per I’Automazione (SIA) won the EEC bid to create and develop a SEPA-compliant interbank payment system for the National Bank of Romania. The European Phare program – one of the pre-accession instruments financed by the EU to assist applicant countries of Central and Eastern Europe in their preparations for joining the EU, and which aims to support the consolidation of democracy in Eastern and Central Europe – wholly financed the bid.
In Romania, SIA was required to develop and implement the Romanian payments system through the creation of four essential components: the Real Time Gross Settlement (RTGS) System, an Automated Clearing House (ACH), a Government Securities Registration and Settlement (GSRS) system and a disaster recovery site. The system has been created following the requisites needed for the euro adoption, expected in 2009-2010.
The payment system in Romania is now fully operating. In April 2005 the RTGS went live with a daily average of 3,500 transactions, with a value of Lei45,000bn (about €1,200m). In May 2005 the ACH also started, recording more than 200,000 transactions for a global amount of more than Lei500bn (more than €150m). The ACH allows a 25 per cent reduction in transaction cost and increases the efficiency of banking services.
Romania has become a strategic country in Europe and SIA recently decided to open its new operation purposely in Bucharest. SIA’s office in Bucharest is intended to be the central point that will allow the company to offer its experience and consultancy to other Eastern European countries. Starting with an innovative payment system and proceeding with the automation of other services, Romania will lead other countries to accelerate on competitiveness. The result will be a healthy and efficient financial Eastern European market.
Beside the Romania experience, SIA has been partnering with EBA (European Banking Association) to build and operate the first pan-European SEPA compliant Automated Clearing House for mass payments in euro. EBA STEP2 service would automate bulk low value, high volume inter-bank payments within the European Union, therefore becoming a key component for the creation of a true European economic integration. Today, the EBA STEP2 system connects 87 direct participants and more than 1,350 indirect participants, which are leaning on direct participants to send and receive payments through STEP2. Thanks to its widespread reach, STEP2 automated mass payments in all the EU-15 area countries, with 60 indirect participants belonging to 10 new European member countries.
In only the first six months of 2005 the system processed 43,828,253 payment instructions, for a global amount of €99,935,885,328.46 showing itself able to significantly cut transaction costs.
The 87 institutions (all the main European banks) which currently participate in the system have given highly positive feedback, as shown by the decision to increase the number of transactions managed by the system under the “direct debits” category. For all these opportunities SIA intends to continue to work for emerging countries in order to build together the path for the financial market of the future.