Are We Overstating the Advantages of SEPA?

The single euro payments area (SEPA) was introduced with the goal of harmonising the payment process between countries in the SEPA zone. As a result this will lead to a true single payment zone, meaning that there will be no differences in terms of payment execution or pricing when making payments in euro in the SEPA zone and providing numerous advantages for corporates that transact business in Europe.

Sounds familiar?  It should as these benefits are routinely promoted by software vendors, consultancies and banks alike to highlight the potential benefits of SEPA as regards payment centralisation, reducing the amount of bank accounts and the use of one common format.

But in this discussion a few key points are often overlooked. First of all, a number of countries, predominantly in Northern Europe, already have very efficient payment systems. This means that the added benefit of SEPA in terms of domestic payment execution is minimal. In some cases it even means that SEPA represents a step back.

For example, in Germany SEPA only allows for 140 characters of remittance while the local German clearing allows for up to twice the number. This means that payment processes in Germany need to be changed as fewer invoices can be paid with a single payment, resulting in more payments and therefore a less efficient payment process.

Secondly, SEPA allows banks to introduce a float of one day for executing payments. The SEPA guidelines state that banks are required “to execute a payment instruction within one business day”. This means that a payment received today can be executed by the bank tomorrow, effectively introducing a one day float.

A good example of the interpretation of this rule can be found in the Netherlands, where one particular bank distinguishes between domestic SEPA payments and cross-border SEPA payments, where the domestic SEPA payments are executed with same-day value while the cross-border SEPA payment are executed with one day float.

A difference between domestic and cross-border SEPA payments? It goes without saying that this clearly conflicts with what SEPA is trying to achieve. To make it even more confusing, this bank also offers urgent cross border SEPA payments, which are executed with same-day value but at a significantly higher transaction cost.

Thirdly it has to be noted that the vast majority of companies in the SEPA zone only transact business within their home country. Admittedly, making cross border payments within the SEPA zone is not always very easy but it is by no means impossible. Any claim that the introduction of SEPA will improve the cross border trade is, in that regard, a little dubious.

Costs versus benefits

Added to the above is the fact that many companies that have historically had  large volumes of cross border payments, or companies that are active in multiple countries in the SEPA zone  already have established processes such as shared service centres (SSCs) or payment factories that provide an efficient payment process.

Admittedly, even in these cases SEPA will provide some advantages but within these corporates, which are often multinational corporations (MNCs), SEPA is often seen as a compliance project whose costs do not outweigh the benefits. The same can also apply to companies which strictly execute domestic payments.

Of course it is not all bad and SEPA does provide advantages – especially for countries in Southern Europe where bank float is reduced. Additionally some companies have grasped the momentum of SEPA to improve and centralise their payment processes. Nonetheless we should be honest in acknowledging that for many companies and individuals alike, SEPA does not provide too many advantages.


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