In my last post, I explained the fragmented payments and banking landscape in the EuroZone. In this post, I will continue the discussion with an explanation of the Single European Payments Area (SEPA). Starting in the 1990s, the European Union began the SEPA initiative to harmonize and simplify payments across the 15 countries which have embraced the Euro as the national currency. The goal of SEPA is to establish a common set of regulations, processes, standards and technologies for making payments across the Eurozone. Consumers and corporations will enjoy consistent pricing and service levels irrespective of their country of citizenship and the location of their bank account. Surcharges for cross-border transactions within the Eurozone will effectively be eliminated. As a result, citizens and corporations will be able to make payments in any Eurozone country as easily and cost-effectively as they could in their home nation.
The subprime mortgage crisis is not the only source of radical change in the banking industry this year. A less publicized, but perhaps equally significant transformation is occurring across Europe as part of the Single European Payments Area (SEPA). Much like the credit crisis, SEPA will result in significant losses to banks. Payment fees collected could decline between 30 to 60%, the equivalent of €13-29B of foregone revenues. But unlike the credit crisis, SEPA losses will not be the result of a series of unplanned events leading to catastrophe. Instead SEPA is a deliberate, methodical attempt to evolve the banking system that will provide substantial long term benefits to both consumers and businesses. SEPA is not a new phenomenon. Planning for the changes has been occurring within the European banking sector for over a decade now. However, since the SEPA initiative’s progress has not been well communicated outside of Europe, I thought I would take a few minutes its goals and benefits.