Banks are gearing up to processsingle European payments area (Sepa)
transactionsfor their business customers in
readiness for the Eurozone clearing system, which comes into effect
in January.
Sepa was created by the
European Commission to create a single payment clearing system
for the 15 countries that use the euro. It will standardise the
cost of transactions from country to country.
Although the UK does not use the euro, businesses with a
presence in the Eurozone will need to change their processing
systems if they want to make lower cost Sepa transactions.
Banks will have to either upgrade the technology used to process
payments or outsource the service. Upgrades include new software
and extra network connections to European clearing houses.
According to research from Pierre Audoin Consultants (PAC), the
majority of banks will look to outsource the service because the
cost of doing it in-house will make it unprofitable to most
banks.
HBOS, for example, is outsourcing Sepa processing. It has signed
a three-year contract with Belgo-Dutch bank Fortis for the clearing
and settlement of euro payments.
"HBOS is a UK-focused bank so this approach makes strategic
sense for us," said Graeme Donald, head of industry and product
development at HBOS Payment Services.
But outsourcing this process is not exclusively for small or
regional banks, said Rajeena Brar, banking and insurance consultant
at PAC.
"Some larger banks will prefer to outsource Sepa if this is not
an area of priority in terms of investment and if they wish to make
better use of their scarce resources to become profitable and
grow," said Brar.
However, Brar said banks that want to keep control over their
core processes will insource.
Agustin Lago, payments risk head of global payments at Barclays
Commercial, said the bank has a system for Sepa cross-border
payments. He said this offers more flexibility and control than
outsourcing.
"To achieve this the technology investment has been mostly to
upgrade our systems to support the Sepa cross-border payment
functionality," he said.
Some larger banks with advanced payment processing platforms
that have upgraded software are offering outsourcing services to
other banks, turning Sepa processing into a revenue generator.
ABN Amro is planning to use its core technologies to provide
Sepa processing services to other banks. The bank has connections
to every major clearing house in Europe, and as a result has a
network in place to route payments to anywhere in Europe
automatically.
Mike Hampson, head of financial institutions, transaction
banking at
ABN Amro, said that by doing this the bank will reduce internal
costs through economies of scale and also build revenue.
Hampson said banks will outsource for a number of reasons, but
the arrival of Sepa and changes to transaction processing will make
many banks rethink their strategies. "Where major investments have
to be made in platforms, people question whether they should make
these investments themselves," he said.