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The project will pose formidable technical challenges, including the need for common standards to be adopted in IT departments across mainland Europe and the UK.
During a meeting in Brussels last month of representatives from European banks, including Barclays and Lloyds TSB, the option of creating a single automated clearing house across the euro zone emerged as the favoured option, a spokesman for the European Banking Federation said.
The meeting, which took place behind closed doors, aimed to thrash out a timetable to ensure that cross-border payments made in euros within the EU could be made as easily as domestic transfers. By 2010 countries within the European Union should have created a single payment area.
From July bank charges for cross-border payments in the euro zone will need to be similar to those for domestic transactions, under regulations from the European Parliament. However, analysts have warned that this will create major technical headaches for banks.
Technical challenges include getting the banks to agree a common messaging standard for transferring information on cross-border payments, and overhauling their back-office systems.
"The key thing is whether it forces the clearing houses to move to a common standard for messaging and the technology platform it uses," said Daniel Mayo, lead analyst at research firm Datamonitor.
Many of the interfaces developed by banks for transferring payments to clearing houses have been developed in-house, he explained.
Banks in the euro zone will also have to overhaul their back-office systems from multi-currency systems to single-currency platforms, if they have not done so already, Mayo added.
What the banks agreed
- A common payment area for member countries will be created across the euro zone by 2010
- The favoured option is to create a single EU clearing house
- The system should make cross-border payments as cheap and easy to carry out as domestic payments
- The system will cover about 500 million bank customers
- The technology will require banks to forge common standards for messaging