into the economic impact of the SEPA has found that its impact on
payment-related costs and revenues in the European banking sector
are expected to be “limited”. Banks will incur highest costs during
the period when national and SEPA payment infrastructures
co-exist.
Upon the implementation of SEPA on 1 January 2008, banks will
have to offer old payment instruments as well as new SEPA payment
instruments. The ECB says that, in the short term, this duality
will lead to higher costs, mainly due to the establishment of new
schemes and their co-existence with old schemes.
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“The impact on the revenue side of the total payments business
seems to be relatively limited as cross-border competition is not
expected to materialise in the short run,” according to the
ECB.
In the longer term, the ECB says that banks’ revenues and costs
will be affected in different ways. Although some banks expect new
business opportunities, revenues might decrease because of growing
cross-border competition, which would squeeze margins. On the other
hand, banks report that potential cost savings can be made due to
economies of scope and scale, and a possible reduction of manual
processes.
Three stages of SEPA
The ECB says that banks expect their revenues to decline by
between 3 percent and 5 percent depending on the SEPA scenario
under consideration. The study looked at three stages of SEPA
development: SEPA co-existence, the ideal SEPA world and e-SEPA (a
future scenario in which SEPA has been successfully implemented and
the payments world is fully electronic, paperless and with less
cash).
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By GlobalDataOn the cost side, banks are likely to face high initial
investments resulting in extra costs of around 5 percent in the
SEPA co-existence scenario. However, the ECB says that these
initial investments are likely to pay off as full advantage is
taken of SEPA harmonised and standardised schemes and products, and
when total migration has been completed.
After aggregating the views of participant banks in the study,
the ECB found that the net results of changes in payment-related
costs and revenues, excluding balance-related income, would be -8.1
percent in the SEPA co-existence stage, -4 percent in the ideal
SEPA world, and -1.5 percent in the e-SEPA scenario.
The findings of the study have led the ECB to recommend that
banks keep the duality period as brief as possible to help them
achieve economies of scale more quickly as payment revenues begin
to drop due to competitive pressures.
Card cost not material
Regarding card payments, the ECB says that the overall impact is
not expected to be material, although some banks will report an
increase of costs related to the issuance of new SEPA-compliant
cards, which may not coincide with the natural card replacement
cycle. However, it is expected that a change in the mix of POS
payment instruments will lead to increased volumes and revenues of
direct debits and cards.
The ECB report states that banks expressed strong interest in
encouraging customers to change their payment behaviour to switch
to less costly and more efficient payment instruments, such as
cards instead of cheques. Substantial distribution and production
cost savings are likely to arise in some markets from the reduction
or cessation of cheque payments. Banks also expect efficiency gains
in payment processing as service users make more use of remote
channels.
The study concluded that, over time, two opposing effects will
determine the benefits and challenges of SEPA. First, SEPA will
increase competition in the banking industry as it removes the
barriers that formerly protected national markets. Second, SEPA
will ensure cost savings in payment processing and give rise to
business opportunities.
The revenue side will also be affected by increased cross-border
competition and by new market entrants. The ECB said that the
findings of its study support the view that a dual SEPA
implementation phase should be as brief as possible. In fact, the
ECB said, a longer migration period would give rise to higher costs
than a shorter period.
The impact on costs and revenues will be determined by the
approach chosen by banks. Those banks that take a forward-looking
view and opt for additional services that will automate the payment
process are the most likely ones to create new business
opportunities.
