SEPA revenue potential for EU-27 and beyond

With the January 2008 introduction of Single Euro Payments Area (SEPA), a key barrier has begun to crumble, and an integrated financial market for the European Union is emerging. SEPA is triggering a fundamental overhaul of the payments landscape in Europe — with implications for financial institutions around the world.

Prior to this launch, the EU-27 countries had a unified currency, but with payment products, standards, and legislative frameworks fragmented across country borders, they still faced barriers to integration. With SEPA, the European Commission and European Central Bank (ECB), originators of the concept, move a step closer to their goal.

SEPA will gradually harmonize payment product across Europe and result in the second biggest payment market in the world behind the United States. Although it spawns new opportunities for banks and payment providers, SEPA also challenges banks to quickly and completely restructure their costs, amidst fierce competition for payment volumes.

Scramble of EU-27 financial institutions
A.T. Kearney’s Cards & Payments Benchmarking Study assessed the impact of SEPA on the future of payment transactions and the card business in Europe. The study reveals massive challenges for European Banks, such as:

• Need to harmonize products and prices that currently are substantially different between banks and across countries
• Legislative (Payment Services Directive or PSD) impact on the traditional card business model
• Pressure on banks to innovate because of the redistribution of market share within Europe

READ MORE The SEPA Shake-Out: Challenges in cards and payments

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Andreas Pratz is a partner in A.T. Kearney's Munich office.
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World-wide fallout While SEPA’s impact is immediate for Europe, the rest of the banking world is also implicated — especially when banks are active in Europe. Transnational banks also are affected, such as Citibank, Bank of America, JP Morgan Chase, and others.

Worldwide banking customers will benefit from SEPA changes. Banks, however, will need to act quickly to create advantage and minimize negative impacts, such as:

• Increased competition for end-users’ payment transactions, with the advent of payment service providers
• Reduced revenue from “simplified” transactions and loss of float with mandated shorter execution times
• Increased liability for non-execution or defective execution of a payment transaction

READ MORE North American Banks Can’t Afford to Ignore SEPA