Single Payments Area: How Does That Affect My Business?

Europe’s progressive banking integration is directly benefiting companies in ways that may not have attracted their attention, but are certainly useful if they figure out how to use them. In this respect, the creation of the “Single European Payments Area” (SEPA) is designed to prevent any possible differences between the banking committees involving forms of payment, whether domestic or cross-border. This legislation from October directly benefits companies in four ways:

This map shows the Single Euro Payment Area, an initiative of the European Union to simplify financial transactions. In accordance with legal requirements, the Single Euro Payment Area consists of all EU members, EFTA members without their overseas territories and Monaco as well. Author: Know-World
  1. No more bank floating: Until SEPA was launched, banks had three days to deliver funds to the recipient: millions of euros were available to banks at zero cost. Now, deposits are immediate or take just a few hours. This gives companies liquidity and agility.
  2. With the single payment system, direct debit will replace electronic remittances, a slow and complex process offered by some banks as a means of payment for exports. With the emergence of the SEPA Direct Debit (SDD), export firms will significantly streamline their collections processes and increase efficiency. The European direct debit is a simple, cheap and fast collections system for European transactions.
  3. There are also more options for companies that use cash pooling services, since national boundaries have become a thing of the past and it is now possible to transfer a balance between the countries of the single payments area, which will result in better cash management.
  4. Finally, another direct advantage for companies is the unification of all forms of transfers and direct debits in the SEPA area, which means reduced administrative burden.

Perhaps not everyone is singing the praises of the single payment system just yet, but these figures may help gauge the impact it will have: In 2013, there were 27 billion transfers, 25 billion direct debits and 4 billion checks; an enormous volume. In addition, the single payments area has also affected the implantation of the EMV chip credit cards. However, it does not affect the financial sector in its internal operations.

What’s next? The end of bank monopoly?

Banks continue to monopolize the intermediation of global payments, a position that may be threatened by the emergence of new actors in the sector. Platforms such as PayPal, Facebook and Alibaba, for example, are also able to issue credit and manage a large amount of information and have a broad user base.

The lingering question mark regarding the effects of the next phase of SEPA is whether financial institutions will be able to maintain their current position or we will see users in countries with a low level of banking penetration and a strong presence of technology (as seen in developing countries) drive this type of intermediation toward these platforms.

The main advantage of the traditional financial institutions is their financial capacity, and ability to endure burdensome regulation that requires them to maintain top security in their customer data. But will they be able to keep up with the emergence of new actors without losing a huge chunk of their business?


About Jorge Soley Sans

Jorge Soley is senior lecturer in the Department of Financial Management. Among other subjects, he is an authority on banking supervision principles (Basel) and insurance (Solvency), the credit evaluation of companies and compliance / regulatory activities among credit institutions. He has extensive hands-on financial and management experience. For the past twenty years, he has served as CEO of the Bank of Europe specialized banking of "la Caixa". In 2006, he took up the post of director in charge of norm compliance at "la Caixa". He was also president of Telefónica Factoring Spain as well as board member of Telefónica Factoring Brazil and Telefónica Factoring Mexico.