5 March 2014
SEPA saves billions for banks and businesses
In light of the postponement of the SEPA deadline and the required amendments to the systems, the costs of SEPA have been an important focus lately. However, a recent report written by PwC’s Corporate Treasury Services offers an alternative. According to the results of their research SEPA is able to reduce annual costs by 21.9 billion euros. SEPA may also be able to unlock up to 227 billion euros in liquidity. Furthermore, companies will be able to streamline their cash management infrastructures and close up to 9 million bank accounts. The loss of income for banks will be negated by the savings, because banks need fewer systems to process the transactions.
PwC conducted the research on behalf of the European Commission. The goal of this research was to find out more about the benefits of SEPA, once the payment systems are fully operational. The research was aimed at banks, businesses and consumers. According to the report, not all involved parties benefit from the advantages at present, but this may change in the future. The published figures are about a situation where every country is completely migrated to SEPA, which is not the case at the moment. Not every SEPA country is in the same stage of migration. Some countries requested waivers for niche products, which means that final migration to SEPA is not complete yet. Secondarily, not all businesses are completely ready for SEPA yet.
Once SEPA is implemented, PwC expects companies to critically review the number of banks that they are doing business with internationally. Their goal is to reduce banking costs and simplify work with banks. It will be possible to accommodate more transactions with one bank, so businesses will benefit from lower transaction costs. SEPA works with XML ISO 20022 standards, which makes it less expensive to adjust the systems, because the standard is used by all involved. This counts for a cost saving of 13.2 million euros, the number of bank accounts will decrease by 9 million.
The benefits attained by the end-users will be realised at the expense of the banks and payment service providers. Banks will likely lower their prices to remain attractive for larger clients. In this way banks will still be able to process large numbers of transactions. Banks need to work more efficiently than they used to, in order to compensate for the migration of transaction volumes and drop of prices. Some banks benefit from lower processing costs given that larger volumes transactions will be done by banking units.
With the introduction of SEPA, banks do not need an office in every country, but the work can be carried out from one location. This means that tasks can be concentrated, thus saving money, as there is no need to have offices in different countries. These offices do not need certain liquidity, so the money saved can be used in the company elsewhere.
SEPA makes it possible for 16.5 millions of companies and almost 6,800 banks and clearing houses to streamline and automate activities. Potentially this means that 973,000 man hours can be saved. This does not mean that people will be made redundant or out of work, but time can be used for other activities, which streamlines a country’s efficiency.
Consumers benefit, to a lesser extent, from the advantages of SEPA. The report does not write about the quantifiable benefits, as they have already been discussed for the banks and business.
Prerequisite for success
It is clear that all parties involved benefit from SEPA to a greater or lesser extent. The direct advantage for international companies is tangible, but also smaller companies can benefit from lower transaction costs with banks, efficient processes and released liquidity. The advantage for consumers is not lower banking costs, but the fact that they have more say about their payments. Consumers can whitelist or blacklist companies for collection transactions. Although banks have lower revenues because of the drop in prices, they can save money by automation of business processes. According to PwC there is only one prerequisite for all parties involved to benefit from SEPA: all parties and politics should work together to make sure the SEPA migration will succeed.