SEPA and cross-border trade


7 Apr 2011

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The Single European Payments Area (SEPA) is already in place, enabling firms and individuals to transfer money electronically across borders. Doireann McDermott examines its effects on cross-border trade.

The Single European Payments Area (SEPA) is a voluntary initiative for the European financial infrastructure, involving the creation of a zone for the euro or any currency whose member state wishes to notify participation. When the concept was introduced in banking, the euro area was like a set of separate island countries, with banks charging high fees for transfers between them.

In late 2001, the EU introduced regulation 2560, which meant banks could not charge more for cross-border transfers than for domestic ones; for example, a transfer to Galway should cost the same as a transfer to Paris or Munich. From 2002, euro banknotes established the standardisation of cash throughout the eurozone, and EU legislation enabled ease of withdrawal of ATM cash within it. By 2012, all credit transfers across Europe will be on a next-day basis. The SEPA Direct Debit, which has already been introduced, is yet to be employed by many businesses. SEPA Direct Debit allows users to pay bills from any purchases in the EU from their home bank account.

Tom Conlon, chairman of Carapay, a subsidiary company of Realex Payments, said the banks were not embracing this concept as it would reduce their profit margins and expose them to increased competition with their European counterparts.

He stated: “At some date soon, the EU will set a completion date for SEPA, which will mean that from that date all credits and direct debits will be SEPA compatible. This will have major implications for both banks and businesses – we will all have to move to the use of IBAN and BIC as account numbers.”

Less than 21pc of Irish SMEs conduct e-commerce transactions and this has increased only by 3pc since 2000.

Why many Irish businesses haven’t embraced e-commerce

Paul Rohan from AIB Capital Markets explained why Irish businesses have not yet embraced e-commerce transactions.

“It is difficult to say whether the Irish propensity to use e-commerce significantly lags behind our competitors because each national economy, notwithstanding European integration, is unique in its size, density and industries. Is a locally trading Irish firm with little e-commerce activity and within 100km of 80pc of its customers lagging an equivalent Spanish business that could have customers much further away from its home base?” stated Rohan.

Rohan appears optimistic that there will soon be more Irish-owned internationally traded services businesses that will add lots of economic value.

“I believe this because the most recent wave of foreign direct investment into Ireland has largely been in international traded services," Rohan said.

In today’s economy, with 78pc of payments made by cheque, Rohan thinks Ireland needs to be appointed a specific date similar to that of ‘Decimal Day’ in February 1971 or ‘Euro Notes and Coin Day’ in January 2002 to help improve communications.

Irish businesses and cross-border trade

Cross-border trade enabled by initiatives such as SEPA could transform export trade. Are Irish businesses engaging in cross-border trade in Europe?

“The first stage of development for an Irish indigenous services firm is often the provision of services to Irish-volume clients only. For Ireland, given the presence of so many large and multinational firms in the country, there is a huge opportunity in the domestically located exports stage, ie, the provision of services to Irish-located units of EU-scale clients.”

Rohan argues that “Irish firms selling to a European-scale company in Ireland, in the face of competition from alternative suppliers from across the EU, are successfully engaging in cross-border trade in Europe. Because this activity is hard to measure, I think Irish success in cross-border European trade might be better than we give ourselves credit for.

“Domestic exports activity can also provide an Irish firm with commercial credibility in export markets and can be the psychological stepping stone to selling to buyers in other EU states.”

Rohan also believes a better grasp of European culture and languages are among the key ingredients needed to tackle the current obstacles which prevent Ireland from capitalising on exports and the single EU market.

“The multinationals in Ireland are also fostering a more cosmopolitan workforce, so this should also help Irish firms become more European in their capabilities and outlook,” Rohan said.

The building blocks of common EU electronic payments standards through the SEPA programme will all be in place by late 2014. Rohan states that he expects to witness the first wave of mobile payments technology innovations employing common EU standards being targeted at 300m consumers across the EU around that time.

He also thinks that with the current climate there will be more e-commerce models in existing and new businesses.

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