Are you ready for the future of finance?
Special Report Reluctance of businesses to engage with new regime attributed to fear of change
It’s the next step in creating a European single market; from February 1st 2014, Ireland’s national payments system will be closed for business and instead, will be replaced by the Single Euro Payments Area (SEPA), which will eventuallyextend across 33 countries.
The February deadline is for the eurozone while non-euro member states have to comply by the end of October 2016. But while the new payments regime should facilitate easier – and cheaper – payments across this region, the fear is that Irish businesses are not yet adequately prepared.
The goal of SEPA is clear: it aims to overcome technical, legal and market barriers between countries in order to create a single market for payments in euro. So, in essence, whether you make, or receive, a payment to an individual or business anywhere in Europe, it should be the same as if you are transacting with someone down the road.
At present, cross-border payments are done on a national basis. “This means that there are no economies of scale, no common standards, or legal basis in place for making payments across Europe fast, efficient and safe,” says Chris Stonehouse, category manager with Sage UK and Ireland.Its arrival, however, will see existing bank account numbers and national sort codes migrate to an international bank account number (IBAN) and a bank identifier code (BIC).
“It is a welcome initiative which should prove to simplify, standardise and accelerate interjurisdictional payment mechanisms resulting in increased cross border opportunities, improved cash-flow and cost reductions,” says Colm McDonnell, a partner in enterprise risk services with Deloitte.
It might also help with cash-management, as Stonehouse points out: “With SEPA you know that you need to deposit your money in your bank account on the day before you want to do the payment, then the money will be received on the exact day that you specify to your bank. This is especially important for businesses for whom cash flow is an issue, as they can now control exactly when money leaves their account, and they can guarantee when it will arrive in the recipient’s account.”
And with businesses faced with ever-increasing bank charges, the single payments system should mean lower transaction fees – after all, a central tenet of it is that paying someone in Europe should cost the same as paying someone in your home country.
“Fees should come down, because any bank could do the transaction processing for you, so it should improve competition, especially for larger companies with more transactions to be processed,” says Barry Manning, head of corporate cash management at Danske Bank.For consumers, the move to SEPA should bring its own advantages.
“A good example of this would be if you have a house in Spain and you need to pay your electricity bill or your taxes there. You will be able to do a direct debit from your Irish bank account, without having to open a bank account in Spain,” says Stonehouse.