Increased IT Spending with SEPA Regulations. Year 5.5% CAGR Payment Processing IT Spending Expected

IDC: Focusing on the impact of SEPA (a single euro payments area) on the payment processing investment strategies and infrastructures of Western European banks' IT spending.

SEPA is forcing many banks to rethink payment strategies because charging less for payments will require greater automation and integration to maintain margins. Dramatic cost efficiencies will therefore be required, improving operational costs by 50% in some cases. An increasingly harmonized banking community in Europe will mean that domestic banks will be less able to defend their national markets and that the current trend for cross-border mergers and acquisitions will intensify. It will also boost the adoption of enterprise payment hubs at tier 1 institutions across Europe. Nevertheless, a number of opportunities will also be available to banks, from strategic sourcing to developing new payments products and services.

The next step for the implementation of SEPA was scheduled for January 2006, when retail cross-border payments of up to €50,000 would have to be treated as national payments. However, the governing council of the ECB has recently asked the European Commission to push the deadline back to 2008, to give time for banks to migrate their systems. Nevertheless, many banks in the region must now either contemplate investing in legacy payment system consolidation or choose third-party offerings.

To date, Spain has committed moving its national automated clearinghouse (ACH) system to STEP2, while seven Italian banks are to move their domestic payments starting in spring 2006. However, momentum seems to be gaining: Luxembourg's banks are now using the STEP2 platform for cross-border transfers and will shortly decide whether to move domestic payments to the platform. The number of transactions on STEP2 is growing, but the numbers are still small compared with larger transaction service providers such as Voca (formally BACS in the United Kingdom) and Interpay in the Netherlands.

Competition is likely to increase, driving further consolidation between banks in the payments market and forcing them to find new ways of adding value and retaining customers. In addition, migration to new schemes and standards will require large investments for all payment service providers with only long term promises of return on investment. A greater pooling of payment volumes among fewer processors and clearing hubs is expected.

More: Will SEPA Pave the Way Toward Enterprise Payments Publ 2006017