The Wall Street Journal-20080130-EU-s Payment Project Still a Work in Progress

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EU's Payment Project Still a Work in Progress

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BRUSSELS -- The European Union's plans to start making payments between countries as easy as within them still faces several years of work before consumers can begin to benefit from expected cost savings, officials and bankers involved in the process say.

The European Union's Single Euro Payments Area, or SEPA, isn't as far along as many would like it to be, industry experts say, and consumers and retailers will really only start to benefit from the changes by 2010 at the earliest.

"SEPA is a step in the right direction," said Alan Koenigsberg, J.P. Morgan Chase & Co.'s executive in charge of payments in Europe. He adds, though, that there remains more work to be done by banks and companies before the benefits of the cross-border payment system can be fully realized.

The payment-system changes stem from the EU's drive to remove national borders for business within Europe following the introduction of the European common currency in 1999.

SEPA will eventually cover payments anywhere in the EU's 27 countries, plus Iceland, Liechtenstein, Norway and Switzerland.

Making payments throughout Europe should be the same as making payments within countries, the European Commission says. The commission, the EU's executive body, estimates the potential payment benefits of a fully functioning SEPA at around 123 billion euros, or about $180 billion, cumulative over six years from 2007 to 2012, as lower charges help individuals and companies transferring money across borders.

The migration of the patchwork of different European payment systems to a European-wide one started officially at the beginning of January and is due to be finished by the end of 2010. During this time, banks are supposed to put in place seamless money transfers from cash transfers -- already in place -- to direct debit-bill payments in 2009 and borderless debit-card shopping by the end of 2010.

The project is being overseen by the European Payments Council, a body set up by Europe's main banks, though it doesn't have the authority to force any foot-dragging governments or member banks to step in line.

There remains plenty of resistance from some banks, especially over the reduction of the lucrative banking fees charged for cross-border payments. The EC has said banks in southern Europe charge as much as eight times more than banks in Nordic countries for cross-border transfers.

Beginning this week, cross-border credit transfers need to be completed within three days, down from five days. Some banks already offer a single-day transfer, however.

Borderless direct debit is scheduled to begin by November 2009, but some member states are dragging their feet there too, due to differences in national legislation and the time needed to sort out the legislation, says the Deputy Secretary-General of the European Payment Council, Erik Mansson.

And while the deadline for borderless debit-card use in retail outlets is set for 2010, many industry specialists are saying a more realistic deadline is 2012.

Borderless debit cards are the most eagerly awaited change, especially by large European retailers such as Ikea International A/S, as only then can the furniture chain centralize its payment networks across Europe.

But the migration of cards from national plans to a pan-European plan has spurred worries among the commission and retailers that low- cost national card plans will be replaced by more expensive payment- card plans, such as MasterCard Inc.'s Maestro or Visa's Vpay, and not enough competition remains on the market.

The risk still remains that we will be left with only two card plans, which will be unacceptable to the commission, ECP's Mr. Mansson says.