The study, which covers banks in Austria, France, Germany, Italy, Spain and the Netherlands, forecasts that Sepa could reduce banks' direct payment revenue by EUR18-29bn - or 38-62% - by 2010.

Banks face the challenge of minimising internal costs, upgrading pricing strategies, and creating incentives - especially for consumers - to move to e-payments in order to preserve profitability.

Ann Cairns chief executive officer, transaction banking, ABN Amro, says: "Banks must urgently analyse the short term impact to comply with the January 2008 agenda both from a regulatory, marketing and operational point of view.

"They also need to assess whether staying in the payments processing business will continue to be profitable over the longer term."

The research found that current use of 'Sepa-type' instruments differs widely across the countries studied. Overall, 85% of all non-cash payments are already made using Sepa-type instruments (some form of direct debit, credit transfer, or card payment). But of those volumes, 42% currently fall significantly short of Sepa standards, while just 13% are already compliant.

The study also found that Sepa objective of increasing the number of non-cash payment transactions is yet to be realised. The shift towards non-cash payments differs across European countries and there is no overall evidence that countries are converging towards higher volumes of non-cash payments.

Bertrand Lavayssière, MD, global financial services, Capgemini, says Sepa provides the right momentum for banks to think about repositioning their payments business.

"Given costly investments needed to meet Sepa compliance, increasing competition from new players and decreasing payment revenues, banks have to find significant levers to preserve their profitability," says Lavayssière.

According to research released by Accenture earlier this week, the top 100 European banks are expected to spend more than EUR3 billion to comply with Sepa.