The introduction of the EU's Single Euro Payments Area (Sepa) could reduce banks' direct payments revenue by as much as EUR29 billion - or 60% - by 2010, according to research compiled by CapGemini and produced in partnership with ABN Amro and The European Financial Management & Marketing Association (EFMA).
The research covers banks in France, Germany, Italy, Spain and Holland - which represent 87% of the payments volume in the EU12 - and found that payments in the eurozone would grow by around 7.5% per year through to 2010. But the introduction of Sepa could reduce banks' direct payment revenue by EUR13-29 billion - or 30%-60% - below 2010 forecasts.
In the worst case scenario, banks would need to reduce their payments processing cost base by 50% or more just to maintain current profitability.
The release of the CapGemini stats coincides with the publication of research by LogicaCMG which suggests that bank and corporate preparations for the introduction of Sepa are being frustrated by a lack of clarity about the new rules and regulations.
The study, which polled 155 banks and corporates across Europe and the US, found that two thirds (66%) of corporates have not yet started on their Sepa strategy, compared with just six per cent of banks.
Almost three quarters (74%) of corporates and 66% of banks expect a positive business impact from the introduction of a pan-European payments infrastructure, while the majority (85%) of banks and two-thirds of corporates expect to see processing efficiencies. One in five corporates and eight per cent of banks don’t yet know what impact Sepa will have on their business – despite the fact that the use of the first pan-euro payments instruments is planned for 2007.
Simon Bailey, payments director, global financial services, LogicaCMG explains: "A number of banks believe that there is still a lack of clarity about Sepa: what it is, how it will work across the eurozone, and the steps that they and corporates need to take today to take advantage of the new regime."
The study also indicates that there is likely to be a split in the industry, with the big players in-sourcing the payments functions from smaller banks who will struggle with the business case to process Sepa payments cost effectively in-house.
Bailey says: "We found that many banks are finding it difficult to define a business case for Sepa because of uncertainties on timings, standards and the degree of regulatory pressure. The banks see a negative impact on revenues and a requirement for a high level of investment. This is affecting progress on their commercial proposition for corporate clients. Banks can benefit from Sepa if they adapt their payments business. Not getting involved is a high risk strategy given the effect on the economics of the payments industry."