Europe's lingering debt crisis likely will cause some European banks to be wary of adhering to a pending deadline to accept euros as a common currency for electronic cross-border payments as part of the Single Euro Payments Area for eurozone countries, new research indicates.
And the growing number of governments defaulting on euro debts will result in commercial customers avoiding cross-border trading, the research by International Banking One Solution Association suggests.
Less expensive cross-border trading was a key selling point for establishing SEPA, in which citizens, businesses and public authorities could make and receive euro payments regardless of location in the eurozone under a uniform system at costs similar to the countries' domestic funds transfers, the research notes.
"Now that it has been shown that there is country risk, that eurozone governments can default on their own euro debts, customers may not be willing to trade with 'risky' countries in such a way that the SEPA experience has meaning for them," Bob Lyddon, the association's managing director, writes in the research paper "The Interconnection Between SEPA and the Eurozone Debt Crisis."
Increased border trade would not result if commercial customers were reluctant because they felt no true single market existed if each country imposed its own variations on SEPA schemes for accepting euros, Lyddon speculates in the report.
As such, banks will question the benefits of SEPA and hope regulators would go easy on them if SEPA guidelines are introduced at a time when they may be contending with other new banking legislation resulting from the debt crisis, the report suggests.
SEPA, which is an initiative of the European banking industry and is supported by the European Commission and the European Central Bank, establishes uniform standards, rules and conditions for transactions in euros, according to Europa, the website of the European Union, which develops standardized laws related to a single market in Europe.
Creation of a deadline for payment systems to convert to accept euros could occur in the coming months, with many supporters urging that deadline to fall before December 2012, according to the site.
The complexities of the technical and operational aspects, which includes addressing new payment systems; incorporating use of an International Bank Account Number; establishing an infrastructure for payment clearing and settlement processes; and creating governing, data collection and protection standards; are daunting enough, Lyddon writes.
The growing debt crisis adds to the problem by revealing economic flaws that would cause national governments, regulators, and commercial and private banks to be hesitant about SEPA even if the measure continues as planned, Lyddon wrote.
But Zil Bareisis, a London-based senior analyst for research firm Celent, believes SEPA will continue to proceed regardless of the economy or the complex issues it faces. He says he received positive feedback from senior bankers and other key administrators regarding SEPA during the European Financial Management and Marketing Conference in Paris last week.
"They all expect the euro to survive. And even if the unthinkable happens [and debt crisis grows], the progress toward common standards will continue," Bareisis tells PaymentsSource.
Calling study of the issues surrounding SEPA "not for the faint-hearted," Bareisis contends it remains uncertain whether any imposed deadline will apply only to bank-to-bank transactions or whether corporate customers also may send transaction requests directly to a bank, Bareisis says. "It's probably for the economists, not the politicians, to figure out."
The European Payments Council continued to set the stage for SEPA's standardized cross-border debit transaction processing four months ago by releasing its technology requirements for the initiative.
