Banks to up tech spending on Europe's orders

Banks will up their spending on technology as a result of the European payments directive which is soon to come into force.

The Single European Payments Area (Sepa) is aimed at driving down cross-border transaction costs by 2008, and banks will have to upgrade their systems if they want to bring payment costs down, according to analyst Financial Insights.

Rachel Hunt, programme manager of the analyst's European banking service, said in a statement: "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 per cent in some cases."

A more harmonised banking sector across 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, the analyst predicted.

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, although this has now been pushed back until 2008.

The analyst said: "Nevertheless, many banks in the region must now either contemplate investing in legacy payment system consolidation or choose third-party offerings."

Financial Insights said enterprise payment investments (such as integration, consolidation, process workflows and enterprise databases), will be key drivers for payment processing IT spending, which will grow faster than overall IT spending at 5.5 per cent up to 2009.

Hunt said: "To remain competitive, banks need to focus on greater efficiency and lower operational costs of payments processing infrastructures. They should plan replacement and consolidation of siloed legacy systems and standardise business processes across payment types."