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By Dan Ilett, 14 February 2006 09:00

NEWS

The European Commission is set to quiz banks on their progress at lowering the cost of cross-boarder transactions in Europe.

The Single Euro Payments Area (Sepa) project aims to make European payments as simple and cheap as domestic ones, which will involve new payment systems and upgrades to complex IT systems to bring down costs and increase automation.

The EC is expected to release a report soon asking banks to declare how far they have got with their Sepa projects.

An EC spokesman told silicon.com: "The fact we're trying to ask the right questions does not mean that some of the participants are not going to be ready.

"We want to have [this in place] by 2010 so we'd better do something about it instead of sitting on our asses. But maybe we have to adapt our legislative proposals."

Sepa stemmed from a meeting in 2000 of European politicians, who pledged the EU would "become the world's most dynamic knowledge-based economy by 2010".

It is aimed at driving down cross-border transaction costs by 2010 but, as yet, the directive has been left to banks' interpretation as to how best to implement it.

In the UK payment processing company Voca is already changing its IT infrastructure in a bid to meet the standard. Voca, formally known as Bacs, is working with BEA Systems, Oracle and Sun to replace mainframe computers to comply with the European policy.

A report from analyst Financial Insights predicted that banks will invest heavily in upgrading systems to meet the deadlines.

Geoff Ambrose, head of banking consultancy for Steria – a company that works in payments and clearing – said three stages must be complete before banks are ready: the first, scheme design and preparation, is already complete; The 2006/07 task is implementation; and 2008/09 is gradual adoption.

He said: "Essentially, Sepa is all about treating payments across European states who have adopted the Euro as domestic - rather than international - payments. As such, this will spell the end of banks' ability to charge a premium for cross-border payments.

"Currently a corporate in Belgium would work through its bank to transfer payment to a company in Spain, and the bank would charge a fee for this service. With the creation of Sepa, corporates will be empowered to make their own transfers, essentially cutting banks out of the loop."

Simon Bailey, director of global financial services for LogicaCMG, believes banks are working fast towards the deadline but getting all European companies and banks to align themselves is a tough job.

He warned: "With so many parties involved and such aggressive implementation timescales, the risks for the international community and individual companies are substantial - systems errors could affect revenues and costs for banks, and substantially impact client satisfaction using new payments services.

"Testing each component thoroughly and the interactions between them will be critical to proving and securing the end to end effectiveness of the payments network. This is a critical success factor for each individual participant as well as for those companies who are responsible for maintaining the network."