Processing costs could rise under SEPA

Following on from the confusion amongst US companies about the use of BICs and IBANs when sending cross-border payments to the eurozone under the new SEPA framework, research commissioned by LogicaCMG, indicates that banks anticipate increased costs from incorrect addressing and routing of payments post-SEPA. And guess who is going to have to pay for that - undoubtedly the banks will pass on the costs to customers.

Based on a survey of more than 100 of the top 500 banks in the eurozone, as well as the UK and Sweden, Coleman Parks which conducted the research on behalf of LogicaCMG, found that 63% of banks anticipate increased costs from handling exceptions and 60% anticipate an increase in the number of payments returned to the originator.

The banks estimate that failed SEPA transactions and exceptions could cost them in the region of €1.3 billion (presuming an STP rate of 80%) in 2008, based on anticipated transaction volumes in the first year of SEPA's introduction.

Another 17% of banks surveyed expect difficulties in identifying the correct intermediary routing information for receiving banks, yet, according to the LogicaCMG study, only 60% of eurozone banks have plans in place to resolve the issue of IBAN and BIC transaction addressing and routing.

The whole issue of BICs and IBANs has been mishandled from day one, with banks not educating customers enough about the need to include correct account ID information in order to avoid repair costs and payments being held up. Furthermore, the concept of an International Bank Account Number is somewhat of a misnomer given that it is only recognised within Europe, and is not an internationally accepted account ID reference. In the US, for example, the IBAN contains too many characters to be accepted by local clearing systems.

LogicaCMG's findings indicate that the cost of cross-border payments is likely to increase in the months following SEPA's introduction as the number of failed transactions rises. This runs counter to what SEPA is all about in terms of reducing the cost of cross-border payments within the eurozone, and surely the industry only has itself to blame given that there is still widespread confusion amongst customers and banks about the correct use of BICs and IBANs.