BIC and IBAN confusion persists

With all the turmoil going on in the markets, the first official day of SEPA, 28 January 2008 when SEPA Credit Transfers became commercially available, may pass without much fanfare.

However, just to add to banks' woes, Compass Management Consulting estimates that despite there being a low number of non-STP cross-border payments in the eurozone, the 2% to 5% of non-STP payments that require manual intervention, are steadily eroding banks' trading profits.

Based on its analysis of European banks, Compass estimates that non-STP payments can reduce overall trading profits by up to 25%. To back up its claim, it cites its observation of a banking operation handling 300,000 transactions a day that generated 7,000 exceptions. "Despite the relatively low 2.3% exceptions rate, 270 full-time equivalent staff (FTEs) were required for manual processing of these payments, each of which costs between £25 to £40 to handle," said Richard Bissett, head of banking services at Compass.

Compass found that an average of 20% of all transactions fail requiring manual intervention. These 20% of transactions account for 80% of total back office costs. Bissett says 60% of exceptions could be fully automated. Yet, according to Compass' analysis, banks are only managing to automate 4% of exceptions.

Shedding some light on the results, Bissett said that the real question is why are there still non-STP payments when BICs and IBANs were introduced to try and increase the automated handling of cross-border payments in euro? He says corporates are still "totally confused" by BICs and IBANs and that of the 62,000 BICs, only 20,000 are connected (SWIFT network participants).

With SEPA placing further pressure on banks' payments processing margins, Compass anticipates that this will bring the challenge of exceptions processing into greater focus. It still doesn't resolve the rather confusing issue of BICs and IBANs though, and with cross-border payment volumes tipped to rise post-SEPA, one can only expect the number of exceptions to increase unless something is done to remedy this.