According to Art. 56 of the Treaty of the European Communities (EC Treaty) the Common European Market enjoys since its establishment in the year 1993 free movement of capital. Since 1999 the monetary union between 12 EU-states is in operation, since 2002 the euro exists as money.
This essay examines the sector of payment and settlement systems within the Common Market, their situation and development towards the common goal of free movement and discover the obstacles. The situation and development assessment is divided into the individual payments sector and the bulk payments sector with.
Finally the striking question is: Why does it take so long to integrate the payment sector?
Table of Contents
Introduction
1. The Single European Payment Area (SEPA)
2. The individual payment sector
3. The bulk payments sector
4. Why does harmonization take so long?
Conclusion
Objectives and Topics
This paper examines the development and integration of payment and settlement systems within the European Common Market, focusing on the barriers to achieving free movement of capital and the progress toward a unified payment infrastructure.
- The initiative and phases of the Single European Payment Area (SEPA).
- Distinction between individual payment systems and the bulk payments sector.
- Evaluation of infrastructure efficiency and the role of standardizing technologies (STP).
- Analysis of the impact of EU regulations on banking costs and competitiveness.
- Drivers and obstacles of financial harmonization within the European Union.
Excerpt from the Book
1. The Single European Payment Area (SEPA)
The initiative for a “Single European Payment Area (SEPA)” was launched in 2002 by the European Banking Association (EBA), which was founded by European and other banks to establish all activities in connection with using the euro, especially in payment.
This initiative is designed to overcome the fragmentation of the payment cultures in Europe, to abolish the divide between domestic and cross-border payment between Member States and to help in designing a common infrastructure to achieve these goals. (Bundesverband Deutscher Banken: 2003, p. 12) The strategic goal is to make cross-border payments as efficient as domestic ones. (Karasu: 2002, p. 445) Since cross-border-payments are still much more expensive than domestic ones it is important for the banks competitiveness to cut costs.
So far cross-border-payments only amount to a very low percentage, 2 % in 2001, but still contribute almost as much to the banks costs as domestic ones, 2001 with 49 %. (DZ Bank: 2001) At the same time they contribute a lot to the profit, e.g. in the bulk payments sector in the year 1999 with 35 % (Krupp: 2002). This contribution will naturally decrease with lower prices according to EU legislation.
Since the European Banks for individual cross-border payments already in the year 1999 had developed some efficient systems, the initiative is mostly focusing on the bulk payments sector.
Summary of Chapters
Introduction: The introduction outlines the legal mandate for the free movement of capital in the EU and sets the scope for analyzing current payment and settlement systems.
1. The Single European Payment Area (SEPA): This chapter details the initiative to unify European payment infrastructures in three distinct phases, driven by the need for efficiency and cost reduction.
2. The individual payment sector: This section covers large-value transfer systems like TARGET and EURO1, highlighting their role in monetary policy and their already high level of integration.
3. The bulk payments sector: The chapter explores the fragmentation of retail payments and the recent efforts toward automation through initiatives like STEP1 and STEP2.
4. Why does harmonization take so long?: This section discusses the structural, cultural, and economic reasons behind the slow progress of financial integration, including the banks' initial reluctance to change profitable models.
Conclusion: The conclusion summarizes that while progress is evident in the individual sector, unified standards are still required for the bulk sector, emphasizing the necessity of an active regulatory role.
Keywords
SEPA, European Common Market, Payment Systems, Settlement Systems, TARGET, EURO1, STEP2, Financial Integration, Harmonization, Banking Costs, Cross-border Payments, STP, Monetary Union, EC Treaty, Clearing House.
Frequently Asked Questions
What is the core subject of this paper?
The paper examines the integration of payment and settlement systems in the European Union, specifically focusing on the transition toward a unified Single European Payment Area (SEPA).
What are the primary thematic areas covered?
The text focuses on the institutional background of SEPA, the differences between individual and bulk payment sectors, and the regulatory challenges regarding bank fees and infrastructure.
What is the primary research goal?
The main goal is to assess the development status of the common market in payment systems and to identify the underlying reasons for the slow pace of full integration.
Which scientific methods are employed?
The author utilizes an analytical review of EU legislation, market reports from banking associations, and comparisons of existing clearing systems to evaluate the progress of financial harmonization.
What is discussed in the main body?
The main body is divided into the analysis of individual payment systems (TARGET/EURO1), the bulk payment sector (STEP initiatives), and a critical assessment of the economic and structural barriers to harmonization.
Which keywords best characterize the work?
Key terms include SEPA, Financial Integration, Cross-border payments, STP standards, TARGET, and the Common European Market.
How do TARGET and EURO1 differ?
TARGET is a decentralized system based on national RTGS platforms for real-time settlement, while EURO1 is a centralized netting-based system for high-value transactions.
Why did the bulk payment sector lag behind in harmonization?
Banks initially lacked a financial incentive to harmonize, as cross-border fees were highly profitable, and the fragmentation of national infrastructures presented significant cost and technical barriers.
What role does the EPC play in this context?
The European Payments Council (EPC) acts as the central institutional body responsible for developing concepts for SEPA and facilitating cooperation between banks and the European System of Central Banks.
- Quote paper
- Georg Schwedt (Author), 2004, A short essay on cross-border payment and settlement in the EU, Munich, GRIN Verlag, https://www.grin.com/document/54540
