The dash for cash
Sustained competition, falling margins and regulatory pressures mean that the world of cash management and payments is heading towards an inflection point. The EU's Single Euro Payments Area project is adding yet more fuel to the fire that will force banks to re-evaluate their strategies, writes Peter Koh.
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THE CASH MANAGEMENT and payments business doesn't have to worry about adjusting to trends that reverse every six months, although it might well wish that was the challenge it had to face. Its own key trends are daunting: increasingly demanding clients, intense competition, the unravelling of the payments process, technological innovation and regulatory pressure. And these trends always point towards the same thing: lower margins.
The need for scale in the struggle against declining margins is set to intensify as the European Union's plans for a Single Euro Payments Area (Sepa) bear down on the sector. The Sepa project aims to create a domestic payments market across the eurozone, eliminating the difference in price between domestic and cross-border payments and enabling companies and individuals to use one bank account to make payments anywhere in the eurozone.
It has been described as the largest project the European banking industry has ever undertaken. Set to launch in January 2008, when banks are expected to offer new euro payment services to their clients, and due for completion in 2010, Sepa's impact could reduce banks' direct payments revenue, which typically accounts for as much as a third of most of their revenues, by 30% to 60% below expected 2010 levels.