03 Sep 2008, David Benyon, Operational Risk & Regulation
LONDON – Failures in cross-border payments, hoped to be simplified by the launch of the Single Euro Payments Area (Sepa), are costing Europe €21 billion a year, according to banking software firm Misys.
Sepa’s launch, legislated into European Union law by the Payment Services Directive (PSD), was designed to cut through the costs and inefficiencies of international payments by using end-to-end straight-through processing (STP) across 31 European states.
The European Commission estimated Sepa would provide €123 billion of savings to businesses and consumers across Europe over six years. However, the banking industry estimates that 574 million cross-border commercial payments (41% of the total) fail each year. With around two million failing each day, costing an average of €36 a transaction, the total loss is valued at €21 billion a year.
Barry Kislingbury, global product manager for payments and financial messaging at Misys, says: “Little more than a third of cross-border commercial payments are completed using STP today. Banks are left with the cost of putting these payments back on track – costs they are unable to pass on to customers. With global trade volumes continuing to hit double-digit growth each year, the problem is only going to get worse. The only remedy is to reduce the incidence and cost of payment failures.”
Common failures include weak payment initiation controls, poor process monitoring, and clearing and settlement errors. Missing or incorrect reference data is responsible for 30% of all failures, according to the financial trade body Swift.
“Significant gains in STP rates can be achieved by using reference data within existing payment infrastructures without having to re-engineer a bank’s entire system. Through targeted improvements in specific processes such as payments acquisition, validation and enrichment, we can help banks become more efficient and innovative, and to rise to the challenge of the new payments environment without undertaking major risk,” says Kislingbury.