European Banks Push E-Payments Spending

Geographic differences are shaping spending patterns by banks in new payments technologies, according to research by TowerGroup. In Europe, the emphasis on streamlining cross-border commerce.

The global banking industry will spend $12.8 billion this year on payments technology, and $14.3 billion by 2005, according to TowerGroup. The bulk of this year's spending (approximately $9.2 billion) will be devoted to electronic payment processing, far exceeding the amount ($1.6 billion) spent processing paper.

Europe leads the world in spending on electronic payment processing, with 44 percent of the total, compared to 27 percent for Asia-Pacific, 24 percent for North America, and 5 percent for Latin America/Africa.

European banks will spend an estimated $2.4 billion this year on real-time electronic payments systems and another $1.7 billion on batch electronic systems, according to TowerGroup. Spending by European banks will grow 6 percent annually for batch payments processing and 4 percent for real-time systems.

Europe's relatively heavy outlay on e-payments stems not only from higher overall adoption rates, but also from initiatives geared toward "making cross-border payments as easy and straightforward as internal payments," said David Medeiros, director of global payments at TowerGroup, at its annual conference in Boston.

One such project, from the European Committee for Banking Standards (ECBS), involves the creation of standards for an International Bank Account Number (IBAN), and an International Payment Instruction (IPI). "This may seem like trivial administrative-level issues, but it's a big issue in terms of easily and quickly transferring money," said Medeiros.

Also working to facilitate cross-border payments is the Euro Banking Association (EBA), a Paris-based consortium of European banks. EBA has already introduced a cross-border high-value payments system called Euro1 and a private clearing system for individual retail credits called Step1.

Going forward, EBA plans to start Step2, which would allow cross-border low-value batch credits in a manner similar to the United States' ACH network. However, Step2 will most likely avoid settling payments within a single "Euro zone," at least in the near future. "They each still have their own central bank, banking system, and centuries of banking laws," said Medeiros.

E-payments initiatives for most of the largest banks includes an enhanced S.W.I.F.T. connection. With the introduction of SIPN, or Secure IP Network, S.W.I.F.T. messaging services have begun to pick up steam both at home and abroad. SIPN "allows customers to replace multiple communications providers," said Medeiros. "This could make S.W.I.F.T. an ubiquitous infrastructure underlying the payment systems."

In the clearing and settlement segment, TowerGroup expects banks in North America to spend $342 million this year (27% of the world's total) versus $491 million in Europe (39%), $325 million in the Asia-Pacific region (26%) and $109 million in Africa/Latin America (9%). Spending in the segment is expected to grow at 5 percent annually in North America and 2.5 percent annually in Europe.