The single payment system European bankers are building, which would span the continent and could disrupt long-standing banking relationships, has U.S. bankers sensing an opportunity.
The basic idea behind Sepa - the Single European Payment Area - is to create one automated clearing house network that would eventually replace the 25 national ones that European leaders say have hobbled the continent's economic integration.
However, a new network would require banks to develop new systems, and several major U.S. banking companies say their experience in handling high-volume, low-value payments could persuade some European financial companies simply to hand off the task to them.
Paul Galant, a managing director in Citigroup Inc.'s corporate and investment banking unit and its global head of cash management, said that small banks, in Europe and elsewhere, are likely to outsource their payment processing rather than develop new systems.
"Everyone is going to go through a build-versus-buy decision, in which size and scale will be key factors," he said.
For JPMorgan Chase & Co., which operates ACH businesses in 29 countries, Sepa is "a huge opportunity," said Alan Koenigsberg, the vice president of global in-country and ACH treasury services. "The faster we can homogenize our payments business in the European space, the faster we can serve our customers ... without being constrained by borders."
Many banks will outsource their ACH operations rather than to stay in the business, Mr. Koenigsberg predicted. "It will not be profitable for most institutions to be in the payment space," he said. "Only banks with significant scale and leadership will be able to survive that."
Bank of America Corp., which has a centralized processing center in the United Kingdom that can send payments to 21 European countries, sees Sepa as a chance to boost its revenue, said Randy Schultz, the Charlotte company's global treasury services sales executive for Europe, the Middle East, and Africa.
"It's not going to be that big a change in our ability to make payments," Mr. Schultz said. "What will change is that pricing will become more competitive. That will benefit our clients, which is the goal of the European Central Bank.
Twelve nations have made the euro their currency since it was introduced in 1999, but each nation in the European Union still has its own payment infrastructure. As a result, bankers say, the most common way for a person or company in one country to make a payment destined for another country is to transfer the funds to an account in the destination country and initiate the payment from there.
That is due to change. Sepa-compliant systems are mandated to be functional by Jan. 1, 2008, enabling customers to send payments anywhere within the 25-nation European Union.
Fees for the current ACH systems, which would not necessarily go away on that date, can range from a few pennies to a few dollars a transaction. Industry watchers say that Sepa would drive prices down and transaction volume up.
Though there is no mandate requiring the current systems to be shuttered, many observers predict that only a handful of them - and perhaps only one - would survive once Sepa is up and running.
Some consolidation is already under way. Transaktionsinstitut, the No. 2 network in Germany, announced an agreement in February to partner with the Dutch network Interpay Nederland BV.
However, it likely would take years for Sepa to replace the current systems. The European Union's official "vision is that by 2010 full consolidation will have occurred," Mr. Koenigsberg said. "I don't think I am alone when I say that is unrealistic."
Instead, he predicted a shakeout as the existing ACH systems fight for their future. "The market is going to drive that. Competition is going to drive it," Mr. Koenigsberg said. "The best products will win. The best pricing will win. It may take 2015 before it occurs."
And the transition could be bumpy. Some bankers in the United States say that European banks, fearing the loss of sometimes substantial fee income, are dragging their feet in developing Sepa-compliant systems.
Some European banks have also started charging hefty "repair fees" and other levies on international payments that lack bank identification codes and international bank account numbers - two codes that were developed for cross-border payments but are not yet widely used.
Wachovia Corp., which has been hit by such fees, has started advising its corporate clients to include the codes in every payment they send to Europe, said Ann C. Givens, a senior vice president at the Charlotte banking company and the head of product management for international corporate and correspondent clients. "Corporates probably really don't have a clue what's coming," she said. "We're starting to train them now."
Regional banking companies in the United States also are paying close attention. Daniel J. McCarty, the senior vice president of treasury management services at Comerica Inc., said that globalization is increasingly important to the Detroit company's corporate clients, which expect it to handle their domestic and international payments.
"A trusted adviser, a bank like ourselves, really has a role to play," Mr. McCarty said. "From a volume perspective, it's not a huge issue for us, but we know the way the trends are going. It is something we are actively engaged in."
Consultants at the San Francisco financial strategy firm Edgar, Dunn & Co. said that Sepa could open the euro zone to more competition from U.S. processors, banks and nonbanks alike, but that might not be in the European banking industry's best interests.
"Leveling the playing field through the Sepa principles creates a more accessible market for larger payments organizations as well as non-European players, such as First Data or Citibank," Tanya Martin and Manika Aggarwal wrote in a May report. However, "it is counterproductive for the Sepa vision to be compromised by the very process designed to enable European leadership in payments."
Mr. Galant said that creating a single payment system could lead to cross-border mergers among banks and clearing systems.
European executives have been reluctant to pursue such deals in the past, he said, but Sepa, a related mandate on cross-border securities processing, and "the continuing drive for electronification will likely cause far greater consolidation than what we've seen."
Mr. Schultz agreed that opening Europe's payment system could transform its financial industry. "I think the trend toward globalization and more efficient payment processes is inevitable," he said.
