An Automated Clearing House joint venture in Europe will help handle increased cross-border transactions in the Single Euro Payments Area and keep the processors on track to adjust to any future faster payments initiatives.
It may also end concern that Europe had too many clearing houses that would ultimately compete against each other until some folded.
"A few years ago, there was an assumption that all of the ACHs would fight to the death as European regulators believed there was an over-supply," said Gareth Lodge, a London-based industry analyst with Celent.
Six European ACHs Dias, Equens, Iberpay, ICBPI, Kir and Transfond formed the European Clearing Cooperative this week with a target of being in operation by the end of the year. Because Equens is the biggest ACH in Europe and currently handling the majority of clearing functions on the continent, the joint venture begs the question of whether it was a "merger by stealth," Lodge said.
The single ACH platform will result in cost savings for clients by taking advantage of economies of scale through multilateral interoperability, said Michal Szymanski, chairman of the ECC's board and vice president of Kir, in a press release. In addition, the pooling of capabilities and operational resources from multiple ACHs within the ECC is expected to open possibilities for future collaboration in the development of real-time clearing and settlement.
The venture signals an era of upcoming collaboration as it relates to the SEPA zone and hopefully some easing of technology transitions. For several years, European businesses and banks have grappled with the SEPA goal of establishing common payment standards throughout Europe and its associated costs.
"This initiative was certainly anticipated as part of the SEPA timetable," said Nancy Atkinson, wholesale banking expert and senior analyst with Aite Group.
Before SEPA, every country had at least one ACH system and, in some cases, more than one that handled domestic ACH.
In SEPA, cross-border ACH becomes the equivalent of domestic ACH because euros are the common currency, and every country had to modify its clearing house rules to fit the European Union's Payments Services Directive, Atkinson said. "The ultimate goal of the payments directive is make cross-border payments as easy, efficient and secure as national payments within a member state," Atkinson added.
Because European regulators have discussed Pan European ACHs for many years, seeking to standardize credit transfer and direct debit processes, the creation of the ECC venture is "the beginning realization of a Pan European ACH with fairly broad reach in Europe," Atkinson said.
The ECC venture will operate through a shared platform to provide clearing house interoperability and interbank settlement over the euro system's Target2 network.
For the new venture to benefit all countries, some will have to upgrade operations to the Target2 network, Celent's Lodge said. "Not all countries have made it on to T2, and it will leave some out in the cold," he added.
But ECC leaders feel the joint venture can overcome most obstacles to deliver standard payment settlement and clearing that will come to define SEPA.
The new venture "creates important synergies and cost advantages on the interoperability level" within the European Automated Clearing House Association framework, Szymanski said.
In addition, the participating ACHs will continue to have "the freedom to act with their local communities," Szymanski added.
ACH operating central banks Deutsche Bundesbank, Oesterreichische Nationalbank and Banca d'Italia intend to use the new service. Participation in the ECC will be open to all ACHs in Europe.
A European ACH is generally a low value payment system, much like in the U.S. It uses credit transfers as "push" payments and direct debits as "pull" payments. Unlike the U.S., which uses transit routing and bank account numbers, the European ACH uses bank identification codes and international bank account numbers to determine the specific accounts and banks involved in the transfers.
The equivalent to direct debit authorization in the U.S. is called mandates in Europe, Atkinson said.
Prior to SEPA, it was normal practice for banks to maintain and store mandates. Under SEPA, creditors are responsible for mandates, although their banks can offer a service to creditors to maintain mandates.
"You also should expect that clearing and settlement times, return rules, and others, will be different from the U.S. ACH," Atkinson added.
The ACHs making up the new venture operate out of Athens, Greece; Bucharest, Romania; Madrid, Spain; Milan, Italy; The Netherlands; and Warsaw, Poland.