The Single Euro Payments Area, SEPA, is a key step to the integration of the European financial system and the government believes that financial integration, including SEPA, will create many opportunities for industry and for the country.

Lack of integration in a global economy, finance parliamentary secretary Tonio Fenech told a conference on SEPA yesterday, would be a grave threat to those involved.

It was very encouraging that with Malta joining the euro within a few weeks’ time the government is already focusing on the next step ahead, which is that of ensuring that the euro did not mean that we could simply use our currency in cash, freely, within the eurozone, but also being able to effect any payments with whatever mode of payment one desired through the Single Euro Payment Area, he said.

“SEPA has a clear rationale. The euro means that there is only one legal tender currency in the eurozone; but most payments in Europe are not made with hard currency. Being able to use cash freely across the eurozone is not enough, because cash is not as portable, secure or efficient as modern electronic payment instruments. But as you all are very well aware, in respect of the various instruments of payments that financial institutions can offer, markets are still largely partitioned on a national basis, despite the euro.”

Today, cross-border direct debits were impossible, debit cards were predominantly national in reach and there was little pan-European standardisation in the retail payment industry. Credit transfers did not make use of pan-European infrastructures and correspondent banking remained largely present. Where there was centralised clearing and settlement, it was organised largely on national lines anyway. Corporates which were active across borders and individuals exercising their free movement rights were obliged to have bank accounts in each country they operated in.

SEPA, together with the Payment Services Directive (or PSD) addressed these issues, and, therefore, was another fundamental step in making the introduction of the euro a success story, Mr Fenech said.

“Also, as a government, we see SEPA as an important instrument to achieve our set ambition of making Malta a leading financial centre of excellence in Europe by 2015. SEPA can also build on Malta’s second objective of excellence – ICT – as retail payment systems are the backbone of e-commerce and the online economy.”

The whole payments landscape in Europe was set to change.

For businesses it would no longer be necessary to maintain payments treasury, credit and liquidity management facilities capacity in each country where they operated. Instead they would be able to pool resources and liquidity and increasingly centralise payments processing to payments factories.

Industry reports showed that beyond SEPA, which dealt only with payment execution, the electronic payments market was also being influenced by major competitive trends, Mr Fenech said. New entrants, such as large retailers, mobile phone operators, petrol distributors and large internet businesses could leverage their close relationship with customers and value-added services to customers in order to take a share of the payments market.

Financial integration, Mr Fenech argued, would reduce the vulnerability of our small and open economy to external shocks, reduce transaction costs, and allow for greater economic stability and policy credibility. Most agree that it would also foster financial development and the modernisation of the financial system. Ultimately, it would improve Malta’s competitiveness and potential for non-inflationary economic growth.

SEPA, he pointed out, was not a Single European Payments Area, but a Single Euro Payments Area.

Its benefits would be felt mainly in the eurozone. “And it is only because this government worked hard to get Malta into the eurozone that we will be a member from the day SEPA is launched; right from the start. And because we’ll be there from the start, we’ll be able to identify and make the best of opportunities as they present themselves,” Mr Fenech said.