FDs warned of transaction charges on overseas payments

Finance directors and treasurers could be set for some interesting
discussions with their bank over cross-border payments in the very near future.
This particular method of payment has always been an expensive process – and
could become even more costly when new Europe-wide laws come into force.

As part of the plans to create a unified payments system known as the Single
European Payments Area, the European Payments Council passed a resolution to
mandate the use of identifier codes to help successful cross-border credit
transfers in euros.

From 1 January 2007, banks receiving payments without these identifiers could
reject or return them, and from this year penalty charges could be passed on
from the bank to the original business. Penalties are discretionary, but
unlimited.

Businesses are being urged to clarify arrangements with their banks, and to
make sure that they attach identifiers to all cross-border euro transactions.

‘Any cross-border transaction must be “straight-through” processing. If you
don’t provide the identifiers then the bank receiving the funds can make a
charge on the originating bank. In some way it will get charged back to the
corporate, explicitly or implicitly,’ according to Jonathan Williams, product
marketing manager at transaction software provider Eiger.

Even though the banks can mitigate the costs by passing them on to customers,
Williams believes it is not in the banks’ interest to reject transactions,
because even with penalty charges it will still prove costly in time and effort.

Some banks, Williams suggests, could present the charge as a ‘service’ to
businesses for cleaning up the transactional data.

‘We know of a corporate that is charged £20 per transaction, while making
1,000 transactions a month,’ says Williams.

The move to a single payments area was initiated when the European Commission
looked at the costs of cross-border transactions across Europe, and found these
costs were prohibitive.