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A new system will make Europe 'borderless', with transactions charged at domestic rates. But some UK banks aren't signed up. By Neasa MacErlean Saturday, 28 August 2010
Bill-paying from abroad should get easier from November when a new EU scheme, the Single Euro Payments Area (Sepa), comes into effect. However, many British expats may not benefit unless they are with the right British bank.
Sepa exists to turn the zone it covers into a single, borderless area in which all electronic banking transactions are charged at domestic rates with no extra costs for moving money over boundaries. Sepa covers the Eurozone, non-Euro countries in the EU and some states outside, such as Norway and Switzerland. It is being expanded gradually. Last November it moved into direct debits and gave banks until 1 November 2010 to comply with its rules that cross-border direct debits be charged at domestic rates. So far, about 3,000 banks have signed up across the Sepa zone and the remaining 800 will by November.
However, it seemed November would be a non-event in the UK. Sepa rules do not apply to transactions in sterling at all and, even as regards direct debits coming from the UK in euros, they do not have to be complied with until November 2014. So it is no surprise that Sandra Quinn, communications director at the Payments Council in London, says: "It's unlikely they will be complying for UK-based accounts and UK branches before November 2014."
UK banks are taking very different approaches to Sepa. The Royal Bank of Scotland (and subsidiaries including NatWest and Ulster Bank) has decided to embrace the change and, without making much noise about it, has been offering cross-border Euro direct debits since last November. A spokesman says: "We now allow Sepa Euro direct debits to be paid out of any account that a customer has with RBS." The bank says that it sees Sepa as a "great opportunity" which will help some of its customers. The spokesman continues: "There are instances where UK-domiciled customers can benefit – such as those with overseas holiday homes who need to pay utility bills with a local supplier." So someone with a personal account in sterling can set up direct debits in Euros, free of charge, to pay bills in other parts of the Sepa zone.
By contrast, Barclays will not be off-ering cross-border direct debits on sterling accounts. Asked if a UK-based customer could set up a direct debit to pay her electricity bills on the holiday home she has in Spain, Harcus Copper of the Barclays corporate payments department, says: "They won't be able to in Barclays. It is not something Barclays in the UK is planning to do, but other banks might." There is no direct debit facility on UK-based Euro accounts and no plan to offer one. However, transferring money cross-border will get easier in "early/mid 2011" when a Sepa system through which Barclays customers can transfer Euros from a sterling account to another Sepa zone account for a fee of £15 goes live online.
HSBC is planning to offer something in the future. Spokesman, Mark Hemingway, says: "The ability to pay and collect across borders via direct debit is a new phenomenon. Our pricing will be entirely transparent to customers and highly competitive." Lloyds TSB was unable to clarify its position before the deadline for this article.
But the fact that one bank, RBS, is pushing ahead with cross-border direct debits now could be extremely useful to UK individuals. Small businesses which make payments in Europe will also benefit. But the number of individuals with properties on the continent or in Ireland or who spend time there is higher than one might expect. Research carried out for Saga suggests that 160,000 houses in the Eurozone are owned by Britons. Over a million pensioners get their pensions paid abroad and up to a third could be in Europe.
Long-term, nearly half of us (45 per cent) aspire to retire abroad, according to research from the Prudential. Although that research was done six years ago, it shows what people's aspirations are. Some of the insurance companies have even considered paying annuities in euros but have relegated the idea as too problematic for now. The fact that British banks are starting to help their customers make payments abroad easily pushes all these debates and issues further along the line. Neil Duncan-Jordan, of the National Pensioners Convention, welcomes the shift on direct debits: "If it makes life easier, it's a good thing."
How the British banks respond is just part of the story. European gas, telephone and other suppliers do not have to sign up to the scheme. Brian Greener, of Sentenial, a company which processes direct debit payments, is sceptical about Sepa: "In my view, Sepa is very badly designed. It will push up the cost of offering a direct debit considerably." While UK consumers do not typically pay for direct debits, there are costs associated which fall on the customer and/or supplier. Sepa demands written paper mandates, for instance, something British banks have not needed for several years.
Mr Greener thinks Sepa reflects a cumbersome, risk-averse, cost-heavy, continental approach. So, if British banks are somewhat apprehensive about harmonising banking systems it could be that they do not want to get bogged down in bureaucracy. In Italy, for instance, there is a much greater culture of protecting the jobs of bank counter staff who spend a lot of their time photocopying the passports or identity cards of people who want to make the simplest cash transactions. Italian direct debits are the most expensive in Europe and Greener thinks they could cost 10 times or more the "few pence" of UK direct debits.
In the UK, the Financial Ombudsman Service has geared itself up to take complaints on cross-border direct debits.A spokeswoman explains: "It is dealt with in the same way as any direct debit. If the problem occurs with the bank, we can look at it." Consumer protection is "essential", says payments systems consultant Adrian Rogers of ARC Solutions. "If there isn't consumer protection, no consumer would ever sign a direct debit," he says.
Consumers could push the agenda. If RBS and other banks find a demand for cross border direct debits, then the service could get better and broader.
Queues and lost transfers: the drawbacks of living abroad
"It absolutely drives me mad," says Sandra Quinn. For 27 years she has been responsible for paying the bills on the house she and her family bought in the Midi-Pyrénées region of southern France. She loves the house itself – once the family home and the place where her daughter became bilingual. Even now, despite the long drive, Ms Quinn goes back regularly, spends several weeks a year there and fits into village life as if she had been born in one of the houses on its medieval streets.
But the biggest drawback is the problem of paying bills. "I have a French bank account and I pay bills with French cheques," she says. She could pay the bills through a French system where authorisation is given up-front but, she says: "The fear was that there wouldn't be enough in the bank." This, as she explains, would be a mistake: "French bank accounts are very strict. It's illegal to write a dud cheque, even if you do it mistakenly."
However, that part of her system works fine now. "The problem has been getting the money from here to France," she says. Both her French bank and the English banks she has used have lost her money transfers on occasion, and she has given up on ever getting back one £200 transfer she once made through another branch of her French bank. Now, she uses one of the British high street banks even though "it costs me £25 every time, whether I'm transferring £50 or £200". She goes down to the bank and queues up each time she wants to send money. But, at least, the money gets there.
However, she is not happy. "I think the charges are outrageous, and it takes so long." Ms Quinn is not a financial ingénue. She handles six-figure budgets with her job in the arts world. Being able to pay direct debits from a UK-based account would give her more control and more comeback if something went wrong. Even simply being able to transfer money online to her French account would be an improvement. She has not yet gone in for internet banking but says she would change her ways: "If I could make an online transfer myself I would learn how to do it."
Useful links
* Financial Ombudsman Service: www.financial-ombudsman.org.uk ; 0800 0 234 567
* RBS: www.rbs.co.uk
* Payments Council: www.paymentscouncil.org.uk
* European Payments Council: www.europeanpaymentscouncil.eu