Western Europe

The Western European cash management market is best understood in terms of a move towards integration. The introduction of the Euro and the subsequent regulatory standardizations across much of Western Europe means that the European market can be increasingly viewed as a single, cohesive entity for portions of the cash management market.

Liquidity management for the whole Eurozone is facilitated by the common currency and the existence of clearing systems for transferring money cross-border in EUR with no loss of value. You should still be aware, though, of when individual transactions have to be reported to the local central bank by either the remitter or the receiver or both. This is known as “Central Bank Reporting”, “CBR”, “Balance of Payments Reporting” or “BoP”.

However, the Eurozone is not yet a homogenous environment in all respects. This is despite the introduction of the Single Euro Payments Area (SEPA) in January 2008. Local payment instruments and clearing systems remain important for day-to-day business. Where paper instruments exist, it is no more efficient now to use these as a basis for cross-border payments than it was before.

Similarly, there are legal and regulatory environment issues that induce Corporates in particular to continue to deal with each country from a locally incorporated subsidiary. This may be due to:

• Terms of trade, wherein local buyers prefer dealing with a local counterparty.
• Local activity of substance being subject to local corporate taxation and Value-Added Tax, such that it is easier to manage this through a subsidiary than a branch.
• Qualification for their business activity, e.g. accreditations to place advertising.

As a result, the banking actions of Corporates will continue to give rise to local payments activity. Once they have a local bank account, they will use it for other business rather than an offshore account and split the activity between the two.

The customer organization is also important: if financial functions have been established in-country, then the advent of the euro is a driver to centralize them. However, it is not the sole consideration and much preparatory work has to be done prior to centralization. In the meantime there still will be local activities.

Having said that this is the existing business model and that there are reasons why it will persist for some time to come, there are two important developments:

• SEPA, as described above, whose first manifestation is the introduction of a new Credit Transfer service, to which all EUR low-value payments are supposed to migrate over time (domestic and cross-border)
• Payment Services Directive which, from November 2009, will introduce harmonisation of the legal terms and conditions and value-dating enjoyed by customers for electronic payments within the EU, in EUR or in a Member State currency

Over time these developments should lead to further integration and harmonized pricing.

Countries like the UK, Switzerland, Sweden, Norway, Denmark and the countries of Central and Eastern Europe remain outside the Eurozone with respect to use of the euro. The need to remain attentive to nation-specific concerns and issues is paramount in these cases.