The European Commission (EC) recently proposed an extension of the rules on cross-border euro payments to direct debits so that cross-border bank transfers made in euros within the European Union (EU) cost the same as domestic transfers. The Commission has noted that cost equivalency for cross-border payments to direct debits is not yet the rule throughout the EU.

One Commission official says that extending the cross-border payment rules is “a natural complement to the progressive creation of a Single Euro Payments Area (SEPA).” If the European Parliament and Council agree on the new regulation, it would become effective in the 31 SEPA member states November 1, 2009.

Currently, credit transfers, ATM cash withdrawals and card payments are all charged at the domestic rate wherever the transaction takes place within the SEPA region. If the cross-border payment rules are extended, requirements for financial institutions to report certain statistical information related to such bank transfers will end, which would further facilitate implementation of SEPA, according to the EC.

Previously, the European Parliament delayed the implementation of enabling legislation for direct debits, which delayed advancement of a SEPA initiative to increase competition between national payment infrastructures and payment processors in the EU. Supporters of the initiative have said that increasing competition would also increase efficiency through consolidation and drive down the cost of payment processing in the region.

Acceptance of the extension of the cross-border euro payments rule by the European Parliament would keep SEPA on track to become a reality for its proposed 2011 full implementation date. The immediate result is projected to be a significant savings — in the billions — for the EU’s economy.

On the other hand, the banks will experience higher costs resulting from the increased competition which they will most likely have to pass off to the consumers trimming the initial savings the banking public would receive from SEPA.

So while SEPA is still in the formative stages the issues it presents are a dual-edged sword where the savings from expediency must be reconciled against the higher costs of increased competition.