Brussels border battle for banks: EC to curb costs of cash transfers

THE European Commission is expected to unveil tough new proposals this week to force banks to cut the cost of sending small sums of money between EC countries.

But banks will strongly oppose the move and could decide to drop present voluntary efforts to improve cross-border payment systems.

A banking source said it might be better for banks to wait for any new European legislation to become law, which would take several years, rather than continue with their present plans to improve services and systems.

The Brussels hard line follows a campaign by the Commission and consumer groups to reduce the cost of payments within the Community. This led to a Commission green paper in March 1992 which said more needed to be done to increase the speed, transparency, economy and reliability of cross- border payments.

The banks then agreed to step up efforts to improve cross-border payment systems, both individually and through their payment clearing houses.

Pilot projects to link up clearing houses are to be tested over the next few months. Bankers claim they have made considerable progress, given the complexity and technical problems involved, which call for long lead times.

But Commission officials have now decided they are not satisfied with the speed of progress made by the banks, leading to the threat of a new directive to control the costs of small payments.

Brussels officials have been particularly impressed by the results of a survey they commissioned, to be published this week, showing that the cost of sending payments of ecu100 ( pounds 77) across European borders is about 20 per cent of the amount sent.

Banks claim the survey is misleading because it appears to have specified that the money must be sent by the fastest route. There are heavy fixed charges in sending payments by rapid money transmission systems, which are designed for larger sums.

Bankers say that if the survey had not specified the fastest transmission route the costs would not have been proportionately so high.

A number of banks have introduced streamlined systems for small payments but 'the game may not be worth the candle' if the Commission brings forward legislation, according to a banker.

Banks now fear Brussels may impose maximum fees for money transmission, though earlier plans to set up a completely separate payments system for small amounts are believed to have been dropped.

There are a couple of hundred million cross-border payments a year within the EC. But this is only about 1 per cent of total banking payments in the Community, not enough to make an entirely new payments system economic.