Revealing a Secret to Lowering International Transfer Costs in Europe

As widely acknowledged, utilizing international clearing networks like SWIFT for international transfers in Europe can incur substantial costs. However, the presence of local clearing networks presents a solution to this issue.

Local clearing networks, besides the Single Euro Payments Area (SEPA), include the UK's Faster Payments Service (FPS), and the United States' Automated Clearing House (ACH). Today, let's explore a few commonly used local clearing networks.

Europe: Single Euro Payments Area (SEPA)

In order to facilitate trade among the EU member states, the European Central Bank (ECB) advocated for a unified euro clearing system in the mid-to-late 1990s. Consequently, the need for cross-border euro clearing within the EU was eliminated, leading to the inception of the European local clearing network, SEPA.

Overall, SEPA's establishment fostered the creation of an integrated European market.

Within Europe (across borders or domestically), payments and receipts can be conducted using the euro. In other words, SEPA aims to ensure that payments within Europe are as affordable, rapid, and secure as domestic payments within a single country.

SEPA payments are processed very swiftly, with some banks achieving same-day processing. With the promotion of SEPA Instant Payment, certain regions can even complete transfers within 20 seconds. Achieving such speed in cross-border payments is quite remarkable.

United Kingdom: Faster Payments Service (FPS)

In the UK, FPS was introduced to address the shortcomings of the traditional payment system, Bacs—mainly, its slow processing speed. Consequently, the UK began developing a faster transfer system, known as FPS (Faster Payments Service).

FPS operates on a deferred settlement model. After all payment requests are submitted to the FPS system, FPS conducts multilateral net settlement. Actual settlements occur three times daily, roughly at 7:15, 13:00, and 15:45, with FPS submitting the settlement results to RTGS for actual fund transfers.

As previously mentioned, the sole reason for FPS's inception was to facilitate rapid transfers. Thus, speed is FPS's forte. FPS is typically used for transfers up to £250,000 and provides instantaneous processing, particularly suitable for individual users.

FPS services make transactions more convenient and effortless for users in various payment scenarios, such as bill payments, recurring orders, and online transfers.

United States: Automated Clearing House (ACH) Electronic Payment System

ACH is one of the primary payment networks in the US payment system. Similar to SWIFT, ACH facilitates the clearing of credit and debit transactions between banks and financial institutions. It plays a vital role in exchanging information within the US payment system.

ACH Payments are widely used due to their low costs. They are extensively utilized in scenarios such as salary disbursement, social security pensions, government welfare payments, tax refunds, utility bill payments, loan and mortgage repayments, and insurance premium payments.

The advantages of local clearing networks lie in their speed and affordability. Leveraging these benefits in business collaborations can streamline and enhance financial transactions between enterprises.