Banks must increase automation

The need to check transactions because of Single Euro Payments scheme is directly affecting banks' bottom line

Under Sepa all European bank transactions are treated as domestic

Today's introduction of the Single Euro Payments Area is likely to cut banks' profits by increasing the number of manual checks required.

Although only two to five per cent of payments typically need to be checked, these transactions can reduce trading profits by up to 25 per cent.

And though 60 per cent the "exceptions" can be dealt with automatically, the majority of banks are not using making the most of their technology to do so, resulting in lost profits, according to research by Compass Management Consulting.

"The exceptions can generate an enormous cost burden that reduces profits in trading operations," said Compass head of banking services Richard Bissett.

"The scale of many payment operations means that the the costs associated with handling them can erode profits in this low-margin business," he said.

The issue will only increase. As the high fees currently associated with cross-border Euro payments are reduced over the year, more transactions will take place and more exceptions will need to be checked.

Banks need to start addressing the problem sooner rather than later if they want to save money, said Bissett.

"Relatively small changes in performance can generate significant savings - A five per cent increase in automated processing can generate direct cost savings of up to 20 per cent of operational expenses,” he said.