E-Invoicing Could Help Save European Economy Millions And Support Growth - Gertrude Tumpel-Gugerell, European Central Bank
Being in Madrid, let me quote Miguel Cervantes, one of the greatest Spanish authors of all times, who once wrote that “Time ripens all things, and no man is born wise”. This quotation somehow promises that over time we have the opportunity to gain wisdom.
A key “wisdom” coming from the recent crisis is that only markets that are efficient and innovative but at the same time stable are the foundation for sustainable growth. In Europe, we, therefore, need to strengthen the foundation for growth by increasing the efficiency and competitiveness of the economy with at the same time ensuring financial stability. Integrated European markets, in the real and financial sector, are best placed to promote innovation and foster growth. So indeed, the time is ripe to reap the benefits of the integrated European market and to foster innovation. Using these assets, Europe can rise up from the experienced economic crisis even stronger than before.
Effective use of modern technology is one of the assets Europe has in its disposal. E-invoicing is a great example of such technology that – if implemented in a harmonized way - can lead to tremendous cost savings and contribute to spurring economic growth.
This has been recognised also in “Europe 2020”, the European Commission strategy for Europe that was published at the beginning of March this year. Transmitting invoicing data between the payee and the payer electronically instead of on paper is one of the best recognised examples of an effective and innovative use of information and communication technology, where Europe can be a global leader. In this context, I would like to express my support to the European Commission’s initiative to promote electronic invoicing in Europe and to the work of its Expert Group on e-Invoicing.
In my remarks today, I wish to address some aspects about the European integration and how integration supports the sustainable foundation of growth for our continent. I will also discuss how SEPA, the Single Euro Payments Area, i.e. the harmonising of the retail payment markets, creates the standards, interoperability and economies of scale facilitating the pan-European e-Invoicing.
Integration – that is the free movement of people, goods and services and capital - has removed many obstacles from the intra-European trade. The single currency has improved trading and financial transactions for both companies and private citizens.
The recent financial crisis has, however, reminded us that greater integration and globalization can also spread vulnerabilities more easily. The increased interconnectivity of the systems increased at the same time consumers’ and companies’ exposure to the same shocks.
Therefore, economic growth requires both stability and efficiency of markets. I am firmly convinced – also with the experience of the financial crisis in mind - that integrated financial markets can support both of these requirements, namely financial stability and efficiency. The root cause of the financial crisis was not the degree of integration of the financial market, but the lack of adequate risk management and risk controls. This needs to be established by adequate corporate governance and policy measures and - as you know - is progressing from concept to impact studies.
So why is financial integration so crucial for the stability and efficiency of the market?
An integrated financial market will support its stability by making financial intermediation more efficient, more liquid and by providing better opportunities for risk diversification. It is true that with globalisation international financial shocks may hit us harder. But it is also true that an integrated Europe may be stronger against these blows. Hence, we need to remain firmly committed to European financial integration.
At the same time European integration will support Europe to recover and help us to return back to a path of growth. The integrated market is more competitive and offers more opportunities than a market divided by national borders could ever do. It provides opportunities for economies of scale and scope, innovation and entrepreneurship. The Single Market of EU 27 is the largest domestic market in the world with its population of almost 500 million people and nearly 23% of the world GDP. One important piece from the financial perspective in this regard, is the completion of the Single Euro Payments Area, SEPA which will deliver one more important building block to the internal market.
In SEPA, all euro payments are domestic. Removing all differences between national and cross-border payments will make payments more efficient and bring cost savings to all companies and citizens in Europe. This will allow us to fully reap the benefits of the single currency. Around 50% of all exports and imports of euro area countries are within the euro area. When payments for this trade can be made in the same - or even more - efficient and low cost way as national payments, the benefit for the European economy is evident. Moreover, if the invoicing preceding all these payments could be done electronically and in a harmonized way, the benefits are multiplied.
Harmonising the European retail payment markets will promote new competition. It will be possible to call for tenders and compare and use service offerings by multiple payment service providers Europe- wide. Payment service providers will have the opportunity to target new customer groups. This will promote economies of scale but also economies of scope and competition with new and innovative services.
SEPA will provide this pan-European harmonisation and related economies of scale and scope to foster provision of new innovative services such as e-Invoicing, internet payments and mobile payments. It also provides the necessary pan-European payment instruments, standardisation and reach for the wide take-off of electronic invoicing.
European e-Invoicing can be created on the foundation of the Single Market and harmonised payments. Though payment is only one element of the long and multifaceted processes related to procurement and invoicing, the European e-Invoicing may also benefit from SEPA achievements and experiences.
During the SEPA process the importance of having all stakeholders on board has been highlighted. The small and mid-sized companies are the backbone of the European economy; they account for 99.8% of all businesses, roughly 60% of gross value added and about 70% of total employment. Hence, they are naturally a significant user of payment services and a significant stakeholder group for e-Invoicing.
The SME’s special needs have to be accommodated to ensure that this important sector will be capable of making use of all the benefits of e-Invoicing. This was also recognised by the Commission’s Expert Group. Here the reach provided by the banking industry may be crucial. European banks have created full interoperability for payment transmission in SEPA. This interoperability may be leveraged for the easy access and implementation of e-Invoicing in the SME sector as well as consumers. E-Invoicing will also provide new opportunities for the banking sector to deliver new lucrative services to their customers. This is notwithstanding the fact that for a competitive market, e-Invoicing services may be provided by other agents, too.
The importance of strong commitment of the public authorities and of the public sector is also common to the success of both SEPA and e-Invoicing. The harmonised legal framework provided by the Payment Services Directive has established a solid basis for SEPA. To have the same for e-Invoicing, electronic and paper invoices have to be treated the same. For this, the authorities have to harmonise and simplify the VAT invoicing requirements. The ECOFIN Council highlighted this requirement in its March meeting. According to the ECOFIN conclusions, this effort alone provides potential cost savings to businesses up to 18 billion euros annually.
The public sector has to lead by example. Here in Spain, the public sector is actively migrating to SEPA and will move to e-Invoicing by the end of this year. Denmark has been the European pioneer. The Danish public sector has required all incoming invoices to be electronic since 2005. The same applies to Finland, where the public sector accepts only e-Invoices from the beginning of this year, and intends to be able to send all its invoices electronically by the end of 2010. Many other European countries are following.
Big corporations have already started to use e-Invoicing, with the ICT-industry being the front-runner. A piece of most convincing evidence of the e-Invoicing benefits comes, however, from the paper industry, a potential looser if paper invoices are to be abolished. Since the beginning of 2010, one of the leading forest product companies in the world, the UPM  receives electronic invoices only. According to what they say, paper invoices will be returned to the sender.
E-Invoicing has been promoted also for environmental reasons. Often environmentally friendly actions are perceived as giving up something convenient. With e-Invoicing, it is the opposite. The natural resources consumed for paper invoices and envelopes and the energy for transporting them around the world are easily and most conveniently saved when the invoices are electronic and transmitted in virtual networks. E-Invoicing may provide one effective contribution to our efforts to stop the climate change.
The savings potential of e-Invoicing is tremendous. Capgemini has evaluated the annual savings to reach up to 84 Billion euro per year or up to 0,8% of the GDP. When e.g. the OECD estimates the European growth to stay below 2% in the coming two years, the relative impact of this size is considerable. It seems justified to say that if SEPA takes European payments to a new level of efficiency, e-Invoicing has the potential to take the whole European economy to a new era of efficiency.
The savings in printing, posting and sending of invoices are evident. But the biggest savings can be achieved when the whole invoicing and payment process chain can be automated. The matching and acceptance of invoices, management of ledgers and book keeping, cash flow estimates, payment and archiving can all be done fully electronic. Savings in manual work are accompanied by better liquidity management and even new opportunities to financing. These types of indirect benefits accelerate the over-all efficiency gains of e-Invoicing. It may seem as a big step in utilising information and communication technology. To the younger generation, the IT- and Internet generation, this is just a natural way of doing things. Paper invoices will be just a piece of history for them.
As a private consumer I would also welcome my invoices electronically to my Internet bank. It would be most convenient just to accept them for payment without the need to manually type them in or to watch for the due dates. Additional services like mobile alerts or the possibility to accept e-Invoices with my mobile are exactly the kind of competitive services we are looking forward to in SEPA.
The Expert Group on e-Invoicing set by the European Commission has delivered a framework on European e-Invoicing with recommendations to foster its implementation. It creates the opportunity for a truly pan-European e-Invoicing. There are national and intra-industry e-Invoicing initiatives and practices in place. In general, though, e-Invoicing is still in rather early stage of adoption. We need to strive for pan-European solutions that benefit the whole Single Market and prevent a fragmented e-Invoicing landscape. The time is ripe and I believe we, Europeans, have grown wise to make use of the integrated market, harmonised payment instruments and pan-European e-Invoicing.
Pan-European e-Invoicing solutions can only build on the deliverables of the Single Euro Payments Area. The anticipated benefits make a timely implementation of SEPA even more important. With e-Invoicing, the Single Euro Payments Area is fulfilling the expectations by providing the foundation for new competitive services and innovation. E-Invoicing is certainly the most promising of them all. Anyone who would wish to argue against would, I believe, be tilting against windmills like the famous Don Quixote by Miguel Cervantes.
We have powerful tools in our hands. By making full use of integration opportunities and exploiting modern technology we have the capacity to help the European economy achieve higher growth potential, as reflected in the Europe 2020 strategy. As a matter of fact, we cannot afford to let this possibility off our hands.