Businesses and consumers in the 12-country euro zone are set to save money under a new single-payments area for credit and debit cards due to be set up within three years.

The European banking industry will soon pledge to introduce new euro zone payment schemes for electronic credit transfers and direct debits, as well as a unified framework for debit and credit cards, by January 2008.

The move comes amid pressure from the European Commission, which had threatened to use legislation to force banks to accelerate moves allowing customers to enjoy the benefits of the European Union's single market.

But the European Commission's Internal market Commissioner Charlie McCreevy is likely to be disappointed that the new systems will only initially apply to the euro zone, and not to all 25 European Union members as originally promised.

Bankers say the introduction of the single-payment area could have profound effects on consumers and businesses in the eurozone.

Debit and bank account-linked credit cards could be used throughout the 12 countries in the single currency zone, whereas at present many cards work only inside their country of issue.

A single formula would apply for credit transfers and direct debits, making life easier for consumers and paving the way for rationalisation of payments systems in businesses and banks.

Mr McCreevy said he wants individuals and business to be able to "make and receive payments within the internal market as easily and inexpensively as they do domestically".

The decisions by the European Payments Council (EPC), the industry's decision making and co-ordinating body on payments, aim to create the core elements of a single euro payments area (Sepa).

The Irish Payment Services Organisation, which manages payments between Irish banks, is an EPC member.

The aim of the new payments scheme is to complement the euro and the European Union single market by removing technical and legal barriers that impede cross-border payments in the eurozone.

A formal announcement of the moves, which were decided in Brussels on March 17th, is expected soon.

The new pan-European payments schemes will operate initially alongside existing payments instruments.

According to an EPC "roadmap", they would gradually supplant national standards and structures so that from 2010 the euro zone should operate as a single domestic payments market.

The schemes for direct debits and credit transfers in euro would allow a multinational company to channel all its payments through one bank account.

This would help to reduce back-office costs and infrastructure and put pressure on banks to lower fees.

The instruments would also make cross-border payments easier for small and medium-sized companies. - (Financial Times Service)