Single Euro Payments Area

The 32 member states of the Single Euro Payments Area (and two non-members)

The Single Euro Payments Area (SEPA) is a payment-integration initiative of the European Union for simplification of bank transfers. As of March 2012, SEPA consists of the 27 EU member states, the four members of the EFTA (Iceland, Liechtenstein, Norway and Switzerland) and Monaco.

Goals

The project's aim is to improve the efficiency of cross-border payments and turn the fragmented national markets for euro payments into a single domestic one. SEPA will enable customers to make cashless euro payments to anyone located anywhere in the area, using a single bank account and a single set of payment instruments.

The project includes the development of common financial instruments, standards, procedures, and infrastructure to enable economies of scale. This should, in turn, reduce the overall cost to the European economy of moving capital around the region (estimated as two to three percent of total GDP).

Overview

There are two milestones in the establishment of SEPA:

• Pan-European payment instruments for credit transfers began on 28 January 2008; direct debits and debit cards became available later.
• By the end of 2010, all present national payment infrastructures and payment processors were expected to be in full competition to increase efficiency through consolidation and economies of scale.

For direct debits, the first milestone was missed due to a delay in the implementation of enabling legislation (the Payment Services Directive or PSD) in the European Parliament. Direct debits became available in November 2009, which put time pressure on the second milestone.

The European Commission has established the legal foundation through the PSD. The commercial and technical frameworks for payment instruments were developed by the European Payments Council (EPC), made up of European banks. The EPC is committed to delivering three pan-European payment instruments:

• Credit transfers: SCT – SEPA Credit Transfer
• Direct debits: SDD – SEPA Direct Debit. Banks began offering this service on 2 November 2009.
• Cards: SEPA Cards Framework

To provide end-to-end straight through processing (STP) for SEPA-clearing, the EPC committed to delivering technical validation subsets of ISO 20022. Whereas bank-to-bank messages (pacs) are mandatory for use, customer-to-bank message types (pain) are not; however, they are strongly recommended. Because there is room for interpretation, it is expected that several pain specifications will be published in SEPA countries.

Businesses, merchants, consumers and governments are also interested in the development of SEPA. The European Associations of Corporate Treasurers (EACT), TWIST, the European Central Bank, the European Commission, the European Payments Council, the European Automated Clearing House Association (EACHA), payments processors and pan-European banking associations – European Banking Federation (EBF), European Association of Co-operative Banks (EACB) and the European Savings Banks Group (ESBG) – are playing an active role in defining the services which SEPA will deliver.

Since January 2008, banks have been switching customers to the new payment instruments. By 2010, the majority were expected to be on the SEPA framework. As a result, banks throughout the SEPA area (not just the Eurozone) need to invest in technology with the capacity to support SEPA payment instruments.

SEPA clearance is based on the IBAN bank-account identification and the SWIFT-BIC bank identifier. Domestic transactions are routed by IBAN; earlier national-designation schemes will be abolished by February 2014, providing uniform access to the new payment instruments. By February 2016 consumers must drop BIC sorting information for SEPA transactions, since it will be derived from the IBAN for all banks in the SEPA area.

Multinational businesses and banks have the opportunity to consolidate their payment processing on common platforms across the Eurozone. They will benefit from the efficiency of choosing among competing suppliers, offering a range of solutions and operating across borders.

The introduction of SEPA should increase the intensity of competition among banks and corporates for customers across borders within Europe. For consumers and organizations SEPA should mean cheaper, more efficient and faster payment transfers when moving euros from one Eurozone country to another.

Coverage

SEPA consists of 32 countries:[1]

• All 27 European Union member states, including the 10 states which are not in the Eurozone
• The four European Free Trade Association member states
• Monaco
• Croatia will join the SEPA not later than becoming a member of the European Union on 1 July 2013.

All parts of a country are normally part of SEPA, whether or not the regions are part of the European Union. The following countries have dependent territories which are not part of SEPA:

• Cyprus: Only areas controlled by the Republic of Cyprus are included; other areas claimed by the Republic of Cyprus are exempted from EU law.
• France: Everything except French Polynesia, New Caledonia, Wallis and Futuna and French Southern and Antarctic Lands is included.
• The Netherlands: Only the European parts are included; the Caribbean islands are excluded.
• The United Kingdom: Includes Gibraltar, the Channel Islands and the Isle of Man (which use UK sort codes)

A few countries (and areas) using the euro are not included: Andorra, Kosovo, Montenegro, San Marino, the Sovereign Base Areas and the Vatican City State.

Misconceptions

There is a misconception that all credit transfers in the SEPA are free to the consumer, either by plan rules or national transposition of the Payments Services Directives. There is another misconception that the European Parliament mandated that a bank must charge the same amount for SEPA credit transfers (which may be cross-border) as it charges for domestic credit transfers in euros. However, the European Parliament mandated that a bank charge the same amount for international euro transfers within the European Economic Area as it charges for domestic credit transfers in euros. The European Economic Area is different from the SEPA area; the most significant difference is the inclusion of Switzerland in SEPA but not the EEA. The rule of the same price applies, even if the transaction is sent as an international transaction instead of a SEPA transaction (common before 2008, or if any involved bank does not yet support SEPA transactions). Banks and payment institutions still have the option of charging a credit-transfer fee of their choice if it is charged uniformly to all EEA participants, banks or payment institutions, domestic or foreign. This is relevant for countries which do not use the euro; domestic transfers in euro by consumers are uncommon, and inflated fees might be charged.

Objectives

The main objectives of SEPA are:

• Standardization of euro payments: equal time limits, equal fraud-risk levels, equal processes, all-electronic straight-through processing, no difference between national and international payments in the SEPA area; strengthening trust and reliability on a pan-European basis
• Greater competition, fewer niches, special fields or incompatibilities through standardization
• Reduction of costs of electronic money and payment transactions through competition on the part of payment providers and banks; both are considered the biggest losers of the SEPA standardization process, of an estimated € 40,000,000,000 per year.
• Reduction of cash and increase of electronic money through reduction of electronic-money costs
• Increasing surveillance of electronic money flow, particularly regarding money laundering (unofficially, also for surveillance of illicit work [10–30 percent of GDP], organized crime and tax evasion)

Key dates

1957	Treaty of Rome creates the European Community
1992	Maastricht Treaty creates the euro
1999	Introduction of the euro as an electronic currency, including introduction of the RTGS system TARGET for large-value transfers
2000	Lisbon Strategy: Meeting creates European Financial Services Action Plan
2001	EC Regulation 2560/2001 harmonises fees for cross-border and domestic euro transactions
2002	Introduction of Euro banknotes and coins
2003	First pan-European ACH (PE-ACH) goes live; EC Regulation 2560/2001 comes into force for transactions up to €12,500.
2006	EC Regulation 2560 cap increases Euro transactions up to €50,000.
2008	SEPA pan-European payment instruments become operational (parallel to domestic instruments) on 28 January.
2009	Payment Services Directive (PSD) enacted in national laws by November
2010	SEPA payments become dominant form of electronic payments
2011	SEPA payments replace national payments in the Eurozone

Progress report

The official progress report is published here. In October 2010, the European Central Bank published its seventh progress report on SEPA (see external links below). While acknowledging some progress since the last report, the ECB expressed disappointment at the volume of work remaining to bring the SEPA to fruition and requested banks, regulators, and the software industry to continue working. The European Central Bank regards SEPA as an essential element to advance the usability and maturity of the euro. SEPA went live in January 2008, but as of May 2012 only 28.2 percent of credit transfers within Europe are executed in accordance with SEPA standards.

See also

• European Payments Union
• The Structured Creditor Reference ISO 11649 will be in Rulebook 4.2.
• ISO 20022 XML: currently technical solution behind SEPA.

External links

• SEPA and Switzerland
• SEPA and Ireland
• The European Payments Council (EPC) is the decision-making and coordination body of the European banking industry in relation to payments.
• 7th Progress report on SEPA (ECB)
• www.sepa.nl SEPA.nl offers an overview of the SEPA developments in the Netherlands as well as a listing of SEPA solution providers in the Netherlands.
• European Regulation 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro
• SEPA testing and validation service