Impact

In the Single Euro Payments Area (SEPA) all euro payments will be treated as domestic payments and the current differentiation between national and cross-border payments will disappear. The national practices of the payments industry need to be changed, which also means changes for companies, merchants, consumers, public administrations, payment service providers and infrastructures.

The benefits of fast migration to SEPA

The goal is that national instruments will gradually be phased out and replaced by the new SEPA instruments. It has been recognised that handling dual processes for a longer period would be expensive for both the payments industry and its customers. To avoid a lengthy and costly migration process towards the new SEPA instruments, during which the benefits of SEPA cannot be fully enjoyed, it is important that all stakeholders migrate as early as possible. For those reasons, the Eurosystem considered it important that a clear end date be set for phasing out national payment instruments and replacing them with SEPA instruments.

Deadline for SEPA migration

The clear and common end date of 1 February 2014 was set by Regulation No 260/2012 for phasing out national payment instruments in the euro area and replacing them with SEPA instruments.

On 9 January 2014 the European Commission published a proposal for a Regulation amending Regulation No 260/2012, proposing an additional transition period of six months for the euro area. The ECB published a press statement and a legal opinion on the proposal. On 26 February 2014 Regulation (EU) No 248/2014 of the European Parliament and of the Council amending Regulation (EU) No 260/2012 concerning the migration to Union-wide credit transfers and direct debits was officially adopted.

The impact of SEPA on companies

Benefits

Saving time and costs

Using the SEPA payment instruments, companies will be able to perform all euro-denominated payments centrally, from a single account. After 1 February 2014, the handling of payments in euro will be easier, as all incoming and outgoing payments will take the same format. This will enable companies to consolidate their payments and liquidity management in one location. The Payment Services Directive obliges payment service providers to process payments within certain time limits (one business day for electronic payment orders). For European-wide business, SEPA will save money and time.

Electronic services

SEPA payments will be combined with eSEPA services, such as e-invoicing or e-reconciliation. They will help companies to further optimise the handling of payments. Today these services are often offered only nationally, as different formats and rules make cross-border use difficult. Standardised SEPA schemes will make it easier to overcome these obstacles.

Key elements of SEPA migration end-date regulation (Regulation No 260/2012) and impact on companies

IBAN will be the account identifier
By 1 February 2014, the IBAN will be the payment account identifier for carrying out national and cross-border credit transfers and direct debits in euro within the euro area Member States. For non-euro area Member States, the IBAN will be the account identifier for payment accounts in euro from 31 October 2016.
Common data elements and message formats for credit transfers and direct debits in euro
By 1 February 2014, ISO 20022 XML will be the message format used for sending or receiving credit transfers and direct debits in euro which are bundled together for transmission. Member States may opt to defer this requirement until 1 February 2016. Microenterprises are exempted from this requirement, unless they request the use of these message formats. Notwithstanding a possible waiver, payment service providers (PSPs) must use the ISO 20022 XML message format if requested by a payment service user (PSU).
Specified data elements will become mandatory in all domains of the payment chain (i.e. PSU-to-PSP, PSP-to-PSP and PSP-to-PSU).
Free choice of EU location of a payment account with Europe-wide reachability
The SEPA migration end-date regulation ensures that businesses are able to send credit transfers and/or direct debits in euro to payment accounts held by payees and/or payers with PSPs which are located in other Member States and which are reachable in accordance with the regulation. The regulation stipulates that all payees’ and/or payers’ payment accounts reachable for a national credit transfer and/or direct debit in euro should also be reachable via a SEPA credit transfer and/or direct debit scheme.
Phasing-out of BIC
After 1 February 2014 for national payment transactions and after 1 February 2016 for cross-border payment transactions, PSUs will not be required to indicate the BIC of the PSP of a payer or a payee. Member States may defer the requirement relating to the provision of the BIC for national payment transactions until 1 February 2016 (link to the overview table with national key facts).
Direct debit mandate
Mandates for recurring direct debits in legacy schemes will remain valid after 1 February 2014 and will be considered as representing the payer’s consent to his/her PSP to execute direct debits.
Phasing-out of €50,000 ceiling for equal charges
As of 31 March 2012 charges levied by a PSP on a PSU in respect of cross-border payments are the same as those levied for corresponding national payments of the same value and in the same currency irrespective of the transaction’s amount.

Related links and documents

The impact of SEPA on merchants

Harmonisation

Payment cards are a very popular way of paying retailers. They are increasingly replacing cheques and cash. To accept card payments in a shop, merchants need to have an agreement with an acquiring entity. The acquirer processes card payments on behalf of the merchant: it handles the information on the payment and cardholder and forwards it to the cardholder’s payment service provider via a clearing infrastructure.

SEPA will bring harmonisation and will increase competition among the providers of card payment services. This means more choice, lower costs and better service.

More choice of acquirers

With SEPA, acquirers will be able to process all SEPA-compliant card payments – including across national borders. Therefore, merchants will be able to choose any acquirer in SEPA. This will increase competition among acquirers and bring down costs.

Lower cost

Point-of-sale terminals will become increasingly standardised with SEPA. As a result, their production and certification costs will diminish and competition among providers will increase. All this should bring fees down for merchants. In addition, merchants will be able to accept a wider range of cards from a single terminal. The increased competition among card schemes should also drive down the cost for merchants.

Easier remote business

Merchants with a remote customer base often do business via e-commerce, mail or telephone orders. These channels are used for offers and orders, but also for submitting invoices and sometimes even for directly initiating payments. In SEPA, these merchants need no longer worry about varying payment instruments when operating in different countries. They benefit from the harmonised cards market, but can also use SEPA credit transfers and SEPA direct debits as payment options. This may be particularly beneficial for them if a variety of eSEPA services also evolves, tailored to their specific distribution channels.

Card fraud prevention

Improvements in the security of cards and the underlying payment infrastructure are the main reason that fraud at automated teller machines and point-of-sale terminals was lower in 2010 than in 2007. The most important enhancement was the wider adoption of EMV, a chip-based standard. This offers stronger security features than conventional magnetic stripes both for the physical card (since, unlike the stripes, the chip cannot easily be duplicated) and for the technological infrastructure behind the transaction. The adoption of these safety features is recommended by the ECB and forms part of the SEPA migration (press release).

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The impact of SEPA on consumers

Benefits

A single account

A growing number of people in Europe live outside their home country or make regular payments to beneficiaries located abroad. Before SEPA, this implied having an account in each country or having to face the difficulties that a cross-border transaction entailed. In the case of direct debits, it was not even possible to use this instrument across countries.

Thanks to SEPA, consumers will no longer need one account at home and another one abroad. In addition, electronic payments in euro to anywhere in the SEPA area will finally be as easy as national payments are today. This concerns both credit transfers and direct debits. Examples include:

  • paying rent for children studying abroad;
  • paying for a holiday home; and
  • paying for services provided by European companies (such as telephone, insurance, and utilities).

A single payment card

In SEPA, payment cards will be widely accepted for all euro payments. This will also reduce the need to carry cash, for instance when travelling. New standards are helping to increase customer safety and security.

Faster and simpler payments

The Payment Services Directive obliges payment service providers to process payments within certain time limits (one business day for electronic payment orders, two business days for paper-based payment orders). A long-term goal of SEPA is to eliminate paper and use electronic payments only. Payments can then be combined with innovative services that make the process of paying even simpler and more convenient. These services already exist in some countries, but they do not necessarily work across borders. SEPA will enable this. In short, with SEPA managing your payments will be faster and simpler.

Key elements of SEPA migration end-date regulation (Regulation No 260/2012) and impact on consumers

IBAN will be the account identifier
By 1 February 2014, the IBAN will be the payment account identifier for carrying out national and cross-border credit transfers and direct debits in euro within euro area Member States. For a transitional period (until 1 February 2016), Payment Service Providers (PSPs), for example banks, are allowed to provide consumers with conversion services for national payment transactions, if opted for by the respective SEPA Member State. PSPs should not levy any direct or indirect charges or other fees linked to these conversion services. For non-euro area Member States, the IBAN will be the account identifier for payment accounts in euro from 31 October 2016.
Common data elements for credit transfers and direct debits in euro
Specified data elements become mandatory in all domains of the payment chain
Free choice of EU location of a payment account with Europe-wide reachability
The SEPA migration end-date regulation ensures that consumers are able to send credit transfers in euro with payment service providers (such as banks) which are located in other Member States of the European Union. The regulation stipulates that all payees’ payment accounts reachable for a national credit transfer in euro should also be reachable via a SEPA credit transfer scheme.
Regarding direct debits: if a consumer’s account allows for national direct debits in euro, it should also allow for cross-border direct debits in euro within the EU. All payers’ accounts reachable for a national direct debit in euro should also be reachable via a SEPA direct debit scheme.
Additional debtor protection measures for direct debits in euro

The regulation grants payers the right to instruct their payment service providers (PSPs):

  • to limit a direct debit collection to a certain amount and/or periodicity;
  • in cases where a mandate does not provide for the right to a refund, to verify each direct debit transaction before debiting the payer’s payment account, by checking whether the amount and periodicity of the submitted transaction is equal to the amount and periodicity agreed in the mandate;
  • to block any direct debit to the payer’s payment account, or specify a “black list” or “white list” of payees whose direct debits are to be blocked from or accepted into, respectively, a payer’s payment account.
Direct debit mandate
The payer under a direct debit in euro should give his/her consent both to the recipient of a payment and to the payer’s payment service provider (directly or indirectly via the recipient of a payment).
Mandates for recurring direct debits in legacy schemes will remain valid after 1 February 2014 and shall be considered as representing the payer’s consent to his/her PSP to execute direct debits.
Phasing-out of BIC
After 1 February 2014 for national payment transactions and after 1 February 2016 for cross-border payment transactions, payment service users shall not be required to indicate the BIC of the payer’s or the recipient’s payment service provider. SEPA Member States may defer the requirement relating to the provision of the BIC for national payment transactions until 1 February 2016.

Related documents and links

The impact of SEPA on public administrations

Modern payment applications

In principle, SEPA offers similar advantages to the public sector as it does to private companies. The public sector in the euro area generates around 15-20 % of all credit transfers. Moving the volume of payments made by public administrations to SEPA instruments will contribute significantly to improving end users′ experience with those instruments, and is an opportunity to modernise payment applications.

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The impact of SEPA on payment service providers

In the Single Euro Payments Area (SEPA) banks and other payment service providers (PSPs) have had to harmonise the way euro retail payments are made and processed. This has entailed substantial costs, but benefits will materialise in the medium to long term.

Benefits

Harmonisation throughout SEPA means that payment service providers will be able to offer their services more easily to customers, regardless of location.. In addition, PSPs will be able to expand their business and meet their customers’ needs by offering eSEPA services (such as e and m-payments and e-invoicing) in addition to the core SEPA products.

Increased market efficiency

The full implementation of SEPA will align the conditions under which payments are made. The benefits will be:

  • a single set of rules;
  • equal and open access to the European market;
  • reachability;
  • transparency; and
  • interoperability.

This will encourage competition and enable PSPs to negotiate better conditions with their own service providers.

Cost-efficient processing

Financial intermediaries must apply equal charges to comparable cross-border and domestic payments in euro within the European Union (see Regulation 924/2009). This principle of equal charges has been reinforced by the end-date regulation (Regulation 260/2012), which has eliminated the € 50,000 ceiling under which equal charges could previously only be applied. Cross-border payments are traditionally more expensive and complex to process. SEPA will overcome this imbalance by making cross-border payments as simple, efficient and inexpensive as national payments.

Main effects of the SEPA end-date regulation (Regulation No 260/2012) on payment service providers

1 February 2014 as the end date for migration to SEPA
Regulation No 260/2012 establishes 1 February 2014 as the end date for migration to SEPA credit transfers and direct debits for euro payments made in the euro area. It also includes several transitional provisions with the aim of smoothening the migration to SEPA (for instance the so-called “niche products”).
Regulation of credit transfer and direct debit transactions where both payment service providers (PSPs) (or the sole PSP if the same for payer and payee) are located in the European Union
The regulation covers all credit transfer and direct debit transactions where an end user is involved. It also lists transactions that are excluded from its scope, such as payment transactions carried out by PSPs for their own account, card transactions and payment transactions made via mobile phone or any other means of telecommunication or digital or IT device.
IBAN will be the account identifier
The International Bank Account Number (IBAN) will be the single account identifier for any payment account throughout SEPA, replacing the existing national payment account identifiers (BBANs).
BIC will be phased-out
PSPs may request end users to indicate the BIC if necessary, but only before 1 February 2014 for national transactions and before 1 February 2016 for cross-border transactions. After that, the IBAN will be the sole account identifier needed to carry out (and process) SEPA transactions end to end.
PSPs shall carry out credit transfers and direct debits in accordance with specific technical requirements
The regulation introduces several technical requirements and compulsory data elements to be considered by PSPs when carrying out SEPA credit transfer and direct debit transactions, in both the interbank and bank-customer domains. For example, PSPs must use the message format ISO 20022 XML, PSPs must further provide the data elements specified in the annex to the regulation, and the remittance data field must allow for 140 characters.
Payment account with Europe-wide reachability
In order to encourage the successful take-up of SEPA-wide credit transfer and direct debit services, a reachability obligation has been established across the Union. PSPs should ensure that all payee payment accounts reachable for national credit transfers and all payer accounts reachable for national direct debits are also reachable via a Union-wide credit transfer or direct debit scheme. This should apply whether or not a PSP decides to participate in a particular credit transfer or direct debit scheme.
PSPs shall take into account the additional debtor protection measures for direct debits
Regulation No 260/2012 has acknowledged the need to take measures in order to strengthen customer confidence in the use of such services, especially for direct debits. Such measures should allow payers to instruct their PSPs to limit direct debit collection to a certain amount or a certain periodicity and to establish specific positive or negative lists of payees.
In addition, when the collection of direct debit is based on a framework agreement with no refund right between the payer and his/her PSP, the payer’s PSP will verify each direct debit transaction to check whether the amount of the submitted direct debit transaction is equal to the amount and periodicity agreed in the mandate before debiting the payer’s payment account. PSPs will perform these checks at the request of their customers where a mandate under a payment scheme does not provide for the right to a refund.
Direct debit mandate
The payer under a direct debit in euro should give his/her consent both to the payee and to the payer’s PSP (directly or indirectly via the payee).
Mandates for recurring direct debits in legacy schemes will remain valid after 1 February 2014 and will be considered as representing the payer’s consent to his/her PSP to execute direct debits.
Multilateral interchange fees (MIFs) will be eliminated for euro direct debits
Regulation No 260/2012 limits the possibility to apply per-transaction MIFs to direct debits in euro. Multilateral interchange fees are fees applied between payment service providers in some Member States when passing on individual direct debits. Such MIFs will be phased out by 1 February 2017 for national payments and by 1 November 2012 for cross-border payments. However, MIFs for transactions which are rejected, refused, returned or reversed because they cannot be properly executed and result in exception processing (so-called “R-transactions”) will continue to be allowed, provided that they comply with certain conditions specified in the regulation.
PSPs will apply the principle of equal charges, regardless of the payment’s amount
Charges levied by a PSP on a PSU in respect of cross-border payments in euro will be the same as the charges levied by that PSP for corresponding national payments of the same value and in the same currency. With the adoption of the end-date regulation, the upper ceiling of €50,000 for the application of equal charges, as laid down in Regulation No 924/2009 on cross-border payments in the Community, has been eliminated.
Furthermore, PSPs should carry out information campaigns to raise public awareness
It is essential that all actors, and particularly EU citizens, are properly informed, in a timely manner, so that they are fully prepared for the changes brought about by SEPA. All the various key stakeholders (and PSPs are among them) should therefore carry out specific and extensive information campaigns, proportionate to the need and tailored to their audience if necessary, in order to raise public awareness and prepare PSUs for SEPA migration. In particular, there is a need to familiarise citizens with migration from BBAN to IBAN, which has varying degrees of impact across countries. National SEPA coordination committees are best placed to coordinate such information campaigns.

Related links and documents

The impact of SEPA on infrastructures

Benefits

Wider scope and consolidation

The effects of SEPA have been very visible at infrastructure level, i.e. among the entities that offer interbank funds transfer systems. Most retail payment infrastructures that were processing credit transfers in euro have been processing SEPA credit transfers since their launch in January 2008. Several infrastructures have taken the step from being purely domestic operators to becoming pan-European service providers.

Separation of scheme management and processing infrastructure

With SEPA, the management of the schemes will be separated from the processing infrastructure. This will enable infrastructure providers to offer their services to all payment service providers in SEPA. For instance, card processors will be able to serve different card schemes and acquirers throughout SEPA. This will increase business opportunities and competition for infrastructure providers.

Interoperability

Technical interoperability is a key element. Without interoperability it would not be possible to create an integrated market for electronic payments systems in euro, which is the basic aim of SEPA. It is essential that the processing of credit transfers and direct debits is not hindered by business rules or technical obstacles such as compulsory adherence to more than one system for settling cross-border payments.

SEPA facilitates the development and implementation of technical standards for clearing and settling payments to enable interoperability and interlinking between different providers. As an example, the European Automated Clearing House Association has developed a technical interoperability framework for infrastructures. The STEP2 service by EBA Clearing provides reach using a different approach.

Regulation No 260/2012 requires the retail payment system operator or the participants of a retail payment system within the Union to ensure that their payment system is technically interoperable with other retail payment systems within the EU. Standards have been developed by international and European bodies to prevent business rules that restrict interoperability with other retail payment systems within the Union. Payment systems designated under the Settlement Finality Directive will only be obliged to ensure technical interoperability with other payment systems designated under the same directive. In addition, payment transactions processed and settled through large-value payment systems are excluded from Regulation No 260/2012.

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