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 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.
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.
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.
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.
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.
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.
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.
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.
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).
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:
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.
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.
The regulation grants payers the right to instruct their payment service providers (PSPs):
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.
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.
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.
The full implementation of SEPA will align the conditions under which payments are made. The benefits will be:
This will encourage competition and enable PSPs to negotiate better conditions with their own service providers.
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.
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.
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.
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.