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
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.
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
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).
Related links and documents
- The ECB and the European Commission have conducted surveys in the European corporate sector about practices in making and receiving payments, invoicing and migration to SEPA. European Business Test Panel on SEPA: final report 2011
- European Payments Council brochure: SEPA for Business
- European Payments Council video: SEPA for Billers
The impact of SEPA on merchants
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.
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).
The impact of SEPA on consumers
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
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.
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.
Related documents and links
- European Commission: Cross-border payments in euro: Regulation on equality of charges
- lists of national competent authorities
- lists of national out-of-court redress bodiesfor Regulation on equality of charges
- European Commission: The Payment Services Directive: what it means for consumers
- European Payments Council brochure: SEPA for consumers
- European Payments Council video: The IBAN - Your new best friend
- FIN-NET: a financial dispute resolution network consisting of national out-of-court complaint schemes in the EU Member States, Iceland, Liechtenstein and Norway that are responsible for handling disputes between consumers and financial services providers, i.e. banks, insurance companies, investment firms and others.
- SOLVIT: an alternative dispute resolution mechanism coordinated by the European Commission and operated by the Member States. It deals with cross-border problems between a business or a citizen, on the one hand, and a national public authority on the other, where there is possible misapplication of EU law.
- Your Europe Advice: a service for the public. A team of independent legal experts, based in the Member States, provides free, personalised advice on citizens’ rights in the EU.
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.
- 5th Survey on public administrations' preparedness and migration to SEPA, published by the European Commission, November 2011
- European Payments Council brochure: SEPA for the Public Sector (translated into all EU languages by the ECB in cooperation with EU national central banks)
- European Payments Council video: SEPA for Billers
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.
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;
- transparency; and
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.
Main effects of the SEPA end-date regulation (Regulation No 260/2012) on payment service providers
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.
Related links and documents
- Legal basis of SEPA
- A guide to the SEPA migration end-date regulation (Euro Banking Association)
- Interchange fees in card payments by Ann Börestam and Heiko Schmiedel, ECB Occasional paper No. 131 (September 2011)
- The economic impact of the Single Euro Payments Area by Heiko Schmiedel, ECB Occasional paper No. 71 (August 2007)
- Joint statement by the European Commission and the European Central Bank welcoming the formal launch of SEPA payment instruments by EU banks, press release, 28 January 2008
- Benefits of SEPA (European Commission)
- European Commission staff working paper on impact of SEPA regulation (December 2010)
- SEPA Progress Reports from the Eurosystem
- SEPA Progress Reports from the European Commission
The impact of SEPA on infrastructures
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.
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.