FAQs on the Single Euro Payments Area (SEPA) Migration

20 December 2011

SEPA will establish a set of uniform standards, rules and conditions for transactions in euros, allowing them to be processed as easily, safely and efficiently as operations within national markets.

1. What is SEPA?

• The Single Euro Payments Area (SEPA) is the area where citizens, business and public authorities can make and receive payments in euros under the same basic conditions, rights and obligations, regardless of their location.
• SEPA is an initiative of the European Banking Industry and is strongly supported by the European Commission and the European Central Bank.
• In this way SEPA will create an EU-wide, integrated market for electronic retail payments in euro. Everyone making such payments will be affected. Nevertheless, the biggest impact of SEPA in the short-run is likely to be felt by people making euro payments cross-border.
• In SEPA, there is no differentiation between national and cross-border euro payments and the whole of the EU (plus some countries outside) are considered as a single area for making electronic payments in euros. It is important to note that SEPA only covers euro payments. Payments in non-euro currencies are unaffected. Geographically, SEPA covers euro payments made in or between the 27 EU Member States plus Iceland, Liechtenstein, Norway, Switzerland and Monaco.

2. Why SEPA?

• Euro notes and coins were introduced in 2002 and circulate freely throughout the euro area. However, this is not the case for electronic payments which are often a much more convenient and efficient way of paying. Retail electronic payments in euros are still organised at national level. This leads to varying technical standards, different payment instruments and separate processing infrastructures. This produces fragmentation at national level and results in lower efficiency, loss of economies of scale and less competition at EU level. In particular, cross-border payments are also more complex.
• This means payments services in some Member States cost more than they should and makes life complicated for consumers and businesses operating cross-border. For example, companies with a substantial number of cross-border payments need to maintain bank accounts in many of the countries in which they operate just to allow them to manage the payments linked to their business operations in the Single Market. Similarly, individuals who for example live and work in more than one country are also often subject to different rules and requirements when making payments. For example, it is generally impossible to set up a direct debit making payments from your home bank account to a bank account in another country.
• Other problems are that customers often face delays when making payments to other euro area countries and that there are big differences in the cost of basic bank accounts for payments services. A survey carried out for the European Commission showed that in the Netherlands, which is one of the Member States with the most competitively-priced bank accounts for payment services, the cost of basic payment services is around a third of the EU average of €112, whereas in the most expensive Member State, Italy, it was almost two and a half times more than the EU average. To illustrate the point, the average customer in Italy pays an average of about €253 a year for basic banking services including payments while the average Dutch customer pays only €46 a year.

Key Figures

3. What about non Euro countries?

• SEPA payments can be made to or from any euro account that is held with a bank located in the SEPA area. It is not necessary that the payer and/or the recipient of the payment have an account in a SEPA country that has already adopted the euro as its national currency. The key point is that the account should be denominated in euros.
• SEPA payments can be made by credit transfer, direct debit or using a bank card.

4. What has been delivered so far?

• SEPA requires the harmonisation of diverse national and cross-border euro payment systems, both at a technical level and in terms of customer services and procedures. To this end, the European banking industry has defined SEPA schemes for credit transfers and direct debits.
• The SEPA Credit Transfer scheme was successfully launched on 28 January 2008. The SEPA Core Direct Debit scheme and the SEPA Business to Business Direct Debit scheme went live at the beginning of November 2009, aligned with the latest implementation date by all EU Member States for the EU Payment Services Directive into national law, i.e. 2 November 2009.
• As of November 2009, banks are gradually rolling out SEPA Direct Debit services. Under Community law, all banks in the euro area offering direct debit services today have to be reachable for the SEPA Core Direct Debit scheme since November 2010.
• For payment cards, a SEPA Cards Framework has been agreed and is in the process of being implemented by banks, card schemes and card processors. The SEPA Cards Framework requires general purpose payment cards to have enhanced security features.
• While significant progress has already been made on the road to SEPA, most stakeholders agree that regulatory intervention at EU level is necessary to bring this project to a successful end within a reasonable time frame. For example, although the SEPA Credit Transfer was launched almost four years ago, according to ECB data only about 21 per cent of all credits transfers in the euro area were executed using a pan-European payment instrument. If this trend continues, the full benefits of SEPA will not be rapidly attained.

5. Who makes SEPA happen?

• Banking industry: the European Payments Council (EPC) is the banking industry’s decision-making and coordination body in relation to SEPA payments and has established scheme rules for SEPA Credit Transfers and SEPA Direct Debits as well as a SEPA Cards Framework for card payments. Individual banks remain responsible for migrating their customers from existing national payment instruments to the new SEPA payment products.
• Bank customers: SEPA will only succeed if customers – in particular, high-volume payment users such as businesses and public administrations – embrace the new SEPA payment instruments.
• Public authorities: the European Commission, the European Central Bank and National Central Banks as well as the European Parliament and EU governments all support SEPA and the Payments Services Directive provides the legal foundation for SEPA. Through a variety of means including close market monitoring as well as migration by public authorities, they are encouraging bank customers to move to the new SEPA payment instruments.
• To create a critical mass of SEPA payments, it is crucial that public administrations (e.g. national treasuries, tax offices, employment agencies or social security services) lead by example. The public sector is a major economic actor in its own right and accounts for up to 20 per cent of electronic payments. Moving this volume of transactions to SEPA would encourage implementation by other high-volume users of electronic payments such as businesses (corporates, small and medium-sized enterprises). The Commission also publishes a six-monthly survey on SEPA migration by public authorities to foster migration in the public sector. The latest survey shows that public authorities are now accelerating their migration to SPEA credit transfers and are not taking over the lead in some Member States. For example in June 2011 the migration rate for SEPA credit transfer by public authorities was 24.9 per cent.

6. What are the benefits?

• Payments will be faster: Electronic credit transfers in euros will reach the beneficiary at the latest by the next business day from 1st January 2012 throughout the whole of the EU. The amount of the transfer will be immediately credited in full to the beneficiary account. The recipient bank will not be allowed to make use of value-dating techniques, i.e. the date on which money is credited to an account is also the date for calculating credit or debit interest.
• Cross border direct debits will finally be possible: SEPA will also allow customers for the first time to set up cross-border direct debits in euros throughout the whole of the EU. Consumers will be able to rely on one bank account and one bank card to make payments throughout the 32 SEPA countries. Similarly, consumers wanting to purchase goods or services from retailers located in other SEPA countries will be able to do so with greater ease.
• For consumers and citizens in their every day lives: The introduction of SEPA makes paying bills significantly easier for European citizens including workers, students, holiday rentals, tourists and retirees living abroad. All consumers will be able to rely on one home account and one payment card for all – domestic and cross-border – payments throughout SEPA.
• For companies: The impact of SEPA on companies will be even greater since companies typically have more sophisticated payment arrangements than consumers. The benefits will depend very much on a company’s size, how it operates and the nature of the industry in which it competes. Businesses will enjoy common standards, faster settlement and simplified processing that will improve cash flow, reduce costs and facilitate access to new markets. There will be a wider choice of payment services providers, faster and more efficient processes as well as greater transparency. Over the medium term, lower fees can also be expected.
• Take for instance an import/export company in Germany. This company can substantially benefit from the ability to collect funds from debtors using a single, trusted payment instrument regardless of its location in Europe. For the German company this means it no longer needs to maintain some of their euro accounts abroad, and, since money transfers and payments will be settled faster, the company can optimise cash flow and treasury management as well as save through reduced banking fees. Large companies will be able to set up "payment factories" to organise and administer their euro payments efficiently across a number of Member States.
• According to 2008 figures from Capgemini, an IT services and business consultancy, a speedy changeover to SEPA could create added value for European economies of up to €123 billion in payments markets alone, with a further potential of €238 billion of savings through e-invoicing over a six year period.

The European Commission expects SEPA to have an impact far beyond the payments industry and related government services. SEPA will be the platform upon which e-government solutions such as e-invoicing, e-procurements, e-payments, e-signatures and e-services in relation to taxation, customs and social security will be further developed.

Full MEMO

© European Commission