Single Euro Payments Area

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. People who have a bank account in a eurozone country, will be able to use it to receive salaries and make payments all over the eurozone, for example when they take a job in a new country.

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:

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:

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 Payment Initialization (PAIN) message types 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 euro transactions are routed by IBAN; earlier national-designation schemes were abolished by February 2014, providing uniform access to the new payment instruments. Since February 2016 Eurozone consumers must drop BIC sorting information for SEPA transactions, it is derived from the IBAN for all banks in the SEPA area.

An instant 24/7/365 payment scheme named SCT^inst is scheduled to be implemented by November 2017. This will allow real time payments 24 hours a day and 365 days a year.

SEPA covers predominantly normal bank transfers. Payment methods which have additional optional features or services, such as mobile phone or smart card payment systems, are not directly covered. However, the upcoming instant SEPA payment scheme will facilitate future payment products also on smart devices.

There are no short term plans of extending SEPA to payments made in the currencies of the non-euro SEPA countries. People and businesses who live in those countries have often the option of getting a euro account from their local bank if they have transactions in euro or plan to settle in a Eurozone country. People from the eurozone can use their bank account all over the zone but still need a local bank account if they work in a non-euro SEPA country.

Coverage

SEPA consists of 34 countries:

All parts of a country are normally part of SEPA. However, the following countries have special territories which are not part of SEPA:

Jurisdictions using the euro that are not included: Akrotiri and Dhekelia, Kosovo, Montenegro, Andorra and Vatican City.

Charges

SEPA guarantees that euro payments are received within a guaranteed time, and banks are not allowed to make any deductions of the amount transferred, introduced by a regulation in year 2001. Banks and payment institutions still have the option of charging a credit-transfer fee of their choice for euro transfers 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. Sweden and Denmark have legislated that euro transfers shall be charged the same as transfers in their own currency; which has the effect of giving free euro ATM withdrawals, but charges for ATM withdrawals in other currencies used in the EU.

In Regulation (EC) 924/2009, the European Parliament mandated that charges in respect of cross-border payments in euro (of up to EUR 50,000) to other Member States shall be the same as the charges for corresponding national payments. However, the EU Regulation does not apply to all SEPA countries; the most significant difference is the inclusion of Switzerland in SEPA but not the EU. 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 support SEPA transactions). The regulation 924/2009 does not regulate charges for currency conversion so charges for non-euro transactions can still be applied (if not banned by national law).

Uptake

As of August 2014, 99.4% of credit transfers, 99.9% of direct debit and 79.2% of card payments have been migrated to SEPA in the euro area.

The official progress report was published in March 2013.

In October 2010, the European Central Bank published its seventh progress report on SEPA. The European Central Bank regards SEPA as an essential element to advance the usability and maturity of the euro.