Single Euro Payments Area

Single Euro Payments Area

The Single Euro Payments Area (SEPA) initiative for the European financial infrastructure involves the creation of a zone for the euro in which all electronic payments are considered domestic, and where a difference between national and intra-European cross border payments does not exist. The project aims 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 only a single bank account and a single set of payment instruments. 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 today as 2%-3% of total GDP).


There are two major milestones for the establishment of SEPA:

  • Pan-European payment instruments for credit transfers started 28 January 2008. Direct debits and debit cards will be available later (before 2011).
  • At the end of 2010, all present national payment infrastructures and payment processors should be in full competition to increase efficiency through consolidation and economies of scale.

For direct debits, the first milestone has been missed due to delay in the implementation of enabling legislation, the Payment Services Directive (PSD), in the European Parliament. Direct debits will not be available until 2009. This will put severe pressure on the second milestone.

The European Commission has established the legal foundation through the Payments Services Directive (PSD). The commercial and technical frameworks for payment instruments are being developed by the European Payments Council (EPC), made up of European banks, and are mostly finalised as of July 2007. The EPC is committed to delivering three pan-European payment instruments:

  • For credit transfers: SCT - SEPA Credit Transfer
  • For direct debits: SDD – SEPA Direct Debit
  • For cards: SEPA Cards Framework

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 message types (pain) are not; they are strongly recommended however. Because there was tolerance left for interpretation, it is expected that several pain-specifications will be published across SEPA-countries.

The Euro Banking Association (EBA) has introduced a Pan-European Automated Clearing House (PE-ACH), via its EBA CLEARING subsidiary. It provides a clearing and settlement mechanism needed for banks to exchange SEPA credit transfers and direct debits. Both services were implemented in time for the launch of SEPA in January 2008. Other organisations, such as existing national payment processors, have also announced their intentions to clear and settle SEPA payment instruments.

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; European Savings Banks Group, ESBG) are playing an active role in defining the services which SEPA will deliver.

SEPA impacts all banks operating in 31 countries — the 27 EU member states, the three other European Economic Area countries (Liechtenstein, Iceland and Norway) and Switzerland. Since January 2008, banks are migrating customers over to the new payment instruments. By 2010, the majority should be on the SEPA framework. As a result, banks throughout the SEPA area (not just the Eurozone) will need to invest heavily in technology with the capacity to support SEPA payment instruments.

It should be noted that of the European microstates, the Vatican City, San Marino and Monaco will all be part of SEPA, whereas Andorra will not, despite its de facto adoption of the euro as its currency.

The introduction of SEPA will increase the intensity of competition among banks and corporates for customers across borders within Europe. It also provides a business opportunity for a range of other organisations, including payment processors such as VocaLink and Equens and SIA-SSB, to help banks reduce costs and develop new payment services.

Multi-national businesses and banks have the opportunity to consolidate their payments processing onto common platforms across the Eurozone. They will benefit from substantial efficiencies by choosing among competing suppliers offering a range of solutions and operating across borders.

For consumers and organizations, SEPA could mean cheaper, more efficient and faster payments transfer when moving Euro from one Eurozone country to another.

Main objectives

  • Standardization of euro payments: equal time limits, equal fraud levels, equal processes, all-electronic straight through processing), no differences between national and international payments in the SEPA area; strengthening trust and reliability on a pan-European basis.
  • Competition in respect to higher number of competitors, fewer niches or special fields or incompatibilities through standardization.
  • Reduction of costs of electronic money and of payment transactions through competition at the side of payment providers and banks — both are considered as the biggest losers of the SEPA standardization process at an estimated € per year).
  • Reduction of cash money and increase of electronic money through reduction of costs of electronic money.
  • Increasing surveillance of (electronic) money flow particularly regarding money laundering and terrorism funding (unofficially also for surveillance of illicit work [10-30% of GDP's], organized crime and taxes).

Key dates

1957 Treaty of Rome creates a European Community
1992 Maastricht Treaty creates the euro
1999 Introduction of the euro as an electronic currency, including introduction of the RTGS system TARGET for large-value transfers
2000 Lisbon Agenda. The meeting creates a European Financial Services Action Plan
2001 EC Regulation 2560/2001 harmonises fees for cross-border and domestic euro transactions
2002 Introduction of euro banknotes and coins
2003 First pan-European ACH (PE-ACH) goes live. EC Regulation 2560/2001 comes into force for euro transactions up to €12,500
2006 EC Regulation 2560 cap increases euro transactions up to €50,000
2008 SEPA pan-European payment instruments become operational in parallel to domestic instruments on 28 January.
2009 PSD - Payment Services Directive (PSD) to be implemented in national laws by November
2010 SEPA payments will become the dominant form of electronic payments
2011 SEPA payments will replace all national payments in the eurozone


See Also

The Structured Creditor Reference that will be in Rulebook 3.0.

External links

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