March 16, 2010, 22:57 CET
SEPA - The Single Euro Payments Area
SEPA (Single Euro Payments Area)
SEPA denotes a Single Euro Payments Area, in which all payments are treated as domestic transactions. Since SEPA was launched in January 2008, no distinction has been made between domestic and cross-border payments. SEPA enables users of payment services to make cashless payments in euro from a single bank account within Europe, using a single set of payment instruments (SEPA Credit Transfers, SEPA Direct Debits and SEPA card payments) as easily, smoothly and securely as domestic payment instruments were in the past.
SEPA will lead to the realisation of a single market in cashless payments. Previously the European payments market was heavily fragmented. Each country had its own technical standards, eg for account numbering and the data format for payment exchanges. For example even the payment procedure itself varied from country to country, with considerable differences between the German and French direct debit procedures,. Thanks to SEPA, common procedures and standards have now been implemented, whereby credit transfers, direct debits and card payments can be processed as efficiently, inexpensively and safely as domestic transactions. The previous domestic market barriers have been lifted to create a standardised payments market and to generate competition across Europe. SEPA therefore not only affects cross-border payment transactions but is also designed to result in the full integration of domestic payment markets.
In order to manage the SEPA activities, the European Payments Council (EPC) was founded in 2002. It is made up of around 70 members, including the various European banking associations and above all domestic banking associations and major credit institutions. The Council develops the common European regulations for SEPA Credit Transfers, SEPA Direct Debits and SEPA card payments. At a domestic level in Germany, the Central Credit Committee (Zentraler Kreditausschuss, ZKA) is involved in SEPA’s development alongside the Bundesbank. The Deutsche Bundesbank and its fellow central banks in the Eurosystem work to promote the SEPA concept and actively support the banking industry's endeavours in their political capacity as "catalysts" for change.
The path to a Single Euro Payments Area (SEPA)
Since January 2008, SEPA has been available to every credit institution, commercial enterprise and consumer in all EU countries (first and foremost in the euro-area countries), as well as Iceland, Liechtenstein, Norway, Monaco and Switzerland. Currently, more than 4,400 credit institutions offer the SEPA Credit Transfer facility to their customers. Each working day, over 210 million cashless payment transactions are initiated in the euro area, almost 90% of which are credit transfers, direct debits and card payments, and could therefore be conducted using SEPA.
The Eurosystem regularly evaluates the progress made towards achieving a single European payments market in its SEPA progress reports. The Sixth SEPA Progress Report (German / English version) was published in November 2008.
Benefits for enterprises and consumers
- With SEPA, consumers and enterprises will be able to make all of their payments in euro from one account held at a bank of their choice in any European country. SEPA offers businesses the chance to reduce their costs by opting for an internally concentrated system for payments settlement which will pare down the number of banking relationships they maintain and simplify liquidity management. What is more, the range of choice in payment service providers is expanding considerably.
- Since November 2009 SEPA Direct Debits can be used for national and European cross-border payments. For instance, it is possible to pay the costs for a holiday home in another European country, or for deliveries from European mail order firms, by means of SEPA Direct Debit.
- The ability to determine the precise date (due date) in the SEPA Direct Debit Scheme ensures that customers are informed about the exact day their account will be debited. Therefore, this allows an advantaged cash position as well as an improved liquidity management.
- The SEPA legal regulations will gradually reduce the time given to complete a credit transfer. As of 2012, customers will have access to the transferred amount after one banking business day at the most. In the interim, a transitional maximum settlement period of three banking business days will apply.
- Consumers and businesses can enjoy the benefits of a better-quality range of services as the SEPA rulebook puts banks in a position to create additional services, tailored to meet specific customer requirements, which go beyond the basic services listed therein (Additional Optional Services, AOS), eg managing SEPA Direct Debit mandates on behalf of customers or giving advance notice of completed account debits.
- Consumers can use their debit card throughout Europe, not just for cash withdrawals from ATMs as has generally been the case up to now, but also, for example, to make general purchases or to pay in restaurants.
- SEPA should be seen as an opportunity to further modernise retail payment systems– a better interlinking of payment transactions and internal accounting procedures could go hand in hand with the implementation of SEPA, for example.
The technical standard in SEPA
SEPA payments are processed on the basis of the respective current versions of the European Payments Council documentation (Rulebooks und Implementation Guidelines).
The European banking industry developed the SEPA payment instruments as XML message formats based on the global ISO 20022 standard. In future, this uniform technical standard will form the basis for the interoperability of payment service providers and payment infrastructures and enables a fully automated settlement of payments in the SEPA area.
In a significant departure from the previous domestic procedures, the payer and the payee (as well as their credit institutions) are to be identified by the IBAN and BIC, and not by the domestic bank sort code and account number.
- IBAN
IBAN is short for International Bank Account Number, and is a standardised International bank/account number for domestic and cross-border payments. It consists of a maximum of 34 digits, which can be used differently depending on the country. Only the first four digits are fixed.
In Germany, the IBAN has 22 digits. The first two digits are the country code (DE for Germany). The following two check digits are used to verify the account number and banking details before the payment is executed. This is followed by the eight-digit bank sort code of the account holder (in this example 370 400 44) and then the account number, which may consists of up to ten digits, depending on the credit institution.
Bank customers can find their IBAN on their bank statements. The German banking industry has various automated solutions in place for changing the account data relating to account numbers and bank sort codes in use today in German payment transactions into the internationally used IBAN and BIC, eg the internet-based IBAN conversion service (available in German only).
- BIC
The BIC (Bank Identifier Code) is a credit institution’s international bank sort code. It consists of a maximum of 11 digits, and is often called the SWIFT code.
The first four digits corresponding to the bank name are alphanumeric and can be freely chosen (eg Deutsche Bundesbank: MARK). This is followed by the country code, which corresponds to the ISO code of the respective country. It consists of two digits (eg DE for Germany). This is then followed by the two-digit location code (eg FF for Frankfurt am Main). The last three spaces can be used for a branch code (eg XXX) and can be freely chosen. They can also remain empty. The official BIC directory can be found on the SWIFT website.
SEPA Credit Transfer
SEPA Credit Transfers have been available for processing both domestic and cross-border European payments since 28 January 2008. In order to use this procedure, a bank must first sign the corresponding European Payments Council (EPC) adherence agreement and convert its systems to process SEPA payments. The EPC provides an up-to-date list of the over 4,400 credit institutions participating in SEPA.
The transposition of the Payments Services Directive (PSD) into national law means that as of November 2009, the maximum execution period for domestic and cross-border payments in Europe is set at three banking business days (from 2012 one banking business day), irrespective of the SEPA-area country in which the payee’s account is held. Shorter settlement times will, however, be possible and have already been realised in certain countries. The Eurosystem regularly monitors the level of SEPA Credit Transfer usage in the entire euro area as well as in individual SEPA participating countries using SEPA indicators (2008 and 2009 (only in German)). Since its introduction on 28 January 2008, the use of the SEPA Credit Transfer has steadily increased.
SEPA Direct Debit
On account of the differences in the legal frameworks and the various domestic direct debit procedures which exist, the EPC decided at an early stage to develop a completely new SEPA Direct Debit Scheme (SDD). However, implementation of this scheme was only possible once a common framework had been developed within the European Union. Following the incorporation of the Payment Services Directive into their country’s domestic laws, credit institutions have been able to offer SEPA Direct Debits from November 2009.
Two different direct debit procedures are available: a "Core Direct Debit" and a procedure designed solely for business customer transactions ("Business to Business Direct Debit" (B2B)). The core direct debit contains numerous elements recognisable from the German collection authorisation procedure. The B2B direct debit considers the needs of business customers and is similar to today’s debit authorisation procedure.
- SEPA Core Direct Debit
In accordance with the SEPA Core Direct Debit Scheme Rulebook, first-time direct debits have to be submitted to the paying agent five days before their due date. Any subsequent payments must be submitted two days before their due date. The lead time for one-off direct debits is also five days. A SEPA Core Direct Debit can be returned to the submitter within eight weeks of being effected, ie the relevant account debit can be revoked. In the event of an unauthorised direct debit, ie an unlawful account debit, the payment can be refunded within 13 months of the account being debited.
- SEPA Business to Business Direct Debit
One-off, first-time or subsequent direct debits must be submitted to the paying agent one day before the due date in accordance with the SEPA Business to Business Direct Debits Scheme Rulebook. It is not possible to refund business to business direct debits, as the debtor’s bank (paying agent) is required to check the mandate information for conformity with the presented payment order before the debit is made.
The legal basis for the collection of SEPA Direct Debits is provided by SEPA mandates. These cover both the payer’s consent for the payee to collect the payment by SEPA Direct Debit, and the former’s mandate to his own bank for authorising the debiting of his account. Sample forms for the SEPA mandates (SEPA Core Direct Debit Mandate and SEPA Business to Business Direct Debit Mandate) are available from the Central Credit Committee (Zentraler Kreditausschuss, ZKA).
Under current law, the previous mandates for the German collection authorisation procedure cannot be used for collecting SEPA Direct Debits, as they fail to fulfil all the legal requirements that constitute a SEPA mandate. The existing collection mandate only entitles collection by the payee and does not allow the payer's payment service provider to debit the payer's account. For this reason, the initiation of SEPA Direct Debits previously necessitated the issuing of new SEPA mandates. To spare the payee the cost of doing this, the German banking industry and the Bundesbank submitted a proposal for automatic conversion of collection mandates to SEPA mandates. In line with this proposal, payers should be informed by the payee that their collection authorisation mandate has been migrated to a SEPA Direct Debit mandate and granted a period of two months during which they are entitled to raise objections. This solution, however, requires the mandate migration to be legally supported, which is not yet the case. To facilitate the conversion of new orders for payees, the German banking industry has developed combi mandates, which can be used for processing the old domestic Direct Debits as well as SEPA direct debits.
An important prerequisite for the success of the SEPA Direct Debit Scheme is to ensure access to this payment method for as many bank customers as possible, ie the SEPA Direct Debit is supported by the banks which hold their accounts. Hence, from November 2010 onwards, all providers of payment services in the euro area which are currently able to receive domestic direct debits will be obliged to accept SEPA Direct Debits (a concept known as reachability). For providers of payment services in non-euro states of the European Economic Area, this reachability obligation will apply as of November 2014, as stipulated in the revised Regulation (EC) No 924/2009 of the European Parliament and of the Council of 16 September 2009 on cross-border payments in the community, which entered into force on 1 November 2009.
| SEPA Core Direct Debit | Collection authorisation procedure |
|---|---|
| Use within SEPA | Domestic use only |
| Mandate information is supplied in the data record when a direct debit is collected | Mere reference to the collection authorisation when a direct debit is collected |
| Mandate expires after 36 months of inactivity | Collection authorisation valid until revoked |
| Specification of a due date Fixed lead times: - First-time and one-off direct debits: Due Date - 5 days - Recurring direct debits: Due Date - 2 days |
Due upon presentation |
| Use of creditor identifier and mandate reference necessary | No equivalent element |
| IBAN und BIC must be used | Account number and bank sort code must be used |
SEPA for cards
The SEPA Cards Framework; SCF defines high level principles and rules which, when implemented by banks schemes and other stakeholders, enable the card payments and cash withdrawals within the Single Euro Payments Area to be processed as quickly, securely and efficiently at this level as at the domestic level. The framework describes three ways to achieve this
- Replacement of domestic card schemes by international ones;
- Cooperation between domestic and international card schemes for cross-border card usage (known as co-badging).
- Extension of domestic card schemes´ business operations through self- expansion or the formation of alliances with other domestic card schemes.
The aim of SEPA for cards is to dispense with the predominantly domestic orientation of card payment schemes, and to ensure interoperability and extensive technical standardisation at all levels of a card payment, ie between
- card holder and terminal;
- card and terminal;
- terminal and acquirer¹;
- acquirer¹ and card issuer²
In December 2008, the European Payments Council adopted a comprehensive framework for the standardisation of card payments. Concrete functional and technical specifications are now to be developed by the market participants. Furthermore, the framework calls for the definition of a common set of security requirements and certification procedures for cards and terminals. In adopting the framework, the banking industry endorses the standard use of both the EMV chip and PIN and the principle of separating the cards schemes´ management from their operations. Currently, different card schemes initiatives aim at creating an additional European card scheme either by interlinking existing domestic schemes (Euro Alliance of Payment Schemes, EAPS) or by building up new ones (Monnet, PayFair).
¹ The acquirer is the company that concludes the necessary contracts for collecting and settling card debts along with the companies and traders, which accept the card as a means of payment.
² The Issuer is the company that issues the cards to its customers (also known as card-issuing institution).
eSEPA
From the Eurosystem point of view, the modernisation and enhancement of European payment market does not end with the introduction of the harmonised SEPA Credit Transfer, SEPA Direct Debit and SEPA for cards. On the contrary, these serve as the basis to offer new and more innovative value-added services (VAS), based on state-of-the-art information and communication technology in the customer-to-bank relationship. Payment processes that were previously paper-based should become completely electronic – a benefit for customers and banks alike. This next developmental step towards an even more efficient and user-friendly payment market is referred to as eSEPA by the Eurosystem.
In line with the principles of eSEPA, the European Payments Council is already working on solutions for payments on the internet (electronic payments / e-payments) as well as payment procedures involving mobile phones (mobile payments/m-payments). In the future, the SEPA e-Payment Framework should make it possible to pay for internet purchases immediately on a pan-European basis using online banking and a SEPA Credit Transfer. Initially, the focus of m-payments is on a contactless payment procedure, meaning the integration of customer bank cards in mobile phones and the use of radio transmission over short distances for payments at a shop terminal. Currently, an Expert Group from the European Commission is working on a common European solution for electronic invoicing (e-invoicing). The aim of e-invoicing is to integrate postage and payment of an invoice into a single electronic process and thereby avoiding the inefficient break between different media.
SEPA legal framework
The Payment Services Directive (PSD) provides a common legal framework for euro payments within the EU. It contains both prudential requirements and civil law provisions pertaining to the various payment service providers (eg institutions, e-money institutions, payment institutions) and the payment services they provide (eg credit transfers, direct debits, card payments).
In Germany, the transposition of the PSD into national law, which, according to EU provisions, must be completed by 1 November 2009, has lead to a significant expansion of existing provisions regarding payments. The regulatory aspects of the Directive are implemented in the Payment Services Oversight Act (Zahlungsdiensteaufsichtsgesetz or ZAG), while the civil law provisions have been incorporated into the German Civil Code (Bürgerliches Gesetzbuch) and its Introductory Act (Einführungsgesetz zum Bürgerlichen Gesetzbuch or EGBGB).
At present, payment services can only be provided in the German market by credit institutions which are permitted to conduct giro business pursuant to the German Banking Act (Gesetz über das Kreditwesen or KWG). To promote competition, a new group of payment service providers has been created known as “payment institutions”. They can offer payment services without being a credit institution, and do not have to cover the entire range of services provided by a credit institution.
In addition, the rules pertaining to the execution of transactions have been clearly defined. For example, the maximum execution time (between receipt at the instructed bank and crediting to the account of the payee) for non-paper-based payments will be reduced from up to three business days at present to one business day in the future. For a transitional period until 1 January 2012, payment service providers can still agree with their customers a period of no longer than three business days. With regard to the calculation of charges, payment amounts must, without exception, be passed on without deduction in the future.
The legal provisions for value dating and availability of funds have led to a further tightening of the regulations for the processing of transactions. Accordingly, credit transfers have to be placed at the payee's disposal immediately. In future, the value date for credit transfers will therefore be the day on which the amount is credited to the payee's payment service provider. By contrast, the debit value date may not be earlier than the date on which the payer's account is debited. Overall, the possibility of banks´ making profits on interest or floats is dramatically reduced.
Moreover, there are consumer protection considerations, such as information requirements, which payment service providers are obliged to fulfil vis-à-vis their customers. Another new aspect is the introduction of strict liability of the payer in the event of theft or loss, for example, of his/her payment card. This liability, which is limited to €150, ceases to apply as soon as the loss has been reported to the credit institution. This will encourage the customer to treat their payment card carefully and responsibly.
