Single Euro Payments Area (SEPA)

The Single Euro Payments Area (SEPA) is a payment-integration initiative launched by the European Union to simplify bank transfers denominated in euro. As of 2020, the network consists of 36 members, including all EU countries, four member states of the European Free Trade Association (Norway, Switzerland, Iceland, and Liechtenstein), and the United Kingdom. The microstates of Andorra, Vatican City, San Marino, and Monaco also participate in the technical schemes.

SEPA covers mainly standard bank transfers. Payment methods with additional, optional services and features, such as mobile phone or smart card payment systems, are not directly covered. However, the network’s instant payment scheme facilitates payment products also on smart devices.

History

SEPA has two essential milestones during its establishment:

• On 28 January 2008, the pan-European payment instruments for credit transfers were introduced. By November 2009, debit cards and direct debits became available.
• All former national payment systems and payment processors were expected to be in full competition to increase efficiency through economies of scale and consolidation by the end of 2010.

The first milestone, concerning direct debits, was missed because of a delay in deploying enabling legislation (the Payment Services Directive or PSD) in the European Parliament. Since direct debits became available in November 2009, the timeframe for the execution of the second milestone got considerably shortened.

After the European Commission established the legal foundation through the PSD, the European Payments Council (EPC) developed commercial and technical frameworks for payment instruments used by European banks. The EPC was tasked to deliver three pan-European solutions:

• Credit transfers: SCT – SEPA Credit Transfer
• Direct debits: SDD – SEPA Direct Debit. European banks began offering this service on 2 November 2009.
• Cards: SEPA Cards Framework

The EPC committed to developing technical validation subsets of ISO 20022 to provide end-to-end automated direct payment processing for SEPA-clearing. While bank-to-bank messages (pacs) are mandatory, customer-to-bank payment initialisation (PAIN) messages are not. However, they are strongly recommended. Because there is room for interpretation, various PAIN specifications were expected to be launched in SEPA countries.

Governments, merchants, businesses, and consumers have always been concerned by the development of SEPA. The European Central Bank, TWIST, the European Commission, the European Automated Clearing House Association (EACHA), the EPC, the European Associations of Corporate Treasurers (EACT)m payments processors, and pan-European baking associations, like the European Banking Federation (EBF), the European Savings Banks Group (ESBG), and the European Association of Co-operative Banks (EACB), are played an essential role in defining the services which SEPA delivers.

Banks started switching their customers to new payment solutions in January 2008. By 2010, most banks and their clients were on the SEPA framework. As a result, banks throughout the SEPA area needed to invest in new technology developed to support SEPA payment instruments.

SEPA clearance is based on International Bank Account Numbers (IBAN). Domestic euro transactions began to get executed via IBAN, which led to the dissolution of national-designation schemes by February 2014. This provided new payment instruments with uniform access. Since February 2016, Eurozone payment system users don’t have to provide BIC sorting data for SEPA transactions. The information is automatically taken from the IBAN for banks in the SEPA area.

SCT Inst, an instant 24/7/365 payment scheme, was introduced on 21 November 2017. It allows instant payments 24 hours a day, 365 days a year. Banks without the SEPA network were tasked with handling the user interface and data security, e.g. websites and mobile apps.

Key Dates

1957 – The European Community is created with the Treaty of Rome.
1992 – The euro is created during the Maastricht Treaty
1999 – The euro is launched as an electronic currency along with the introduction of the RTGS system TARGET for large-value transfers.
2000 – The European Financial Services Action Plan is created during the Lisbon Strategy meeting.
2001 – Cross-border and domestic euro transaction fees are harmonised via EC Regulation 2560/2001.
2002 – Euro banknotes and coins are introduced.
2003 – EC Regulation 2560/2001 comes into force for euro transfers up to €12,500. Also, the first Pan-European Automated Clearing House (PE-ACH) goes live.
2006 – The ceiling on same-price euro transactions is augmented to €50,000 according to EC Regulation 2560/2001.
2008 – Parallel to established domestic payment instruments, states began using the SEPA pan-European payment network on 28 January.
2009 – In November, the Payment Services Directive (PSD) was enacted on national laws.
2010 – SEPA payments become the prevailing form of electronic transactions.
2011 – SEPA transactions replace national payments in the Eurozone.
2014 – On 1 August, the Single Euro Payments Area (SEPA) becomes fully operational throughout the Eurozone.
2016 – Payment Service Providers (PSPs) in non-euro countries can only collect euro transactions via SEPA procedures. Non-euro schemes, such as UK’s Direct Debit, remain unchanged.
2017 – Since 21 November 2017, instant SEPA payments up to €15,000 are executed within 10 seconds.
2019 – Andorra and Vatican City became members of the SEPA network on 1 March 2019.
2021 – The United Kingdom leaves the EU but remains a SEPA member subjected to different rules on 1 January 2021.

SEPA’s Objectives

The main objective of SEPA is to enhance the efficiency of cross-border payments. It also aims to turn the previously fragmented national euro-based markets into a single domestic entity. It allows customers to make cashless euro transactions to any account within the SEPA area, using a single set of payment instruments and a single bank account.

The project’s goals include the development of common financial standards, infrastructure, procedures, and instruments to help economies scale up. It also aims to reduce the overall cost to the European economy of moving capital around the region.

SEPA does NOT cover transactions in currencies other than the euro. This means domestic payments in SEPA countries not using the euro will continue to be done via local schemes. Only cross-border transactions with eurozone countries will be carried out through the SEPA network.

Nordic countries, with the exception of Finland, are NOT using the euro and have no plans to adopt it. Sweden, Denmark, Iceland, and Norway started their own initiatives during 2017-2019 to facilitate and accelerate cross-border payments between one another, as well as reduce the overall cost.

Coverage

SEPA comprises of 36 countries:

• 27 European Union Members
  • 19 states within the Eurozone
    • Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
  • 8 states that aren’t in the Eurozone
    • Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden.
• 4 members of the European Free Trade Association
  • 3 states having signed the European Economic Area agreement:
    • Iceland, Norway, Liechtenstein.
  • EFTA member that has not joined the EEA, but has a series of bilateral agreements with the EU:
    • Switzerland.
• 4 microstates that have monetary agreements with the EU:
  • Andorra, Vatican City, San Marino, Monaco.
• The United Kingdom has withdrawn from the European Union but will continue participating in SEPA payment schemes as a non-member with exceptions, such as BIC required.
  • Gibraltar and the Crown dependencies (the Isle of Man, Guernsey, and Jersey) are part of SEPA.

The following SEPA members have territories that are NOT part of the SEPA area:

• Cyprus: Northern Cyprus is excluded.
• Denmark: Greenland and the Faroe Islands are excluded.
• France: French Polynesia, Wallis and Futuna, New Caledonia, and the French Southern and Antarctic Lands are excluded. However, the first three are part of SEPA COM Pacifique.
• Netherlands: Aruba, the Caribbean Netherlands, Sint Maarten, and Curaçao are excluded.
• Norway: Jan Mayen and Svalbard are excluded.
• United Kingdom: With the exception of the Crown dependencies and Gibraltar, all British Overseas Territories are excluded.

Kosovo, Montenegro, Akrotiri and Dhekelia, and the French Southern and Antarctic Lands are jurisdictions using the euro that aren’t part of SEPA.

Schemes

The functionalities offered by the SEPA network are separated into different payment schemes.

SEPA Credit Transfer (SCT) enables the transfer of funds between banks. The clearing rules specify that payments made prior to the cutoff point on a workday should be credited to the recipient’s account by the next workday.

SEPA Instant Payment, also known as SEPA Instant Credit Transfer (SCT Inst), offers instant crediting of a payee. The timeframe between transfers is generally less than ten seconds, while delays of maximum twenty seconds are allowed only in exceptional circumstances. This scheme was introduced in 2017 and, at the time, was available to end customers in eight eurozone countries. Future plans are for it to be introduced to all members of the European Union.

Two separate schemes provide the direct debit functionality. Core SDD, the basic scheme, is mainly targeted at consumers and was launched in November 2009. Banks providing SEPA payments are obliged to take part in the scheme. B2B SDD, an additional scheme, is designed for business users. However, banks aren’t obligated to participate in this scheme. Its main differences with Core SDD are:

• It doesn’t allow the debtor to ask for a refund from their bank after their account has been debited.
• It requires a mandate to be submitted by the debtor and creditor.