SEPA – simpler, faster, safer

Gertrude Tumpel-Gugerell, a member of the Executive Board at the European Central Bank, discusses the implementation of SEPA and the hopes of its long-term impact


At the end of last month, January 28, the European banking industry implemented a process that will make it simpler, faster and cheaper to transfer money across national borders. This is the first visible outcome of an ambitious project to harmonise and modernise the retail payments market in the European Union. More practical steps will follow, bringing benefits to bank customers across Europe, and opening up new opportunities for the banks themselves.

Single Euro Payments Area (SEPA) is the name of the project that harmonises rules for euro payments. It will enable bank customers to make more efficient payments in euro, irrespective of their location. The European Central Bank (ECB) and the national central banks of the Euro system have a keen interest in the efficient functioning of the financial system. We are fully committed to help making SEPA a success.

Opportunities for Europe
The SEPA project is an important step towards more financial integration in Europe. It removes the fragmentation in the retail payments markets by introducing a single set of payment instruments or services for euro payments. SEPA is also introducing equal access conditions to payment services or products, thereby ensuring that market players are treated equally across Europe.

With its harmonisation and restructuring efforts, SEPA is a crucial driver for opening up the different national retail payments markets, encouraging European-wide competition and fostering innovation. Banks and other payment service providers are able to offer their services in different European countries, which will intensify competition to the benefit of European citizens. SEPA is also increasing the possibilities for economies of scale and scope, for example in the processing platforms, and is thus stimulating investment opportunities. Indeed, SEPA allows for more rationalisation, consolidation and expansion, all of which we already see happening now.

SEPA will also bring opportunities for corporates and customers as it will simplify their euro payments and allow for cost savings. From one single account it will be possible to reach all other accounts in Europe. Merchants and corporates will also benefit from more efficient processes and common standards for their payments. And payment cards will be used more widely, which will ultimately reduce the costs of cash handling. The introduction of chip and pin for every card will further improve customer safety and convenience.

SEPA will initiate a modernisation process in Europe, which will bring new and innovative products. The SEPA instruments, which have been designed for credit transfers and direct debits, are the basis on which further developments will be made. Several future-oriented initiatives, such as e-invoicing, online payments (web-retail) and mobile payments, permit efficiency gains for customers. For banks, SEPA is an opportunity to reach wider audiences and new sources of revenue.

Challenges of SEPA
SEPA has already led to many changes in the banking industry and will continue to bring new challenges in the years to come. The banking industry is facing in particular three main challenges, which are of a technical, commercial and legal nature respectively. The industry must address these challenges together by removing the barriers that exist between the current national payments markets.

A first challenge is of a technical nature. So far, the banking industry has been very successful in developing common technical standards that enable the smooth connection of systems and the transfer of messages between different banks in Europe. Technical standards are the basis for payment systems, ensuring the transfer of funds. In the years to come the industry should further deepen and widen its standardisation efforts, which could lead to new challenges. National fragmentation through different standards, e.g. in the customer-to-bank space, should soon belong to the past and common standards should be in place. The Euro system fully supports the work of the industry in this field and encourages the adoption of international best practices and standards, such as those developed by the International Standards Organisation (ISO).

A second challenge is of a commercial nature. With SEPA, the banking industry has developed new rules and business practices for euro payments. These are referred to as the ‘rulebooks’ that ensure common treatment for transferring funds in Europe. In particular, the banking industry has agreed on the common rulebooks for credit transfers and direct debits, and two frameworks, one for card payments and the other for clearing and settlement mechanisms. The Euro system fully supports the banks’ work in this field. The challenge for the industry is to develop common rules that will allow different entities to provide more innovative services throughout Europe. The younger generation of bank customers in particular increasingly prefer online and mobile transactions, and a solid common framework for Europe must be developed.

A third challenge is of a legal nature. For a long time the national regulatory differences in Europe hindered the provision of efficient and automated services across borders. The Payment Services Directive will remove these legal barriers. The Directive will create a clear and homogenous framework for making payments in euro, and should be transposed by November 2009 at the latest. The Euro system strongly supports the work on the Directive as it will provide the legal certainty that is necessary for operations across Member States. A coherent and early adoption of the Directive is imperative for the banking industry, as it will facilitate the implementation of SEPA. The European Commission and the ECB are therefore closely monitoring the implementation of the Directive into national legislation.

A bright future
The ECB’s outlook for SEPA is a truly integrated market where all euro payments are treated as domestic payments and the level of safety and efficiency meets customers’ needs. To realise the SEPA vision, strong commitment from all the stakeholders is required.

The banking industry has showed its commitment to the project and has laid the foundation for a new payments landscape in Europe. In January 2008, with the launch of the new SEPA credit transfers, the future begins in Europe. The SEPA direct debit will be launched in a second wave, during 2008-2009.

The success of the single euro payments market, however, does not only depend on the alignment of national practices or on banks developing new services; it also requires economic actors in all countries to change their habits. The banking industry, therefore, must continue its work and engage customers in the further development of SEPA. The modern, informed and demanding European customer wants an attractive offer and future-oriented products and services.

The ECB and the national central banks of the euro area are supporting the developments of SEPA, and will pay particular attention to ensure that the new landscape has all the characteristics of an integrated market which benefits customers. The ECB is acting as a helping hand or ‘catalyst’ for private sector initiatives and is monitoring the progress of SEPA. As a catalyst, the ECB is making special efforts to foster collective action that facilitates financial integration and provides better services for customers. In this respect, the ECB is paying particular attention to providing clarity on all features of direct debits, addressing the need for at least one additional European debit card scheme and ensuring the reach ability of banks.

SEPA has initiated the necessary developments that will bring Europe closer to enjoying an integrated and sophisticated retail payments market. It is now up to banking industry to not lose momentum and to maintain its efforts to develop further ‘state of the art’ products and services.