Update on SEPA: 2006-2007

In the past 12 months, there have been great strides forward in establishing the single euro payments area (SEPA). The European Payments Council (EPC) has made further progress on the rulebooks and scheme rules for SEPA (see box below); banks have started to flesh out their plans and strategy for SEPA; and corporates have become more involved in the process as a whole through corporate associations and discussions with their banks.

For Tom Buschman, chairman of TWIST (the Transaction Workflow Innovation Standards Team, the not-for-profit industry group), a major highlight of 2006 was the advancement of the EPC’s rulebooks and the start of discussion between user representatives and the EPC about the details of these rulebooks. “For the success of SEPA, this dialogue is likely to be strengthened in the coming year, which should ensure that the investment made by banks will have a rapid return,” he says.

Key EPC Deliverables of 2006

Credit Transfers and Direct Debit
  • SEPA Credit Transfer (SCT) Rulebook, version 2.2, approved by the EPC Plenary in December 2006 (including the Credit Transfer Implementation Guidelines, version 2.2).
  • SEPA Direct Debit (SDD) Rulebook, version 2.2, approved by the EPC Plenary in December 2006 (including the Direct Debit Guidelines, version 2.2).
  • PEACH/Clearing and Settlement (CSM) Framework, version 1.0.
  • SEPA Data model, version 2.2.

Version 2.2 is the baseline for implementation of the euro credit transfer and direct debit payment services of banks from January 2008 as promised in the EPC Declaration of 17 March 2005.


The EPC Plenary approved the SEPA Card Framework (SCF) in 2005. Banks, card schemes and card processors have taken several concrete decisions based on the principles of the SCF.

In September 2006, the EPC Plenary decided which parts of the euro card payment process required more standardisation.


The EPC Plenary approved the single euro cash area (SECA) with principles to increase the efficiency of euro cash payments. This is significant because at least six out of seven payments in the eurozone are still made in cash.

Payments Services Directive (PSD)

The EPC created common positions on the different versions of the PSD.


The EPC delivered a document ‘Making SEPA a Reality’ for banks, users, vendors and their supportive associations in 2006 (readers can download a document from the EPC’s new website: www.europeanpaymentscouncil.eu.

Source: Gerard Hartsink, chairman of the EPC

Focus in 2007

Building on the progress made last year, what will be the focus for banks and corporates this year in terms of getting ready for SEPA? The industry, as a whole, must prepare for the transition to SEPA and 2007 will be a critical year for this.

From the point of view of banks, what is important is the fact that SEPA is mandatory. Banks must be able to receive instructions and send instructions for SEPA payments by 1 January 2008. Banks should also achieve full reachability across Europe, which will require a huge amount of work and the degree of preparation is challenging because they will have to identify a marketing position for the short, medium and long term on services and products for clients.

For corporates, the story is different as their adoption of SEPA is optional. In fact, in January 2008, it is uncertain whether there will be a high number of corporates waiting to use the new XML-based SEPA standards to send and receive their payments. Despite this uncertainty, banks have to be ready. As SEPA is not mandatory for corporates, they have time to adapt and, therefore, the starting point for corporates is to gain a better understanding of SEPA: what it means and how they can profit from it. (For more information on this, read the section below Corporate Perspective on SEPA.)

Gerard Hartsink, chairman of the EPC, supports this view. “In 2007, banks must prepare their roll-out of SEPA payment services from January 2008 and also communicate with their clients about the new SEPA payment services,” he says. “In addition, banks must participate in the national implementation organisations together with national central banks, ministries of finance and national representatives of the users.”

This year, the priorities for corporates (including SMEs and public administrations), according to Hartsink, are preparing their organisations for the roll-out of SEPA payment services and participating via their associations in the national implementation organisations. He adds that it is vital that multinationals and SMEs, in particular, express their views if national implementation plans in the eurozone create diverging results that they believe cannot be managed properly.

And it is not just banks and corporates that that need to play a role in SEPA’s progress; public authorities should also be involved. “They must deliver the Payments Services Directive (PSD) and transpose it into the 27 legal systems in the EU and explain SEPA’s objectives to citizens and corporates in the eurozone while actively supporting national implementation organisations,” insists Hartsink. “They must also make sure that public administrations in the eurozone start a SEPA programme to use SEPA payment services as soon as possible after January 2008 (the so-called ‘first movers’).”

Impact of the PSD’s Delay

The PSD is vital to the realisation of SEPA because it provides the legal framework for the introduction of SEPA and therefore the legal basis for the changes that need to be made within domestic payments systems across Europe. According to TWIST’s Buschman, progress on the PSD was one of the biggest achievements made on SEPA last year. For example, he points to the establishment of clear guidelines for the timing of settlement and revocability of direct debits, as well as the opt-out clause for corporates with regards to the liability arrangements. While this progress must be applauded, it is also true that the delay in the approval of the PSD has become a major issue of contention.

The delay in the publication of the PSD has not helped the delivery of SEPA. Also, the uncertainty surrounding the interpretation of the rulebooks and the likelihood that the necessary legislation will be delayed has further compounded the issue. As a result, existing legacy systems will continue for the collection of direct debits in parallel with the new SEPA formats for credits. This will affect the early adoption of SEPA with many corporates delaying the necessary development until there is more certainty in the operation of the scheme.

There are different opinions about when the PSD is likely to be approved. TWIST’s Buschman is confident that, in Europe, the PSD will be published in the next three months. “It will take some time before it is embedded in national legislations but given that there has been such detailed discussion about the PSD among the Council of Ministers, once an agreement is made between them, they [national governments] will be able to pass it through their national parliaments relatively quickly,” he says.

Roderick Kroon at Enigma Business Consulting believes a number of PSD scenarios are possible and discusses these in his article, #Gtnarticle(6621)#. He also suggests that if the industry continues to find new reasons to delay the PSD’s approval, the European Commission may take charge and reconsider the nature of the PSD by making it a regulation rather than a directive.

Country Approaches to SEPA

Within the eurozone, each country has a different approach and complex variations in their payment requirements. Each country must design and incorporate the pan-European SEPA objectives into a national migration plan towards SEPA. The boxes below provide an overview of how Ireland and Portugal are working towards SEPA with reference to their national schemes and the specific domestic factors they need to consider.

According to the EPC’s Hartsink, the implementation of the SEPA scheme rules is the responsibility of the national communities, in particular (but not exclusively) within the eurozone, much like the approach in the introduction of the euro between 1999 and 2002.

SEPA in Ireland

Main challenges and focus points for banks and corporates in 2007

One of the main challenges for banks in Ireland is to generate sufficient awareness and interest among the corporate community as a whole in SEPA. Cross-border payments amount to a small percentage of the overall volume of payments and direct debits are not yet available cross border. The current low-value bilateral system, which is a next-day value, works very well and facilitates both credits and debits and has an efficient unpaid cycle. Consequently, there is not a big demand for a pan-European solution for the domestic market – especially if it does not offer the same capabilities and only caters for credit transfers initially, as the pan-European direct debit will be delayed for some time yet.

A further major challenge in Ireland is the fact that there is no national automated clearing house (ACH). Consequently, each bank has to make its own decision on the best SEPA solution based on its own priorities and requirements. The original expectation of a number of competing pan-European ACHs has not yet materialised, which has limited the scope for a pan-European and SEPA compliant domestic solution.

For corporates involved in cross-border trade, the mandatory use of BIC and IBAN from 1 January 2007 appears to have been a success. The IBAN has been seen as an acceptable requirement for all cross-border transactions and the reduced costs involved in using IBANs and BICs has been a big factor in its success.

Corporate concerns and requirements around SEPA

For an initial transition period of up to three years, the existing domestic bilateral exchanges will continue for payments and direct debits processed in the domestic format. Consequently, there will be no major urgency in converting to SEPA compliant payment formats in the domestic market. The standardisation of formats across Europe will facilitate the large processing service centres of the major corporations who will be geared towards centralised pan-European clearing solutions.

Progress by banks and corporates on SEPA

With less than a year to go, progress appears to be slow. However, the Irish Payments Services Organisation (IPSO), which overseas the payments industry in Ireland, has established a SEPA Ireland programme and has set up a task force comprising one representative from each participating member institution that is chaired by the chief executive of IPSO to manage the implementation of SEPA in Ireland. A programme manager has been appointed who will act as Ireland’s representative on the EPC roll-out committee (ROC).

While the implementation of SEPA will primarily be a matter for the participating Irish banks, the SEPA task force will nevertheless have a role in overseeing their implementation plans and, in particular, monitoring their progress towards delivery of the Irish national plan for SEPA, which was signed by the chief executives of all the member banks in December 2005.

Specific national challenges

With regard to SEPA, Ireland’s main focus is communication and generating an awareness of SEPA in the wider community and in running a consultative forum to provide an opportunity for stakeholders to source information on SEPA. A number of these sessions have already been held and more are being planned for the year ahead. Individual banks are also planning information sessions for their clients.

Portugal and SEPA

Main challenges and focus points for banks and corporates in 2007

In Portugal, the Sociedade Interbancária de Serviços (SIBS), the national clearing entity, faces the biggest challenges because, in the presentation about the SEPA Action Plan for Portugal in December 2006, SIBS committed itself to being compliant with the new format XML ISO 20022 in 2008. In addition to the new XML format, SIBS will also continue to accept the current formats and it will also assure, where needed, the conversion from current formats to the new XML standard.

Specific national challenges

Adapting to the SEPA environment is a real challenge for Portuguese banks. A great number of companies operating in Portugal are subsidiaries of multinationals, which means that there is a great opportunity for these companies to rationalise and centralise all their payments activity within one country. Also, market competition will grow dramatically from now on.

The information in the box above about Ireland and Portugal reflects the fact that in each country, there are specific differences as to what the end-users are used to and how they operate. It will therefore be hard work to propose something new within the SEPA scheme that will be acceptable within the definition of local services.

Corporate Perspective on SEPA

The fact that corporates have, so far, displayed a lack of involvement in progress towards SEPA is perhaps at odds with the fact that – as the ultimate end-users and beneficiaries of the services SEPA will introduce (apart from European consumers) – they have a vested interest in being involved in the process and making sure their opinions are heard.

This is a problem that banks, the EU Commission and public authorities must take on by improving communication to generate more awareness among corporates about the commercial benefits of SEPA. For instance, the fundamental issue SEPA focuses on is the current divide between the way domestic and cross-border payments operate and are priced. With SEPA in place, end-users (consumers and corporates) should be able to execute any payment within the euro area as easily and at the same cost as they would in their existing domestic payments system. Are corporates aware of how this will happen and how they should prepare for this payments transformation?

In addition, while reduced payment costs are an obvious advantage for corporates, it is the wider value-added services and capabilities that SEPA will introduce that will really drive forward corporate adoption.

The strategy that many banks are adopting is making a commitment to deliver the core services first and then the value-added services that will help corporates improve their business. This is important for two reasons: first, to provide services that accommodate migration and, second, to provide new services that will be expected by corporates in their day-to-day cash management related to e-invoicing and working capital.

For instance, TWIST’s Buschman explains that the European Commission (EC) started a new project on EU-wide e-invoicing in December 2006. “This project has a more open character than the way in which the SEPA design was dealt with and is likely to trigger the active interest of corporates and public administrations, irrespective of their size,” he says. “Initial estimates are that the corporate community in the EU and public administrations can obtain savings of over €200bn, which exceeds the cost for banks and corporates to implement SEPA plus the necessary additional adjustments in corporate supply chains.”

To date, the main SEPA requirement that corporates have had to contend with is the use of IBANs and BICs. For instance, corporates have to make sure BIC and IBAN details are clearly placed on all invoices and that they obtain IBAN and BIC details for all counterparts, not just for cross-border counterparts. But this is just the start. There will be a major need to modify internal systems across industries. Corporates, payroll bureaus and service centres will have to upgrade and modify their software to meet new SEPA requirements.

In order to stay informed on all the latest developments related to SEPA, corporates should read articles in the SEPA section on  Corporate Strategy

Impact on Non-eurozone Countries

SEPA is called the single euro payments area but it is also likely to affect non-euro countries within Europe. In his article, How Should UK Banks Prepare for SEPA?, Robert Tripp at RT IT Consulting, discusses how banks and corporates in non-euro based countries, such as the UK, Sweden, Denmark or the new accession countries, will not escape preparation for SEPA.

It must also be noted that SEPA’s impact is not just restricted within the borders of Europe; it will also influence payments that originate outside Europe from the US or Asia, for example, as well as the future progress of other regional payments systems.

“In the US, Asia and the Middle East, SEPA and the PSD are followed with close attention. One can expect that the potential benefits of SEPA will trigger other economic regions to obtain the same benefits from more efficient payment processing,” says TWIST’s Buschman. “Global banks who make significant investments in their infrastructures and organisations because of SEPA will wish to apply the same concept elsewhere. And when SEPA delivers enough benefits to corporates, they will ask their banks outside of Europe to adhere to the same processes and deliver similar benefits elsewhere. Assuming that corporate demands are met in Europe, SEPA will have a significant knock-on effect in other regions.”

EPC Deliverables for 2007

SEPA Credit Transfer and SEPA Direct Debit

The EPC will analyse potential next steps or refinements of rulebooks and implementation and publish guidelines based on the input of banks, users (e.g. corporates, SMEs and public administrations) and vendors. This will have to lead to strict release management with involvement from all stakeholders, including corporates, SMEs, public administrations.


Deliver more standards for the euro card payment process (deliverables planned for 2008).


Deliver more awareness on the co-operation approach of banks, corporates and SMEs and public authorities to reduce the cost of cash in society based on the lessons learned in Europe. The EPC intends (not decided) to deliver a communication document before summer 2007 (for euro and non-euro currencies).

In 2006, the EPC delivered the PEACH/CSM Framework with principles for the clearing and settlement of SCT and SDD. This framework acknowledges five clearing options and the majority of banks must decide which option (or options) they will use for their January 2008 commitment.

Source: Gerard Hartsink, chairman of the EPC

Deadline for SEPA and Migration Period

According to the EPC’s Hartsink, the public authorities (Governing Council of the ECB and the EC) have mentioned the end of 2010 as the final date for national migration. (The EPC has not yet committed itself to an end date – see EPC Declaration 17 March 2005.) “We expect that a critical mass of users will have migrated by the end of 2010. The dialogue on the exact interpretation of ‘critical mass’ is part of the discussion among national implementation organisations within the eurozone,” he explains.

The large European banks are confident about meeting the deadlines for SEPA in 2008, although there is uncertainty about the SDD with the postponement of the PSD. “Based on the feedback of our members, so far the progress of banks (and their processors) is encouraging, but the progress of our customers (i.e. public administrations and corporates) and public authorities needs to become more concrete in 2007 in order to achieve the 2008 SEPA objectives that public authorities have asked for,” says Hartsink. “The owners of the national schemes in the eurozone will have to evaluate their strategic options and the timeline of the national migration in close co-operation with other stakeholders.”

Whether, and how quickly, corporates adopt the new SEPA products and services will determine how long the migration period will be. Between 2008 and 2010, existing domestic payment instruments will co-exist with the new SEPA instruments in order to enable the gradual migration of end-users. Banks and other stakeholders need to ensure the migration period is as short as possible and that consumers and corporates do actually adopt the new SEPA instruments. This is another reason why increased communication with corporates about the benefits of SEPA is so important.


There is no doubt that SEPA will result in bank consolidation. Fewer banks will be able to survive because of the cost of transacting post-SEPA and the investment required to sustain scale in payments processing.

A distinction can be made between the banks that will offer SEPA payments products themselves and those that will outsource SEPA payments to a SEPA bank. Banks that have a large footprint in Europe are likely to act as SEPA banks. However, if SEPA is to succeed, there needs to be more emphasis on persuading clients to adopt the new services.

In order to do this, banks will have to adapt the way they process payments in order to offer the best prices and highest levels of service and, therefore, maintain their customer base. This will be even more important when SEPA is in place because the standardisation it will introduce will make it much easier for clients to change banks. To enable a smooth migration to SEPA, banks must listen to their customers’ demands and tailor their SEPA services accordingly.

Competition will also be affected by the rise of non-bank players being able to enter the market as a result of SEPA. These non-bank payment institutions are described as institutions that have the right to use the clearing systems to settle payments but who do not have the status of a bank. They have a lot of requirements to comply with because, even though they can process payments, they cannot hold accounts. There are very strict rules about this, and how it will be managed post-SEPA is an issue.

Preparing for SEPA this year will not be an easy task but it is one that cannot be ignored. While there is varying confidence about meeting the deadlines in January 2008, we can be sure that SEPA will become a reality.


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