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Brussels, 20 December 2011
Full SEPA (Single Euro Payments Area) Migration - Frequently Asked Questions
1. What is SEPA?
The Single Euro Payments Area (SEPA) is the area where citizens, business and public authorities can make and receive payments in euro under the same basic conditions, rights and obligations, regardless of their location.
SEPA1 is an initiative of the European Banking Industry and is strongly supported by the European Commission and the European Central Bank. SEPA will establish a set of uniform standards, rules and conditions for transactions in euro, allowing them to be processed as easily, safely and efficiently as operations within national markets. The objective of SEPA is to increase efficiency and competition so that high-quality and competitively priced electronic payment products exist throughout the whole of the EU.
In this way SEPA will create an EU-wide, integrated market for electronic retail payments in euro. Everyone making such payments will be affected. Nevertheless, the biggest impact of SEPA in the short-run is likely to be felt by people making euro payments cross-border.
In SEPA, there is no differentiation between national and cross-border euro payments and the whole of the EU (plus some countries outside) are considered as a single area for making electronic payments in euro. It is important to note that SEPA only covers euro payments. Payments in non-euro currencies are unaffected. Geographically, SEPA covers euro payments made in or between the 27 EU Member States plus Iceland, Liechtenstein, Norway, Switzerland and Monaco.
2. Why SEPA?
Euro notes and coins were introduced in 2002 and circulate freely throughout the euro area. However, this is not the case for electronic payments which are often a much more convenient and efficient way of paying. Retail electronic payments in euro are still organised at national level. This leads to varying technical standards, different payment instruments and separate processing infrastructures. This produces fragmentation at national level and results in lower efficiency, loss of economies of scale and less competition at EU level. In particular, cross-border payments are also more complex.
This means payments services in some Member States cost more than they should and makes life complicated for consumers and businesses operating cross-border. For example, companies with a substantial number of cross-border payments need to maintain bank accounts in many of the countries in which they operate just to allow them to manage the payments linked to their business operations in the Single Market. Similarly, individuals who for example live and work in more than one country are also often subject to different rules and requirements when making payments. For example, it is generally impossible2 to set up a direct debit making payments from your home bank account to a bank account in another country.
Other problems are that customers often face delays when making payments to other euro area countries and that there are big differences in the cost of basic bank accounts for payments services. A survey3 carried out for the European Commission showed that in the Netherlands, which is one of the Member States with the most competitively priced bank accounts for payment services, the cost of basic payment services is around a third of the EU average of EUR 112 whereas in the most expensive Member State, Italy, it was almost two and a half times more than the EU average. To illustrate the point, the average customer in Italy pays an average of about EUR 253 a year for basic banking services including payments while the average Dutch customer pays only EUR 46 a year.
SEPA concerns Euro payments in the whole EU (euro plus non-euro area) as well as 5 countries outside and therefore affects about 500 million citizens and many billions of electronic transactions. However, the focus of SEPA is on the euro area, since these countries use the euro for their domestic currency.
In 2006 the total number of non-cash transactions in the EU-16 was more than 72 billion, which generated EUR 46 billion in revenue for banks4.
The Euro area alone currently processes some 50 billion electronic retail transactions and up to four times more in cash each year. These are made by 321.5 million citizens, 16-18 million large and small businesses, some 8,000 banks, in 5.75 million points of sale and 293,008 ATMs or cash machines (based on statistical data in the ECB Blue Book).
In the Euro countries, the United Kingdom, Sweden, and Poland combined, businesses, public entities, and consumers spent EUR 158 billion on payments in 2006, representing 1.3% of GDP (estimated at 2.3% including cash)5.
A major study in 16 EU Member States including both Euro and non-Euro countries6 has estimated the potential benefits of SEPA for payments markets of up to EUR 123 billion (cumulative over 6 years)7. This corresponds to annual savings of 0.2% of GDP on average for these countries if SEPA is fully implemented8.
With SEPA, bank fees are expected to converge downwards, the faster SEPA becomes a reality, the faster this downward price convergence is expected to take place.
Credit transfers and direct debits amount to 52% of all payment related services9. The average annual number of payment transactions per capita in the EU10 is 150. There are big differences in the use of the different payment instruments. For example, 51 direct debits are made on average annually per capita in the Euro area whereas in Germany it is almost double at 97.
SEPA also holds a major potential for electronic invoicing or e-invoicing which is an automated way for suppliers and buyers to send, process, and collect invoices. SEPA, if fully implemented, could reduce the cost per electronic invoice to between EUR 0.28 and EUR 0.47, which corresponds to a reduction in cost of 70% to 75% as compared to paper invoices11.
The goal of SEPA is to create an integrated, competitive and innovative retail payments market for electronic Euro payments. SEPA will increase competition and should produce downward price pressure for retail banking payment services. Moreover, an efficient payments system is a pre-requisite for a properly functioning Single Market. It will thus facilitate trade within the internal market, improve financial integration and strengthen the European economy as a whole.
3. What about non Euro countries?
SEPA payments can be made to or from any Euro account that is held with a bank located in the SEPA area. It is not necessary that the payer and/or the recipient of the payment have an account in a SEPA country that has already adopted the Euro as its national currency. The key point is that the account should be denominated in Euro.
SEPA payments can be made by credit transfer, direct debit or using a bank card12.
4. What has been delivered so far?
SEPA requires the harmonisation of diverse national and cross-border euro payment systems, both at a technical level and in terms of customer services and procedures. To this end, the European banking industry has defined SEPA schemes for credit transfers and direct debits.
The SEPA Credit Transfer scheme was successfully launched on 28 January 2008. The SEPA Core Direct Debit scheme and the SEPA Business to Business Direct Debit scheme13 went live at the beginning of November 2009, aligned with the latest implementation date by all EU Member States for the EU Payment Services Directive into national law, i.e. 2 November 200914.
As of November 2009, banks are gradually rolling out SEPA Direct Debit services. Under Community law15, all banks in the euro area offering direct debit services today have to be reachable for the SEPA Core Direct Debit scheme since November 2010.
For payment cards, a SEPA Cards Framework has been agreed and is in the process of being implemented by banks, card schemes and card processors. The SEPA Cards Framework requires general purpose payment cards to have enhanced security features.
While significant progress has already been made on the road to SEPA, most stakeholders agree that regulatory intervention at EU level is necessary to bring this project to a successful end within a reasonable time frame. For example, although the SEPA Credit Transfer was launched almost 4 years ago, according to ECB data only about 21% of all credits transfers in the euro area were executed using a pan-European payment instrument. If this trend continues, the full benefits of SEPA will not be rapidly attained.
5. Who makes SEPA happen?
Banking industry: the European Payments Council (EPC) is the banking industry’s decision-making and coordination body in relation to SEPA payments and has established scheme rules for SEPA Credit Transfers and SEPA Direct Debits as well as a SEPA Cards Framework for card payments. Individual banks remain responsible for migrating their customers from existing national payment instruments to the new SEPA payment products.
Bank customers: SEPA will only succeed if customers – in particular, high-volume payment users such as businesses and public administrations – embrace the new SEPA payment instruments.
Public authorities: the European Commission, the European Central Bank and National Central Banks as well as the European Parliament and EU governments all support SEPA and the Payments Services Directive provides the legal foundation for SEPA. Through a variety of means including close market monitoring as well as migration by public authorities, they are encouraging bank customers to move to the new SEPA payment instruments.
To create a critical mass of SEPA payments, it is crucial that public administrations (e.g. national treasuries, tax offices, employment agencies or social security services) lead by example. The public sector is a major economic actor in its own right and accounts for up to 20% of electronic payments. Moving this volume of transactions to SEPA would encourage implementation by other high-volume users of electronic payments such as businesses (corporates, small and medium sized enterprises). The Commission also publishes a six-monthly survey on SEPA migration by public authorities to foster migration in the public sector. The latest survey16 shows that public authorities are now accelerating their migration to SPEA credit transfers and are not taking over the lead in some Member States. For example in June 2011 the migration rate for SEPA credit transfer by public authorities was 24.9%.
6. What are the benefits?
Payments will be faster: Electronic credit transfers in Euros will reach the beneficiary at the latest by the next business day17 from 1st January 2012 throughout the whole of the EU. The amount of the transfer will be immediately credited18 in full to the beneficiary account. The recipient bank will not be allowed to make use of value-dating techniques; i.e. the date on which money is credited to an account is also the date for calculating credit or debit interest.
Cross border direct debits will finally be possible: SEPA will also allow customers for the first time to set up cross-border direct debits in Euros throughout the whole of the EU19. Consumers will be able to rely on one bank account and one bank card to make payments throughout the 32 SEPA countries. Similarly, consumers wanting to purchase goods or services from retailers located in other SEPA countries will be able to do so with greater ease.
For consumers and citizens in their every day lives: The introduction of SEPA makes paying bills significantly easier for European citizens including workers, students, holiday rentals, tourists and retirees living abroad. All consumers will be able to rely on one home account and one payment card for all – domestic and cross-border – payments throughout SEPA.
For companies: The impact of SEPA on companies will be even greater since companies typically have more sophisticated payment arrangements than consumers. The benefits will depend very much on a company’s size, how it operates and the nature of the industry in which it competes. Businesses will enjoy common standards, faster settlement and simplified processing that will improve cash flow, reduce costs and facilitate access to new markets. There will be a wider choice of payment services providers, faster and more efficient processes as well as greater transparency. Over the medium term lower fees can also be expected.
Take for instance an import/export company in Germany. This company can substantially benefit from the ability to collect funds from debtors using a single, trusted payment instrument regardless of its location in Europe. For the German company this means it no longer needs to maintain some of their euro accounts abroad, and, since money transfers and payments will be settled faster, the company can optimise cash flow and treasury management20 as well as save through reduced banking fees. Large companies will be able to set up "payment factories" to efficiently organise and administer their Euro payments across a number of Member States.
According to 2008 figures from Capgemini, an IT services and business consultancy, a speedy changeover to SEPA could create added value for European economies of up to €123bn in payments markets alone with a further potential of € 238 bn of savings through e-invoicing over a six year period.
The European Commission expects SEPA to have an impact far beyond the payments industry and related government services. SEPA will be the platform upon which e-government solutions such as e-invoicing, e-procurements, e-payments, e-signatures and e-services in relation to taxation, customs and social security will be further developed.
SEPA will help drive technological innovation in payments which will allow Europeans to take advantage of new features such as online or mobile payments21. As a result, the process of paying bills will become even more convenient22. The common standards and rules underpinning SEPA will bring many strategic opportunities for banks to innovate, to develop new products, to replace ageing systems and to improve operational efficiencies. This can pave the way for other market players, such as telecom operators to become payment institutions and to expand into emerging payment markets like music and movie downloads via mobile invoices or other new innovative payment instruments. All of these will lead to an increasingly competitive payment market in the future.
Source: EPC- Making SEPA a reality: The definitive guide
7. Who will be impacted in the payments market?
Basically everyone who makes an electronic payment in Euros (i.e. a citizen, merchant, public administration and business) will be affected by SEPA, as will everyone in the payment supply chain (mainly banks, payments processors, clearing and settlement mechanisms).
How many Europeans are affected?
The objective of SEPA is to create an EU-wide integrated market for electronic retail payments in Euros, and therefore everyone making electronic payments in the euro area will be affected. Nevertheless, the biggest impact of SEPA in the short-run is likely to be felt by people or businesses making euro payments cross-border. European citizens are increasingly living, studying, retiring and holidaying abroad and trade within the Single Market continues to grow.
This means for instance that a Belgian citizen working in Finland will receive his salary in full on his Belgian bank account at the latest by the end of the next business day. A German family can pay their gas and electricity bills for their holiday home in Greece simply through a direct debit from their German account. A Slovak student on exchange in Italy can do all her payments effortlessly from her Slovak account. An Irish pensioner living in Spain can pay for the delivery of his daily home newspaper by easy direct debit from his Spanish account23.
With respect to EU trade, take, for instance, Germany where the amount of intra-EU exports and imports amounted to 559 and 459 billion EUR in 2006 respectively. Furthermore, intra-EU 27 trade (100 billion EUR) in 2006 is almost the double of extra-EU trade (50 billion EUR)24 [i.e. Germany trade much more with EU member states than third countries]. All export companies involved in intra-EU trade will see their euro payment operations greatly simplified by the implementation of SEPA. Similarly businesses operating in various Member States will also see big benefits.
In 2008 around 11.3 million EU citizens, or 2.3% of the overall EU population, lived in another Member State than that of which they were a national, according to Eurostat estimates. Over a million people cross a border every day for work.
Recent studies suggest that 10% of Europeans have lived and worked in another country (inside or outside the EU) at some point in their past. Three percent have lived in another country but did not work there, and one percent worked in another country before but did not live there.
Nearly two out of ten Europeans (17%) envisage working abroad at some time in the future. 12% of them are considering doing so in the next year, 47% in the next five years.
A majority of Europeans (60%) think that people moving within the EU is a good thing for European integration, 50% think it is a good thing for the labour market, and 47% think it is a good thing for the economy.
2.2 million students have participated in the ERASMUS exchange since it started in 1987, as well as 250 000 higher education teachers and other staff since 1997.
Most of these people have bank accounts and will need to make payments in more than one Member State. SEPA will make life easier.
In SEPA, consumers can rely on one bank account and one payment card to make Euro payments across 32 countries. When spending in other countries citizens can feel more secure, carry less cash and be less reliant on local ATMs. Their home payment card can be accepted for payments in any SEPA country and they will receive full details of any merchant currency conversion charges across SEPA.
8. Why do we need a SEPA migration end date?
Setting an end date provides legal certainty, encourages SEPA investment, avoids the cost of operating dual payments systems and brings forward the substantial future benefits of SEPA. While recognising progress, the latest data show that migration is still lagging behind. The monthly statistics25 prepared by the European Central Bank show that the SEPA format is only being used for one in five credit transfers. SEPA can only bring maximum benefits when all key stakeholders, such as the business community and public administrations, embrace it and commit to implementing the necessary changes.
Against this background a SEPA migration end date of 1 February 2014 has been set. That means that, with the exception of certain limited niche products26, migration to SEPA credit transfers and direct debits has to be completed by 1 February 2014 at the latest. This deadline provides for a reasonable transition period of about 2 years that allows customers and banks enough time to become familiar with SEPA and to make the necessary adjustments and investments.
Source: European Trend Survey – Banks and Future 201027
9. IBAN, the 'NOT SO' terrible
From a consumer viewpoint, the only real requirement for migrating to SEPA is to use IBAN (International Bank Account Number) instead of the domestic bank account number (BBAN) and the domestic bank sort or branch code, when identifying accounts for payment purposes. In addition for a temporary period (see below), consumers may need to provide the BIC (Business Identifier Code) but only where this is necessary. SEPA is an integrated payment system and therefore requires a common method for identifying bank accounts, namely IBAN, across countries.
IBAN is very straightforward and is built up in the same way for every Member State. Basically, it corresponds to the existing national bank account number and (sometimes) a national bank sort code preceded by two check digits and the international two character ISO (International Standards Organisation) country code (e.g. BE for Belgium). The major advantage of the two check digits is that it very substantially reduces the possibility of making a payment to the wrong account. So the IBAN increases payment security.
For example in Germany, the IBAN has 22 digits and is simply the bank account number (Kontonummer28 with 10 digits) and the bank sort code (Bankleitzahl with 8 digits), preceded by DE and the two check digits. This is shown in the diagram below.
Diagram showing how IBAN is constructed in Germany
In essence, only the two check digits, increasing security, are new in SEPA.
Strictly speaking, in some cases the BIC (8 to 11 characters) may also be required to be provided by users. However, after a limited transition period (1 February 2014 for national transactions and 1 February 2016 for cross-border transactions), even in these cases users will not be required to provide the BIC.
In the vast majority of cases, the BIC is not needed. For example in Belgium and Austria, already today banks automatically provide the BIC based on IBAN. This makes SEPA migration much easier for users. Therefore, to make migration as easy as possible for all users, the Regulation provides that banks may not ask payment service users to provide the BIC after 1 February 2014 for national transactions and after 1 February 2016 for cross-border transactions. This means that banks and other payment service providers will need to make the necessary arrangements by these dates so that users do not need to provide the BIC. Since making these arrangements may be complicated in a small number of Member States, the regulation provides for a Member State option to delay the date for national transactions from 1 February 2014 to 1 February 2016. However, in all cases by 1 February 2016 at the very latest, no user will have to provide the BIC.
Regarding the move over to IBAN, in practice, banks should adopt measures to make SEPA migration as easy as possible, especially for consumers. There is no reason that consumers should be subject to any complicated form filling. Examples are:
In 2009 most non-cash transactions in Germany were made by means of direct debit (50%) which does not require input of the relevant account number for each transaction. A further 35% of payments were made up of credit transfers either in the form of standing orders or at the ATM (automated teller machine) where the customer’s own account number is inserted automatically. Consequently for the vast bulk of transactions, consumers will not be burdened by new requirements or changes in the way they make non-cash payments30.
Overall, the experience up until now shows that it is possible to successfully migrate to SEPA and IBAN. In some countries, such migration has already been completed e.g. Luxembourg, Italy, Greece and Slovenia. In other countries such as Italy and Belgium and Malta, IBAN is already being increasingly used as the identification number in domestic payment transactions.
10. Why are per transaction interchange fees for SEPA direct debits prohibited but accepted for failed transactions?
Currently the banking systems in six Member States (Spain, France, Sweden, Belgium, Portugal and Italy) have agreed that the bank of the payee (for instance the utility company) will pay the bank of the payer (i.e., the consumer) a hidden fee whenever there is a direct debit transaction. These are called multilateral interchange fees (MIF). As they are agreed collectively between banks and have an impact on prices, these multilateral interchange fees raise concerns about their effect on competition.
The usual justification from banks in these six Member States is that these fees are needed to encourage payers to use direct debit which are very attractive to payees and to keep costs down for payers.
However, the Commission has not seen sufficient evidence to support this. First, the direct debit system in the other 21 Member States does not require per transaction MIF and Member States, where direct debits are most used, do not have a per transaction MIF. Secondly, the Member States where there is that kind of interchange fee do not appear to have lower customer fees for direct debits or lower bank charges in general. So there is no visible consumer benefit generated by per transaction MIF.
Prohibiting multilateral interchange fees per transaction will make the costs of the direct debit system more transparent. If payers are reluctant to use the system, payees who normally have a long-term business relationship with their direct debit customers are well-placed to offer them incentives directly to use a direct debit. For example, some utility companies already offer their clients a discount on their bills if they accept a direct debit.
However, multilateral interchange fees for failed transactions can help to improve the efficiency of the direct debit system and will therefore be kept. They ensure that those responsible for the failure of the transaction assume the responsibility.
11. Does the requirement, that interchange fees for rejected direct debit transactions be aimed at allocating costs to the party that has caused the error, mean that inter bank fees can go in two directions, dependent on which bank made the error?
The participant banks have the possibility to arrange the system in the way they deem suitable provided that the amount of the interchange fees is based on a collective arrangement aimed at efficiently allocating costs to the party that has caused the error. However, the allocation of costs for errors may also be realised by practical solutions, taking into account the functioning of the arrangement, the possibilities for parties to obtain compensation for damages and the stream of costs and revenues between the parties.
12. What are the most important dates for the SEPA migration?
The table below provides an overview of the most important dates for SEPA migration fixed by the Regulation:
More information on SEPA is available at:
In some exceptional cases some banks have set up a direct debit between Germany and Austria.
Van Dijk Management Consultants study for the European Commission, 2009.
SEPA Cap Gemini study (p. 8)
SEPA Cap Gemini study (p. 4). See http://ec.Europa.eu/internal_market/payments/sepa/ec_en.htm#next_steps
These countries are Austria, Belgium, Germany, Spain, Finland, France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Poland, Portugal, Sweden, Slovenia and the United Kingdom.
The ‘net SEPA effect’ is defined as the logical sum of the necessary investments, change in operational costs, and change in bank fees.
SEPA Cap Gemini study (p. 5)
Preparing the Monitoring of the Impact of the Single Euro Payment Area (SEPA) on Consumers, DG Health and Consumers.
Study "Data collection for prices of current accounts provided to consumers" DG SANCO
SEPA Cap Gemini study (pp. 28)
SEPA for Consumers (pp. 6). http://www.Europeanpaymentscouncil.eu
Making SEPA a reality: The definitive guide (pp. 16-23). See http://www.europeanpaymentscouncil.eu/knowledge_bank_detail.cfm?documents_id=183
Payments Service Directive – See http://ec.europa.eu/internal_market/payments/framework/index_en.htm
Before 2012 within a maximum of three business days
Not be subject to fees or deductions.
Euro accounts must be reachable from 1 November 2010 in the euro area, and in the non-euro area from 1 November 2014. This only applies to euro accounts allowing consumer direct debits.
Making SEPA a reality: The definitive guide (pp. 23 – SEPA Business to Business scheme).
European Trend Survey – Banks and Future 2010 (pp. 14, 17-19)
The banking industry is already developing an e-SEPA capability, which will rely on processes such as electronic invoicing.
SEPA Direct Debit for Consumers - A convenient and secure way to make payments.
External and intra-European Union trade Statistical yearbook — Data 1958-2006 (pp. 220)
Member States may delay the migration of certain niche products until 1 February 2016, but such niche products must have a market share less than 10%.
European Trend Survey – Banks and Future 2010 (pp. 11). See http://www.Europeanpaymentscouncil.eu/
In some exceptional cases, the Kontonummer and Bankleitzahl can have less characters. In this case zeroes are simply inserted for the missing characters.
SEPA: Smart Easy – Perfectly Adequate. See http://www.dbresearch.com/