Banks and other financial services providers must implement a single European payment area (SEPA) by 2014 following a deal reached yesterday (20 December) by the European Parliament and EU member state representatives.

SEPA will replace 32 separate payment regimes with a single one, enabling faster and cheaper cross-border payments throughout the EU. The measure is expected to save individuals and businesses €123 billion within six years.

The regulation had been agreed in principle but the finer details were contested. Those details included key issues surrounding the deadline by which European banks will have to introduce the new system and whether old systems will continue to operate simultaneously.

Banks must introduce the ‘single area’ by 2014

The European Parliament insisted on a single deadline on 1 February 2014 for all payments – both credit transfers and direct debits – arguing this would make the shift to the new system easier for consumers to understand.

Parliament's economic and monetary affairs committee (ECON) yesterday approved the agreement after clinching the final details in negotiations with the member states in the EU Council of Ministers.

Parliament's negotiators sought to stifle bank attempts to maintain different charges for cross-border direct debt transactions after the introduction of SEPA, ensuring that all EU businesses can guarantee they will pay the same for transactions wherever they are based.

Under the new system, businesses could set up cross-border direct debits in euro between any two bank accounts anywhere in the EU, enabling them to bill customers regularly across borders.

Competition expected to bring down prices

Individuals moving between the 27 EU countries will be able to use a single euro account, into which a salary earned in another country could be paid. They could also pay bills in one country through an account held in another.

It is anticipated that international competition among service providers will drive down prices.

The deal still requires final approval by the full Parliament and the Council in the new year, but that should be a matter of formality.

The agreement was a “vote of confidence in the euro”, according to the chair of the economic and monetary affairs committee, UK Liberal Democrat MEP Sharon Bowles.

“What today's agreement shows is that even as we grapple with the crisis, the EU institutions continue to work diligently to deepen the internal market in financial services, with the euro at its core,” Bowles said.