This article is part of our special report SME’s Access to Finance.
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.
“The SEPA is a fundamental element of internal markets. The internal market cannot function well without SEPA. Moreover SEPA will provide the basis for other developments in the single market,” said Finnish MEP Sari Essayah (European People’s Party), who worked as the rapporteur on the issue.
“The advantages of the changeover are manifold and will benefit all actors involved. European citizens including workers, students, holiday owners, tourists and retirees living abroad will be able to rely on one bank account to make credit transfers and direct debits throughout the 32 SEPA countries,” said Internal Market Commissioner Michel Barnier.
The Single European Payments Area (SEPA) is an initiative to create a zone in which all electronic payments are considered domestic.
Discussions on SEPA began in 1999 with the adoption of the euro. It was launched in 2008 and was supposed to be adopted by banks and corporations voluntarily.
Proponents say SEPA, by replacing 32 different payment systems in operation in the EU, will ease cross-border payments, save consumers money, and provide substantial benefits for e-commerce and tourism.
However, to this day, only about 15% of credit transfer operations and less than 1% of direct debit operations are done through SEPA.
While significant savings could be achieved through 'network' effects if all banks switched over, they are reluctant to take on the costs of the initial switchover.
Indeed, SEPA can be an additional administrative and financial burden for a bank if it must maintain old systems in parallel.
In December 2010 the European Commission made its proposal to establish binding deadlines for the replacement of existing transfer systems with SEPA.
- 2012: Final Parliamentary and Council ratification of the Single European Payments Area.
- 1 Feb. 2014: SEPA comes into force.
EU official documents
- European CommissionStatement by Commissioner Michel Barnier welcoming agreement by Council and Parliament establishing SEPA migration end-dates
- European ParliamentPress release: Cheaper, faster and safer cross-border payment services
- European CommissionFull SEPA (Single Euro Payments Area) Migration - Frequently Asked Questions
Industry federations and trade unions
- European Payments Council SEPA – Vision and Goals