Frequently Asked Questions | |
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What advantages can your business expect from the Single Euro Payments Area (SEPA) ?
SEPA will gradually replace the wide range of different national payment instruments with common, standardised European-wide ones for both domestic and cross-border usage in the SEPA countries – involving the 27 EU member states plus Iceland, Liechtenstein, Norway and Switzerland.
In the long run, the integrated euro payments landscape is expected to produce benefits for all users of payment services through higher convenience, increased transparency and reduced processing costs for cross-border payments through enhanced end-to-end fully automated (straight-through) processing.
Adopting SEPA credit transfers will make it as simple to pay suppliers abroad as it is to buy goods or services domestically. Your company may also enjoy enhanced opportunities to penetrate foreign markets by using (uniform) SEPA direct debit payments for your collections throughout Europe from 2009.
In one word, SEPA is expected to make inter-country trade easier and is therefore expected to strengthen the competitive position of European companies on the international scene.
How soon should you start preparing for SEPA ?
SEPA credit transfers will initially, from January 2008, run alongside existing national instruments. Full migration to SEPA is envisaged for the end of 2010 or even beyond, when all purely national schemes will cease to exist. The transition period could make it tempting to adopt a ‘wait-and-see’ attitude. This strategy carries considerable risk, however. The sooner you begin to assess which processes will be impacted by SEPA and how your business case can be improved, the sooner you can decide it is in your interest to be an early adopter.
Actually, there are several reasons why many companies are looking to begin transition to SEPA as soon as possible. First of all, their customers might decide to shift their payments to the SEPA system early. If their systems are not yet SEPA compatible, this might impact on their reconciliation process. Secondly, to handle the switch to SEPA efficiently, companies will need to prepare their administrative staff. Training demands should be considered at an early stage. Third, a company might want to analyse how SEPA will affect not only its financial chain and its cash and credit management, its IT capabilities and its human resources operations but possibly also its (physical) supply chain.
One thing is certain : SEPA provides corporates with a unique opportunity to review the way they do business.
Fortis has a thorough understanding of what SEPA means to its customers. We have a European-wide banking network, and will have the capability to support both the new SEPA instruments and the existing local formats. Fortis has developed state-of-the art, cross-border, payments processing platforms, with straight-through-processing rates which are amongst the highest in the world.
In other words, Fortis is excellently placed to help you prepare for the introduction of SEPA within your own timeframe. We can help you analyse which areas of their business will be affected, the opportunities that might arise from SEPA and how best to approach the adjustment processes. Working in close consultation with you and based on the type of business you are in, your Fortis relationship manage is ready to help you ensure a seamless transition to SEPA.
What will actually happen in 2008 ?
28 January 2008 will see the launch of the SEPA credit transfer, a crucial milestone in the building of SEPA. All banks in Europe, large and small, should be ‘reachable’ by then. More precisely, those banks (including Fortis) whose payment volumes make up the critical mass of payments should be capable of both sending and receiving SEPA credit transfers by then. The remaining, smaller, banks are only expected to receive SEPA credit transfers from January 2008 and should be able to send them in the course of 2008.
The core idea behind SEPA is that any payment should be able to be treated throughout Europe as if it were a national payment.
There will be several differences as compared with the current instruments. The most significant change involves the mandatory use of the BIC (bank identifier code) and IBAN (international bank account number). On 1 January 2007, the BIC and IBAN became compulsory for cross-border euro payments within the EU and this will now also apply to ‘domestic’ SEPA credit transfers, where both the payer and the payee are located in the same country.
In practice, customers across SEPA will be offered both existing national instruments and the new SEPA credit transfer, with a critical mass of SEPA payments expected to be reached by the end of 2010.
Initially, only a small part of the current domestic transfers is expected to become SEPA compliant in 2008. In fact, the SEPA credit transfer will only truly come into the picture once the large billers (such as telecom operators) begin using it.
Critical mass migration to the pan-European SEPA instruments is expected to be achieved by the end of 2010.
During the 2008-2010 transition period, Fortis will continue to support national payment instruments and protocols in every country in which it operates. This means that Fortis clients will enjoy full continuity with their current payment environment.
What about direct debits ?
The Payments Services Directive (PSD) will provide the legal foundation for, amongst others, the SEPA direct debits, replacing domestic legislation. Direct debits are the payment instrument with the most diverse characteristics in the various countries, governed as they are by local regulations and banking practices.
Therefore, the SEPA direct debit will not have legal certainty until the PSD is ratified by EU member countries participating in the new scheme. Transposition of the PSD into the EU member states’ national law must take place on 1 November 2009 at the latest.
The PSD was initially scheduled to be implemented before the start of SEPA in January 2008. As a result of the delayed adoption of the PSD, SEPA direct debits will not be launched on a euro-wide basis before November 2009. However, local banking communities may opt to introduce the SEPA direct debit earlier. In the interim, companies can continue using local direct debit instruments.
From 2009, Fortis will be ready to support SEPA direct debit schemes depending on the acceptance of the scheme by a banking community and its legal underpinning at that point in time.
What about card payments ?
Based on a decision by the European Payments Council, the European banking industry’s self-regulatory and coordinating body for the payments sector, banks in the SEPA countries should stop issuing magnetic stripe cards by January 2008. Most SEPA countries are expected to phase out magnetic stripe cards by the end of 2010 in favour of the EMV chip standard. Originally developed by Europay/MasterCard and Visa, EMV is now recognised as the common standard within Europe.
Within SEPA, the use of EMV and the Personal Identification Number (PIN) security standard will be mandatory. In addition to achieving full interoperability, one major objective is to combat card fraud. Most point-of-sale terminals are expected to be
EMV compliant by January 2008, and all should be capable of accepting EMV cards by the end of 2010.
What is actually the purpose of the Payment Services Directive ?
In parallel with the banks’ self-regulatory initiative to define pan-European electronic payment instruments in euros (SEPA / European credit transfer, direct debit, card-payment scheme), the European Commission has been working on the harmonisation of the legal framework for all payments with a EU bank.
The Payment Services Directive (PSD) will provide the legal foundation for the creation of an EU-wide single market for payments in euros and other EU currencies.
In the European Union’s view, the PSD will improve competition by opening up the payment markets to new entrants (non-bank ‘payment institutions’) while reinforcing the rights and protection of users of payment services.
The directive focuses on payments (not only SEPA products but also existing instruments, excluding cheques and drafts) made in any EU currency (not only in euros), where the payment service provider or both of them (the payer’s and the payee’s) are located in the EU.
The PSD was adopted by the European Parliament in April 2007 and by the European Council in October. The PSD must now be transposed into national law in each EU member state by 1 November 2009 at the latest.
SEPA covers pan-European credit transfers, direct debits and card payments. What about cheques and bills of exchange ?
SEPA aims to cover end-to-end straight-through-processing of electronic payments. Hence, cheques and bills of exchange are not regarded as SEPA instruments.
By promoting electronic instruments, SEPA could also help to divert users from cash, an expensive means of payment which still represents a huge percentage of retail transactions. Innovative solutions are expected to be implemented in the coming months and years to replace cash with more efficient instruments. One may expect that new product initiatives will be brought to the retail market to stimulate consumer card usage.
SEPA covers euro payments. What will happen to other currencies ?
The Payment Services Directive (PSD) will remove the legal barriers to the harmonisation of the ways in which electronic transfers in euro and in the other currencies of the European Union are processed. Once the PSD is approved and translated into national laws, companies and consumers can expect the same service level on all their electronic transfers across the EU.
Under the SEPA scheme, all transactions must be in euro and will be processed in euro throughout the whole chain (from the initiation of a payment through its reception by the customer). However, the originator account and/or the beneficiary account may be in euro or in any other local European currency.
What about the pricing ?
Payments made using SEPA instruments should be charged by banks at the same rate as domestic transactions, regardless of whether they cross a national border, within the limits set by the Payment Services Directive and other European regulations (currently, maximum EUR 50,000).
But payment pricing will vary between banks and countries depending on the value-added services banks will be able to offer and the current fee structures for local transactions. Under SEPA, using standard electronic formats across the euro-zone can significantly lower processing costs for cross-border payments.
Will you need to maintain multiple local accounts ?
SEPA will create the conditions for rationalising payment traffic. Multinational companies currently operate as multiple domestic entities, duplicating their payments and collections arrangements. An alternative is to consider centralising accounts payable and accounts receivable for improved efficiency.
There are, however, several good reasons to maintain accounts in the different countries where your payments actually take place :
- The standardised SEPA products will not cover cheques, bills of exchange and country-specific instruments
- Some customers may be reluctant to pay into a non-domestic account
- Local regulations can also be a reason for maintaining accounts in a given country.
