Frequently Asked Questions | |
|
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 EU members 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. For larger companies, SEPA will create opportunities by improving end-to-end automated (straight-through-processing) of payments and by facilitating inter-country business.
Will SEPA make cross-border selling easier ?
Internationally oriented companies are currently obliged to maintain accounts and internal system interfaces for each domestic market.
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 a uniform standard to process direct debit payments. Your collections in the euro-zone should become easier once you start using direct debits in a standard format, with single value dating, uniform reporting and the possibility to reduce the number of bank relationships.
This will make inter-country trade easier and is therefore expected to strengthen the competitive position of European companies on the international scene.
What will actually happen in 2008 ?
Several local banking communities are committed to offering access to SEPA payment instruments that can be used both nationally and within SEPA from January 2008 onwards. However, banks in all SEPA countries must be ‘reachable ’ from that date – that is, they must all be able to process SEPA payments originating from other countries.
In practice, national payment instruments will co-exist alongside the new SEPA instruments for some time after pan-European products become available. Critical mass migration to the pan-European SEPA instruments is expected to be achieved by the end of 2010.
From the beginning of 2008 Fortis will start offering the new SEPA instruments in several countries.
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.
Is it necessary for my company to start preparing for SEPA in the near future ?
You will have to determine when it is the most expedient for you to start using SEPA credit transfers and direct debits during the 2008-2010 transition period.
You may choose not to start using SEPA products actively from January 2008, but you will have to consider that some of your customers and suppliers may decide not to wait …
Since 1 January 2007, euro cross-border payments which do not contain a valid IBAN and BIC (unique international identifiers for an account and a bank) may be rejected and/or banks may charge a fee. This means that you should replace the account data in your client and supplier databases. IBAN and BIC should be mentioned on all invoices.
As a client-focused bank, Fortis will not reject payment instructions without IBAN/BIC. Nevertheless, we strongly advise you to always quote the IBAN and BIC in order to be certain that your payment instructions are carried out with optimum speed and reliability.
Many companies are likely to see SEPA as an opportunity for streamlining their back-office organisation and financial strategy. But that does not necessarily
mean that you will have to dramatically change your infrastructures. In many cases, optimising your existing processes and converting to the new payment formats may be enough to reap the benefits of SEPA.
Last but not least, your staff will need some training in order to become familiar with the new SEPA environment.
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 and irrespective of the European currency used.
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.
Each bank will determine to which extent and from which date it will start processing SEPA payments originating from and/or receivable into non-euro accounts.
SEPA deals with pan-European credit transfers, direct debits and card payments. What about cheques, bills of exchange and cash?
SEPA aims to cover end-to-end straight-through-processing of payments. Hence, cheques and bills of exchange are not regarded as SEPA instruments.
By promoting electronic instruments, SEPA could also help push users away 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.
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 local electronic payment products still be necessary ? Is it realistic to believe that the existing local systems will be totally discontinued by the end of 2010 ?
Changes to fundamental infrastructure such as payments systems, with numerous parties involved, will require adequate coordination, both locally and internationally. Furthermore, some countries may be reluctant to counter the dynamics of some existing payment systems and local market practice. For instance, some countries still heavily use cheques and cash.
Nevertheless, ambitious timelines with critical milestones in 2008 and 2010 have been set.
One may assume that there will be challenges in markets with old legacy systems that need to be upgraded or replaced, and considerable investment will be required. That won’t happen overnight. However, the overriding majority of the work that needs to be done should have happened by the end of 2010 and at that point of time, it is assumed that critical mass migration to the SEPA schemes will have been reached.
Will companies need to maintain multiple local accounts in the new SEPA environment ?
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.
There is no major pan-European (PE) automated clearing house (ACH) today and business models are still evolving. Will there be a fully operational PE-ACH by 2008 ?
Yes, based on the announced intentions of the European Banking Association, the STEP2 platform will become operational and will be able to process SEPA direct debits and SEPA credit transfers from 1 January 2008.
Economies of scale will become more important in the clearing & settlement sector. The end result may be a consolidation to a comparatively small number of large processors in Europe.
Is the timetable for the achievement of SEPA not under pressure ?
Looking ahead to the migration period from 2008 to 2010, the European banks have committed to deliver the technical framework that will underpin the SEPA scheme on time.
However, the final version of the Payment Services Directive (PSD) is not expected to be adopted before the first quarter of 2007. Bearing in mind that the PSD will also need to come into force in the respective SEPA countries, the legislative stage of SEPA could slip beyond 1 January 2008.
In addition, faster progress should be made in the transition from national to pan-European automated clearing houses.
The success of SEPA depends on cooperation between the many parties involved - European and national government bodies, banks, companies, payment system operators (clearing houses), system and software vendors, supervisory and regulatory authorities,…
However, the ambitious SEPA project is clearly gaining momentum and the current hurdles should be cleared in the coming months. By 2010, a critical mass of corporate and retail clients is expected to be using the new European instruments, gradually replacing the need for domestic schemes.
