Despite the introduction of a single currency, the European Union still faces fragmented payments markets and a wide variety of national payment standards and regulations, products, processing methods and infrastructures, leading to inconsistency and inefficiencies.

The introduction of the Single Euro Payments Area (SEPA) from 1 January 2008 will create a single, integrated pan-European market for euro payment services. Companies and consumers will be able to make and receive payments in euro throughout Europe as conveniently, securely and cost-efficiently as domestic payments within national boundaries today.

New cross-border payments instruments – credit transfers, direct debits and card payments – will be created. These will be introduced from January 2008 and to begin with will operate alongside existing domestic schemes. By the end of 2010, a critical mass of payments is expected to migrate to the new instruments.

The countries so far involved in SEPA are the EU member states, plus Switzerland, Iceland, Liechtenstein and Norway.

The technical framework is being established by the European Payments Council (EPC) which represents the banking community. In parallel, the European Commission is setting up a harmonised legal framework (Payment Services Directive or PSD) that will remove the legal barriers to the creation of SEPA. The PSD is scheduled to be approved in 2007.

SEPA will offer potential benefits to most businesses. Adopting SEPA credit transfers will make it as simple to pay suppliers abroad as it is to buy goods or services in your own country. 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.