SEPA covers three pan-European payment instruments:

• credit transfers
• direct debits
• card payments

SEPA aims to cover end-to-end straight-through processing of payments. Cheques and bills of exchange are therefore not covered by SEPA.

SEPA credit transfers
From 28 January 2008, the SEPA credit transfer will gradually replace the wide variety of existing local schemes, both for domestic and for cross-border euro payments throughout Europe. Companies will derive many benefits from the new instrument, which will be processed faster and much more transparently.

Pricing and fee structures will be clearer, with payments made gross and fees charged separately rather than as deductions from the amount transferred. Payment initiation, corrections and reconciliation in a straight-through processing mode will be enhanced by the use of uniform SEPA standards (see below). Processing time will not exceed three days, with this being reduced to a maximum of one day by 2012.

SEPA direct debits
As a payment instrument for the entire euro-zone, the SEPA direct debit will mark a significant shift from the current diversity of national schemes. It is also a major step forward for cross-border collections, as no standardised product is currently available for direct debits in Europe.

As with the SEPA credit transfer, the pan-European direct debit format will eventually replace current direct debit schemes.

The SEPA direct debit will be based on a four-party model: the debtor, the creditor, the debtor’s bank and the creditor’s bank.

The debtor (your client as buyer) issues a mandate to the creditor (your company as supplier), enabling the latter to instruct one-off or recurrent euro payments from the debtor’s account.

• One of the main differences with a number of existing local schemes in Europe is that the SEPA direct debit mandate will be concluded between the debtor and the creditor, instead of between the debtor and his bank. The creditor will be responsible for managing the mandates.
• The debtor will be entitled to obtain a refund within six weeks from the debit (due) date.
• The debtor can always refuse a direct debit before execution.
• The debtor can ask for refund within 12 months for unauthorised transactions,for instance, if the mandate is not valid.
• As a creditor, you can present all your collection files to a single bank in any SEPA country. These files may include debtors holding accounts in other SEPA countries.
• Uniform and detailed rules for ‘reject’ and ‘return’ events will be introduced.

The European Payments Council is currently working to integrate specific business-to-business (B2B) features in SEPA direct debits, including a shorter execution cycle, non-refundable collection and explicit checking of the mandate for each collection.

Direct debits vary considerably from country to country. Therefore, the SEPA direct debit will not have legal certainty until the Payment Services Directive (PSD) – which will provide the legal foundation for harmonised payment instruments in the EU – has been transposed by the EU member states into national law (by 1 November 2009 at the latest.

Card payments
Based on a decision by the European Payments Council, banks in the SEPA countries should stop issuing magnetic-stripe cards by 1 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 of the Personal Identification Number (PIN) security standard will be mandatory to cut cross-border and domestic card fraud.

Most point-of-sales terminals are expected to be EMV-compliant by January 2008, and all should be capable of accepting EMV cards by the end of 2010.