SEPA – Making European payments simple
Historically the European payments landscape was a plethora of national payments systems each with their own rules, message standards and cut-off times. Making cross border payments was both a costly and time consuming process. With the advent of the Euro a vision was born to create within Europe what has become known as the Single European Payments Area (SEPA). This enabled Europe to become a single domestic area where payments between countries are effected according to the same timeframes and standards as those within the countries.
European Payments Council- Making SEPA a reality
In order to make this happen the banking community came together to create the European Payments Council (EPC). Composed of 76 members the main aim of the EPC is to make SEPA a reality and in order to do that it created a series of schemes covering different payment instruments. Each scheme is covered by a rulebook which sets out the technical rules and business standards that members have to observe in order to process euro payments in the EU/EEA. These rules and standards cover areas such as:
- NMaximum execution times
- NCharging practices
- NTechnical message standards
- NException processing (eg process for rejecting/recalling payments)
The main SEPA payment schemes are
SEPA Credit Transfer
SEPA Instant Credit Transfer
SEPA Direct Debit
Most banks in Europe are members of these schemes and are therefore able to offer their customers a highly efficient and cheap pan European payments service. As an example of efficiency the SEPA Credit Transfer scheme mandates that funds must be remitted to a beneficiary one business day after the remitting bank receives the payment instruction. In the case of the SEPA Instant Credit Transfer scheme the same payment must be affected in 10 seconds (this scheme is subject to a maximum cap of €100,000).
Requirements for joining a SEPA scheme
Payment and E-Money institutions need to meet the following EPC requirements in order to join any of the schemes:
- NDemonstrate they are active in providing payment accounts and hold funds for customers or make them available when they come in.
- NHave direct access to a European clearing and settlement system either directly or via an existing participant in the system.
- NBe licensed by a SEPA recognised body or be licensed within a SEPA country.
- NDemonstrate that they can settle debts as they become due. This may involve showing annual accounts that are less than one year old or a signed letter from the auditor saying that these debts can be met.
- NObtain a Bank Identification Code (BIC) from the SWIFT financial messaging network.
- NBe able to be receive and process SEPA transactions.
SEPA scheme members will also need to complete a document pack for the EPC which will include an adherence agreement and a legal opinion. One set of documents has to be completed for each scheme that is joined.
At the present time payment and E-money institutions are not able to join any of the Euro clearing and settlement systems directly and so will need to go via a participant. Indeed institutions may also choose to appoint a bank as their correspondent and avoid having to sign up to the schemes. In this scenario they will have to ensure that they agree proper SEPA terms and conditions with their chosen provider.
Considerations for offering SEPA payment services
- Which scheme is needed for customer requirements?
- How will the chosen scheme impact current business model and that of clients?
- What will be the impact on operational and technological processes?
- Which access model is required, i.e. indirect participant or correspondent banking route.
- Cost of the access model. Providers normally charge a mixture of transaction and account maintenance fees which invariably are driven by volume. Gateways into the providers will also have to be either built or purchased.
Payment and E-money institutions will need to carefully address these and other questions as they seek to choose the best SEPA solution for their needs.
Here at AuthoriPay we have extensive knowledge of the SEPA payments landscape and the steps that need to be taken in order to join any of the schemes as well as the practical implications for our clients. We would be delighted to work with you and advise on the optimum approach for your firm.