Unfinished business

So you think that the Euro changeover was completed a few years ago.  Think again – we are only halfway there.  A currency is a means whereby you can buy goods and services with equal ease throughout the territory for which the currency applies.  Try to pay an invoice from Germany out of your Irish bank account.  Try to pay the Spanish electricity bill – It’s very difficult.  Use your Laser card to buy a shirt in Austria and you’ll be rejected in many cases. 

This will change under SEPA.

What is SEPA?

SEPA (Single Euro Payments Area) is a name variously given to:-

• a concept for the future of the Euro currency, or to
• a specific and limited project of the European banking industry to deliver some elements of that concept.

The SEPA Vision

Banking before SEPA	Banking after SEPA
National and local schemes, systems which differ from country to country	Common schemes and systems across the SEPA countries
Different standards, legislation	Common core payment instruments, consistent standards, harmonised consumer protection legislation
Different customer experience in each country	Same customer experience in each country
Poor links between countries	Effective links between countries
Cross-border complexity, delays, risk	Cross-border reduced complexity, improved efficiency Credits delivered next day or better
Trading in multiple euro markets requires accounts in each country	Trading in multiple markets requires one account

The SEPA concept

Everywhere else in the world, a currency is normally attached to a country.  Within the country, the banks are linked and operate to uniform standards, so that payments can easily be made throughout the country. 

Europe is different. A recently-established currency is shared by 17 countries, and the Eurozone will expand further. Within the Eurozone the banking networks of the separate countries are not linked, and they do not operate to uniform standards, and so although payments within each of the 17 Eurozone states are cleared easily and efficiently, payments across national borders are not.  Overlaid upon this are the SEPA Credit Transfer Scheme, the SEPA Direct Debit Scheme, and the SEPA Cards Framework.  Eurozone is likened to an archipelago of independent banking islands among which a network of bridges are developing.

So the Eurozone is currently operating on dual systems.  The traditional older systems will be phased out in favour of the newer SEPA systems, not only for cross-border payments, but in fact for all payments.

The SEPA concept is that within the Eurozone, payments across national borders should be as easy as payments within those boundaries; and as a result, one would require just one bank account within the Eurozone to conduct business throughout the zone.  The potential benefits of the SEPA concept are not universally accepted, and are frequently challenged by the banking industry.  The supporters of SEPA say that, if achieved, the SEPA concept should lead to:

•    Eurozone-wide competition on current accounts between banks leading to:

o    Lower charges
o    Improved services
o    Opportunity for use of innovative technologies
o    Banks are likely to use competition on current accounts to seek to capture the whole range of banking services for corporate customers

•    Efficiencies within the banking industry

o    Economies of scale in the wider Eurozone market

•    Improved internal efficiencies  within businesses arising from:-

o    Opportunity to manage accounts and funds more effectively
o    Standardised processes across borders
o    Innovative services including electronic bill presentment and payment

•    Significantly improved status for the Euro as a currency

o    No other currency in the world has differing and incompatible banking standards within its territory

•     Eurozone-wide competition for many services which are currently difficult to sell across borders:-

o    Services dependent upon regular payments e.g. insurance, pensions, savings products, loans.

The SEPA project

The SEPA project was created to deliver a series of commitments given by the banking industry as represented through the European Payments Council (EPC) to the EU Commission.  These commitments were to deliver certain components of the SEPA concept according to an agreed schedule.  While these commitments were given voluntarily, it is clear that if such commitments had not been forthcoming, the Commission would have used appropriate legislation to ensure a delivery, and the banks appear to believe that the terms of such legislation might have been even less acceptable to them.

The original commitment was in summary:-

• The end of 2010 was regarded as a key date when significant progress will have been achieved
• Domestic or national credit transfer systems should transfer to the unified standard
• Domestic or national direct debit systems should transfer to the standardised Eurozone direct debit
• National card brands (Laser in the case of Ireland) should be fully phased out in favour of a Eurozone debit card
• Infrastructures, including clearing systems, to facilitate the above should be constructed and/or expanded as appropriate to facilitate the above
• Clearly, those dates have slipped but the overall idea is retained

Latest SEPA Indicators (Nov 2010)

The following indicators are for Eurozone countries

SEPA credit transfers as % of total transactions 10.4 %

SEPA direct debit as % of total transactions       0.08%