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Questions and answers on SEPA

What is the “Single Euro Payments Area” (SEPA)?

The introduction of the euro has helped to make a cash payment anywhere in the euro area just as easy as at home. But until recently it was not so easy to pay for goods or services electronically in another euro area country, for example with your bank debit card - a means of payment favoured by many Europeans today. And when you wanted to transfer money from your home bank account to an account in another euro area country, the payment could take much longer, and sometimes the beneficiary did not get the full amount.

The Single Euro Payments Area (or “SEPA” for short) changed all this. It made all electronic payments in the euro area as easy as cash payments. You can make fast and secure transfers between bank accounts anywhere in the euro area. And if you are shopping abroad, you can also use your bank debit card to make a payment in euro, as you would in your home country.

SEPA is where more than 500 million citizens, over 20 million businesses and European public authorities can make and receive payments in euro under the same basic conditions, rights and obligations, regardless of their location.

It also means better banking services for all: transparent pricing, valuable guarantees ensuring that your payments are received promptly and in full, and banks assuming responsibility if something goes wrong with your payment.

The SEPA Regulation (EC 260/2012) adopted in 2012, aims to create true European Single Market for retail payments. The SEPA Regulation sets 1 February 2014 as the date at which all credit transfers and direct debits in euro will be made under the same format: SEPA Credit Transfers and SEPA Direct Debits.

I have a personal bank account in the euro area. What will SEPA mean for me?

First of all, let's be clear that SEPA won't be like the introduction of the euro, which had a big impact on all our daily lives. In fact, the changeover to SEPA should be as seamless and as smooth as possible. For most people, it will simply mean that your ability to make payments in the euro area will significantly improve once your bank has made the changeover to SEPA.

Nevertheless, there may be some changes that affect you directly. It is possible that your bank account number will have to be extended or slightly altered to ensure compatibility with the common scheme across the euro area. However, these changes should be carried out for you automatically by your bank.

The introduction of SEPA will give you the following advantages:

Use your debit card anywhere in the euro area: when you're on holiday or visiting another euro area country, you will be able to pay with your debit card as you would at home. This is particularly useful if you do not have a credit card, or for making low-value purchases for which a credit card is often not accepted. Nor will you need to carry around lots of cash, since you will be able to use your debit card anywhere at anytime, and to make withdrawals from cash machines, just as if you were at home.

Better cross-border bank transfers: you can already transfer money within the euro area, but often this takes a long time and costs more. SEPA will guarantee that your euro payments are made promptly and in full. Your payment should be received within a guaranteed time, and banks will not be allowed to make any deductions of the amount transferred. You will also receive simple and clear information on any charges or fees applicable.

Direct debits from anywhere in the euro area: if, say, you rent a holiday home on a long-term basis or have regular bills to pay in another euro area country, you will be able to pay these bills from your home country by direct debit. And it will open up many other possibilities for regular payments and subscriptions, such as to a foreign newspaper or magazine.

Only one bank account needed for the whole euro area: SEPA will make things much easier if you are working or studying abroad in another euro area country, especially on a temporary basis. At present you have to go through a range of formalities to open a new bank account in the new country. However, with SEPA you can simply carry on using your existing euro account in your home country. For example, you can have your salary paid into your home account and you can also use your home account to pay any bills you have in the new country. This means very few practical changes, especially if you are used to internet banking.

Lower prices for basic payment services in high-cost countries: in some euro area countries, the annual cost of running a bank account can be as much as EUR 250, compared to only EUR 30 in others. More competition between banks will help to drive down these inflated costs. And in countries where prices are already low, they should remain low.

Transparent pricing and no hidden charges: banks will have to tell you exactly what they are charging you for, and hidden charges should disappear, such as hanging on to your money before adding it to your account (known as 'float income'), or crediting money to your account but allowing you to use it only after a certain date (known as 'value dating'), which can mean inconvenience and loss of account interest for you.

I run a business in the euro area. What will SEPA mean for me?

Of course, you will be also able to benefit from all the advantages described above – including improved and cheaper payment services, better and more transparent information and guaranteed payments. Again, the changeover to SEPA should be as smooth as possible for businesses, although you may have to make changes to your own payments systems where necessary.

The introduction of SEPA will give businesses the following additional advantages:

Direct debits from anywhere in the euro area: businesses usually prefer to collect regular bills by means of a direct debit because it is more efficient and allows payment automation, which saves money overall. But at present it is just not possible to set up a cross-border direct debit for these customers in the same way as you would do for a customer at home. With SEPA this will change and it will become possible to set up cross-border direct debits in euro between any two bank accounts anywhere in the EU, enabling you to bill customers regularly on a cross-border basis.

Handle all euro payments from a single bank account: if your business regularly buys or sells cross-border, you often need to set up bank accounts in the different euro area countries where you do business. This leads to extra costs, payment delays, and general inefficiency. With SEPA, you will be able to organise all your euro payments from a single euro account in the country of your choice. This will significantly improve your money management through greater efficiency, faster cash flow and lower costs. And if you are a small business not used to operating cross-border, the fact that euro payments can now be made so easily due to SEPA should enable you to benefit more fully from the single market.

Only one terminal for payment cards: when you sell to cross-border customers you can sometimes lose sales because you do not have a terminal that accepts the customer's domestic payment card. Either that or you have to pay extra costs to operate additional terminals accepting foreign cards. With SEPA, you will only need one card terminal to accept all SEPA-compliant cards. This will stimulate sales and reduce your costs, especially considering that the fees you pay banks to accept national debit cards tend to be much lower than for other cards.

Won't SEPA just lead to higher banking costs for customers?

On the contrary, SEPA will mean lower costs.

SEPA aims to increase efficiency and reduce prices by making the euro area banking market more competitive. Opening the whole of this market to competition should force down prices and enable you to shop around for the best deal. Also, payments processing is by nature a bulk business, and by allowing it to be combined across different euro area countries, significant economies of scale can be realised, which in turn should lead to cost savings.

Longer term, all of this should lead to lower costs for payments, particularly for customers in euro area countries where costs, sometimes as much as EUR 250 per year, are today relatively high compared to others. However, in already efficient countries the savings will only be relatively small.

While the EU does not control market prices for payments, its competition authorities will be closely following market developments and will be swift to intervene if banks use SEPA as an excuse to increase prices.

But what about faster payments – won't they mean extra costs?

As described above, an integral part of SEPA is that all banks give a guarantee for the time it takes to execute your payment and that this will be standardised for each payment instrument, no matter which EU country it is coming from or going to.

But this should certainly not lead to higher costs for you. In fact, in some Member States banks are already making payments the same day or within a matter of hours, and this at lower costs.

Nevertheless, some banks have still to make the substantial investments already made by their competitors to speed up their payment systems. These banks will have a choice between making the investments required and then recovering the costs through greater overall efficiency, or contracting out their payments processing to more efficient players in the market.

Either way, in the more competitive SEPA market banks will have to ensure that they provide you with a quality service at a competitive price.

I don't live in the euro area. What will SEPA mean for me?

SEPA will still bring you benefits if you live in an EU country that does not use the euro. When you transfer money from your national currency to a euro area country, you will still benefit from the same improved services and rules information that apply to pure euro payments, although currency conversion may mean that your payment cannot be made quite as fast as a pure euro payment.

Where can I find out more?

SEPA is an initiative of the European banking industry that is being strongly supported by both the EU and the European Central Bank. You can find out more about SEPA at the following websites:

European Commission: ec.europa.eu/internal_market/payments/

European Central Bank: http://www.ecb.int/paym/sepa/

European Payments Council (representing the European banking industry): http://www.europeanpaymentscouncil.eu/