26 September 2012
SEPA: how it all started
For a full understanding of the reasons why we are switching completely to IBAN bank account numbers in February 2014 – an important requirement for establishing a European payments area – some knowledge on the history of SEPA is required. The Single Euro Payments Area (SEPA) may be regarded as the next logical step after the introduction of the euro, in a process that will ultimately lead to a fully integrated payments market in the European Union. What were the reasons? Who are the key stakeholders, and what were the main milestones?
As senior marketing consultant, I have closely followed the developments of this transition in Europe, and SEPA has been a frequent subject of discussion. Now that the countdown has started, I would like to give a brief account of SEPA and how it all started.
In the 1990s, politicians began to realise that cross-border payments were far more expensive and less efficient than domestic payments. This awareness came as a result of the introduction of the European market, allowing free traffic of individuals, services, capital and goods between the EU member states. Trade barriers between European countries had become a thing of the past, but international money transfers remained more expensive, which was not good for international trade. On top of this, there was a significant difference in processing times; domestic transfers were handled in a couple of hours, whereas international transfers often took days.
Despite various attempts to achieve a faster and cheaper international payment product, the expectations of the European Commission were never met. Meanwhile, the demand for a more efficient European payment system continued to increase, becoming even stronger with the introduction of the euro in 2002. That same year, political pressure forced banks to apply rates used for domestic transfers to comparable cross-border transfers in euros.
This naturally entailed additional costs for the banks, because the expenses for international transactions were much higher than those for domestic transactions. For this reason, European banks decided to develop European product standards and processing agreements with the ultimate objective of facilitating a single, uniform euro payments market. If the same means of payment is used for domestic and cross-border payments, there are no longer differences in costs.
The establishment of the European Payment Council (EPC) in 2002 was an important step. In addition to making decisions on behalf of the European financial industry, the EPC is responsible for coordinating the harmonisation of payment products by, among other things, drawing up standards. Boldly stated, the EPC is SEPA!
Today, we are .. days away from the migration of all domestic transfers and direct debits to European variants. From 1 February 2014, only giro payments based on common European standards will be allowed, and there will no longer be any difference between national and cross-border payments in euros. A truly historic moment!
Below is a list of milestones in this journey to standardised European payment methods:
1957 Founding of the European Community
1992 Establishment of the euro
1999 Introduction of the euro as an electronic currency
2000 Creation of the European Financial Services Action Plan
2001 Agreement on rates for cross-border and domestic transactions
2002 Introduction of euro banknotes and coins
Establishment of the European Payments Council
2007 Agreement on the Payment Services Directive
2008 Implementation of SEPA Credit Transfer
2009 Implementation of SEPA Direct Debit
Implementation of the Payment Services Directive
2014 Migration to SEPA completed