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Part V: Get Ready for SEPA by February 2014 – Impact of the SEPA Regulation on Payment Service Users Viewed 9203 times

10-05-2012 By Gerard Hartsink, EPC Chair

This series of EPC Blogs highlights aspects relevant in particular for payment service users (PSUs) transitioning to the Single Euro Payments Area (SEPA). Part V clarifies that the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation, see link below) affects not only payment service providers (PSPs), but also PSUs. This blog focuses on PSUs which are not consumers, i.e. corporates, small and medium sized enterprises, public administrations and government agencies. The SEPA Regulation stipulates the mandatory deadlines for compliance with its rules for euro credit transfer and direct debit transactions. In the euro area, this will be 1 February 2014, subject to certain limited exemptions mentioned in the SEPA Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). To achieve compliance with the core provisions of the SEPA Regulation, PSUs have to implement significant changes to their operational models, including investing in system upgrades, testing and staff training.

The provisions of the SEPA Regulation that are of the greatest relevance for PSUs are set out in Articles 5, 7 and 16, as well as in the Annex to the Regulation.

Article 5 details the technical and business requirements that should be observed when carrying out euro credit transfer and direct debit transactions. It also references the data elements detailed in the Annex to the Regulation that should be provided with a credit transfer and a direct debit payment. Article 5 mandates PSUs to:

  • Provide the International Bank Account Number (IBAN) of the account that should be credited or debited and, where necessary, the Business Identifier Code (BIC) of the account-holding payment service provider. The SEPA Regulation stipulates the timelines for application of the so-called ‘IBAN only' rule. Article 5 (7) of the SEPA Regulation states that "after 1 February 2014 for national payment transactions and after 1 February 2016 for cross-border payment transactions, PSPs shall not require PSUs to indicate the BIC of the PSP of a payer or of the PSP of a payee." Article 16 (6) however, provides that European Union (EU) Member States have the option to defer application of the ‘IBAN only' rule for national transactions to 1 February 2016. Therefore, after 1 February 2016 at the latest, PSPs must be able to identify the appropriate BIC to use where a customer chooses to provide the IBAN only.
  • Make arrangements to adapt to the usage of ISO 20022 XML message standards in the customer-to-bank space in relation to files of payment transactions. Article 16 (5) of the SEPA Regulation allows EU Member States to waive the requirement to use the ISO 20022 message formats for PSUs that initiate or receive individual credit transfers or direct debits that are bundled together for transmission until 1 February 2016, except in cases where a PSU requests such a service.

In addition, Article 5 sets out the rights of consumers with regard to direct debit collections, which are also relevant for payees (billers). Article 5 (3) (d) empowers a payer to be able to instruct its PSP to take the following actions in respect of direct debit collections:

  • To limit a direct debit collection to a certain amount and / or periodicity.
  • To verify each direct debit transaction and to check whether the amount and periodicity of the submitted direct debit transaction is equal to the amount and periodicity agreed in the mandate (where the mandate under the relevant payment scheme does not provide for the right to a refund) before debiting their payment account, based on the mandate-related information.
  • To block any direct debits to the payer's payment account, or to block or authorise any direct debits initiated by one or more specified payees.

Although these mandate checking obligations do not apply where neither the payer nor the payee are consumers, they may nevertheless impact on PSUs. A consumer may instruct its PSP to block all direct debits to its account or to ‘black list' a specified biller by blocking direct debits initiated by it. Similarly, under Article 5 (3) (d) a payer may instruct its PSP to only allow collections from a biller identified in a ‘white list'. In the event that the biller is included on the ‘black list', or excluded from the ‘white list', the payment will fail. The SEPA Regulation does not stipulate or offer any guidance as to how billers are to obtain information at a stage preceding a failed collection and what redress, if any, they could obtain in the event of erroneous failed payments.

The SEPA Regulation ensures the continued legal validity of existing direct debit mandates under the SDD Scheme, provided that these fall within the provisions of Article 7. This facilitates the transition to SDD for both billers and their customers.

Article 16, in an attempt to respond to a broad range of requests for flexibility articulated by various parties throughout the legislative process, has introduced several exemptions. As highlighted above, it permits individual EU Member States to extend the deadline for compliance with some of the provisions of the SEPA Regulation to 1 February 2016. It is arguable that this attempt at flexibility breeds confusion and risks translating into a prolonged patchwork of national variations, leaving PSPs and PSUs uncertain as to what will apply, when, where and how. The market will have more clarity by 1 February 2013, by which time EU Member States must notify the European Commission of the derogations that they intend to use (see Article 16 (7)).

It is strongly recommended that PSUs analyse the impact of the SEPA Regulation on their operational models now, even if EU Member States opt to make use of the derogations permissible under Article 16. To date, the experience of early movers on the end user side handling major payment volumes indicates that migration to SEPA Schemes and technical standards requires careful planning. The relevant actions and resources should be identified as soon as possible. For further details, refer to the EPC Newsletter article ‘The Time to Act is Now. Impact of the SEPA Regulation on Payment Service Users' (see link below). For best practice identified by bank customers who have successfully completed migration to SEPA, refer to parts I through IV of this EPC Blog series and the SEPA case studies featured in the EPC Newsletter (see links below).

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Previous entries

05.04.17The Commission's Consumer Financial Services Action Plan: Better products, more choice.

21.03.17SCT Inst and CSMs: an interview with José M Beltrán of STET

28.02.17Financial services fraud is changing: here is how to securely embrace digital in 2017

14.02.17Why is it important to ensure accessible retail payment services in Europe’s context of demographic ageing?

15.12.16Is striving for harmonisation of account access like striving for world peace?

20.10.16The consumers’ perspective on the SEPA Instant Credit Transfer scheme: An interview with George Wilson, Consumer Representative in ANEC’s Services Group

29.09.16NACHA is leading ISO 20022 education and supporting integration with the U.S. ACH payments system

20.09.16Getting ready to make the first SEPA Instant Credit Transfers possible in November 2017

30.06.16Ensuring successful SCT Inst development: A CSM’s perspective

14.06.16Reflections on the progress towards pan-European instant payments in euro

02.06.16Creating a more uniform consumer experience for contactless proximity payments

04.05.16The view of Swedish instant payment players on the SCT Inst scheme

14.04.16Flexibility and transparency are key to the SCT Inst scheme

07.04.16Public consultations on the SCT and SDD rulebooks: the main change requests explained

24.03.16GLEIF proposes using the Legal Entity Identifier for passporting under Article 28 (5) of PSD2

07.03.16Strengthening the fight against terrorist financing: the Commission’s thoughts that will guide the forthcoming legislative proposal

07.01.16The SEPA Cards Standardisation Volume is now equipped to face up to the challenge of remote payments

03.12.15The EPC is in the front line for achieving the ERPB’s objectives that stemmed from its November meeting

27.11.15The EPC Publishes its Proposal for the Design of an Instant Credit Transfer Scheme: a Major Step in the Development of Pan-European Instant Payments in Euro

19.11.15The SEPA Cards Framework bows out after ten years of good and faithful service