From Theory to Practice and What Comes Next? Challenges and Opportunit...

From Theory to Practice and What Comes Next? Challenges and Opportunities After More than a Decade of SEPA in the Making

A commentary: “Like all major new economic initiatives, SEPA needs time to find its feet and achieve all it set out to accomplish.”

29 April 14

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A look back: 14 years of in the making

The term ‘ ’ has been around for 14 years but it will come to the fore for financial institutions as 2014 progresses. (Single Euro Payments Area) is a European Union ( ) initiative to integrate payments across Member States and beyond.

Driven by the creation of the euro in 1999, the institutions including the European Commission and the European Central Bank have tried to develop the parameters for a single currency that can be used more efficiently when it comes to electronic euro payments between member nations.

The earliest roots of trace back to the landmark Lisbon Agenda1 in 2000, which set out how the euro could be used to make the euro zone a more dynamic and competitive market.

can be split into two clear divisions. The first relates to specific credit transfers and direct debits which will see the migration from legacy systems to compliance with the new Regulation2, allowing financial institutions to offer more value-added services.

also applies to the Cards Framework3 which provides the high level principles and rules for schemes, banks, and processors to enable European customers to use general purpose cards to make payments and cash withdrawals in euro throughout jurisdiction. It is here where will have its most telling impact for corporates and consumers.

With all 28 Member States - plus Iceland, Norway, Liechtenstein, Switzerland, Monaco and San Marino - signed up, the intervening years have seen the idea implemented. Although a quarter of the way through 2014, the and various interested parties and stakeholders are finding some things easier said than done.

14 years post-inception, the story of (and its potential future) is far more complicated and multi-layered than anyone would have imagined when the Lisbon Agenda was signed by the governments.

The main stakeholders

It is impossible to tell the story without looking at the stakeholders most impacted by it. Primary is the clearing and settlement4 industry. Making it easier to undertake cross border credit transfers and direct debits means a near total rethink for the industry’s practices, which in some cases are decades old, and now need to be brought in-line and homogenised across markets, some of which have completely different processes.

At the heart of is the aim of making systems slicker, faster and more competitive. In theory, should make it simpler for payments to take place; additionally, transfers - both internationally and domestically - should be easier. On the face of it, this theory is good, but for those clearing and settlement mechanisms charged with implementing it, there has been a big cost investment, time and risk factors, not to mention going into it without any clear business case which will demonstrate the value, other than to make sure they are keeping up with the market.

Moving on from the core clearing and settlement industry, the ripples have reached out into the wider payments industry. Whilst the theory is sound, and making the euro zone a more competitive place on the world stage is a good thing, it comes at a time when the payments industry already has a lot on its plate. In many cases, financial institutions across the euro zone have the added complexity of trying to initiate change whilst national governments have been holding them accountable on almost all activities they are pursuing and new competitors unfettered by the legislation are making inroads into their customer bases.

The added scrutiny and lack of bandwidth has resulted in less flexibility to introduce new practices, even when they are being supplied with an Directive.

And when it comes to sovereign governments and their central banks, there was always going to be a degree of vested interest, which we have seen to a certain extent. To ensure their financial institutions use to their advantage, and given the best opportunity to compete, legislative acts relevant to have been tweaked, altered and amended slightly on a nation-by-nation basis. Nothing too dramatic, but if an institution has payments interests across these different countries, then it needs to create one solution for one country, and then alter it, no matter how slightly, to fall in line with another country. This drip feed approach has invariably made it more difficult for the payments industry to get this worked out. Additionally, organisations like the Financial Conduct Authority5 in the UK, for example, need to ensure that all domestic legislation is adhered to. It is another layer of complexity on top of an already Rubik’s Cube-like mesh of stipulations that need to be met.

Meanwhile, for the big corporates and the end consumer, this should be nothing but good news. Payments should become quicker, competition could lead to cost savings, and for consumers the euro will finally begin to feel like a currency that is universally accepted and used in a uniform way within the Member States.


No one ever thought this would be a simple process. And taking into account all the competing interests and considerations, the move to has been somewhat remarkable. Although was supposed to come into effect earlier this year, it has been pushed back slightly to 1 August 20146 with continued speculation that this will not be the only implementation timeframe change. (For detailed information on the additional six month transition period after 1 February 2014 in the euro area for migration to agreed by the European Commission, the European Parliament and governments, refer to the ‘related links’ and ‘related articles’ below.)

From the outset, has been and is a good idea. Yet as with most things, a good idea on paper is easier to conceive than create. Because nothing like this has been done before, we have been venturing into the unknown to a certain extent, and the implementation of has turned into more of a science project with the methodology changing stage by stage. An extra six months to critically examine end results may in the long term be very beneficial, but perhaps insufficient. Research shows some institutions were actually in a position to meet the original deadline, but with so much risk at stake, an extra six months is probably no bad thing. When scientists come up with new products, they do not simply take it straight to market assuming it will work every time; they test, test, and then test again.

With a roadmap for now in place, the 2016 target for making non-euro countries compliant should be a smoother process and the glacial pace at which the euro countries have implemented the Regulation which effectively mandates migration to Credit Transfer and Direct Debit will not be repeated elsewhere.

1 August 2014 and beyond

Come the new deadline in the summer, we should be able to critically assess (what went right, what went awry) and begin to understand if it is delivering what it set out to achieve. We will then be able to quantify any further delay in implementation required.

In 2015, institutions are facing another heavy schedule for complying with new regulation, so there will be little room for error to go back and work on a project that has already consumed a massive amount of resources.

Like all major new economic initiatives, needs time to find its feet and achieve all it set out to accomplish. We have seen this in how national central banks have tweaked the formula on a country-by-country basis. Inevitably with something this complex, there will be unforeseen circumstances, and acceptance of this will be important. However, will need to start delivering pretty quickly. Big corporates will be looking to put to the test. In an already competitive landscape, corporate treasurers will be looking for the institutions that offer the best package. For those that are struggling, it could be held against them in negotiations. So whilst there are few commercial incentives for , payment service providers should be chasing the long-tail on how an ill-fitting solution could call into question key customer relationships.

It's been a long and winding road to get this far, and can bring enormous benefits when it starts to come into play. Added flexibility and faster payments will, in the long run, lead to new revenue opportunities. Though the new revenue streams may not be clear at the moment, a basic principle of economics is that the more volume you can handle, the better your margins, and allows for just that. Bolting on real-time information and notifications, additional security packages and providing a better consistency means institutions will be able to differentiate more easily and offer premium services based on volumes handled.

Already, clearing and settlement mechanisms are seeing considerable volume growth in payment processing. The overall migration to has sped up since the turn of the year, but it would be difficult for anyone to comprehensively predict what a post- migration world will look like when we hit 1 August 2014. What we can be sure of is that after a sometimes exhausting process, there will be a more nimble and responsive payments industry.

Paul Thomalla is SVP EMEA and Managing Director at ACI Worldwide.


Related links:

EPC Blog: Don't Count on 1 August 2014: Different SEPA Migration Deadlines Apply Across the Euro Area During the “Additional Transition Period” Agreed by the European Commission, the European Parliament and EU Governments

EPC Website: SEPA Legal and Regulatory Framework 


Related articles in this issue:

SEPA 2.0: Reflections on Realising the Potential of SEPA Going Forward. SEPA roll-out so far suggests that there is room for improvement as regards alignment of policies and coordination among the EU institutions and governments driving EU integration in the area of payments

Don't Count on 1 August 2014: Different SEPA Migration Deadlines Apply Across the Euro Area During the “Additional Transition Period” Agreed by the European Commission, the European Parliament and EU Governments. EPC recommends that organisations in the euro area still working towards achieving SEPA readiness complete the migration process as soon as possible

Migrating Deadlines: Pushing Back the Migration Date for SEPA Credit Transfers and Direct Debits. Will the Amending Regulation cause great confusion in the European payments market?

AkzoNobel: “We Have Already Seen a Return on Our Investment into SEPA Migration through the Benefits We Have Received”. AkzoNobel began using IBAN in 2010 and fully launched its SEPA implementation programme in October 2012 in readiness of the February 2014 deadline

Related articles in previous issues: 

SEPA Fact Check: The SEPA Benefits Projected by EU Governments, the European Parliament, the European Commission and the European Central Bank (1999 - 2013). SEPA is an EU integration initiative driven by EU governments and the EU institutions. Note: the European Payments Council is not part of the EU institutional framework ( Newsletter, Issue 20, October 2013) 

SEPA 2014: Clearing and Settlement Mechanisms are Ready to Turn up the Volume. Clearing and settlement mechanisms are prepared for the ramp-up towards the SEPA-only environment in the euro area by 1 February 2014 ( Newsletter, Issue 20, October 2013) 

Newsletter: Case Studies Highlighting Successful SEPA Migration Projects of Bank Customers 

Newsletter: Articles Published in the Section ‘Focus: On Integration and Innovation’ 

Newsletter articles: Articles Published in the Section ‘Opinion and Editorial’ 

1 The Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process, was an action and development plan devised in 2000, for the economy of the European Union between 2000 and 2010. Its aim was to make the "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion", by 2010. It was set out by the European Council in Lisbon in March 2000. (Source:

2 In February 2012, the European co-legislators, i.e. the European Parliament and the Council of the European Union ( ) representing Member States, adopted the 'Regulation ( ) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’. This legislative act is also known as the Single Euro Payments Area ( ) Regulation. Article 6 (1) and (2) of the Regulation mandates that credit transfers and direct debits shall be carried out in accordance with the relevant requirements set out in Article 5 and in the Annex to the Regulation by 1 February 2014, subject to certain limited exemptions mentioned in the Regulation. In non euro countries, the deadline will be 31 October 2016. Effectively, this means that as of these dates, existing national euro credit transfer and direct debit schemes will be replaced by Credit Transfer and Direct Debit.

3 For more information on the European Payments Council's Cards Framework (SCF), follow this link: 

4 Clearing and settlement mechanisms enable the exchange of funds (money) and messages between two payment service providers executing a payment transaction.

5 Financial Conduct Authority Website:

6 The European Commission introduced, on 9 January 2014, a proposal to “give an extra transition period of six months during which payments which differ from the format can still be accepted” in the euro area after 1 February 2014. In February 2014, the European Parliament and the Council of the European Union ( ) representing Member States, respectively, adopted a new ‘Regulation ( ) No 248/2014 amending Regulation ( ) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’. This new Regulation states, among other things: “In Article 16 of Regulation ( ) No 260/2012, paragraph 1 is replaced by the following: (...) By way of derogation from Article 6(1) and (2), [payment service providers] may continue, until 1 August 2014, to process payment transactions in euro in formats that are different from those required for credit transfers and direct debits pursuant to this Regulation.”

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