The Single Euro Payments Area (SEPA) is where citizens, businesses, general government entities, and other financial actors can make and receive payments in euros based on common rules, operating procedures and market practices. SEPA consists of the twenty-eight EU member states, the four members of EFTA (Iceland, Liechtenstein, Norway and Switzerland), Monaco and San Marino. For retail payments using non-cash instruments, SEPA is a natural result of the transition to the single currency. The European banking industry has played a leading role in the project, which has been promoted and supported by the Eurosystem (ECB and national central banks), the European Commission, EU governments and other authorities.
Launch and development of SEPA
Following the introduction of the euro, to overcome residual barriers to the integration of payment markets, the European Commission issued a Regulation obliging banks to apply the same transaction charges on retail cross-border credit transfers in euros as they did on equivalent domestic transactions. The Commission also began work on a single legal framework for payments in euros. At the same time, the Eurosystem strengthened its role as catalyst for change and coordinator of market initiatives, forging closer ties with representatives of payment service providers and users. In response to the need to ensure efficient decision-making mechanisms, capable of overcoming the difficulties of coordination, in 2002 the European banking industry created the European Payments Council (EPC), which was charged with the completion of SEPA. The project comprised measures in relation to individual instruments (the definition of technical and legal standards, rulebooks and technical procedures) and the creation of European infrastructures for the exchange and settlement of retail payments. In the years that followed, the EPC defined the reference standards for harmonized payment instruments: Rulebooks for SEPA credit transfers (SCTs) and SEPA direct debits (SDDs), the SEPA Cards Framework for card transactions and a framework for European settlement infrastructures.
Compared with the corresponding domestic services, the SCTs and SDDs require the use of an International Bank Account Number (IBAN), identifying the account to be debited or credited and the ISO 20022 XML standard. European banks have been providing SEPA services since January 2008 for credit transfers and since November 2009 for direct debits.
To speed up the migration to the new harmonized payment instruments, in 2009 the European Commission issued a SEPA Roadmap, underscoring the need to define clear and deliverable project milestones. The difficulties involved in completing the project nevertheless led it to set a final deadline for migration to SEPA instruments, transforming it from a market-led project to one driven by the institutions. The End Date Regulation, as it was known, established the mandatory deadlines for the changeover to SCTs and SDDs – 1 February 2014 for the euro-area countries and 31 October 2016 for the others – and called on the member states to indicate the national competent authorities responsible for the migration. A subsequent Regulation envisaged a six-month transition period (until 1 August 2014), during which payments under the old system were accepted without the application of sanctions, but confirmed 1 February 2014 was the mandatory deadline for migration.
The completion of SEPA was accompanied and supported by the definition of a legislative framework that fundamentally changed the structure of payments in Europe with the approval, in 2007, of the Payment Services Directive (PSD). The directive shared with SEPA the goals of promoting innovation and competitiveness in the provision of payment services, drawing up harmonized rules at European level for more effective execution of non-cash payments – transfers, direct debits and payment cards – with respect to paper instruments (cash and cheques), and introducing a new kind of financial intermediary (payment institutions) specialized in the provision of payment services which could compete with banks. The Directive was transposed into Italian law by Legislative Decree No. 11/2010 and the Bank of Italy issued an implementing decree for Title II regarding the rights and obligations of the parties to a payment transaction.
In 2010 the SEPA Council was established, co-chaired by the European Commission and the European Central Bank, to promote the effective governance of the project. The SEPA Council members were balanced between those on the demand side (consumers and businesses) and supply side (banks and other payment service providers).
At the end of 2013 the Euro Retail Payments Board (ERPB), chaired by the ECB, replaced the SEPA Council with a broader mandate and composition than its predecessor.
SEPA in Italy
SEPA has revolutionized the way citizens and businesses in Europe make and receive payments, benefiting those who can now use a single account and follow standard procedures. Using standardized models at European level means that firms can be more efficient in managing collection and payment orders, the related financial reporting and in reconciling accounting and commercial flows.
The Bank of Italy, which is the competent authority for the migration to SEPA in Italy, issued instructions for the implementation of Regulation 260/2012 of the European Parliament and of the Council, containing guidelines for managing the migration. The central bank also launched a broad range of initiatives to inform stakeholders and the general public about the new rules both in publications (SEPA and its Impact on the Italian Payments System, November 2013) and meetings with all the interested parties (payment service providers, settlement infrastructures, general government entities, businesses and consumers).
SEPA is also an important opportunity for Italy’s general government entities to become more innovative and efficient. Recourse to electronic payment instruments can, in fact, promote the automation of budgetary and expenditure procedures. These are included in the objectives of Italy’s Digital Agenda, which amongst other things aims to improve computer literacy among the public at large (for example through the spread of electronic payment instruments), to digitize interactions between general government, businesses and private individuals, to introduce electronic identity cards and provide online access to health services. This initiative reflects the goals of the European Digital Agenda, promoted by the European Commission, which proposes “to better exploit the potential of Information and Communication Technologies (ICTs) in order to foster innovation, economic growth and progress.” The reform of Article 5 of the Digital Administration Code (CAD), which obliges general government to accept electronic payments, moves in the same direction.