SEPA launched across Europe

Yesterday evening the European Payments Council, the European Central Bank and the European Commission under the Slovenian EU Presidency launched the Single Euro Payments Area (SEPA).

SEPA is an initiative of the European banking industry that will make all electronic payments across the euro area - that is by credit card, debit card, bank transfer or direct debit - as easy as domestic payments within one country are now. The implementation of SEPA will take place over a three-year period and will be completed by 2010. The recently-approved Payments Services Directive is intended to provide the necessary legal framework for SEPA, as well as enhance payments in EU member states.

Locally, the Central Bank of Malta has taken the lead in launching a national consultation on the implementation of the Payments Services Directive in national legislation. This certainly is an important period in order to reposition the role of cash and cheques while ensuring the usage of more secure and efficient means of payments.

On a practical level SEPA means that the general public will be able to make fast and secure transfers between bank accounts anywhere in the euro area. While one would be shopping abroad one would be able to use one's local debit card to make a payment in euro, just like at home. SEPA will also further enhance efficiency in all type of payments, whether they are domestic payments or cross-border payments between two euro area countries.

All customers will benefit from news rules and enhanced services. As from today, most Maltese banks will be reachable, that is receive SEPA credit transfers (inwards Swift payments). SEPA will be linking together 4,100 financial institutions in 31 SEPA countries.

Similar to the euro, SEPA will have a transformation effect on the European payments industry. As Alan Koenigsberg at JPMorgan Treasury Services stated: "We may not see the impact right away, but in 10 years it will be evident. It will enhance cost efficiency both for banks and mostly for customers, stimulate intraregional trade, strengthen the value chain and even influence global trends."

The migration to SEPA across Europe will take a number of years in order to attain the critical mass due to the sensitivity of the payments infrastructure. Nobody in their right mind would accept a blood transfusion without taking into account specifics such as blood type and the environment in which the transfusion is to take place.

Following the successful local euro changeover project, Maltese financial institutions like their European counterparts are focusing their attention from the technical considerations surrounding SEPA to more strategic and commercial considerations such as the offering of additional operational services (AOS).

AOS services include e-invoicing and the automation of various clearing and settlement arrangements. Certainly, the next important phase in the European SEPA project is the gradual migration till the end of 2010 of conventional magstripe cards into EMV chip and pin debit cards and the introduction of direct debits in November 2009. SEPA-based direct debits can only be launched when the Payment Services Directive will be ratified by each EU member state. The current mood of the implementation of SEPA particularly in the euro area is "Do it, but do it right."

Mr Sant is a Senior Economics Officer specialising on European Union financial services initiatives within the Bank of Valletta's Strategy and Business Development Department. Mr Sant currently represents the Maltese banking sector on the European Payments Council Plenary. The European Payments Council is the banking industry body and is responsible for the implementation of the Single Euro Payments Area project at a pan-European level.