A Maltese citizen living in Brussels will soon be able to pay his bills in Brussels by direct debit from his Maltese account. A Maltese company trading with Italy, Spain and Norway will soon be able to optimise cash flow by easily collecting funds in euro from debtors in these countries using a single account in Malta. An Italian tourist in Malta will soon be able to use his Italian bank card in order to make purchases in Malta. These are just some concrete examples of what partaking of a Single European Payments Area is all about.
The Single Euro Payments Area or SEPA, as it is more commonly known, is an area where citizens, business and public authorities can make and receive payments in euro under the same basic conditions, rights and obligations, regardless of their location within the EU. Within this area, Europeans can make use of one bank account and one bank card in order to effect both domestic and cross-border euro payments across the 32 countries which form part of this area.
However, though SEPA started off as an initiative of the European Banking industry itself, self-regulatory efforts have, over the years, proven not to be sufficient to bring the objective to fruition. SEPA requires the harmonisation of diverse national and cross-border euro payment systems, both at a technical level and in terms of customer services and procedures. Indeed, for example, although the SEPA Credit Transfer system was launched in January 2008, statistics show that until October 2010, only 9.6 per cent of all credit transfers in the euro area were executed using a pan-European payment instrument.
The European Commission has now taken the matter into its own hands by proposing a law which makes provision for EU-wide deadlines for the migration of the old national credit transfers and direct debits to SEPA instruments. This will mean that national credit transfers and direct debits are phased out and the recently created pan-European systems take their place, 12 and 24 months respectively after the entry into force of the proposed Regulation, with 2012 being the targeted deadline.
Such a transition is not however as easy as it seems and requires the adaptation of a number of systems on the part of the banking industry. In order to ensure interoperability, the use of certain common standards and technical requirements such as the use of international bank account numbers (IBAN), bank identifier codes (BIC) and a financial services messaging standard (ISO 20022 XML) will be mandatory for all bank account payments in euro in the EU.
From a consumer viewpoint, the only real requirement for migrating to SEPA is to use IBAN (International Bank Account Number) and, in some cases, the BIC (Bank identifier code see below) instead of the domestic bank account number (BBAN) and the domestic bank sort or branch code, when identifying accounts for payment purposes.
The success of SEPA hinges on a number of players and not only on the banking industry itself. Indeed, though banks remain the key players, responsible for migrating their customers from existing national payment instruments to the new SEPA payment products, in its proposed law the European Commission also urges other companies which send out a large number of bills such as electricity or telecommunications providers to do their part by embracing the new SEPA payment instruments.
SEPA will only succeed if customers, particularly, high-volume payment users such as businesses and public administrations, begin to utilise the new SEPA payment instruments.
The proposed Regulation also makes provision for an outright ban on hidden fees between banks for direct debit transactions which are currently charged in six Member States, namely, Spain, France, Sweden, Belgium, Portugal and Italy.
Five hundred million citizens and billions of electronic transactions stand to benefit from a functional Single European Payments Area. The number of European citizens opting to live, study, work or retire abroad is on the increase and cross-border trade continues to grow. Most of these people and obviously all trading companies have bank accounts and will need to make payments in more than one Member State.
A concerted effort by all and sundry to embrace the new SEPA payment mechanism would signify a true European single market where European citizens feel confident and secure effecting payments anywhere in Europe with the least inconvenience possible.
mariosa@vellacardona.com
Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a member of the National Commission for the Promotion of Equality.