SEPA stands for Single Euro Payments Area. The idea behind the project is to have a single space within Europe where citizens, companies and other economic actors will be able to make and receive payments in euro, whether within or outside national borders, under the same basic conditions, rights and obligations, regardless of their location. Thus, there is no longer a difference between national and intra-European cross-border payments: all payments in euro will essentially be domestic. Geographically, SEPA is not limited to the euro area, but includes all of the European Economic Area (the 27 EU member states, Iceland, Liechtenstein, Norway) and Switzerland.
The major stakeholders
At the European level, implementation of the SEPA project works on a three-pillar basis. Via the Payment Services Directive (PSD), the European Commission has established the legal framework for the implementation of SEPA. Member states have to transpose the PSD into national legislation by 1 November 2009. The European Central Bank (ECB) is responsible for monitoring the implementation and design of SEPA, and actively promotes the harmonisation of payments in Europe. Finally, the European Payments Council (EPC) defines business rules, standards and policies.
At national level, governments, central banks and banking associations take care of the design and executions, as well as of the implementation of and migration to SEPA.
The ABBL and SEPA
In Luxembourg, the ABBL acts as National Adherence Support Organisation (NASO). As NASO, the ABBL supports banks in Luxembourg in their migration towards SEPA compliant payment systems. The ABBL has also developed the Luxembourg Interbank SEPA Agreement (LUISA). Members of the Luxembourg banking community have signed this agreement, which formally lays down the commitment of participating banks or institutions to actively support and implement SEPA services.
The ABBL officially represents the Luxembourg banking community at the European Payments Council (EPC). A coalition comprising Luxembourg, Switzerland, Lichtenstein and Slovenia was created in 2016. Luxembourg will lead this coalition and hold a seat on the EPC Board od Directors.
Click on the picture below to discover the “SEPA Milestones” from the European Payments Council:
SEPA Payment Instruments
Besides Cash, SEPA covers three main types of payment instruments:
- SEPA Credit Transfers
- SEPA Direct Debits
- SEPA Cards
SEPA payments have replaced the existing national payment instruments after a transition period during which new SEPA services will co-exist with current instruments.
The SEPA Credit Transfer scheme defines the common norms that apply for credit transfers. It thus defines the message format used between banks (SWIFT messages using XML), standard codes identifying beneficiary and bank (IBAN and BIC) and all the information that a given message must contain. As a matter of fact, Luxembourg customers have been using IBAN and BIC codes ever since 2002. On 28 January 2008, SEPA Credit Transfer was the first SEPA compliant service to be launched.
The SEPA Direct Debit scheme defines the use of the same message formats and encoding standards as those used for credit transfers. Importantly, the debtor now directly mandates the creditor to debit their account, rather than having to give this mandate to their (the debtor’s) bank, as was the case in Luxembourg until now.
As far as SEPA Cards are concerned, they function similarly to the debit cards that already exist at national level, except that they can be used for payment in the whole of the SEPA space at the same conditions as in the cardholder’s home country.