Payment services have undergone a gradual revolution across Europe over the last quarter of a century, surviving the UK’s acrimonious exit from the EU. In our monthly ‘Treasury Insight’ reflecting on the biggest events in treasury since Treasury Today was founded 25 years ago, we chart SEPA’s ability to deliver on its promise of more efficient payment instruments.
At its launch in January 2008, John Hurley, Governor of the Central Bank & Financial Services Authority of Ireland observed that SEPA was designed to do for electronic payment instruments what the introduction of euro notes and coins in 2002 had already done for cash transactions.
It now encompasses around 530 million citizens across 36 European countries and SEPA payment schemes are used by thousands of payment service providers to facilitate some 46 billion transactions each year.
Today, virtually all euro credit transfers and direct debits in SEPA are based on the EPC SEPA schemes, thereby achieving one of the main goals of the initiative observes Giorgio Andreoli, Director General of the European Payments Council (EPC).
“This single payment area, sharing consistent rules, has helped to innovate and develop new initiatives such as SEPA Inst, which aims to also make instant payments universally available across the EU,” says Frederic Viard, Director of Financial Messaging at Bottomline. “By making this instant payment rail mandatory for payment providers processing payments in euro, the European Commission has delivered less friction, better reachability, and improved availability on liquidity.”
With the linkage into solutions like target instant payment settlement (TIPS), it has enabled consumers and businesses to make instant payments across borders with the simplicity of domestic payments, says Marco Hughes, Managing Director of Europe Payments Product, Global Payments Solutions at HSBC. “With the standardisation of payment formats, transactions are more efficient and transparent,” he adds.
Etienne Bernard, Global Head of Transaction Banking at Crédit Agricole CIB refers to an improvement in lead times, which have gone from several days, before 2008 to 24 hours, to instantaneous transfers since 2017. “This has been made possible thanks to the technical and functional developments initiated and in particular the use of identical standards for all actors in the payment scheme,” she explains. “Indeed, the ISO 20022 standard has made it possible to standardise processing and therefore make it faster to convey more data, improving the content of the information transmitted to customers and the security of transactions through richer data.”
According to Salwa El Yacoubi, Global Euro Offer Product Manager at BNP Paribas, the fact that SEPA use cases extend from individuals to the largest corporates (and the harmonisation of the payment schemes and framework) has facilitated an increase in economic activity across Europe.
“It has also fostered innovation, for example through the instant payment scheme that is now widely used by retail consumers and steadily growing for B2C and B2B transactions,” she says. “Once the new EU legislative proposal on instant payment comes into effect, there is no doubt the adoption of this new payment means will reach new heights.”
There is significant opportunity for SEPA as innovation evolves faster in the eurozone according to Steven Anderson, Product Director for enterprise payments platform at Fiserv in EMEA.
“The European Commission’s proposal that all European bank account holders have access to an instant payments system is working its way through Brussels, with the publication of regulation anticipated towards the end of 2023 or early 2024,” he says. “From this standing start all banks in the Eurozone will need to enable customers to receive instant payments within six months and send them within 12 months. SEPA could facilitate these payments.”
One of the most significant developments in the history of SEPA was the UK retaining access to key euro payments systems following Brexit. With the large volume of exchanges between the UK and EU, Viard observes that it is essential to have a shared environment to facilitate payments between these jurisdictions.
El Yacoubi agrees it was absolutely vital for the UK to remain in SEPA to minimise the impact on economic activity.
“Just imagine the impact on costs and processing if overnight, euro payments between the UK and Europe had become international payments,” she adds. “By remaining in SEPA, euro payments with the UK have remained largely unaffected and are mostly processed in the same way as before, provided clients still specify the SEPA payment types when instructing their payments.”
The friction that would have been created without SEPA could have resulted in significant delays of money movement, adds Anderson. “There is extensive research to demonstrate that payments made quickly further enable commerce and trade. Anything that slows down transactions and makes them more expensive creates impediments to commerce.”
Overall, SEPA has been very effective in creating a consistent set of rules that are applied across the many national euro credit transfer and direct debit schemes suggests Joe Morley, TrueLayer's EU CEO, which means cross-border payments via SEPA Credit or SEPA Direct Debit are easier to make for both merchants and consumers.
However, he also refers to the problem of direct and indirect IBAN discrimination and notes the adoption of SEPA Instant has been a little underwhelming.
“It is optional and therefore just over half of EU banks have made it available,” says Morley. “In many cases it is offered at a premium, making it uncompetitive in relation to other payment methods. There are also technical issues of interoperability between payment rails like TIPS and RT1, although we are optimistic that the EU making instant payments mandatory will fix most of the issues with SEPA Instant and help drive uptake.”
Arjeh van Oijen, Head of Product Management at Icon Solutions acknowledges that SEPA has enabled convergence between the different account-to-account payment infrastructures across Europe, resulting in more standardisation and better-quality information, real-time payments services and a more competitive payments market with lower tariffs for customers.
“There is, however, work to be done in the case of card payments,” he says. “Despite the European Commission’s call for a new European card brand to increase competition, the market continues to be dominated by Visa and Mastercard.”
Furthermore, payments instruments that enable consumers to pay for online and in-app purchases of goods and services - such as iDEAL in the Netherlands and Giropay in Germany - are still country-specific and lack a European standard.
SEPA request-to-pay has the potential to drive new innovations in the B2B, B2C and P2P payments space and may even become an alternative to traditional card payments according to van Oijen. “There have been various successful deployments in countries like the Netherlands, Belgium and Sweden, but all have been based on country specific schemes and standards,” he concludes.