What is SEPA?What is SEPA?

SEPA is an acronym from the words Single Euro Payments Area. The European Commission has decided that a home market area will be established for payment traffic in the European Economic Area. The area will include all 27 EU Member States plus Norway, Iceland, Lichtenstein and Switzerland.

SEPA will mean significant technological change in the European payment systems because it involves more than 300 million consumers, 15 million companies, as well as 8,000 banks, public corporations, clearing corporations and software suppliers.

SEPA is estimated to be the largest project ever carried out in the payments area. SEPA produces system costs for all companies and banks. The project has been started, but there are a number of issues to be resolved.

If required, a company can carry out all payments in the SEPA area

  • from one country
  • through one bank
  • using one standard
  • in one instalment
  • using the same terms.

Ten questions on SEPA

1. What is SEPA and what is its purpose?

SEPA is an acronym for Single Euro Payments Area. The European Commission’s objective is to establish a single market for payment transactions in the European Economic Area. Payment transactions in this SEPA area will be no different to domestic payments, as payment transactions will be carried out according to the same terms and conditions, standards and prices as domestic payments.


2. What services will be affected by SEPA?

The first phase will include credit transfers, direct debit and payment cards. Later on SEPA will cover payment transaction services more broadly.


3. When will SEPA services be introduced?

SEPA services will be introduced in phases starting in 2008 and, after a transitional period, they will replace the existing domestic payment transaction services.  In Finland the transitional period will last until the end of 2010 for credit transfers. A transitional period has not yet been set for direct debit, and the transitional schedule for payment cards is decided individually by each bank.


4. How will SEPA affect customers sending payment files (LM02, LM03, TS, LUM)?

The payments landscape in Finland will be transformed due to SEPA as the XML ISO 20022 payment data format will be adopted instead of national payment data formats (LM02, LM03, TS and LUM2). The transition period ends on 31 December 2010, after which banks have the possibility to continue accepting the national payment formats as a special service until 31 October 2011. Danske Bank, Helsinki Branch will be one of the banks offering this special service.


5. How will SEPA affect account numbers?

Account numbers in the domestic format will be discontinued and in future will be notified in the International Bank Account Number (IBAN) format.


6. How will SEPA affect direct debits?

The existing Finnish direct debit service will be discontinued in a few years’ time. Banks will be able to offer their customers SEPA direct debit during the year 2010. However, SEPA direct debit significantly differs from Finland’s current direct debit service and the aim is to replace direct debit in Finland with e-invoices.


7. How will SEPA affect payment cards?

SEPA’s objective is to enable cardholders to use their payment cards in Finland and abroad, at least in the Single Euro Payments Area. Therefore domestic bank cards are being replaced with debit cards that are tied to a bank account.


Companies accepting card payments must ensure that they have a payment terminal that accepts chip cards and that the terminal has been updated to accept international payment cards. Further information on payment terminals for chip cards is provided by payment terminal and cash register system providers.


8. How can a company prepare for SEPA?

Preparations will depend on the company’s systems and the automation level of its payments processing. The changes will be slight if the company does not use batch data for making payments but instead uses only online banking to make payments individually. However, all companies will have to convert their own and their trade partners’ bank contact details to the IBAN format in their systems, as account numbers in the domestic format will be discontinued. The IBAN and BIC formats have been mandatory in the Finnish invoice forms since 1 July 2010. Companies making payments with batch data should contact their financial management software providers and assess the impact of SEPA on the company’s various systems. Companies accepting card payments must ensure that they have a payment terminal that accepts chip cards and that the payment terminal has been updated to accept the new international payment cards. Companies accepting direct debit payments should ultimately consider transferring to e-invoicing.


9. How will companies benefit from SEPA?

Companies operating internationally have already been able to benefit from the low cost of EU and SEPA payments for a number of years, but now that the Payment Services Act has entered into force, payment transactions in the euro zone are also processed more quickly and value date practices have changed to the benefit of companies. SEPA also introduces the possibility of more extensive competitive tendering for payment transaction services by standardising payments and payment processes in different countries. SEPA will also make it easier for companies to centralise their payments with one bank and reduce their number of foreign bank accounts.


10. How will SEPA affect personal customers?

Private individuals making payments within the euro zone benefit from the low cost of payments and faster processing. Invoices will be paid using the IBAN and invoicing parties have already added their IBAN to their invoices alongside their Finnish account number. Other changes include having to remember your account number in the IBAN format and being able to use all payment cards all over the world.

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