SEPA Legislation on Cross-Border Payments Passes European Parliament

Companies that send funds between several euro-zone countries should find the process a bit easier a few years from now. That's because the European Parliament recently passed legislation that requires banks to allow their clients to use a single bank account to make euro payments to and from all SEPA (single euro payments area) countries. As a result, companies and individuals will be able to make payments from one bank account to others across Europe in the same way that they currently do with domestic payments. The result? Bank transfers will become "faster, cheaper and safer," according to this release.

The text of the legislation expands on this, saying, "Only rapid and comprehensive migration to union-wide credit transfers and direct debits will generate the full benefits of an integrated payments market, so that the high costs of running both ‘legacy' and SEPA products in parallel can be eliminated."

The legislation is the latest step in the movement to a unified European payment area. The euro was introduced in 2002, allowing consumers and businesses to make payments using a single currency. This new legislation provides for a similar ability to make cashless payments across the Euro zone from a single account. "Within SEPA, all euro payments will be treated as domestic payments," according to this report from the European Central Bank.

That's key, given that in 2006, more than 72 billion non-cash transactions occurred within the EU, according to the European Commission. Credit transfers and direct debits comprised more than half of all payment related services, the EC reports.

Moreover, competition among banks now will cross borders, which should drive down service fees. Companies can set up cross-border direct debits, in euros, between any two bank accounts in the EU, and regularly bill customers across borders. And, the ability to organize cross-border euro payments from a single euro account should improve money management and speed up cash flows. In addition, SEPA should facilitate e-invoicing across euro countries, reducing processing costs, the EC notes.

Taking a broader perspective, the continued march to a single payment area should enhance the European economy. A study of EU Member States, including both euro and non-euro countries, estimated the potential benefits to the payments market, once SEPA is fully implemented, of up to 123 billion euro over six years, the EC has said.

That's not to say that the process has been completely smooth. In fact, the recent legislation was necessary because retailers and banks balked at moving from their national systems to the SEPA model. So, lawmakers came up with their own deadline, this article in CentralBanking explains.

To be sure, nothing changes immediately. Banks have until February 1, 2014, to migrate to the new standards. And, the Regulation does not apply to several types of transactions, including some payments made via personal payment or similar types of cards, and to some payments transmitted through mobile devices.