What is SEPA and what does the future hold?
From my recent forays into the payments' world, two things I've learned are:
1) It's a world of abbreviations, and
2) Much like Godwin's Law, the more research you do into payments in the EU, the more likely you are to end up at PSD or PSD2.
And behold, today's topic is another abbreviation: SEPA! And behold again, SEPA takes us straight to our old friends PSD and PSD2.
What is SEPA?
SEPA stands for Single Euro Payments Area. According to the EU Commission, it 'establishes a single set of tools and standards that make cross-border payments in euro as easy as national payments'.
Back in 2002 when the euro became legal tender, representatives of the payments industry joined forces to create the above tools and standards. They called themselves the European Payments Council (EPC).
As the EPC set to work, so did the EU. It created a legal framework for SEPA: our old pals PSD and PSD2, together with the SEPA Regulation.
The main premise of the SEPA Regulation is that credit transfers and direct debits that can be reached under a national payment scheme must be reachable under an EU payment scheme. There must be no difference between domestic and cross-border payments.
SEPA payment schemes
You may remember having to add some numbers and letters to your bank account number back in 2014. This turned it into an International Bank Account Number (IBAN). This wasn't the banks being awkward. IBAN is the bedrock of the SEPA payment schemes that were then rolled out.
The first of these payment schemes is SEPA Credit Transfer (SCT). A credit transfer is a payment initiated by the payer. With SCT funds are moved into an account within the SEPA zone within one business day. In the Netherlands, the iDEAL payment method generates an SCT.
The second scheme is SEPA Direct Debit (SDD). Direct debit is a payment initiated by the payee, with the pre-authorisation of the payer. It is generally used for recurring payments, but also serves as an ecommerce payment method.
The latest scheme, a voluntary one that has been operational since November 2017, is SEPA Instant Credit Transfer (SCT Inst). Thus far, PSPs in eight countries are participating. As the name suggests, funds are transferred instantly, or within 10 seconds. The service is available 24/7/365.
For merchants these schemes make it easier to trade in SEPA countries, because you can use one bank account for all transactions. For consumers they make it easier to purchase products and services in SEPA countries, again because you can use your bank account in your home country.
SEPA and the future
The EPC is now focusing its efforts on standardizing mobile payments. There are various types of mobile payment, such as QR codes or Person-to-Person (P2P) transactions. The aim is to base the underlying payment on one of the SEPA payment schemes: P2P transactions would use SCT Inst, for instance.
And where is Ginger in all of this? Well, SCT and SDD are both options on our platform. As for SCT Inst, the Dutch Payments Association is busy developing the necessary infrastructure. They are talking about mid-May 2019, so it's a case of watch this space.
Get in touch if you want to chat about SEPA SCT, SDD or payments in general. For those new to Ginger, we’re helping product teams build better financial applications faster. Come check us out.
