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An Overview of SEPA

This article provides an overview of SEPA (Single Euro Payments Area), including its background, credit transfer and direct debit characteristics, benefits, and current status. It also discusses the European payments landscape before SEPA and the geographic scope of SEPA.

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An Overview of SEPA

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  1. An Overview of SEPA October 2010 Client logopositioning

  2. Do you really know what SEPA is? Top-10 in Google.com: • SingleEuroPaymentsArea • Scottish Environment Protection Agency • Solar Electric Power Association • State Environmental Policy Act • Science Education Partnership Award • SouthEastern Psychological Association 2010 DB Blue template

  3. SEPA Background SEPA Credit Transfer SEPA Direct Debit SEPA Benefits SEPA Status and Outlook

  4. The European Payments Landscape pre SEPA (1) • Domestic Credit-Transfer and Direct-Debit schemes vary considerably throughout Europe • Example Direct Debit: • Different mandates • Different submission dates • Different cut-off times • Different return timeframes (finality of payment) even post-PSD • Interbank rules vs. local law • Different file formats • No cross-border direct debits • Potentially forced to use different banks in different countries • Cumbersome account reconciliation efforts 2010 DB Blue template

  5. The European Payments Landscape pre SEPA (2) • Domestic Credit-Transfer and Direct-Debit schemes vary considerably throughout Europe • Example Direct Debit: • Italy (RID) • Due date • Registration of creditor with Central Bank (SIA) • Debtor bank needs the mandate (mandate check) • CBI RID file format • Portugal(EDR) • No due date • Creditor ID hastobe registered with SIBS • Debtor bank does not need the mandate (no mandate check) • EDR file format • Belgium (DOM’80) • No due date • Registration of creditor by DB with CEC/UVC, which assigns a unique creditor ID • Debtor bank needs the mandate (mandate check) • DOM’80 file format • Spain (CSB19) • No due date • No registration of the creditor with central bank • Debtor bank does not need the mandate (no mandate check) • CSB19 file format 2010 DB Blue template

  6. Single Euro Payments Area (SEPA):A political Project • 1999: Introduction of the Euro • 2000: EC Financial Services Action Plan • Also known as “Lisbon Agenda” • Comprising 42 measures to create a Single Financial Services Market • 2002: Launch of SEPA initiative by the banking sector • European Payments Council (EPC) • 2008: First step achieved: launch of the SEPA credit transfer • 2009: Second step achieved: launch of the SEPA direct debit 2010 DB Blue template

  7. Scope • Instruments and schemes • Credit Transfers (since 28 January 2008) • Direct Debits (since 2 November 2009) • Debit-Card transactions • Phase out of national payment schemes (by 2012/13?) • Market Infrastructure • From various local systems to pan-European clearing houses (PE-ACH’s) • Legal Framework (European Commission) • European Payment Services Directive • Transposition into national law completed in most countries • EU Regulation 924/2009 (formerly 2560/2001) 2010 DB Blue template

  8. Geographic Scope EU – Euro Countries (16) Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Slovakia and Spain EU – Non-Euro Countries (11) Bulgaria, Czech Republic, Denmark, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Sweden, United Kingdom The European Economic Area Iceland, Liechtenstein, Norway and additionally Switzerland, Monaco, Mayotte and St.Pierre-et-Miquelon …only € Transactions! 2010 DB Blue template

  9. SEPA Background SEPA Credit Transfer SEPA Direct Debit SEPA Benefits SEPA Status and Outlook

  10. SEPA Credit Transfer Characteristics • Full amount credited to beneficiary – no deductions • Maximum clearing cycle from transaction initiation to credit on the beneficiary account of: • Currently max. 2 days • Max. 1 day from 2012 • Central-bank reporting will continue • Threshold increased to EUR 50k from January 2010 (EU Reg. 924) • Germany remains at EUR12,500 • Not covered by SEPA • Foreign-currency Payments (EU also) • Urgent Payments 2010 DB Blue template

  11. SEPA Credit Transfer New Data Elements • IBAN and BIC to replace account number and national bank code • Payment Detail field length: 140 characters • Optional fields for: • Originator reference (end-to-end reference) • Purpose Codes • The orderer bank must pass them on to the beneficiary bank • The beneficiary bank can optionally display them to the beneficiary • Category Purpose Codes • The orderer and/or the beneficiary bank can optionally offer special processing • E.g. bulk vs. individual booking • For on-behalf-of payments • Originator Reference Party • Beneficiary Reference Party 2010 DB Blue template

  12. SEPA Background SEPA Credit Transfer SEPA Direct Debit SEPA Benefits SEPA Status and Outlook

  13. SEPA Direct DebitCharacteristics • Direct debit scheme based on a signed mandate • Content is standardised • Language of debtor country • Creditor captures and maintains mandate data • Relevant mandate data are part of every SDD (creditor mandate flow) • Harmonized collection and exception timelines and rules (so-called R-transactions) 2010 DB Blue template

  14. SEPA Direct DebitNew Data Elements (1) • IBAN & BIC instead of legacy account number & national bank code • Unique mandate number • To be issued by creditor • Country-specific creditor ID • Issuance to be defined per country • Example Germany: via central bank • Mandate date • Likely a fictitious date for existing mandates • Remittance Information (Payment Detail) field length: 140 characters 2010 DB Blue template

  15. SEPA Direct DebitNew Data Elements (2) • Mark as B2B or Core SDD • Mark as first or one-off direct debit, or as recurrent direct debit • Optional creditor reference (end-to-end reference) • Optional transaction codes • Purpose Codes • The creditor bank must pass them on to the debtor bank • The debtor bank can optionally display them to the debtor • Category Purpose Codes • The creditor and/or the debtor bank can optionally offer special processing • E.g. bulk vs. individual booking • For on-behalf-of collections • Creditor Reference Party • Debtor Reference Party 2010 DB Blue template

  16. SEPA Direct Debit Core vs. B2B Scheme: Main Differences (1) • Usage • Core SDD: can be used with consumers and companies • B2B SDD: can be used with companies only • Status of micro-enterprises to be determined by country • A micro-enterprise is defined as an enterprise which has less than 10 employees and whose annual turnover or balance sheet is equal or less than 2 million Euro (2003/361/EC) • Return right by debtor • Core SDD: 8 weeks after debit • B2B SDD: no return right after debit 2010 DB Blue template

  17. SEPA Direct Debit Core vs. B2B Scheme: Main Differences (2) • Mandate check by debtor bank • Core SDD: optional • B2B SDD: mandatory • Usage considerations • Acceptance of B2B scheme by debtor/debtor bank • Implications on processes (especially if both schemes are used) 2010 DB Blue template

  18. SEPA Direct DebitTimelines Core Direct Debit B2B Direct Debit D: Due date = debtor’s debit date = inter-bank settlement date D-14 CD: Customer pre-notification of amount & due date (unless other timeframe is agreed) D-1 BD: Submission of first, one-off and subsequent SDD D+2 BD: Latest date for bank returns No refund right for debtor D+36 M: Mandate expires 36 months after last SDD submission • CD = Calendar Days • BD = Business Days • W = Weeks • M = Months • * = optional reduction to D-1 in discussion D: Due date = debtor’s debit date = inter- bank settlement date D-14 CD: Customer pre-notification of amount & due date (unless other timeframe is agreed) D-5 BD:* Submission of first & one-off SDD D-2 BD:* Submission of subsequent SDD D+5 BD: Latest date for bank returns D+8 W: Maximum refund period for debtor for authorized transactions D+13 M: Maximum refund period for debtor for unauthorized transactions D+36 M: Mandate expires 36 months after last SDD submission 2010 DB Blue template

  19. SEPA Direct DebitMandate Sample Core Scheme Mandate Number Authorization of the debtor‘s bank in addition to the creditor Creditor ID IBAN & BIC Additional examples in “EPC Guidelines for the Appearance of Mandates” from 04.12.08: http://www.europeanpaymentscouncil.eu/knowledge_bank_list.cfm?documents_category=1 and at: http://www.europeanpaymentscouncil.eu/content_preview.cfm?page=the_sepa_direct_debit_mandate 2010 DB Blue template

  20. SEPA Direct DebitMandate Sample B2B Scheme Mandate Number Authorization of the debtor‘s bank in addition to the creditor No refund right Creditor ID IBAN & BIC Additional examples in “EPC Guidelines for the Appearance of Mandates” from 04.12.08: http://www.europeanpaymentscouncil.eu/knowledge_bank_list.cfm?documents_category=1 and at: http://www.europeanpaymentscouncil.eu/content_preview.cfm?page=the_sepa_direct_debit_mandate 2010 DB Blue template

  21. SEPA Background SEPA Credit Transfer SEPA Direct Debit SEPA Benefits SEPA Status and Outlook

  22. Strategic Benefits Trends Result: Increased Centralization Rationalization • Reduction of banking partners/accounts • Seamless IT interfaces • Elimination of paper SEPA Collections “on behalf of” SEPA Collection factories via SDD Standardization • SWIFT for corporates • XML formats • SEPA SEPA Shared Service Centers Cost Reduction SEPA Payment factories/“on behalf of” payments Centralization of liquidity regionally (In-house banks) Centralization • Centralized Treasury • SSC/Payment factories • Single ERP • Outsourcing Centralization of liquidity by country Local cash management by subs Risk Control 2010 DB Blue template

  23. Account Consolidation Clients need just one account in Europe for making payments and collections Corporate SEPA Countries SEPA Transactions 2010 DB Blue template

  24. Limitation of Centralization with SEPA Geographic / Currencies (only EUR) Instruments (e.g. checks, Ribas, letters of exchange, etc.) SEPA Potentially legal and tax constraints • Corporates still need Banks able to Support them with Local Services throughout Europe 2010 DB Blue template

  25. SEPA Background SEPA Credit Transfer SEPA Direct Debit SEPA Benefits SEPA Status and Outlook

  26. Current Status • 28 January 2008: SEPA Credit Transfer (SCT) went live • More than 4.400 banks have joined the scheme • Broad reachability achieved (95% of payment volume) • SCT Migration • File conversion by some banks • First clients with “real” XML files • Public sector starts to move • 2 November 2009: SEPA Direct Debit (SDD) went live • Some 3.000 banks have joined the scheme • Only limited reachability achieved (70% of DD volume) • SDD migration expected to start from November 2010 2010 DB Blue template

  27. SCT Statistics (1)% of European ACH Volumes • The SCT is not a mass payment instrument yet… Source: ECB 2010 DB Blue template

  28. SCT Statistics (2)XCT vs SCT • …but is widely used for cross-border payments * Credit transfers that are in line with the convention on credit transfers in euro of the European banking industry, i.e. retail payments of up to 50,000 euro per transaction. Source: EBA 2010 DB Blue template

  29. SDD StatisticsNumber per Day • SDD volumes are currently negligible • There are various reason for this… Source: EBA 2010 DB Blue template

  30. Dependencies for SCT/SDD Migration • End date for existing domestic schemes • Reachability of debtor banks • Validity of existing mandates • Core SDD with D-1 submission deadline • Information/education of consumers 2010 DB Blue template

  31. 1. End Date for existing domestic SchemesApproach of the European Commission • End-date consultation during summer 2009 • Result: majority favors end dates • End 2009 / Beginning 2010: Resolutions by European Parliament and ECOFIN Council ask Commission for end dates • Working paper for regulation of end dates published in June 2010: • Regulation by EU Commission (to be published in September/October 2010) • End date for EUR credit transfers 1 year after entry into force / 2 years for EUR direct debits • 4 years for both CTs and DDs for non-Euro countries • But only for EUR-transactions • End-to-end format (ISO 20022) regulation (not just inter-bank) • Niche products (<10 % of total volume of an instrument within a country) can be excluded for 3 years after entry into force • EPC rules not considered – instead definition of so-called “Essential Requirements” 2010 DB Blue template

  32. 2. Reachability of Debtor Banks (1) • Reachability dependent on EPC adherence process and EU Regulation 924/2009 • EPC Adherence Process: • >3.000 banks have joined Core SDD scheme • Of that >2.700 also joined B2B scheme • 70% reachability • “Register of Participants”: http://epc.cbnet.info/content/adherence_database • EBA routing tables • For comparison: • >4.400 banks have joined SCT scheme • 95% reachability 2010 DB Blue template

  33. 2. Reachability of Debtor Banks (2) • Reachability dependent on EPC adherence process and EU Regulation 924/2009 • Regulation 924: • Mandatory reachability for Core SDD for all banks in the Euro-Zone by November 2010 • November 2014 for non-Euro-Zone EEA countries • Optional reachability for B2B SDD remains 2010 DB Blue template

  34. 3. Validity of existing Mandates • Continued legal validity for Core SDD ensured for most countries • No solution found yet for Germany • Currently, need to obtain new mandates • Due to recent developments in Germany, a solution is expected 2010 DB Blue template

  35. 4. Core SDD with shortened Submission Deadline • Of interest for certain countries • D-5/D-2 can potentially have negative effects, e.g: • Delayed liquidity • Increased risk • More complicated processes • D-5/D-2 does not make sense for countries where no mandate check occurs • Status: Under discussion as an AOS in e.g. Germany 2010 DB Blue template

  36. End of Project Expected Migration Scenario • Currently: • Slow SCT migration • Voluntary SDD adherence process for banks • Until November 2010: • SDD pilots • Mandatory reachability for Core SDD of all banks in the Euro-zone • From November 2010: • Slow SDD migration • 201?: • End date for existing domestic instruments • Mass migration to SCT and SDD Corporate Preparation Analysis Budgeting Planning Implementation 2010 DB Blue template

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