Solutions

Single Euro Payments Area (SEPA) Direct Debits & Credit Transfers

The worthy primary aim of the Single Euro Payments Area (SEPA) is to ensure that euro payments, whether domestic or cross border, are handled with the same level of service and at the same price. This is essentially the logical second phase of monetary union that saw the introduction of the euro currency notes and coins.

The European Central Bank (ECB) is seeking to transform fragmented national payments systems into a single payments area (SEPA), essentially making all euro payments domestic for European citizens and companies. SEPA promises users potentially lower costs and greater transparency of fees, but banks will lose revenue currently earned on cross-border payments. SEPA covers three main aspects; direct debits, credit transfers and card payments. From a payments perspective, the Direct Debits and Credit Transfers pose the largest challenges.

SEPA

SEPA Direct Debits

SDD, a part of the overall Single Euro Payments Area initiative, is the payment instrument and scheme that by 2012 should have totally replaced currently existing domestic direct debiting schemes. SDD entails a new set of standards and formats as well as a set of strict rules governing relations between creditor and debtor, their banks, as well as between banks themselves. SDD covers all aspects of the direct debit lifecycle, but of primary concern are issues surrounding timeline verifications, sophisticated mandate management, debtor protection, stop payments black lists, white lists and processing of R-transactions, and the provision of differentiating value added services.
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SEPA Credit Transfers

Compliance with credit transfers under SEPA is considerably less complex than the parallel direct debit scheme. Compliance covers initiation and receipt of credit transfers (originator and beneficiary banks), support of BIC and IBAN, support for UNIFI ISO20022 messages, exception management (R-transactions) and PEACH interfacing (e.g. STEP2). SEPA Credit Transfers went live in January 2008, but a year later they only accounted for 2% of transfers within the eurozone. The majority of banks addressed SEPA Credit Transfers with a tactical approach based on compliance with established EC directives on pricing (2560/2001) and the fact that domestic credit transfers are similar to SEPA credit transfers. As volumes increase, longer term solutions are required.
More information on SEPA Credit Transfers

A unified SEPA Approach - SDD With SCT

While basic SCT compliance has been readily achieved through upgrades to legacy systems, a strategic solution to SEPA by combining SEPA Credit Transfers with SEPA Direct Debits offers greater returns. Due to the SEPA timescales, and the fact that SDD dates are slipping, SCT can be viewed as a precursor to the larger overall SEPA compliance and a first step towards many bank’s strategic plans for a single unified payments hub or factory.

SDD and SCT contain many shared common business services such as accounting, validations of BIC & IBAN, routing, etc. As a result, the SDD and SCT specific flows and services that are unique are minimal; a combined SDD and SCT platform offers higher ROI and lower TCO.

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