What is SEPA?

Having lambasted banks for their overuse of acronyms, I am about to indulge in a bit of acronymism (if there is such a word). SEPA is a good example of how the prevalence of acronymism only serves to create confusion. SEPA or Single Euro Payments Area was coined by a group of European banks calling themselves the European Payments Council (EPC). The EPC developed the concept of SEPA in response to the European Commission (EC) raking the banks over the coals for charging more for cross-border payments in euro than domestic payments.

In the minds of the regulators, if you have a single currency (the euro) why should a cross-border payment in euros cost five times more than a domestic payment? Shouldn't all payments within the eurozone, whether it is from France to Germany or Italy to Spain, be considered domestic payments with a pricing strategy to reflect that?

The banks response to that was to develop this concept of SEPA, comprising rulebooks for pan-European credit transfers and direct debits. But here is where the language starts getting confusing. The banks, i.e. the EPC has interpreted the 'E' in SEPA to stand for euro. So from 2008, when banks are meant to start offering consumers and corporate customers pan-European direct debits and credit transfers, they will only offer these forms of payment in 12 eurozone countries.

Hang on a minute, say the EC and the corporates. If there is to be a true single market for payments in Europe, why does it only apply to 12 eurozone countries? What about the 28 to 30 countries (including the enlarged EU and accession countries)? "SEPA is the banks'agenda not the EC's agenda," says Chris Skinner of Balatro. According to Skinner, the EC has a "bigger agenda".

The EC and corporates argue that the 'E' in SEPA should stand for European payments area not euro. Just to set the record straight for those banks that may be a little confused what to do with the 'E' in SEPA (and for the rest of us that are just plain confused), David Deacon from the EC's Directorate General, Internal Markets, puts it like this: "SEPA is not just about cross-border payments but about making a fundamental change in the [European payments] landscape. The risk is of a 'mini-SEPA' where everyone keeps their national payment systems and SEPA is just limited to cross-border payments. That would be a failure and is not an option." I hope everyone is clear now what is meant by SEPA.