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Single Euro Payments Area

Payments in the single European market – background and preparatory measures of the Aareal Bank

Similar to the common currency, the Euro, SEPA (from Single Euro Payments Area) has also become reality in mass payments on January 28, 2008. Its goal is to make all payments within the scope of the 31 European member nations into domestic payments, as it were, and to be able to make them relatively quickly, simply and securely. All legal, technical and business policy barriers that currently still exist between the national payment transaction systems will be resolved with SEPA.

SEPA will function on the basis of the standardized data format XML (eXtended Markup Language), standardized payment transaction instruments and a harmonised legal framework. This was approved by the European parliament in April 2007 and is to be passed into each national law by the end of 2009. For Germany as well as for the other European member countries, this is relevant to the extent that the existing legal foundation already facilitates the use of SEPA credit transfers, but not SEPA direct debit.

Card payments in SEPA

Using the motto, “any card in any terminal – under the same conditions”, the harmonisation of national card procedures is already well developed. Therefore, we can expect early Europe-wide usability of the EC.

Credit Transfers in SEPA

SEPA credit transfer are possible since January 28, 2008. The changes to existing credit transfers are on one hand actually of a technical nature (transition of data format from DTA to XML) and on the other hand are found in the specification of the identifiers of the account and custodian banks. The account number and bank are will be replaced by IBAN and BIC, already known in international banking circles. Hence, aside from a few small features, the SEPA credit transfer is comparable to the standard EU credit transfer that has been in existence since 2003.

  • The conditions for transfer sums of up € 50 000 will the same as those for domestic payments
  • The initial duration of a maximum of three days will be reduced to one day by 2012.
  • There are no limits on the sums involved. Transfers over € 50 000 can also be executed in the SEPA zone, the only difference being that the financial institutes are not obliged to adhere to the usual conditions for such sums. 
  • Sums in excess of € 12 500 must still be reported to the authorities.

Direct debit in SEPA

In contrast, direct debit users will have to adapt to significant changes with SEPA Direct Debit. The decisive new feature is that a mandate must be arranged prior to every single direct debit. This is comparable to today’s direct debit authorisation; however, at present it has not been clarified whether existing direct debit authorisations can be migrated to a SEPA mandate without complications.

The receiver is required to inform the payer of the date and the amount of the debit at least 14 days before the due date. At least annual advance information is slated for regular transactions. The payment is then submitted to the bank of the payer at least two days before the due date, whereby the receiver must also submit the specific authorisation information and due date in his instructions.

This more complex approach has advantages over present procedures:

  • Security:
    The executing bank has a clear mandate and the two parties have a clear contract reference. In addition, security is increased in that the agreement is even necessary for one-off payments. 
  • Increase in convenience and speed:
    All relevant data is transferred during the initiation. Prospectively, this procedure makes it possible to introduce an electronic agreement with a digital signature.

A short SEPA roadmap

  • Since 2006, credit institutions have been implementing the prerequisites for the realization of SEPA.
  • On January 28, 2008, SEPA credit transfer has been introduced and is now offered parallel to national payment products.
  • By the end of November 2009 at the latest, SEPA direct debit will be introduced and will be offered parallel to national payment products.
  • As of 2012, the national systems shall be migrated to the harmonised platforms or disposed of. There currently is no respective migration plan or a binding start and end date.

SEPA in the Aareal Bank

  1. Due to a newly developed account management system, the Aareal Bank today is already extensively prepared for the demands and possibilities of SEPA. The XML data format as well as the new identification numbers, IBAN and BIC, have been standardized there. 
  2. All customer accounts are currently being successively migrated to the new account management system until summer 2008. 
  3. Since January 2008 Aareal Bank processes incoming SEPA credit transfers (passive SEPA compatibility). In 2008, SEPA credit transfers will initially still be processed using paper or via the communication and certification software, BK01 Kom. 
  4. The BK01 interface to the ERP systems will also be successively prepared for SEPA throughout 2008 so that it will be possible to generate and transact SEPA payments in conjunction with the ERP systems and the account management system. Processing of SEPA direct debits will be prepared technically at the same time, however for legal reasons cannot be expected before the end of 2009.