Thursday, November 12, 2009

SEPA – New regulations for financial transactions

Since the beginning of November 2009 new regulations for banking transactions in Europe are in place – as a consequence of SEPA efforts.

What is SEPA? As the European Payments Council states, the Single Euro Payments Area or SEPA will be “the area where citizens, companies and other economic participants make and receive payments in euro, whether between or within national boundaries, under the same basic conditions, rights and obligations. In the long-term, the uniform SEPA payment instruments are expected to replace national euro payment systems now being operated in Europe“.

SEPA currently consists of the 27 EU Member States, Iceland, Liechtenstein, Monaco, Norway and Switzerland. SEPA is an EU-wide policy-maker-driven integration initiative in the area of payments designed to achieve the completion of the EU internal market and monetary union. Following the introduction of euro notes and coins in 2002, the political drivers of the SEPA initiative - EU governments, the European Commission and the European Central Bank - focused on harmonizing the euro payments market. Integrating the multitude of national payment systems existing today is a natural step towards making the euro a truly single and fully functioning currency. SEPA will become a reality when a critical mass of euro payments has migrated from legacy payment instruments to the new SEPA payment instruments.

The main benefits expected are the creation of conditions for enhanced competition in providing payment services as well as more efficient payment systems through harmonization. Once the SEPA is established it will be possible to exchange euro payments between any accounts in SEPA as easily as it is possible today only within national borders. Common standards, faster settlement and simplified processing will improve cash flow, reduce costs and facilitate the access to new markets. Moreover, users will benefit from the development of innovative products offered by payment sector suppliers.

According to a recent study conducted by CapGemini Consulting at the request of the European Commission, the replacement of existing national payments systems by SEPA holds a market potential of up to €123 billion in benefits, cumulative over six years and benefitting the users of payments services.

While this potential is extremely interesting and important to financial institutions, it also means that the banking processes, reporting requirements etc. need to be adjusted and the terms and conditions for the customers are changing.

The personal risk of consumers when making a bank transfer or when losing their debit card has heightened. The main changes for customers are:

  • From now on a bank transfer becomes irrevocable on receipt by the bank, i.e. if the customer makes a mistake filling out the transfer of payment, he cannot reclaim the transfer himself, even if the bank has not executed the transfer yet.
  • Furthermore, banks are not longer obliged to verify that the name of the recipient of the transfer is in accordance with the bank account number. In the past – at least in Germany – courts did not consider the account number as sufficient.
  • It is now the responsibility of the customer himself to get his wrongly wired money back, not longer a task of the bank.
  • Another new rule is related to the “EC-card” or debit card. Customers have to pay up to €150 when their debit card was used abusively due to the fact that it got lost. The liability of the customer starts with losing the card and ends with the bank inactivating the card. This is a shift in accountability. In the past the consumers were only liable when they acted carelessly.
  • With the implementation of the new EU-rules a debit advice can be made European wide, i.e. across countries, not just within the country of the customer.

SEPA forces financial institutions to implement the new European instruments and processes and to tie their payment transactions with the electronic mass transaction systems of the central banks, e.g. SWIFTNet (the system of the German Central Bank). In addition, a more detailed customer administration and engagement with the customer is needed; adjustments to the master data as well as a more sophisticated debitor analysis are also required.

In order to make these changes for the financial institutions and their customer base as smoothly and transparent as possible business intelligence plays an integral part.

For the customers it is important to mitigate their risk by getting all relevant information about the transactions quickly at a glance, e.g. showing the name of the recipient and the account number. Exception reports can also help identifying suspicious transactions.

For the banks the process is now more standardized, which means the reporting requirements to the authorities are also more restrict. In addition, they need to anticipate the possible issues with customers and their transactions and should prepare for it with the right level of detailed reporting.