What SEPA Means for the Future of E-Commerce

On August 1st of this year, the latest and most important SEPA deadline was passed. Over a decade in the making, the Single Euro Payments Area has as of September achieved its goals, with 97-99% of payments in the Eurozone now SEPA payments. The world has been watching the implementation of SEPA closely and its success is going to have a big effect on the future of e-commerce.

The Single Euro Payments Area is a payment integration initiative coordinated by the European Payment Council in order to introduce a single, harmonised payment format for all transactions in the euro currency. The initiative was designed to defragment the national European markets into a single domestic market. With SEPA now in effect, all Eurozone countries not only share the currency but also a payments network, meaning that money can be transferred freely across borders within Europe.

Stakeholders around the world are keeping a close eye on post-SEPA integration Europe. How the integration affects the payments landscape in the formerly fragmented nations in the Eurozone is going to stand as a benchmark for future integration initiatives and the future of e-commerce as a whole.

Benefits of SEPA

  • A person or organization can conduct business throughout the Eurozone with a single bank account and a single set of payment tools.
  • Businesses within the Eurozone can offer their services across borders with much more ease and at a reduced cost.
  • Banking and financial services in Eurozone countries now face increased competition, which is expected to lower charges, improve services and foster innovation in payments technologies.
  • Businesses around the world that want to sell in Europe can now sell to the entire Eurozone using a single set of payment tools.

The History of SEPA

SEPA can be traced back to the spring of 2002 with the founding of the EPC (European Payment Council). A result of the introduction of the euro, the EPC was created to coordinate the European banking industry and to promote the development of the Single Euro Payments Area.

After the introduction of the euro currency in 1999, banking regulators in the EU such as the European Commission called upon the industry to develop harmonised schemes for electronic cross-border euro payments. The rationale is illustrated in a press release from the European Central Bank (ECB) in September of that year:

“Despite the introduction of the euro, however, there is still a clear gap between the service levels of domestic and cross-border retail payment systems (…). Indeed, the single currency environment argues strongly in favour of a single payment area.”

SEPA technologies didn’t become available until the launch of the SEPA credit transfer in 2008 and direct debit the following year. At this point the technologies were voluntary so migration was slow, but by2010 the majority of electronic payments in the Eurozone were SEPA payments. February 1st, 2014 was the formal date of migration and as of August 1st all national credit transfer and direct debit procedures in Eurozone countries officially expired.

Going back now to read news stories and commentary about SEPA from before the August 1st deadline, it’s interesting to note a prevailing trend of doubt and uncertainty. It seems that many in the industry did not expect the deadline to be met, but what’s really remarkable about SEPA from a post-deadline vantage point is just how much of a success it was. That fact alone is enough to send shockwaves through the global payments industry.

The Future

The successful implementation of SEPA is not an end in and of itself. Without the costs and inconveniences associated with cross-border money transfers, competition and innovation within Europe can flourish, but payment habits remain fragmented. In France the cheque is still popular, while it disappeared from Germany and Scandinavia a decade ago. In Germany 4 out of 5 transactions are cash-based, while in much of Europe most payments are card-based or electronic transfers.

What truly matters is how the market integration benefits the European payments landscape and what kind of opportunities for growth and innovation it makes possible. Initiatives such as the new maximum interchange costs for credit and debit are designed to promote electronic payment volumes and encourage competition, but there could be unexpected consequences of the integration of formerly-distinct national markets.

SEPA Before and After

  • Post-SEPA regulations, formerly fragmentation national markets all operate on a single common payments system.
  • Formerly, incompatible systems increased the cost and complexity of cross-border payments and created a need for a variety of conversion and processing tools. SEPA improves efficiency and decreases the likelihood of security flaws by maintaining a single set of payment tools.
  • Along with the payment systems, the customer experience was also fragmented before SEPA. Now, as people in the Eurozone share a single payment system, so too will the customer experience become uniform, simplifying online banking and payments throughout Europe.

After more than a decade of implementation, SEPA has already inspired other regions to convert their payment formats to ISO 20022, a standardized international format for transactions. The ISO 20022 format is readily compatible with a wide range of different systems and simplifies the transfer of funds between different countries with disparate banking systems, but no other initiative quite compares to actually merging 34 distinct states into one payment area.

The sheer scale of the undertaking is enough to explain SEPA’s 12-year gestation period, but the timing of the market integration couldn’t be better. Europe, as well as much of the world, is in the process of rapid economic recovery. Cross-border payment volumes are at an all-time high and every prediction suggests growth.

It’s impressive that the European banking industry began discussing payment integration 15 years ago and that they foresaw the importance of cross-border payments in the future of commerce. They got out ahead of the current trend toward borderless payments and the global scale of e-commerce. SEPA is a major step in the ongoing globalisation of commerce, and how the e-commerce industry in Europe adapts to this change will guide the future of the industry world-wide.


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