The Single Euro Payments Area (SEPA)


Since the establishment of the European Economic Community in 1958, the movement towards a more integrated European financial market was marked by several events, the most visible of which were undoubtedly the launch of the euro in 1999, and the cash changeover in the first euro area countries in 2002. Less visible, but also of great importance, was the establishment of the central banks' large-value payment system, known as TARGET, on 1 January 1999. TARGET provided the backbone of the financial system in euro and was the implementation tool for the Eurosystem's single monetary policy. Eventually, on 19 November 2007, TARGET, which was a decentralised platform, was replaced by the single shared platform called TARGET2.

The next major step towards closer European financial integration was the implementation of SEPA and was a further rung in the ladder towards realising the full potential of the single market in Europe. The objective of SEPA was to put all electronic payments (credit transfers and direct debits, credit card and debit card payments) across the euro area on the same platform of domestic payments. In practice, SEPA meant that a payer was able to make fast and secure transfers between bank accounts anywhere in the euro area, just like making domestic transfers, and at the same cost.

SEPA was strongly supported by the European Commission (EC) and the European Central Bank.  The legal framework supporting SEPA is the Payment Services Directive (PSD) which was revised in 2018 under the revised Payment Services Directive (PSD2). The Central Bank of Malta has been appointed as the Competent Authority for SEPA implementation in terms of Regulation (EU) 260/2012 by the Minister for Finance.

SEPA Instruments

(i) SEPA Credit Transfer (SCT)

The SCT is a payment between one party and another through an intermediary, generally a payment service provider. Under the SCT scheme, charges are shared between both parties and settlement should not take more than the following day from payment initiation. To effect payment instructions, the International Bank Account Number (IBAN) is required. Further details regarding SCT can be found on the EPC's website.

(ii) SEPA Direct Debit (SDD)

With an SDD, consumers are able to initiate regular payments by signing an agreement ('mandate') to give consent to the beneficiary so that the latter can pull funds from the payer's bank account when a particular payment is due.

Direct debits are ideal for payments which are periodic in nature, such as recurring payments, subscriptions and payments of bills. Direct debits enables the payer to avoid late payment fees as it is the responsibility of the beneficiary to initiate the process to collect the payment.

The SDD scheme requires a unique identifier to allow debtors and also debtors' banks to check collections received against mandate information. This checking requires a unique identification of creditors which cannot differ between institutions. Once obtained, the Creditor Identifier (CI) of the Creditor can be used on any SDD mandate and in any SDD collection initiated through any Creditor Bank and presented to any Debtor Bank regardless if the Debtor is registered under the same SEPA country as the Creditor or not. Details on the composition of the Maltese SDD CI can be found here.

The documentation below provides further information on the benefits of direct debits for both consumers and merchants:

(iii) SEPA Instant Credit Transfer (SCT Inst.)

In today's world, consumers expect better and faster services. The SCT Inst. scheme, which became operational in November 2017, delivers this by enabling pan-European instant payments with the funds made available on the account in less than ten seconds at any point in time on any given day. This is much faster compared to traditional credit transfers.

However, due to the low uptake of instant payments by European payment service providers, on 26 October 2022, the EC published a new legislative proposal, with an aim to remove the barriers that limit the take-up of instant payments, ensuring that the benefits become more widespread, whilst at the same time guaranteeing that instant payments remain affordable and secure.

More information on the proposal can be found on the EC's website.