Banks begin processing Sepa direct debits

The pan-european, cross-border payments system, known as the single European payments area (Sepa), began processing direct debits from 2nd of November.

The pan-european, cross-border payments system, known as the single European payments area (Sepa), began processing direct debits from 2nd of November.

The Payments Services Directive (PSD), the pan-european law that makes Sepa possible, became law on 1 November. Some banks are set to overhaul the legacy payments systems as they attempt to comply.

All European banks have one year to prepare for receiving Sepa payments.

Sepa, which was introduced in January last year, makes cross-border payments in Europe as straightforward as making a payment within one country.

Some banks have already begun processing direct debits using the Sepa scheme. In 12 months all banks will have to be able to receive Sepa payments to be compliant.

There are two main ways of doing this. Banks can either become a Sepa processor or they can outsource their Sepa payments to another bank.

Gareth Lodge, analyst at Towergroup, said if banks are to meet the Sepa requirements they will need to invest heavily. "They will need to put systems in place that are as reliant, secure and reliable as legacy systems are today."

A combination of harmonising the payments market through Sepa and using Sepa as a platform for e-invoicing could lead to savings to European businesses of £268bn over the first six years, according to a European Commission study published last year.

Chris Skinner, chairman at financial services think-tank The Financial Services Club, said many banks are not yet compliant. "There are only about a quarter of European banks that are compliant."

Uncertainty about Sepa's implementation is making it difficult for banks to commit to it. According to the comprehensive research carried out by The Financial Services Club, only 13% of over 350 global payment professionals believe Sepa is being implemented correctly.

Simon Bailey, director payments and transaction banking at Logica, said that, because volumes will be initially low for Sepa payments, banks will try and get by themselves. This will involve linking systems together but this will only be a short term answer.

"If it picks up the banks will have to look at doing something more formal."

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