Given the wide variety of national practices, it seemed unfeasible to attempt to harmonise existing national payment instruments. The banking industry therefore opted to create new instruments designed at the outset for pan-European use. The European Payments Council (EPC) thus defined the operational rules as well as the description of the data and message formats to be used for the SEPA Credit Transfer (SCT) and the SEPA Direct Debit (SDD).
The SCT and SDD schemes are both intended for use in euro-denominated, non-time-critical payments between European users1. These instruments are designed to meet users’ day-to-day needs simply and cost-efficiently by providing basic services. Additional services may be offered for more specific needs, based on the SCT and SDD operational rules. These additional services may be specific to each bank or require co-operation between banks and payment infrastructures. In no case should the additional services hamper the smooth functioning of basic services.
Furthermore, any agreements between banks with a view to providing additional services must be transparent and open, in order to avoid restraining competition or restituting the fragmentation of the payments market. For these instruments to be used effectively within the single euro payments area, banks must commit to accepting them and be capable of settling the transactions, just as they currently accept equivalent country-specific instruments.
Lastly, it must be pointed out that the operational rules defined for the SCT and SDD schemes are independent of the infrastructures used for interbank transactions. It will therefore be possible for different payment systems to propose their services to banks for the processing of these payment instruments.
SEPA Credit Transfer
The operational rules defined by the EPC are not very different from those that currently govern credit transfers. The EPC’s work focused mainly on the standardisation of interbank transactions, with a view to fully automating the processing of orders. The decision was made to draw on modern and open message formats, using XML (eXtensible Markup Language), following a methodology that conforms to international standards (e.g. ISO 20022).
The EPC defined the data exchanged to enable the processing of these transfer orders as well as the information to be provided by users wishing to make SEPA credit transfers. However, SCT rules do not impose strict obligations with regard to the content of the transfer order made by a customer to its bank. While the EPC provides a framework and recommendations in this area, customers and banks are free to come to an agreement on the content and format of transfer orders. In practice, users wishing to make transfers in euros to accounts held within the SEPA area will have to transmit to their banks, in an agreed format, a transfer instruction that notably includes the identification of the transfer beneficiary, the amount and, where necessary, the purpose of the transfer (for example a code identifying the invoice giving rise to the transfer). The latter information must be transmitted with no alteration right up to the final beneficiary.
Consequences for Users of SEPA SCT
For users, the main difference between the current transfers and the future SCT is not in the operational rules but rather in the data and formats used. While credit transfers currently used in the EU generally identify the beneficiary account through the national account identifier (in France this is the RIB, which gives the official details of the account), the SCT will use two complementary identifiers: the bank identifier code (BIC), which will make it possible to send the instruction to the beneficiary bank, and the international bank account number (IBAN), which will identify the account of the beneficiary. These identifiers are already commonly used in cross-border transfers within the EU, and since the adoption of Regulation 2560/2001 of the European Parliament and of the Council, banks transmit them to their customers in addition to the RIB.
Furthermore, the space provided for indicating the purpose of the transfer will be longer in the SCT than it is in most current national transfers. While ordinary French transfers provide for only 31 characters for stating this information, the SCT will allow the end-to-end transmission (i.e. from the originator of the transfer to its final beneficiary) of 140 characters.
Lastly, the SEPA Credit Transfer Rulebook already includes a guaranteed maximum execution time, which is the same for national and cross-border transfers. This time, which runs from the date of acceptance by the originator’s bank to the moment the beneficiary’s account is credited is currently set at three banking days. This is a maximum, with banks being entirely free to offer shorter execution times corresponding to their customers’ needs. In addition, the proposal for a directive on payment services, which is currently under discussion, envisages reducing the maximum execution time to one day, applicable as from 1 January 2010.
SEPA Direct Debit
The EPC adopted a Rulebook for the SEPA Direct Debit scheme (SDD), which expresses a set of entirely new rules guided by simplicity. The SDD provides for the identical processing of both recurrent and one-off direct debits, with no limits on the value of the transaction. The SDD scheme will be based on a mandate given by the debtor to the creditor authorising the debit of its bank account. This mandate may be paper-based, as is the case for the existing French direct debit, or electronic. As with the SEPA Credit Transfer, efforts also focused on the standardisation of interbank transactions. It was decided to use data and messages consistent with those of the SCT. The bank identifiers used are therefore IBAN and BIC. The creditor identifier, which is equivalent to the numéro national d’émetteur (national issuer number) used in French direct debits, will also be harmonised. Transactions initiated to execute a SEPA direct debit comprise two phases: the first is linked to the handling of the mandate and the second to the direct debit itself.
Prior to initiating a SEPA direct debit transaction, the creditor must send a pre-notification to the debtor detailing the amount and date of collection of the debit. As with the current direct debit system, the information may take the form of a schedule of payments or be included in an invoice.
The SEPA Direct Debit mandate
The SEPA Direct Debit mandate is the authorisation given by the debtor to the creditor to initiate instructions to debit funds owed to it from a specified account, and to the debtor bank to comply with the instructions issued by the creditor. The mandate is drawn up by the creditor and sent to the debtor who fills it in (account number, signature, etc.). To make the debtor fully aware that it is authorising the creditor to debit its account, the indication ‘Direct Debit Mandate’ shall be clearly specified on the paper or electronic mandate. It is imperative for the creditor to have a mandate signed by the debtor before initiating any transactions.
The SEPA Direct Debit mandate will include a reference identifying the creditor, such as the national issuer number that currently figures on direct debit authorisations used in France, and also a unique reference, aimed at facilitating the management of direct debit authorisations for all parties involved: debtors, creditors and banks, especially in the event of the transfer of a mandate following a company sale or merger. The other elements to be included in the mandate are the names and addresses of the debtor and the creditor, the bank references (IBAN and BIC) of the debtor account, the specification of the one-off or recurrent nature of the mandate, as well as a possible reference to the underlying contract between the debtor and the creditor.
The debtor may cancel a mandate given to a creditor at any time by communicating directly with the creditor, without having recourse to its bank. The creditor may then no longer initiate direct debit instructions relating to the cancelled mandate. If a mandate is not used for a period of 18 months, the creditor must consider it as no longer valid. Similarly, to amend a mandate, for example, in the event of a change of bank, the debtor will simply inform the creditor directly.
Under the SDD scheme, a debtor may address a request for the reimbursement of a direct debit to the debtor bank after settlement within a period currently set at six weeks from the debit date. This right will also be laid down in the directive on payment services. The bank must comply with the refund request; disputed collections are matters to be resolved directly between the creditor and the debtor. Lastly, in the absence of a valid mandate from the debtor, the debtor may dispute a direct debit beyond the six-week period. In such cases, the debtor bank may ask the creditor bank to provide proof of the existence of a mandate. The creditor bank must then present a valid mandate within a period of 30 days.
Consequences of SEPA SDD for Users
The main change introduced by the SDD scheme vis-a-vis direct debits lies in the routing of the mandate. In the SDD scheme, the mandate will be stored by the creditor and transmitted to the debtor bank for verification purposes only at the request of the debtor or the debtor bank. The interbank processing cycle (timeframe between interbank exchange and settlements) will also be reduced to two instead of four days, which gives greater flexibility to initiators of direct debits.
In France, there are also other direct debit instruments, such as the TIP (interbank payment order) and telérèglement, whose use is relatively widespread, and which require the validation of every debit transaction. These specific features are not as yet expressly covered by the operational rules of the SDD, which are being finalised. It is possible that the EPC will adopt a type of function that may correspond to these features. Failing that, French banks may choose to offer these appropriate specific features as additional services.
1The users – payer and beneficiary – must both hold accounts with a bank within the SEPA area.