Sepa and the PSD: a brief history

The Single Euro Payment Area (Sepa) is a classic example of unintended consequences. In 2000, the European Union’s Lisbon Strategy set out a plan to create an internal market for financial services by 2010. The first fruit of that plan was regulation 2560 in 2001, an EU Parliament and European Council measure that aimed to remove differences in costs of eurozone cross-border card payments, ATM withdrawals and credit transfers throughout the region – thus increasing efficiency, lowering costs and improving competitiveness.

European banks, realizing the impact that Regulation 2560 would have on their bottom line when it came into force in 2002, decided – like a reckless poker player – to up the stakes without thinking of how the other players would react. A total of 42 banks, the three European Credit Sector Associations and the Euro Banking Association formed the European Payments Council with a goal of simplifying and codifying standards – creating Sepa – so that banks would be able to lower their costs as they were forced to lower charges.

Unsurprisingly, the European Commission – which hardly has a reputation for hands-off regulation – decided that Sepa needed assistance and that it was up to the august bodies of the EU to provide it. Although it was accurate to state that schemes such as the Sepa Direct Debit (SDD) or the Cards Framework required a legal basis in order to take place, the Payment Services Directive, which was adopted in December 2005, took the opportunity to address a number of other issues not contained in Sepa.

"The PSD is the 80-point behemoth created by the European Commission when the industry asked for a few key barriers to Sepa to be resolved," says Peter Jameson, Sepa market manager in EMEA cash management at Citi in London. "It is a different project to Sepa with a huge impact." Crucially, the PSD will reinforce the rights and protection of all users of payment services – retailers, large and small companies, public authorities and, most determinedly, consumers: a hugely expensive exercise that was never envisaged as part of Sepa.

The European Parliament approved the PSD in April 2007 and the 27 member states of the EU are now transposing it into national law – no easy task and one that many observers fear could result in anomalies between member states – before it is implemented on November 1 2009, paving the way for the SDD. It is expected that a handful of countries might finish the transposition process sooner than November 1, resulting in the unusual situation of a pan-European payment method being available only in select countries for a few months before going region-wide.