Published: August 01, 2012
The EU’s objective to create a common European payments market will officially take a step forward with the mandatory adoption of SEPA instruments within the European economic area from February 2014. This is intended to be the starting point of a market where all players will be able to make and receive payments in an easy and secure way, at cost and efficiency levels equal to those currently existing in the national territories.
However, this intention may not be realistic when considering some existing national payment markets. We do not wish to under-rate the importance of the creation of a single euro payments area: on the contrary, we recognise the tremendous impact that SEPA will have in achieving the vision of the EU as a single body (rather than a multitude of single states) by enabling all market participants (individuals, corporates, public entities, etc.) to send EUR payments under the same standards, rights and obligations, regardless of where they are located in Europe.
Aside from the pan-European perspective and considering instead what SEPA will imply at a country level, its impact can be viewed rather differently. For example, in Italy, the increased flexibility offered by SEPA has been effectively accomplished already at a domestic level through the introduction of new, standardised market practices and formats, such as the introduction of IBAN as the unique identifier of a bank account, that was deployed in Italy more than two years ago.
The same applies to direct debits. It is undoubtedly the case that some features of the SEPA Direct Debit (SDD) scheme are less sophisticated than some of the national direct debit schemes, so SDD cannot be seen as a step forward. Italy’s national DD scheme (RID) is based on both creditor/debtor-driven mandate flows, with an efficient and mandatory electronic mandate management service, AEA - Archives Electronic Alignment. The SDD scheme lacks the efficiency and automation of this service. The AEA follows the entire lifecycle of a direct debit mandate, from the initial request for debit authorisation, to the possibility, for example, that the debtor account no longer exists.
In addition, the validity of the mandate is automatically checked each time a creditor sends a collection request. Consequently, the timeframe needed to assess the finality of the relevant payment is considerably reduced.
Some security features are also associated with RID: the debit authorisation request is always double checked for the authenticity and consistency of the requesting party. Details of the person signing the mandate are required (e.g., the fiscal code) and these have to match what is stored at the receiving bank level. A direct debit mandate cannot be initiated with the presence of an IBAN only, but the authority of the person making the request is also validated. While there is some effort required to put this in place, it is valuable in mitigating a certain degree of risk for the creditor. Finally, direct debit mandates reside at the bank where the debtor has its bank account. The creditor has a significant level of protection in the RID scheme and debtor protection is no less important.
By adopting the SDD, the AEA will no longer apply, and the equivalent under SEPA (SEDA) does not provide the same level of protection to either debtors or creditors since it is an additional optional service not available outside the country. Consequently, the Italian community is keen to maintain these features through a mandatory SEDA that replicates the advantages offered by the AEA. This contrasts with the typical emphasis on the benefits of SEPA in comparison with legacy schemes, but this is not true for all the countries included in SEPA.
However, looking forward once SEPA has been fully rolled out, the ability to innovate and the level of efficiency achievable in cash management processes will be significantly faster than today, primarily due to the virtual deletion of national boundaries. Finally, future advances in the payments market will start from the basis of a harmonised set of core European payment instruments that will then apply across a wider economic space.
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