SEPA (Single Euro Payment Area) is an EU Council initiative for further economic integration of the EU for member states participating in the EU25, EEA (Norway, Iceland and Lichtenstein) and Switzerland. The concept is that citizens of the Euroland will have only one bank account and use that to pay any Euroland bills at the same fee non distinguishing between domestic or crossborder payment.

Also debit cardholders should be able to use any ATM or point of sale terminal at “reasonable” cost without differentiation on the country of card issuance.

The EU Council encourages use of SEPA in an effort to enhance collections while reducing cash and cheques payments. The initiative entails the interconnection of existing national ACH (Automated Clearing House). Currently about 7000 European banks and savings institutions use about 120 Clearing & Settlement infrastructures for low payment, high payment and debit cards that have no consistency in the instruments that these infrastructures support. SEPA will only develop basic standards and services; banks can develop value added services based on SEPA rules and regulations.

SEPA Action Plan (2004 -2010):

SEPA was approved through the 2000 Lisbon Program. In 2002 the EPC (European Payments Council) was created to overlook the implementation of SEPA. In 2006, the Regulations for 2 SEPA systems (firstly, SEPA Credit Transfer Scheme & SEPA Direct Debits and secondly, debit/credit Cards Framework) were established. As of 1/1/2008 three SEPA financial instruments will be available, namely,
SEPA Credit Transfer Scheme (intended to be of unlimited in value).
SEPA Direct Debits (intended to be of unlimited in value).
SEPA Card Framework.
By 1/1/2008 all banks need to ensure that will be reachable by any other bank participating in SEPA. Between 2008 and 2010 both National and SEPA payments could coexist.
Due to SEPA, EU banks are now facing the threat of loosing a substantial income derived from the fees from money transfers within the EU. However, some other banks especially the hi-tech ones, are planning to capitalize on their technology by offering low cost products that will allow them to attract additional clients. Furthermore, all banks should realize that now the competition is moving from a domestic level to an EU market level in which case the increased competition will shrink fees to the minimum.
The daring banks wishing to exploit this opportunity can set up electronic automated banks at low tax jurisdiction (e.g. Cyprus) and capitalize on this opportunity. This can be done by attracting new customers that perform most of their banking electronically and by adopting competitive rates for the EU market.