SEPA
From FXPedia
January 28, 2008
Today marked another milestone in the continuing efforts to eliminate trade and commerce barriers within the European Union. The Single Euro Payments Area (SEPA) project was officially launched making it easier to transfer funds between Euro-member financial institutions.
Since January 1, 2002, Euro banknotes and coins have been legal tender for all countries in the Eurozone. This means that as a citizen of Germany I could use the same currency I use at home while on vacation in Finland. No need to exchange currencies and worry about fluctuating exchange rates - all very simple, right?
Now, what if as a citizen of Germany I want to transfer funds to my friend’s bank account in Finland. My friend will then use this money to rent a nice little cottage along the Baltic Coast so that everything will be ready when I arrive for my vacation. Well, now things can get a little sticky.
While the Eurozone countries have fully adopted the use of the Euro as the currency for the region, cashless transactions; that is, transfers between financial institutions, are not nearly so well integrated. This is not to say that the transfers cannot be completed; the problem is that different countries, with different banking systems, cannot process the request as efficiently as transactions within the same country. For this reason, transactions between different European Union countries are more costly to complete and this cost was passed on to the consumer.
However, this practice did not sit well with the European Union leaders who felt that it was not acceptable for financial institutions to apply an additional charge to transfer funds between countries that were part of the Eurozone. To combat this, regulations were updated that forced banks to charge no more for cross-border transactions within the Eurozone than they did for domestic transactions. Despite this, fees still remained high and banks complained that they were losing money on many transactions.
In 2002, the banks in the Eurozone created the European Payments Council (EPC) with the express intent of developing a system whereby banks could more efficiently transfer money directly between institutions. This became known as the Single Euro Payments Area, or SEPA. The goal of the EPC was to eliminate the manual intervention often required to process cross-border transactions in a bid to reduce the cost of processing. Ultimately, end-to-end, straight-through processing of all Eurozone money transfers is expected to reduce financial institution costs, which will lead to lower costs for the customer.
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