Introduction

SEPA

The Single Euro Payments Area (SEPA) is the area where citizens, companies, and other economic participants can make and receive payments in euros, within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location. The geographical scope of SEPA encompasses the 27 EU member states, Iceland, Liechtenstein, Norway, and Switzerland.

SEPA is an EU-wide policy-maker-driven integration initiative in the area of payments, which is designed to achieve the completion of the EU internal market and monetary union. After the introduction of euro notes and coins in 2002, the political drivers of the SEPA initiative – EU governments, the European Commission, and the European Central Bank – focused on harmonizing the euro payments market. Integrating the multitude of national payment systems that exist today is a natural step towards making the euro a truly single and fully functioning currency.

SEPA will become a reality when a critical mass of euro payments has migrated from legacy payment instruments to the new SEPA payment instruments.

Common data format

A common data format that is used by all parties in a payment transaction is essential for cost-efficient handling of billions of payments.

Today, dozens of different data formats are in place to process payments across different national and European clearing systems in the EU. Therefore, the realization of SEPA requires agreement on a common set of data to be exchanged through a common syntax.

The SEPA Data Formats, as specified by the EPC for the exchange of SEPA payments such as direct debits and credit transfers, represent such common data sets.

ISO 20022 XML message standards

The SEPA Data Formats do not constitute an exclusive European standard. Rather, the SEPA Data Formats are based on the global ISO 20022 XML message standards. These formats are binding for the exchange of SEPA payments between banks. Business customers are recommended to use the SEPA Data Formats to initiate payments. However, banks can continue to accept other formats from customers for SEPA payments.

The International Organization for Standardization (ISO) is the world’s developer of global standards. ISO combines the expertise of representatives from all sectors. ISO provides any stakeholder group the opportunity to participate in the process of standard setting. ISO has worked on modeling financial messages, which is set out in ISO Standard 20022 ( www.iso20022.org). This standard provides a methodology to define business processes and the related data elements.

In the ISO process, business requirements are defined for all global markets. Different markets have different data needs. Therefore, each community may need to define its own version within the global standard, specific to its own situation. In this respect, the ISO messages have been adjusted to meet the SEPA requirements. The role of EPC in defining the SEPA Data Formats consists of identifying, within the global standard, all the necessary data elements for making SEPA payments as defined in the SEPA rulebooks.

These "core" data elements are indicated by yellow shading in the SEPA Implementation Guidelines that are released by the European Payments Council (EPC) with respect to the SEPA Credit Transfer Scheme and the SEPA Direct Debit Schemes. To allow communities of banks that participate in the SEPA Schemes to provide additional optional services (AOS) based on the schemes, the EPC has identified data elements within the global standard that can be used for this purpose.

These data elements are indicated by white shading in the Implementation Guidelines. The SEPA Data Formats are a valid subset of the global ISO Standard 20022.

SEPA Credit Transfer Scheme

In LN, two SEPA solutions have been implemented for the SEPA credit transfer scheme. Based on the ISO 20022 XML message standards and a user-defined layout with a mapping to LN data, the system generates an XML file to be stored and subsequently sent to the bank.

With regard to credit transfers in general, the originator (payer) completes a credit transfer instruction and forwards it to the originator’s (payer’s) bank by any agreed means. The originator’s bank receives and checks the credit transfer, and rejects erroneous instructions. Next, the originator’s account is debited and the credit transfer is sent to the clearing and settlement mechanism (CSM).

The CSM forwards the credit transfer message to the beneficiary bank and settles the amount of the transfer. The beneficiary’s bank receives the credit transfer message, checks the credit transfer message, and credits the account of the beneficiary.

The SEPA Credit Transfer Scheme allows payments services providers to offer a core credit transfer service throughout SEPA, whether for single payments or bulk payments. The scheme’s standards facilitate payment initiation, processing, and reconciliation based on straight-through-processing (STP). The scope is limited to payments in euros within SEPA countries. The credit institutions that perform the credit transfer must be scheme participants, that is, both must have formally adhered to the SEPA Credit Transfer Scheme. There is no limit on the amount of the payment that is carried under the scheme.