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SEPA Payment Support in Europe

With 27 member states and 23 official languages,[1] it's no coincidence that the European Union's (EU's) official motto is "united in diversity." But come 2014, each country in the EU will adopt a new kind of payment system that is anything but diverse.

The Single Euro Payments Area (SEPA), an initiative introduced by the European Payments Council (EPC) in 2008, will allow European businesses and consumers to send and receive payments in (EUR) under the same regulations - regardless of their location.

A Unified Payment System

Besides harmonizing the payments environment for the entire eurozone, SEPA will also allow European businesses to initiate bank-to-bank money transfers in a quick, cost-effective manner, says Dr. Brent M. Eastwood, contributing analyst at the Langley Intelligence Group Network, a global forecasting and private intelligence firm based in Washington, D.C. The system "will involve all 27 EU members, plus Iceland, Norway, Lichtenstein, Monaco and Switzerland," and will represent a large departure from the fragmented banking structure that has characterized the EU in the past, Eastwood says.

When SEPA is fully implemented, increased competition between national providers will work to drive down transaction charges.

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Prior to SEPA, most countries in the eurozone operated under separate banking systems. For instance, while international businesses and foreign customers alike could use euro notes and coins to make international payments in all EU countries, electronic payment methods, such as direct debits, credit transfers and debit cards and credit cards, were more difficult to administer. But under SEPA, all payment platforms must be compliant with certain standards to ensure a uniform EU payment experience.

The Impact on Businesses

For businesses operating in the EU, as well as international businesses who trade with EU countries, SEPA's major benefits are increased speed and ease during the payment process, says Dominik Knoll, CEO of the World Trade Center of New Orleans, an organization that facilitates international trade and economic development. This will allow small businesses to compete internationally because they will be able to offer foreign customers convenient payment method platforms, such as SEPA direct debit products.

When SEPA is fully implemented, increased competition between national providers will work to drive down transaction charges, Eastwood says. Business owners and foreign customers will also be able to save money with the new streamlined payment infrastructure, which allows individuals to handle all euro payments from one bank account instead of opening separate accounts in each country.

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While migration to SEPA has been slow, with only 30 percent of members making the conversion as of June 2012, full integration will be mandatory by Feb. 1, 2014. Eastwood strongly recommends that before making the transition, both domestic and foreign businesses should hire a qualified team of attorneys and CPAs to "scrub the SEPA regulations and requirements very closely."

International businesses may also partner with a trusted online foreign exchange provider that is making strides to accommodate the new system. An online FX provider may also offer simple and free sign up with no maximum transfer balance and convenient receipt management with pre-stored bank details, making it faster and easier to calculate the euro conversion, for example from U.S. dollars (USD) to EUR, and initiate money transfers. 

"The euro has been in existence for over a decade, and the benefits are clear," says Tiffany Burk, senior European market analyst at Western Union Business Solutions.  "Politicians are currently hoping that these benefits outweigh some of the less well-thought-out downsides of a single currency. It will be a long road, but a move towards closer fiscal unity and debt issuance is ultimately what will have to happen."


[1] "The World Factbook," last updated on May 6, 2013, Central Intelligence Agency



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