Ready Your SAP System for the New Payment Methods within the Single Euro Payments Area: The Structure of the SEPA Credit Transfer Payment Format

  • by Juergen Weiss, SEPA-Now Consulting
  • January 17, 2011
It is highly likely that by 2014 the Single Euro Payments Area (SEPA) will become mandatory for all companies operating in Europe that are sending and receiving Euro payments in the SEPA zone. One of the most significant impacts will be the decommissioning of domestic payment formats. Become familiar with the new payment methods being introduced with SEPA. Get detailed insight into the necessary settings within the SAP ERP Financials system to activate the new payment formats. Understand the logical structure of the respective format trees within the Data Medium Exchange Engine.
Key Concept
In December 2010, the European Commission proposed a new regulation to establish technical requirements for credit transfers and direct debits within the Single Euro Payments Area (SEPA). The new regulation calls for a mandatory migration date for the currently existing domestic payment methods within the 32 SEPA member states by 2014 at the latest. This forces all companies that are doing business with European partners and that are sending or collecting payments in Euros to comply with the new payment standards. Payment formats such as checks or bills of exchange are not affected by the new standards because they are paper based.

The Single Euro Payments Area (SEPA) is the result of actions taken by the banking industry in 2002, when the industry created the European Payments Council (EPC) to define the standards, frameworks, and rules for Euro payments. SEPA enables citizens, companies, and other stakeholders to 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 political driver behind SEPA is the European Commission along with the European Central Bank.

SEPA applies to all national and cross-border Euro payments within and between the 32 member states of SEPA, including the 27 European Union (EU) countries, the three European Economic Area countries (Liechtenstein, Iceland, and Norway), and Switzerland and Monaco. SEPA was originally launched in January 2008 with the introduction of the SEPA credit transfer payment instrument. In November 2009, the second phase started with the introduction of two direct debit payment schemes — one for business-to-consumer (SEPA core direct debit) and one for business-to-business (SEPA B2B direct debit) transactions. These new payment instruments are supposed to be identical across SEPA and provide significant payment efficiencies for the daily business of corporations. For example, exporters no longer require expensive, difficult-to-manage, incoming payment accounts at foreign correspondence banks. Companies can set up payment factories and shared service centers for financial operations, enabling them to centralize their financial accounting, cash, and treasury management functions.

Initially the new SEPA payment instruments exist in parallel to the traditional domestic payment formats such as BACS (bankers’ automated clearing services) in the UK. SEPA adoption still remains low. According to statistics from the European Central Bank, less than 10 percent of all payment transactions were SEPA credit transfers at the end of 2010. To speed up the migration, the European Commission decided to introduce a regulation setting a fixed migration date for this parallel phase. The current proposal calls for a 12-month transition period for credit transfers and a 24-month transition period for direct debits after the regulation enters into force. It also foresees an extension of these time frames of up to 24 months, which implies that the new SEPA payment forms will become mandatory by 2014 at the latest provided that the regulation is passed by the European Parliament and the Council of the European Union. 

Both the SEPA credit transfer and the SEPA direct debit payments are based on International Organization for Standardization (IOS) 20022 payment processing standards and are defined as XML formats. The SEPA credit transfer does not differ significantly from the existing standard credit transfer within the EU, but it eliminates the current 50,000 Euro value limit. The SEPA direct debit schemes are more complex payment instruments requiring the creditor to receive a mandate from the creditor’s debtors.

The mandate is the authorization and expression of consent given by the debtor to the creditor allowing the collection of outstanding receivables from a specified debtor account. Creditors must store mandate information in their systems as proof of legitimate collections, as well as to transfer mandate-related data to their financial institutions. Both the SEPA credit transfer and the SEPA direct debit payment instruments require the use of the international bank account number (IBAN) and bank identifier code (BIC). Companies have to update their systems to support both IBAN and BIC.

I’ll explain the structure of the SEPA credit transfer payment format and the necessary settings in the SAP system. SAP’s SEPA functionality supports releases SAP R/3 4.7 and higher, including SAP ERP Central Component (SAP ECC) systems. The SEPA functions are delivered with Support Packages that belong to the software components SAP_ABA (generic components) and SAP_APPL (logistics and accounting).

Juergen Weiss

Juergen Weiss works in the functional area of SAP Financial Supply Chain Management. As part of SAP’s product management team, he was globally responsible for the Financial Supply Chain Management applications, including Electronic Bill Presentment and Payment, Dispute Management, Collections Management, Credit Management, Treasury and Risk Management, Bank Relationship Management, and In-House Cash as well as Accounts Payable and Receivable.

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