Frequently asked question about SEPA

What does the Single Euro Payments Area (SEPA) mean?

SEPA brings together in one payment area all the countries of the European Economic Area, meaning all the countries of the European Union plus Iceland, Liechtenstein, Monaco, Norway and Switzerland. This will let people, companies and public sector institutions across Europe make and receive electronic payments in euros as credit transfers or direct debits without there being any difference between domestic and international payments. SEPA will be the final stage in the introduction of the euro as currency as the single payment system will complement the euro as a single cash currency, and this will help raise the competitiveness and efficiency of the whole European economy.

Will it be free to make payments abroad with SEPA?

No, but the terms for cross-border payments within the euro payment area will be just the same as those for domestic payments. This means that the service fee for a cross-border SEPA payment should be the same as for a payment within the country and the banks are not allowed to ask any additional fee from the recipient of the transfer, so it will cost the same to transfer money from Swedbank to SEB or to a French commercial bank. Savings of millions of euros in transaction costs have been made in Estonia since the introduction of the euro, with savings for 2011-2012 estimated at 15 million euros.

What are the main changes?

From February 2014 your domestic bank account number was changed into the IBAN format, which made it slightly longer, and direct debits were replaced with e-invoice standing orders. These changes were made automatically for individuals, but companies had to make the changes themselves. For more details, see the checklist for companies.

When will the changes come in?

The EU regulation no 260/2012, the SEPA regulation, sets a deadline for the changes of 1 February 2014.

• From 1 February 2014 only the IBAN can officially be used in Estonia. This is compulsory for companies, but individual customers will be able to continue making payments with their old account numbers if they need to.
• Companies that send large numbers of payments to the bank all at the same time will need to upgrade their business and accounting software to use the new ISO standards. Banks may allow companies time for the change until 1 February 2016, and they can give more information about this on request.
• The direct debits ceased from 31 January 2014 and were replaced by the e-invoice standing order services. You can find out more from your bank and from the service providers whose bills you pay by direct debit.

Will I not be able to make any payments after 1 February 2014 if the changes are not made at the right time?

It will certainly be possible to make payments through the internet bank after 1 February 2014, as the banks will themselves have made all the necessary changes by then. Even if you make a payment as an individual customer using the old account number it should not be a problem until 1 February 2016, as the banks will generally change this into IBAN format before confirming the payment.

It is a little more complicated for companies. A company that may have been used to sending one hundred payments to the bank all at the same time may find that after 1 February 2014 it has to enter the payments one by one through the internet bank. Banks may offer services to help with this, and they can give information about this on request. It generally makes more sense for companies to upgrade their business and accounting software so that no conversion is needed and they can use both the IBAN format and the new ISO standards straight away.

Will it no longer be possible to make direct debits in Estonia from 2014?

Direct debits in their previous form disappeared from 31 January 2014, as they didn't meet the Europe-wide rules for direct debits. Banks replaced them with a new service called the e-invoice standing order. This service is even more convenient for customers as it not only allows bills to be paid automatically, but also collects all the e-invoices together in one place. So if you previously paid your telephone bill by direct debit, you are now able to pay it just as conveniently with an e-invoice standing order and see all the e-invoices you've received in your internet bank. You can get more information about this from your bank. You can also find out about e-invoices from the website of the  Estonian Banking Association.

Initially it will only be possible to use direct debits for cross-border payments but in 2014 the banks will launch a pan-European direct debit, the SEPA direct debit on the market. As this will be a new service, not all banks will necessarily offer it straight away. As demand grows for the service though, more service providers will start to offer it.

In what sense will it only be possible to use direct debits for cross-border payments?

It will be possible to use a direct debit to pay for goods and services purchased from abroad. This is a cross-border SEPA direct debit and is particularly useful for those who work or study abroad. You will be able to pay rent and utility bills in Brussels for example using a bank account in Estonia without having to open an account in Belgium.

However, the banks operating in Estonia are not enabling companies to collect payments from SEPA direct debits, which means that people will not be able to use SEPA direct debits within Estonia.

What is an IBAN and why is it needed?

IBAN stands for International Bank Account Number and is a bank customer's account number in a format that is used internationally. It allows the country and the account holding bank to be identified. With SEPA, the IBAN will be used in the same way for payments throughout the European Union and in Iceland, Liechtenstein, Monaco, Norway and Switzerland.

How exactly will my bank account number change into an IBAN?

The IBAN has been in use in Estonia since 2004, but bank customers have only used it for cross-border payments until the end of January 2014. The biggest change in day-to-day payments is that extra letters and numbers will be added to the account number used previously. The bank account number itself will remain the same, but a two-letter country code - EE for Estonia - a two-digit control number and a two-digit bank code will be added to the front of it. It should be noted that the domestic account numbers issued by the banks in Estonia are of different lengths, which means that domestic account numbers that have fewer than 14 digits will have zeroes added to become an IBAN. The IBAN used in Estonia will have 20 digits, though the maximum length of an IBAN can be 34 digits. For more details see the website of the Estonian Banking Association.

An example of an Estonian IBAN.

What is a BIC and why is it needed?

BIC stands for Business Identification Code and is the code that is needed for identifying the correspondent bank when payments are made. It is not used for payments within Estonia but it needs to be provided now for cross-border payments. From 2016 the BIC will not be needed any more and the IBAN alone will be sufficient for payments.

Why is SEPA needed?

SEPA will remove differences between countries in the way electronic payments are made, as these have been one of the main obstacles to a fully unified and efficient marketplace. In future it will make no difference whether you use a bank in your home country or in any other European country to make payments. This will increase competition between banks, which will lead them to improve the offers they make to their clients. In this way things will improve for both companies and individual customers. Overall it will make life easier, especially for those people and companies who deal with various member states of the European Union.

What are the advantages of SEPA?

SEPA will change the whole European Economic Area into a single large market. This will increase competition between companies, including banks, affect prices and encourage innovation. It will also be cheaper for private individuals to make payments abroad from their accounts in Estonia, for example to pay the rent while studying abroad.

Overall SEPA will make it easier, faster, safer and cheaper for all people and companies in the European Union and Iceland, Liechtenstein, Monaco, Norway and Switzerland to make payments. Payments can be made in the same way in the payer's home country or to another European country that has also migrated to SEPA. All that is needed is a bank account in one country and a payment card.

Will the speed of interbank payments in Estonia change?

Yes, interbank payments will become slower.

From the start of February the commercial banks settle payments between themselves using a pan-European retail system. At the end of the working day on 31 January in consequence, Eesti Pank will close its retail payments system ESTA. As interbank payments within Estonia move now through the pan-European retail payments system STEP2, the working hours of that system have an impact. The previous ten settlement cycles are reduced to five cycles, meaning that rather than the previous hour or hour and a half, it will take around 3-5 hours for money to be transferred.

Bank clients need to be aware that if money has to reach its destination in another bank on the same working day, the payment needs to be initiated in Swedbank, SEB or Danske Bank by 16.30 at the latest, and in Nordea by 15.30 at the latest. For some banks the final deadline for making payments could be 15.00. If a payment is started later, it will reach the payee on the next working day, at around 10.00. Payments previously reached their destination on the same working day if they were made before 17.00.

Payments within banks will be made in the same way as they have been up to now. Payments within one bank will be made around the clock, even at weekends and holidays.

Further information and answers to questions can also be obtained from the banks.

Why do the SEPA goals claim that interbank euro payments will be faster?

In the single payments area as a whole interbank payments have already become faster, so while it used to take up to three working days for a cross-border euro payment to be made, the money now arrives with the recipient by the next working day at the latest. In fact payments are often made even quicker than that.

What benefit do I get from the migration to SEPA?

It will become cheaper and easier to make payments. There should be just one price for both domestic and international payments, meaning that people and companies who are making payments to or receiving payments from another country will save money. A total of around 15 million euros was saved in this way in 2011-2012.

The rules and conditions for making payments are the same across Europe and this makes life easier, so if an Estonian resident goes to study or work in another country, there is no need to open another bank account there to make payments as all financial affairs can be run from the home bank in Estonia.

There will also be more choice available to people and companies as it will be possible to choose cheaper payment services from some other country.

What do I need to do to upgrade my accounting software?

Contact your business or accounting software manager and consult your bank as they will be better able to assess how long it will take to make the necessary changes. It could be that after the software is upgraded, new and time-consuming IT developments will be required. It is also necessary to check with the bank that all connections are functioning and that payments are being made successfully. See the ISO 20022 XML guidelines on the website of the Estonian Banking Association.

How will cross-border payments be declared in future?

From 1 February 2014 bank clients will no longer have to make the cross-border payments declarations, which contained the data on the transaction code and residency of the counter-party that Eesti Pank used for the balance of payment statistics. The data will now only be collected through the statistical surveys of companies that are observed by Eesti Pank.