SEPA rulebook digest for 2023: what to look for

Every year, the European Payments Council (EPC) updates their SEPA payment schemes rulebooks, which are the set of rules, practices, and standards to achieve interoperability for the provision and operation of the different SEPA payment instruments. These rules and their evolutions are compiled in rulebooks. And the 2023 update packs significant changes introduced by the migration to a new ISO 20022 version.

Payment expert and author of the number one book about SEPA Credit Transfer Jean-Paul Megue and BNP Paribas’ Head of Industry Engagement for Payments Francis De Roeck covered these changes during a webinar hosted this December.

In this blog, we recap the main updates.

Migration to a new ISO 20022 version after 14 years

ISO 20022 is a standard for electronic data interchange between financial institutions. It covers financial information transferred between financial institutions, including payment transactions, securities trading and settlement information, credit and debit card transactions, and other financial information.

While little known to the general public, ISO 20022 is the backbone of most modern payment networks and schemes, including SEPA. In 2023, the EPC will migrate to a new version of ISO 20022 for the first time since 2009. 

Starting November 2023, banks and PSPs will have no choice but to use this new ISO 20022 version for interbank communications.

However, they are not obligated to use this new version for customer-to-bank and bank-to-customer communications. When such migrations happened in the past, banks and PSPs took several years to enforce the new ISO 20022 version of the messages they exchanged with their corporate customers.

It means that direct and indirect SEPA participants should start studying and planning the implementation of the EPC’s 2023 SEPA rulebooks immediately, while corporate customers can get in touch with their banks to know when the changes will impact them.

In the rest of this blog, we will discuss how this ISO 20022 migration and other additions introduced by the EPC will impact the different SEPA payment methods in 2023.

SEPA payment methods 2023 changes

Introduction of structured addresses

The introduction of structured addresses in payment messages will impact all SEPA payment methods (SEPA credit transfer, SEPA credit transfer instant, SEPA direct debit).

Structured addresses are address information split into several fields instead of one unstructured address field.

From November 2023, all banks and PSPs will have to accept payment messages with structured addresses.

From 2025, banks and PSPs will have to send all their messages with structured addresses.

European Commission legislative proposal on SEPA credit transfer instant

As SEPA credit transfers instant are processed 24/7/365, unlike other SEPA payment methods, which have cut-off periods, the migration to the new ISO 20022 version will lead to a downtime for this payment method, on 22 November 2023, from 3am CET to 3:30am CET.

But the main update to SEPA instant will be if adopted by the European Parliament, the adoption and application of the European Commission legislative proposal to accelerate the rollout of instant payments in euro. The four main elements of this legislative proposal are:

• Adoption: banks should be able to receive instant payments six months after the adoption of the law and to send instant payments 12 months after.

• Pricing: banks should not charge more for sending and receiving instant credit transfers than for regular credit transfers.

• Payee information check: banks should notify payers in case of discrepancies between the payee’s name and payment account identifier.

• Screening for EU-sanctioned persons or entities: banks should verify whether payment services users are EU-sanctioned persons or entities at least once daily. Applicable sanctions are up to 10% of the total annual net turnover for sanctioned entities or €5 million for sanctioned individuals.

New SEPA capabilities: 2023 pilots and draft rules

SEPA Request-to-pay

SEPA request-to-pay (SRTP) is a messaging functionality, not a payment method, that allows a payee to request a payment from a payer. The payee then receives a request notification via an app, a text message, an email or other channels that they can accept or reject. If they accept, they can provide alternative payment information and pay immediately or in the future.

SEPA request-to-pay is only a messaging functionality; companies don’t need a license to adhere to the SRTP scheme. Any fintech without any specific license can adhere to the scheme. In addition, as per the latest version of the rulebook, participants in SEPA aren’t obliged to support SRTP.

The first rulebook for SRTP was introduced in 2020, adoption remains low as the EPC is still refining the scheme. The 2023 rulebook for SRTP includes the following changes:

• Ability to request instalment payments

• Ability to redirect a payer to the appropriate merchant’s web page

• Ability to refer to a previous message

SEPA Payment Account Access

The EPC published the first draft rules for a new scheme called SEPA Payment Account Access (or SPAA). It is meant to be an evolution of the Payment Initiation and Account Information Service possibilities introduced by PSD2.

In addition to the ability to instruct a payment and access some data from payment accounts, SPAA aims at allowing users to access their saving accounts, setup up permanent instructions, set up or accept mandates, schedule payments, and more.

Potential future evolutions enabled by ISO 20022

The migration of all SEPA schemes to a new ISO 20022 version opens new possibilities that haven’t been addressed by the EPC yet.

It introduces the concept of a “proxy name”. It is an identifier that can be attached to a payment message, such as a phone number, a Twitter handle or an email address. Using this proxy name instead could theoretically allow account-to-account SEPA payments without needing an IBAN. Still, it is not expected that the EPC will enable this possibility for the foreseeable future.

In addition, ISO 20022 introduces a new “legal entity name” field in payment messages. It isn’t mandatory and hasn’t been discussed by the EPC, but it could streamline the reconciliation of SEPA payments if supported by banks and used by payers.