One Year from SEPA Deadline, Many Businesses Unprepared

Just one year remains for businesses to migrate to single euro payments area (SEPA) standards, yet only 30% of credit transfers and 2% of direct debits are now SEPA-compliant, according to data from Experian. The information services group said it is estimated that wholly avoidable costs from failing to address data errors and validate data on migration could cost the eurozone up to €20bn.

The move to a single
SEPA payment system
– designed to simplify and streamline processing operations for domestic and international payments – is due by February 2014 for eurozone countries, and October 2016 for businesses in non-Eurozone territories wishing to make and receive payments in Euros.

SEPA imposes a mandatory duty to switch existing payments applications and databases in favour of new payment schemes, and although the deadline is only a year away, businesses across the eurozone are a long way behind.

Research from Experian also shows that only 65% of euro transactions are underpinned by fully accurate destination routing data and 12% of electronic payments (e-payments) made to and from businesses in euros currently contain data errors.

The group said that businesses need to prioritise and accelerate their move to SEPA compliance before it is too late because full migration can take time, depending on data volume and integrity. Given the streamlining of the new data format under SEPA, full migration should involve a comprehensive validation process in order to ensure payments are successful going forward. If businesses fail to check the underlying banking data prior to migration to the International Bank Account Number (IBAN) format, pre-existing errors inherent to the current system are likely to jeopardise future payments.

Businesses which currently use IBAN-format account numbers have reduced error rates (4.6%) in comparison with those using domestic account numbers (12.7%), although these error rates are still problematic. Also, 45% of SEPA-compliant IBANs stored by large European businesses do not have the valid corresponding Bank Identifier Codes (BICs) required to enable successful routing of transactions.

“Migrating existing customer records to the IBAN standard will be a huge challenge given the sheer number of accounts, and, as a result, large businesses face notable challenges to migrate and maintain SEPA-compliant mandate information in time for the 2014 deadline,” commented  Jonathan Williams, director of payment strategy, Experian. “Businesses must look to use, leverage and embed data validation within their systems and processes if they are not to incur significant costs as their operating countries move to SEPA, due to the error levels inherent in the data which the SEPA system is liable to expose.

“These types of error, as we’ve found in alarmingly high numbers, will lead to payment failure when made through SEPA clearing, costing businesses approximately €50 for each failed transaction. Given an established average error rate of around one in eight, an organisation transacting with 100,000 bank accounts would expect a potential cost of €600,000, which leaves a total bill for the eurozone of more than €20bn. All businesses should work to comply now to avoid such unnecessary costs.”

Uneven Progress

“While SEPA credit transfers (SCTs) and direct debits (SDDs) are rapidly taking over from legacy payments in the eurozone, the picture is more complicated at a country level,” Williams reports. “Some countries are almost complete, such as Finland, Slovenia and Luxembourg, while others, such as France and Spain, appear to be making slow but steady progress. Simply put, despite confusion in some corporates, SEPA migration is making steady progress on credit transfers but slower progress on direct debits.

“These figures stand at odds with some survey results which claim that many businesses have yet to start their projects. Conversely, in conversation, many larger corporates believe they have ‘done SEPA’.”

“Local derogations, additional optional services and extensions to the schemes appear to be causing confusion about what applies where and by when. Examples of these regional differences include Ricevuta Bancaria [RiBa] in Italy as a local derogation, and the COR1, expedited, D-1 direct debit extension to the SDD scheme for Germany as a local variation.

“One multinational I spoke to recently had not appreciated that, although based outside the eurozone, all its payments initiated within eurozone countries would come under the 1 February 2014 deadline. Without a clear focus on dates and targets, businesses will not start the task of migrating their data and managing direct debit mandates early enough. The payments industry must address this lack of knowledge or mis-education if it hopes to hit the deadlines set.”

Experian’s findings tally with those of the latest
gtnews Payments Survey
, which also reveals a compliance gap, as well as the latest
European Central Bank (ECB) indicators
.

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