EC Extends SEPA Deadline Due to Low Adoption Rates

The European Commission (EC) has adopted a proposal to grant an extra six-month transition period for businesses to make their systems ready for the single euro payments area (SEPA), an acknowledgement that market participants are having trouble meeting the formal deadline of 1 February 2014.

The European Union’s (EU) internal market and services commissioner, Michel Barnier, said in a statement that the migration rates for SEPA credit transfers (SCT) and direct debits (SDD) are not high enough to ensure a smooth transition.

Although the deadline for migration of 1 February is still intact, payments that differ from the SEPA format could now continue to be accepted until 1 August. “I regret having to do this but it is a measure of prudence to counter the possible risk of disruption to payments and potential consequences for individual consumers and small and medium-sized enterprises [SMEs] in particular,” he said.

Barnier called on EU member states to accelerate their efforts to migrate to SEPA. “The transition period will not be extended after 1 August,” he said.

The EC noted that although migration rates have been growing over the past few months, reaching 64.1% per cent for SCT and 26% for SDD as of November, it was ‘highly unlikely’ that the target of 100% adoption could have been achieved by the original deadline.

If the EC did not take action, banks and payment services providers would have to stop processing payments that differ from the SEPA format as of 1 February. The result would have been major difficulties for certain market participants, particularly SMEs, which could have their payments blocked.

A Late Intervention

Micah Willbrand
, director, risk and payments EMEA at Accuity, noted that the announcement comes as no surprise, considering how low uptake has been thus far on SDD payments. “However, intervening at the last moment is a bit of a surprise as it’s always been felt the EC was holding tight on the deadline to force the change,” he said.

Nevertheless, Willbrand believes that this extension will help ensure a smoother transition for SCT and SDD payments, though it is unclear what barrier the EC now has to fully implement the change. “Does the EC require payments to be at 100% prior to shifting over? Seventy-five per cent of SCT and SDD? This event now will cause an undercurrent of thought that will allow companies to continue to push off implementation,” he added.

The extension will certainly benefit for the SME market, which was going to bear the brunt of charges and fees due to waiting to implement SEPA changes, noted Willbrand. “This will give these businesses the time to implement their changes and get ready for the 1 August date.”

Tony Richter, SEPA Programme Director, HSBC has been working with corporate clients for more than a year on SEPA migration. “We are working very hard with them and that level of intensity has increased rapidly over the last few months,” he told
. “This extension is very welcome news because it mitigates the risk of any disruption in the payment markets from 1 February.”

SEPA migration is particularly complex for businesses that are submitting files of payments in the direct debit space, Richter explained. “This is the migration to the XML version, which is a complex piece of work, and also requires changes in other processes in the company around their core payments processing capability,” he said. “So the whole thing is quite a complicated project to undertake. It involves a period of testing with their banks and other payment service providers. That’s where we can see that the project was beginning to overtake some clients, particularly those in the small- or medium-sized sector.”

Richter is confident that the additional six months is sufficient to get everyone up to speed. Additionally, he is convinced that there will not be a second grace period. “When you read the European Commission’s wording, it is clear that there will be no further respite given. So, August is a serious date to aim for now,” he said.


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