Organisations should understand the timelines involved in the single euro payments area (SEPA), with the non-negotiable start time of 1 February 2014 for the eurozone countries to the forefront, and take steps to migrate towards the new SEPA-compliant payment formats – and mandatory ISO 20022 XML messaging – as soon as possible. The changeover can take corporate treasuries many months from start to finish, especially if the integrity of a corporation’s data is imperfect from the start. Businesses should be in communication with their bank and their software providers already to ensure they have the necessary resources in place for SEPA compliance, and then check that all their data is fully cleansed and validated before migrating.
Migrating with a service partner that can manage the SEPA switchover process will save time and money, make the transition smoother, and ensure that all data is valid and correct. Validation is an on-going process, as new supplier data will need checking as it gets added and, if companies continue to keep their databases up-to-date, their systems won’t be sabotaged by incoming error. Of course there are budget cycles to be juggled, but businesses should not put off migration, as there are only limited migration resources and, in times past, companies have faced joining the end of a long queue as everyone rushes to comply. An effective service provider will guarantee that you are ready for the SEPA deadline, and will also ensure that businesses do not inherit old faults into a new system.
SEPA and Common Errors Associated with Payments Data
The internal bank account number (IBAN) is key to providing the standardisation at the heart of SEPA, but, although IBANs have been in existence for many years, they are still not widely recognised and are liable to highlight integral data error for many businesses. Corporations need to consider how they update their legacy data without confusing their customers, suppliers and staff. Businesses that currently use IBAN-format account numbers have reduced error rates in comparison with those using domestic bank account numbers; only 4.6% as opposed to 12.7% according to Experian. However, this still represents a significant increase in failed payments over the 1-2% currently experienced by most European organisations, because of the error that a bad migration will expose.
Experian figures show that more than one in eight (over 12%) of domestic bank account numbers are invalid, which can go to as high as two in five in some territories. With the cost per failed transaction estimated as high as €50 each in some cases, the financial impact of these data errors containing inaccurate bank account data is truly significant. Based on an average error rate of 12%, this equates to a potential cost of €600,000 for an organisation transacting with 100,000 bank accounts. In 2011 there were an estimated 36bn euro transactions conducted across the eurozone, but it is expected that inherent errors will lead to payment failure that could cost Europe upwards of €22bn to fix. Clearly, data errors need to be avoided in the treasury and throughout the financial supply chain.
Migrating existing customer records to the IBAN standard will be a huge challenge given the sheer scale of records and, as a result, large creditors face notable challenges to migrate and maintain SEPA-compliant mandate information. The direct debit mandate mission is a considerable one. Even following an alert procedure, errors will not be fully eradicated. There are a number of types of error that should be picked up in a full validation process, however, and that can help reduce costly exceptions. The common errors to watch out for are:
- Errors related to the IBAN standard including cheque-digit failure, national country code format errors.
- Format errors caused by invalid and inconsistent formatting in a database prior to IBAN formation – these are likely to be caused by a simplistic process not including validation.
- Content problems involving issues of out-of-date or invalid bank and branch codes contained within the national part of the IBAN. This won’t migrate cross-border.
- Integrity problems involving issues related to mis-transcription, mis-hearing, or errors within components of the domestic basic bank account numbers (BBANs).
The most common error is related to out-of-date or invalid bank or branch codes. Millions of bank identifier codes (BICs) are critically impaired or out-of-date following numerous bank mergers, reorganisations, defunct branches or structural changes. Over 55% of BICs recorded for a bank or branch are a correct match, but 1.0% do not have data in this field, and a concerning 43.7% of records have invalid or out-of-date BIC information, which could cause significant problems and failed payments. There is much to do and not much time to make these changes, especially for larger treasuries with thousands of accounts to validate and migrate towards the new format.
Although there is a good deal to do and not long to go until the legally-binding SEPA compliance deadline of 1 February 2014 is upon us, many businesses are still unprepared for its impact. Despite the fact that we are over 83% through the time-window of SEPA-migration since SEPA started in earnest back in 2008, the volume of SEPA credit transfers (SCTs) in the eurozone migrated to SEPA is only 30.3%. The SEPA direct debit (SDD) migration is even more chronic, as only 2.1% currently comply. Businesses need to ensure their data is ready for the end date. Failure to do so could significantly affect their ability to continue making and receiving payments.
SEPA Case Study: Levi Strauss & Co
Global jeans and clothing retailer, Levi Strauss, recognised the need to convert to SEPA early on in order to reap the benefits of a standardised database and full data cleansing. The corporation has therefore already worked with Experian to validate and convert their payments data in the treasury and throughout the business.
Experian can reveal that 91% of the data held at Levi’s was accurate and complete, leaving only 9% of records to be verified. Levi was then able to focus their efforts on correcting this data, saving the company the potentially huge cost of checking all the records and saving a huge amount of time and resource.
The SEPA compliance project last year had originally been expected to take six months, but within just two months the file was 100% complete. 95% of data was complete, correct and converted in only ten days, enabling Levi’s shared service centre (SSC) to start processing all payments into Europe through their bank.
While perhaps not ‘big data’, payment instructions can be large, certainly when amalgamated at pan-European clearing houses; this restricts the type of error detection and correction which can be undertaken at the centre. Organisations which validate data early, whether it’s corporate, bank or a payments processors, are likely to derive the most ‘first mover’ benefits out of SEPA.
Checking for errors of format, content and integrity in payments will cover the most likely problem points and avoid payment failure during the SEPA migration, and consequently expensive exception handling fees and time periods will be cut. It is only by cleansing data and addressing problems before conversion to the IBAN and the mandatory ISO 20022 XML messaging format that the integrity and SEPA-compliant nature of payments in Europe can be safeguarded. As time is running out, eurozone businesses should act now to comply with the 1 February 2014 deadline; the rest of the EU outside of the single currency has until 2016 to catch up, but they too should start planning now and indeed act now if they want early mover advantage.
• This is the second part of two-part article on data cleansing in preparation for the single euro payments area (SEPA). For the first part please click here.
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