SEPA 2014: Avoid the Bottleneck, Get Ready Now

The
current talk among payment professionals, at least those in Europe, is all
about migration to the single euro payments area (SEPA). From 1 February 2014
onwards, organisations making payments in the euro area will have to carry out
credit transfer and direct debit transactions in line with the core provisions
set out in the European Union (EU) ‘Regulation (EU) No 260/2012’,
establishing technical and business requirements for credit transfers and
direct debits in euro’
– aka the SEPA Regulation.

Effectively,
this means that as of this date, existing national euro credit transfer and
direct debit schemes will be replaced by SEPA credit transfer (SCT) and SEPA
direct debit (SDD). Commenting on SEPA progress by the business sector,
Euromoney magazine’s Laurence Neville wryly noted in his article
‘No time to lose on SEPA compliance’ published in February 2013: “If
the number of words expended on a subject were any indication of the level of
awareness, (…) SEPA would surely be as popular as Korean rapper Psy’s
worldwide hit, Gangnam Style.” Awareness however does not necessarily mean
preparedness – some companies still have serious catching up to do and time is
getting very tight.

The European Payments Council (EPC) fully
supports the recommendation of both the European Central Bank (ECB) and the
Council of the EU representing EU member states that payment service users in
the euro area should aim to complete migration at the earliest stage possible,
taking into consideration that the availability of external resources offered
by banks and other service providers – including testing facilities – will be
stretched to the limit before 2013 is over.

SEPA Progress by
Businesses in the Euro Area

Latest data made available by
the ECB offers a mixed picture with regard to migration progress on the demand
side. In June , the ECB published updated
qualitative SEPA indicators
to assess SEPA preparedness across the
transaction chain in each country. These indicators take into account the
specificities of the respective country with regard to migration progress by
‘big billers’, public administrations, small and medium-sized enterprises
(SMEs) and payment service providers (PSPs). Non-euro area EU countries
participate in this exercise on a voluntary basis only. The qualitative SEPA
indicators are updated quarterly by the national central banks and  assessment
is based on a ‘traffic light system’.

The most recent qualitative
indicators measure the level of SEPA preparedness by stakeholder groups at
country level as of the first quarter of 2013. The data indicates that ‘big
billers’ in almost all euro area countries are expected to complete migration
to SCT and SDD by 1 February 2014 as mandated by the SEPA Regulation. According
to these indicators, it currently appears that the corporate sector in France
might not complete migration to SDD on time; corporates in Estonia are at risk
of not meeting the deadline with regard to SCT migration. The indicators show,
for the first time, migration progress by SMEs at country level. The findings
are worrying: at this stage, it is estimated that SMEs in Austria, Cyprus,
Estonia, France, Germany and Spain will not manage to complete the transition
to SCT and SDD by 1 February 2014. This confirms the assessment included with
the first
SEPA migration report
published by the ECB in March 2013, which stated:
“SMEs’ and local public administrations’ awareness of SEPA is still fragmented
and the level of preparedness is rather poor.”

The fact however
remains: any calls from some quarters to delay the SEPA migration deadline will
continue, logically, to fall on deaf ears with the EU legislator. So businesses
must wake up to the reality that there will be no extension.

Don’t Count on a Plan B

Both the ECB and Council
of EU have reiterated that 1 February 2014 SEPA migration deadline must be
respected by market participants in the euro area.

In the April
2013 edition of the EPC Newsletter
, Wiebe Ruttenberg of the ECB wrote:
“End-users, such as public administrations and businesses, big and small, have
to get ready for the SEPA payment instruments, otherwise they risk refusal of
transfers by payment service providers from 1 February 2014.” As he pointed
out:

  • There is no Plan B: migration to SCT and SDD is required by
    law, not only for PSPs, but also for big billers, SMEs, public administrations
    and consumers.
  • Operating outside the law is not an option, either in
    terms of reputation or from the business perspective. The ability to initiate
    payments would come at a higher cost, and reconciliation would become more
    problematic.
  • PSPs will be obliged to refuse further processing of
    payments that are not delivered to them in the right technical format after the
    1 February 2014 deadline applicable in the euro area.
  • Ignoring the
    risks of non-compliance, including the hope of a slow response on the part of
    the responsible authorities, would be a mistake.

The Council of
the EU, representing EU member states, reached its conclusions
on SEPA on 14 May 2013
. They underlined that the provisions of the SEPA
Regulation “have to be fully respected by all market participants” in the euro
area and emphasises that “competent authorities should cooperate intensively,
on a national and international level, to ensure effective and harmonised
compliance with the Regulation.”

Avoid the Risks of
Non-compliance

The ECB strongly advocates that all PSPs
have their customer servicing channels ready for SEPA transactions by the end
of Q213 and that all other stakeholders, including ‘big billers’, public
administrations and SMEs, migrate at the earliest stage possible, preferably by
Q313 at the latest. This approach, says the ECB, avoids risks which otherwise
could impact the wider supply chain, and ensures timely SEPA migration.
“Adapting to SEPA involves adjusting a lot of technical and business procedures
over a limited period of time. Projects of this kind should not be left to the
last moment,” said Benoît Cœuré,  a member of the executive board of the ECB.
“I hope that all stakeholders will take migration to SEPA payment instruments
as a top priority.”

In May 2013, the Council of the EU representing
EU member states echoed this call to action, stressing that all payment orders
not submitted in the format requested by the SEPA Regulation after 1 February
2014 “may not be processed by all PSPs in euro area member states, which
otherwise would be sanctioned.”

Reaching the Finishing Line
on Time

The focus must now be on joining forces to assist,
in particular, SMEs and local public administrations in the euro area that must
meet the 1 February 2014 deadline. This requires coordinated efforts by
national public authorities, and trade associations representing businesses and
banks. The Council of the EU therefore called on “all member states to
significantly intensify communication measures primarily at national level to
eliminate existing public awareness gaps.”

Despite the fact that
many SMEs are lagging behind in their preparations, it should also be kept in
mind – as stated in the ECB’s first SEPA migration report – that “SMEs’
migration to SEPA schemes should be easier to accommodate in terms of in-house
preparations and resources owing to the lower number of internal applications
generally maintained by SMEs. In order to ensure a successful transition to the
SEPA scheme, SMEs are very much dependent on the availability of SEPA-compliant
software solutions developed by IT vendors and customer servicing channels
developed by PSPs.” At this stage, the recommendation is that late movers on
the demand side, whether big or small, use their first step to focus on
achieving basic SEPA compliance, then seek to realise further efficiencies to
be generated with the implementation of the harmonised SEPA payment schemes and
technical standards.

The ECB’s first SEPA migration report also
states: “In a post-migration environment … PSPs could still offer conversion
services, provided that these services are, operationally, fully independent
from all subsequent payment services offered by that PSP. The conversion would
take place prior to the ‘receipt’ of the payment instruction by the PSP.”

Any business which anticipates being unable to align its operations and
processes with the requirements established with the SEPA Regulation by 1
February 2014 and, therefore, wishes to make use of such services, would have
to coordinate the necessary steps with their banking partners. Whether the plan
is to achieve full SEPA compliance or use conversion services to avoid
disruption of payment operations, action must be taken. Banks and other service
providers stand ready to support market participants during the transition.

SEPA Pays Off

There is no doubt that the
scope of change required to ensure SEPA compliance is extensive, but it does
pay off. Early adopters on the demand side, who reported on their SEPA
migration experience
in the EPC Newsletter case studies, confirm that full
compliance will lead to more streamlined internal processes, lower IT costs,
reduced costs based on bank charges, a consolidated number of bank accounts and
cash management systems, and more efficiency and integration of any
organisation’s payment business. So, let us all embrace the change.

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