At the moment of writing there are less than 150 days to go until the single euro payments area (SEPA) migration deadline of 1 February 2014. According to statistics issued by the European Central Bank, there is clearly still a long way to go for there to be a chance of it being met. The latest numbers show that as of June 2013 almost 47% of credit transfers (SCTs) within the SEPA zone were actually executed as SEPA payments. This means that there is still 53% to go in les than half a year.
Is this a worrying number? I would venture to say, probably not. Based on the current growth rate, the percentage of SEPA adoption would reach somewhere between 65% and 75% by February 2014. It is also true that many corporates and public organisations are about to go live with SEPA. An adoption rate of between 80% and 90% does not, therefore, seem unrealistic. Furthermore many banks are currently offering – or are likely to offer – so-called conversion services for converting domestic payment file formats and payment data into SEPA-compliant payments before processing. It should be noted that while many banks are offering these services for free, they reserve the right to charge for them in the future. Adopting to the SEPA standards therefore does appear inevitable for organisations that prefer not to depend on third parties in order to be SEPA compliant.
Statistics per country
The numbers mentioned above are an average for the total SEPA area. Once broken down into individual countries it is clear that major differences exist. Finland has already been fully SEPA-compliant for SCTs since 2012. Germany, on the other hand, has an adoption rate of less than 10% while undoubtedly accounting for a large part of the total transaction volume within the SEPA zone.
Figure 1: SCT Adoption in Major Eurozone Economies:
Source: ECB SEPA Indicators.
So what explains the major differences between the countries shown above? Many believe that lack of awareness within organisations is to blame, suggesting that banks should inform their customers. That would mean the banks of Belgium and Spain did a much better job in informing their customers than those in The Netherlands and Germany. Personally, I doubt that this could be the case as the latter countries currently have some of the most efficient payment systems within the SEPA zone. For these countries, the introduction of SEPA can lead to worsening cut off times, or even float being introduced to the banking cycle, while for countries like Spain the opposite is true.
Does this mean that Germany and The Netherlands are not ready for SEPA? That question is difficult to answer, but it is likely that although many organisations in both countries are prepared they might be deciding to hold off going live until just before the 1 February 2014 deadline.
When looking at SEPA direct debits (SDDs) the numbers appear distinctly more worrying than those for SCTs. In June 2013 only 4% of all direct debits in the SEPA zone were executed as SDDs. This is, of course, an extremely low number that – for good reason – is a major cause of concern. The reasons for this low number include:
- Late adoption by the banks.
- Impact of changes on administrative processes.
- Impact of changes on IT systems.
- Impact on collection process.
- Impact on working capital
The first three reasons are regularly cited when it comes to explaining why SDD adoption is so slow. However, the other two reasons might even more important. In Germany for instance, some companies are in a position to send a direct debit order as soon as the goods are shipped. The debit is then settled later that day, meaning that the company has its money on the same day it initiated the debit. With SEPA however, under the SDD Core scheme it is mandatory to deliver a SDD instruction at D-2, with many banks actually enforcing D-3, which for some would imply a loss in working capital of two days.
As a response to this the COR1 scheme was introduced. This additional optional service (AOS) is, or will be, implemented in a number of countries, including Germany where it is expected to be available from November 2013 onwards. Under COR1, the delivery date of direct debits is reduced to D-1. It is very likely that in Germany, where the current SEPA DD adoption rate is a mere 0.14%, most organisations that use DDs are waiting for COR1 to become available before going live.
Indeed the SEPA adoption rates for SDDs look very poor; especially when one considers that given the requirements and process changes accompanying SDDs it is unlikely that banks will offer conversion services as readily as for the SCTs.
So what will happen if full, or even near full adoption is not achieved by 1 February 2014? That is indeed a leading question, and will therefore the topic of my next blog.
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