15 October 2013
Payment service users confirm: SEPA migration is manageable, feasible and beneficial
Javier Santamaría is the chairman of the European Payments Council (EPC), which supports and promotes the creation of the Single Euro Payments Area (SEPA). As requested by the EU authorities, the EPC developed, in close dialogue with the customer community, the SEPA Credit Transfer (SCT) and SEPA Direct Debit Schemes (SDD), which help to realize the integrated Euro payments market.
Just over one year ago, Javier Santamaría kicked off the SEPA blog with his view on the current status of the migration. Now it is time to review the past year and assess where we are now, a few months before the actual transition date.
In December 2011, the European Commission commented on the agreement by the European Parliament and the Council of the European Union (EU) on the 1 February 2014 deadline for migration to the Single Euro Payments Area (SEPA): “The reasonable transition periods applied will allow customers and banks to get used to the adjustments in domestic payment transactions, provide legal certainty, avoid the cost of operating dual payments systems and bring forward the substantial future benefits of SEPA.” (European Commission Press Release of 20 December 2011).
From 1 February 2014 onwards, organisations making payments in the euro area will have to carry out euro credit transfer and direct debit transactions in line with the core provisions set out in the ‘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 in the euro area will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD).
The representatives of corporates, small and medium-sized enterprises (SMEs), public administrations and government agencies, who reported on their successfully completed SEPA migration projects in the EPC Newsletter , confirm that timely migration to the new SEPA payment schemes and technical standards is manageable and feasible. They also clarify that migration to SEPA leads to significant benefits. There is no doubt that the scope of change required to ensure SEPA compliance is extensive, but it does pay off. 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.
SEPA progress in the euro area
The most recent European Central Bank (ECB) qualitative SEPA indicators show that a large majority of stakeholders in the 17 euro area countries are already expected today to be SEPA-ready by 1 February 2014. The qualitative SEPA indicators take into account the specificities of the respective country with regard to migration progress by ‘big billers’, public administrations, SMEs and payment service providers (PSPs). Non-euro area EU countries participate in this exercise on a voluntary basis only, but they too have to comply by 31 October 2016 of course. The qualitative SEPA indicators are updated quarterly by the national central banks and the preparedness assessment is based on a ‘traffic light system’. The most recent qualitative indicators, which reflect the assessment by national central banks as of the second quarter of 2013, provide the following outlook with regard to SEPA readiness of stakeholders in the 17 euro area countries by 1 February 2014:
- All PSPs will be ready. In the majority of euro area countries, PSPs have already completed preparations.
- ‘Big billers’ in almost all euro area countries will be ready. It currently appears that the corporate sector in Germany might not complete migration to SDD, while corporates in Estonia might not complete migration to SCT.
- Public administrations in almost all euro area countries will be ready. It currently appears that public administrations in Germany might not complete migration to SDD, while public administrations in Estonia might not complete migration to SCT.
- SMEs in Cyprus, France, Germany and Spain are at risk of missing the 1 February 2014 deadline with regard to both SCT and SDD. SMEs in Estonia might not complete migration to SCT; SMEs in Luxembourg might not complete migration to SDD.
There is no Plan B: avoid the risks of non-compliance
Migration to SEPA is mandated with EU law. Consequently, market participants in the euro area need to ensure compliance with the 1 February 2014 deadline for migration to harmonised SEPA payment schemes established with the SEPA Regulation. Both the ECB and Council of the EU representing EU Member States have reiterated that the 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 PSPs from 1 February 2014.” He points 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.”
With its SEPA conclusions of May 2013, the Council of the EU representing EU Member States underlined that the provisions of the SEPA Regulation “have to be fully respected by all market participants” in the euro area. It emphasised that “competent authorities should cooperate intensively, on a national and international level, to ensure effective and harmonised compliance with the Regulation.” The Council of the EU also stressed 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.”
In a statement published following its September 2013 meeting, the SEPA Council, which is chaired by the ECB and the European Commission, commented: “The SEPA migration requirements set by law have to be fully respected without exception. While payment service providers play a central and crucial role in migration to SEPA, end-users such as ‘big billers’, public administrations and in particular SMEs, have their own responsibility to ensure that they are able to send and receive payments in euro also from 1 February 2014 onwards.” The SEPA Council brings together representatives from both the demand and supply sides of the payments market.
In September 2013, Benoît Cœuré, Member of the Executive Board of the ECB, clarified again: “We are not going to change the end date.”
Reaching the finishing line on time
The focus must now be on joining forces to assist, in particular, SMEs in the euro area ahead of the 1 February 2014 migration deadline. This requires coordinated efforts by national public authorities, and trade associations representing businesses and banks. The Council of the EU therefore called already in May 2013 on “all member states to significantly intensify communication measures primarily at national level to eliminate existing public awareness gaps.”
Despite the fact that SMEs in a few euro area countries are currently 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.” 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.
Banks and other service providers stand ready to support market participants during the transition.