Nearly fifteen years on from the Lisbon Agenda and the introduction of the euro in 1999 – a pan-European currency which would revolutionise the use, and movement, of money across the European Union (EU) – the deadline for compliance with the logical electronic payments extension of the euro, namely the Single European Payments Area (SEPA) will arrive in just a few months.
This initiative, which is now subject to a six month transition phase until 1st August 2014 following an deadline of 1st February 2014, will see a unified payments landscape across the EU, bringing swifter, more efficient payments both domestically and across borders, while driving down the costs businesses incur each year across the continent in missed, delayed and incorrect payments.
The lack of migration to the new standards has been visible for a long while and specifically the progress on migrating direct debits has lagged far behind what was expected. This is despite repeated warnings from many institutions responsible for the implementation of SEPA across the Eurozone – not to mention the work done by banks and other payments bodies. It appears that many businesses have simply failed to heed the advice given.
This has caused numerous problems as the process of becoming compliant is a transition which, depending on the scale of a company’s payments requirements, can take up to twelve months. Therefore, it may well be that come August, businesses will still need to deploy a bridging solution.
Recent figures being used by the Commission and the European Central Bank revealed 64.1% of credit transfers and only 26.0% of direct debits were processed using the new schemes. It is therefore unsurprising that the authorities took the decision to extend the deadline, although we have before suggested that a moratorium on penalties for non-compliance was likely.
This still leaves some key questions unanswered:
- Who will legislate to waive the provisions of the SEPA Regulation and when can this be done?
- Can payment service providers process old euro transactions using new SEPA schemes and, if so, will they be forced to?
- Who will bear the cost of running the old systems for 6 months longer, if that is necessary?
- What will happen if a payment fails because it does not comply with the SEPA technical requirements? Who bears the cost and effort in repairing and re-processing it?
The organisations which remain behind schedule have been given a six month reprieve to get their house in order. For businesses in this situation, this is their last chance to get compliant by working with a payment service provider to upgrade the necessary software and processes, as well as verifying data where necessary.
This is important because it may be that the European Commission will interpret rules more strictly following the extension and penalties may be levied. For businesses still to make the transition, the risk of being made an example of and fined heavily is too high to chance.
What options are available to those businesses that inevitably will miss August’s deadline? There are contingency options available which will buy some time for the company to undertake the checks and validations needed to become wholly compliant. The first port of call will be the business’s banking partner(s): many of the major corporate banks either have or will be offering contingency services. Provision of services by banks is not however uniform, indeed some, most notably Deutsche Bank, have made the decision not to provide a solution themselves.
Where banks are offering contingency services there are important issues to be taken into account. The SEPA Regulation 260/2012, and the interpretation by the banking community, states that a bank offering such a service must make the conversion at arm’s length from the payment initiation and separately from any payment services agreement.
Outside of the banks, IT providers are offering contingency solutions and indeed mandate management solutions for direct debit; these should enable organisations to comply in time. As with solutions offered by banks, using these services will add a step to the payment process and as a commercial service there will be obvious cost implications.
A reason why businesses are still going to need these contingency plans is because the process of finding and correcting payments data containing errors takes time before it is migrated to the new formats. In a SEPA environment, businesses must accept responsibility to ensure that data is checked and corrected where necessary as the risks associated with failed payments will fall on the business’s shoulders. Therefore, once all data has been corrected it’s important to keep it that way.
If data errors are identified and corrected on a regular basis, a contingency plan could be the first step towards long -term SEPA compliance. However, it’s important to use them only as a short term bridge to fill a short term necessity because there is no substitute for full compliance.
SEPA is certainly on its way and with the announcement of a transition period, some businesses may be tempted to ease the pressure on their compliance projects; this approach will introduce risk into the process. In case any remedial work is required, organisations are therefore best advised to comply as soon as possible.
Jonathan Williams is director of strategic development for Experian
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