Though uptake of SEPA products has so
far been disappointing, the new European payments system is here to
stay – and for corporates that adopt it effectively, it holds cost
and efficiency advantages. Experian’s Jonathan Williams sets out
five steps corporates aiming to harness SEPA’s benefits must
‘For European banks and corporates
alike, the Single Euro Payments Area (SEPA) has become a fact of
life – with SEPA Credit Transfers (SCT) having been available since
January 2008 and SEPA Direct Debits (SDD) for just over three
Implementation and adoption of these products
has not necessarily followed availability and most banks still do
not comply with SDD regulations. This is confirmed by the latest
figures from the European Commission, which show that only about
2,600 of Europe’s 8,000 banks were ready for the launch of the SDD
scheme on 2 November 2009.
The transposition of the Payment Services
Directive (PSD) is also not proceeding according to plan. Eleven
countries missed the November 2009 deadline, while Belgium, Sweden
and Finland have delayed their transposition of the Directive into
national law until 2010.
The onus is now on the payments industry to
set hard and fast deadlines for the retirement of legacy systems as
well as an end-date for migration to SEPA, if momentum behind
payment harmonisation in the Eurozone is to accelerate.
Despite the lacklustre start, however, it is
now a matter of when SEPA volumes will take off, rather than if –
and corporates need to be prepared for the changes SEPA brings with
it. In fact, if corporates prepare for SEPA, they will be able to
capitalise on the significant opportunities afforded by SEPA which
include cost reduction and greater efficiency.
SEPA will have legal, financial
services, data and systems implications for corporates. However,
there are five key steps corporates should take to ensure that they
harness the benefits of SEPA whilst maintaining current levels of
efficiency and avoiding costly bank charges.
Firstly, corporates must ensure that they have
a good understanding of SEPA to enable them to fully assess their
existing operations against the new regulatory requirements.
Specifically, they should be able to fully understand the basics of
SEPA, the SEPA payment instruments such as SCT, SDD and the SEPA
Cards Framework, as well as the implications of the PSD. As the
next step, corporates must investigate in which countries they plan
to operate and consider which countries they will want to make
payments into and within to create the scope of their SEPA
The use of IBAN (International Bank Account
Number) and BIC (Bank Identifier Code) is now mandatory for all SCT
and SDD payments. Some European countries, such as Belgium and
Italy, have taken the regulatory requirements a step further and
have already mandated the use of IBAN for domestic payments,
presenting a potential disruption to UK corporates’ euro
As a result, corporates should be fully aware
when each domestic euro clearing system will migrate to IBAN and
BIC and what is required to comply.
By understanding local migration plans – for
example, Finland plans to move entirely to SEPA Credit Transfers by
the end of 2010 – corporates can determine how and when SEPA will
impact their payments processes and address this in their
Thirdly, organisations wishing to make SEPA
payments should contact their bank to find out about the changes
that the PSD makes to the agreement between them and their payment
services providers, as this may have implications on business
processes as well as for customers and suppliers.
There may, for example, be changes to the
period in which a direct debit refund may be requested or changes
to be made to existing customer/supplier documentation. This will
also help them understand how the organisation will be able to
continue making and receiving euro payments at the lowest risk and
As an important fourth step, corporates need
to be clear about whether increased charges for invalid payment
instructions or instructions in the wrong format are likely to be
Understanding this will help companies to
determine any changes to business processes and the potential costs
of submitting incorrect payments data to the bank.
Businesses will incur additional costs to
maintain two sets of data: the traditional legacy systems and the
new SEPA system. In order to minimise the costs, organisations will
need to complete migration to SEPA in a timely and efficient
As such, they need to analyse the number of
bank account details the organisation currently handles for
payments and collections, then determine how accurate existing
records actually are.
This will allow the organisation to assess how
much data needs to be converted to the IBAN and BIC format and the
resources required to avoid errors in converting the data.
One thing that companies need to be aware of
is that some banks help their customers by fixing problem
transactions – and this means that the actual data error rate is
likely to be higher than the percentage of rejected transactions
The final step for corporates is to
investigate whether their current payments systems can capture and
handle the IBAN and BIC formats required for eurozone payments.
This will help quantify the amount of system
change required to be SEPA-compliant. Additionally, organisations
should decide whether to modify existing systems to capture and
validate IBAN and BIC in the future or whether to continue to
capture payments data in its domestic format and convert this data
into IBAN and BIC retrospectively.
Advantages to be had
Despite the associated challenges, the move to
SEPA does create opportunities that banks and their corporate
customers have been slow to take advantage of.
By moving to the new payments systems,
corporates can achieve greater efficiency in terms of consolidating
their systems and rationalising the number of bank accounts they
hold as well as having a common standard for direct debit
transactions in eurozone countries.
By following these steps, organisations should
be able to smoothly migrate to the SEPA payment systems and avoid
costly errors as a result of failed cross-border and domestic
Jonathan Williams is the director of
strategic development at Experian Payments