SEPA deadline likely to be missed by some, predicts Capgemini

According to Capgemini's World Payments Report 2013 (60-page / 3.82MB PDF) companies will fail to have standardised systems in place to facilitate 'single euro payment area' (SEPA) credit transfer and direct debit payments before a deadline for the implementation of those standards expires early next year.

It said that Finland is one of only a few countries to have "already achieved full migration" to the standards for SEPA credit transfers (SCT), whilst the country has also got plans to convert its "legacy direct debit scheme" to comply with the SEPA direct debit (SDD) requirements before the 1 February 2014 deadline.

Capgemini warned of the "business risk" that could manifest if companies do not adhere to the new standards after identifying that 47% of credit transfers had been processed in line with the SEPA format by June this year. Only 3.7% of all direct debits had been processed in accordance with the SEPA standards by June, it said.

"With the deadline of February 1, 2014 for migration from domestic payment schemes to SEPA instruments less than five months away, it is highly likely SEPA will not be fully implemented across the Eurozone on time," Capgemini said in its report. "SCT migration rates are likely to increase only when users – consumers, businesses, and public authorities – begin to adopt these instruments. Migration also will be hastened if banks and public authorities work together to educate corporates and society in general more extensively about the need to migrate to SEPA and where possible, the benefits of SEPA."

"The adoption of SDDs is much lower and is a major cause for concern," it said. "Complex technical, contractual, and procedural issues have slowed adoption but if corporates are to meet compliance deadlines they must finalise their migration projects now. If not, there is a significant business risk as they might not be able to process payments or collections. In addition, they risk missing out on the benefits of uniform SEPA payments across the Eurozone."

The SEPA regime refers to the process major banks including Barclays, BNP Paribas, Deutsche Bank and HSBC, and other members of the European Payments Council (EPC), have backed to help establish standardised payment schemes and frameworks in a bid to make it easier for cross-border electronic payments to go through across the SEPA zone. In geographical terms SEPA refers to all 28 EU member states, Iceland, Liechtenstein, Norway, Switzerland and Monaco.

EU member states are subject to set EU rules that underpin the SEPA system, which were first introduced through common rules for the authorisation and the revocation of direct debits set out in the wide ranging Payment Services Directive. Further technical specifications for the payment systems, and compliance deadlines, are set out in the SEPA Regulation and the rulebooks that have been developed alongside it.

Under the SEPA Regulation, payment service providers must establish "payment schemes" that have the same "rules" for the purpose of carrying out cross border and national credit transfers (CTs) and direct debits (DDs). The measures are designed to ensure that different payment systems are "technically interoperable" with one another.

The Regulation sets out certain requirements that payment service providers must conform to when conducting those transactions, which include using a particular "payment account identifier" and "message formats", among other things.

Currently a number of national payment schemes are in operation and conform to different rules and technical standards for payment processing. However, by 1 February next year EU member states where the euro is the currency will have to have migrated their systems over to SEPA standards. Non-euro currency nations will have to make the migration by 31 October 2016.

Capgemini said that businesses in non-Eurozone countries, such as the UK, can benefit from the SEPA standards.

"Many corporates in the UK regard SEPA as a continental European project and believe they do not need to make efforts to comply; this is a risky approach for corporate that conduct Euro payments business in Eurozone countries," Capgemini said.

"Just like their counterparts in the Eurozone, UK corporates need to prepare for SEPA in order to reap the benefits it offers. As an executive from a leading bank in the UK informed us: 'Right now, some corporates view SEPA as a compliance exercise that they need to meet, and less of an opportunity. However, its true benefits, such as centralisation of account receivables and straight-through reporting, will be realized later.' Even banks outside the Eurozone are anticipating this and are offering products to support client readiness for SEPA," it added.