As we approach the end of 2013 we are also nearing the end of one of the most significant changes in payments legislation, technology and business practices of the last 50 years anywhere in the world. The single euro payments area (SEPA) compliance figures are still not comprehensive, says Jonathan Williams, director of payments strategy at Experian, but it has been a fascinating study in how to align political, fiscal and commercial (bank and corporate) objectives. I look forward to the post-migration, post mortem of the project.
As the 1 February 2014 migration end date for the single euro payments area (SEPA) harmonisation project approaches it seems like a good time to take stock, assess the compliance efforts so far, and ask where are we now?
As of August this year, 52.7% of credit transfers (SCTs) and 7.2% of direct debits (SDDs) in the eurozone have migrated to SEPA, according to the Eurosystem SEPA indicators. While momentous, this is not where we would have hoped to have been at this stage: time is counting down swiftly and the European Central Bank (ECB), European Commission (EC) and payments industry must hope that compliance efforts will pick up extra speed in the short time now left before the deadline.
Corporate SEPA Compliance
It’s clear that there are still issues of education to be addressed. Corporates are understandably unclear over what rules apply where, which derogations apply in which countries and whether they are using niche products which have a delayed migration date. There are still a few businesses waking up to the realisation that, even though they are not in the eurozone, some of their accounts are and therefore the earlier deadline of 1 February 2014 for the eurozone applies to them.
Some businesses are finding that migrating across to the SEPA business Direct Debit scheme is not possible in some of their operating locations due to a lack of bank adoption or other factors, and are realising that they will therefore have to accept liability for disputed transactions.
Very little education has been done with consumers. Comparing this migration with the introduction of the euro at the turn of the millennium, which had a similarly large effect on banking and corporate systems but also affected consumers, it is clear that the mainstream media has not picked this up as a topic of interest. It hasn’t had anywhere near the same level of interest, despite the potentially huge impact on both consumers and providers. Training around the use of International Bank Account Numbers (IBANs) rather than domestic bank account numbers, such as Bankleitzahl and Kontonummer in Germany, appears to have been partial and the implications of SEPA are not yet well-understood by eurozone citizens.
As an example, a business collecting subscriptions across Europe recently wanted to move to a single collection account in a eurozone country; its clients were shocked that it was now forcing them to make cross-border transactions, obviously at a higher price, and complained. Of course under Regulation 924, these intra-SEPA zone transactions were priced exactly the same as domestic transactions, but it is the consumer behaviour that dictated the business could not move away from ‘local’ collection accounts.
Education and SEPA Readiness
Whose responsibility is it to drive SEPA education? Banks, vendors, central banks and banking associations all have a role to play in communicating the impending changes. Hopefully the next region to take a SEPA-like approach will benefit from the European experience and do better in their educational efforts.
How aligned is the payments industry behind the SEPA goal at the moment? In general, the banking sector is very very focused on migration but with different approaches evident country-by-country.
Let’s look at a specific case in point: payments account data. In providing data validation and conversion services over the last year or so, Experian have made a number of discoveries which suggest that the industry could be better aligned and more harmonised. There are cases of a few banks which, for their own reasons, are not creating their IBANs according to the guidelines from their national authority or central bank. There have been understandable changes in routing information, specifically Bank Identifier Codes (BICs); there has been slow bank adherence to the schemes; such as business SDDs; and compatibility of bank products with the mandatory XML ISO 20022 standard has rolled out only slowly.
There also appear to have been changes to some banking practices concerning the receipt of payments with correct account numbers but incorrect BICs. In some cases these payments have been rejected outright even when received by another processing centre of the same bank. This seems quite harsh but is within the Payment Services Directive (PSD) rules. When we move to IBAN-only data from customers for most eurozone SEPA transactions next year, will the same banks be as strict in their non-acceptance of incorrect BICs when it is other banks that are driving them? The European Payments Council (EPC) has recognised this as a potential issue and is working to solve it.
One country which has stood out as a good example of SEPA compliance and preparation for migration is the Netherlands. For four years the banking association there has been engaging with businesses and consumers around the changes. The IBANBIC service from the Netherlands’ banking association NVB introduced five years ago offers a service delivered by Experian to convert domestic account numbers to IBAN and BIC for consumers and businesses. I am informed that usage volumes continue to rise and we look forward to a completely-SEPAised payments industry there in the near future. Their approach, based on a database of all accounts, poses the question: is this a good solution for the whole of Europe? Should this be a deliverable in SEPA 2.0 to eradicate payment error and the processing issues we see with BICs?
In summary, at this point we must focus on completing the project. We should look back over the last ten years and take stock, but, more importantly, we must look forward, both to the deadline and the post-migration world. If we stop SEPA development on 1 February 2014 or even 1 November 2016 when those non-euro countries that haven’t already joined must do so, we shall have missed a great opportunity. A strong base has been created - let’s ensure full compliance and build something magnificent on those foundations for a post-SEPA payments world.