SEPA: Prepare now and avoid the bottleneck

25 July 2013

The chairman of the European Payments Council (EPC), Javier Santamaría, is advising companies and others not yet ready for the single euro payments area (SEPA) to comply as soon as possible before the 1 February 2014 migration deadline as a technology and resource bottleneck reminiscent of the Y2K millennium bug crunch could soon come into play for overstretched compliance providers.

The current talk among payment professionals, at least those in Europe, is all about migration to the single euro payments area (SEPA). From 1 February 2014 onwards organisations making payments in the euro area will have to carry out credit transfer and direct debit transactions in-line with the core provisions set out in the European Union (EU) ‘Regulation 260/2012’. This establishes technical and business requirements for credit transfers and direct debits in euro - and is known as 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).

Corporations, charities or public sector bodies may still have to achieve compliance. Doing so internally now in the short amount of time left until the 1 February 2014 migration deadline would be very hard, although not impossible, but whichever way SEPA-compliant payments are incorporated into an organisation it must be done. In May 2013, the Council of the EU representing EU member states echoed this call to action, stressing that all payment orders not submitted in the format requested by the SEPA Regulation after 1 February 2014 “may not be processed by all payment service providers (PSPs) in euro area member states, which otherwise would be sanctioned.”

Those wanting outside help in order to move towards SEPA compliance would be well advised to get moving on this now.

The European Payments Council (EPC) fully supports the recommendation of both the European Central Bank (ECB) and the Council of the EU, representing EU member states, that payment service users in the euro area should aim to complete migration at the earliest stage possible, taking into consideration that the availability of external resources offered by banks and other service providers - including testing facilities - will be stretched to the limit before 2013 is over.

SEPA Progress by Businesses in the Euro Area

The latest data made available by the ECB offers a mixed picture with regard to migration progress on the demand side. In June, the ECB published updated qualitative SEPA indicators to assess SEPA preparedness across the transaction chain in each European country. These indicators take into account the specificities of the respective country with regard to migration progress by ‘big billers’, public administrations, small and medium-sized enterprises (SMEs) and PSPs. Non-euro area EU countries participate in this exercise on a voluntary basis only, but they too have to comply by 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 measure the level of SEPA preparedness by stakeholder groups at country level, as of the first quarter of 2013. The data indicates that ‘big billers’ in almost all euro area countries are expected to complete migration to SCT and SDD by 1 February 2014 as mandated by the SEPA Regulation.

According to these indicators, it currently appears that the corporate sector in France might not complete migration to SDD on time; corporates in Estonia are at risk of not meeting the deadline with regard to SCT migration. The indicators show, for the first time, migration progress by SMEs at country level. The findings are worrying: at this stage, it is estimated that SMEs in Austria, Cyprus, Estonia, France, Germany and Spain will not manage to complete the transition to SCT and SDD by 1 February 2014. This confirms the assessment included with the first SEPA migration report published by the ECB in March 2013, which stated: “SMEs’ and local public administrations’ awareness of SEPA is still fragmented and the level of preparedness is rather poor.”

The fact is that despite these concerns any calls to delay the SEPA migration deadline will fall on deaf ears with the EU legislator. So businesses must wake up to the reality that there will be no extension to the deadline and they should get outside assistance from PSPs, tech vendors and others as required while they still have the time, available staff and resource on hand to help.

Don’t Count on a Plan B

Both the ECB and Council of the EU 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 payment service providers from 1 February 2014.” As Ruttenberg pointed 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.

The Council of the EU, representing EU member states, reached its conclusions on SEPA on 14 May 2013. They underlined that the provisions of the SEPA Regulation “have to be fully respected by all market participants” in the euro area and emphasised that “competent authorities should cooperate intensively, on a national and international level, to ensure effective and harmonised compliance with the Regulation.”

Avoid the Risks of Non-compliance

The ECB strongly advocates that all PSPs have their customer servicing channels ready for SEPA transactions by the end of Q213 and that all other stakeholders, including ‘big billers’, public administrations and SMEs, migrate at the earliest stage possible, preferably by the end of Q313 at the latest. This approach, says the ECB, avoids risks which otherwise could impact the wider supply chain, and ensures timely SEPA migration.

“Adapting to SEPA involves adjusting a lot of technical and business procedures over a limited period of time. Projects of this kind should not be left to the last moment,” said Benoît Cœuré, a member of the executive board of the ECB. “I hope that all stakeholders will take migration to SEPA payment instruments as a top priority.”

Reaching the Finishing Line on Time: Get Tech Help

The focus must now be on joining forces to assist, in particular, SMEs and local public administrations 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 on “all member states to significantly intensify communication measures primarily at national level to eliminate existing public awareness gaps”.

Despite the fact that many SMEs are lagging behind in their preparations, it should also be kept in mind - as stated in the ECB’s first SEPA migration report - that “SME 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. In order to ensure a successful transition to the SEPA scheme, SMEs are very much dependent on the availability of SEPA-compliant software solutions developed by IT vendors and customer servicing channels developed by PSPs.”

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 further efficiencies to be generated with the implementation of the harmonised SEPA payment schemes and technical standards.

The ECB’s first SEPA migration report also states: “In a post-migration environment ... PSPs could still offer conversion services, provided that these services are, operationally, fully independent from all subsequent payment services offered by that PSP. The conversion would take place prior to the ‘receipt’ of the payment instruction by the PSP.”

Any business which anticipates being unable to align its operations and processes with the requirements established with the SEPA Regulation by 1 February 2014 and, therefore, wishes to make use of such services, would have to coordinate the necessary steps with their banking partners. Whether the plan is to achieve full SEPA compliance or use conversion services to avoid disruption of payment operations, action must be taken. Banks and other service providers stand ready to support market participants during the transition.


There is no doubt that the scope of change required to ensure SEPA compliance is extensive, but it does pay off and efficiency benefits can be gained. Early adopters on the demand side, who reported on their SEPA migration experience in the EPC Newsletter case studies section, confirm that full compliance will lead to more streamlined internal processes, lower IT costs and reduced costs based upon bank charges.

A consolidated number of bank accounts and cash management systems and more efficiency and integration of any organisation’s payment business are added benefits. So, let us all embrace the change.

PSPs and other service providers are there to help organisations rise to the SEPA compliance challenge.

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