The European Commission (EC) is effectively extending the migration deadline for the single euro payments area (SEPA) by six months until 1 August 2014 after it announced a six-month ‘grace’ period for those firms struggling to meet the original 1 February deadline for migrating over to the new euro payment formats. The delay needs to be ratified by the European Parliament and Council of Ministers, but the executive arm's actions mean that legacy payment instruments will not now be blocked at the end of the month, as the authorities scramble to update the timeframe.
The EC move is in response to poor uptake figures for the SEPA credit transfer (SCT) and SEPA direct debit (SDD) payment formats, with the EU Internal Market and Services Commissioner, Michel Barnier, admitting: "As of today, migration rates for credit transfers and direct debits are not high enough to ensure a smooth transition to SEPA”. He added that it was “highly unlikely” the target of 100% SCT and SDD compliance would be met in time, necessitating the delay.
The EC is urging the relevant European Parliament and national legislative bodies to quickly change their guidelines and formalise the extended timeframe so as to ensure legal clarity for all stakeholders, although as it is now only weeks’ away until the original deadline hits it is unclear if any more than guidance will be possible before the 1 February 2014 deadline. The key point to is that banks and payment services providers (PSPs) will not be penalised for continuing to process legacy payments in parallel with SEPA payments until the end of this summer, and this is likely to come as a relief to many of those worring about the poor uptake figures so far.
"I have warned many times that migration was happening too slowly and call once more on EU Member States to fully assume their responsibilities and accelerate and intensify efforts to migrate to SEPA,” explained Barnier, before insisting, “the transition period will not be extended after 1 August."
News Analysis: Slow Migration Necessitates Delay
Migration rates so far for SCTs stand at 64.1% and only 26% for SDDs, according to the latest figures available on the European Central Bank (ECB) SEPA Indicators website.
Barnier admitted that had the EC not announced its delay today, then serious disruption could have resulted in three weeks’ time to European payment processing procedures, with bounced payments and broken supply chains likely to have been the result of adhering to the original 1 February 2014 deadline. For small to medium sized enterprises (SMEs), sole traders and individual consumers in particular, many of whom are unaware of the SEPA EU Regulation No. 260/2102, the first they may have known about its existence would have been when their incoming or outgoing payments were blocked on 1 February; so the pause makes perfect sense and was not unexpected. SMEs have the option of moving to quick-fix outsourced conversion services if need be, but for larger corproates wanting treasury centrlisation and efficiency benefits from the increased standardisation inherent in SEPA a more long-term approach is required.
Market Reaction: Accuity, RBS and SunGard
According to Micah Willbrand, European, Middle-Eastern and African (EMEA) director of risk and payments at Accuity, the SEPA delay, “is not an unexpected event, considering how low uptake has been thus far on direct debit payments in particular. However, intervening at the last moment is a bit of a surprise as it’s always been felt the EC was holding tight on the deadline to force through the change.”
“The extension will help ensure a smoother transition for SCT and SDD payments, but it is now unclear what barrier the Commission wants to see overcome in order to fully enforce the switchover - does the EC require payments to be at 100% prior to shifting over, for example? Or would 75% of SCT and SDDs suffice? Today’s action may cause an undercurrent of thought that will allow companies to continue to push off implementation.”
“The delay will be most beneficial for the SME market,” continues Willbrand, “which was going to bear the brunt of non-compliant charges and fees post-SEPA. The move gives these businesses the time to implement their changes and get ready for the new 1 August 2014 date.”
RBS' Steve Everett, global head of cash management at RBS International Banking, believes that the EC's proposal to allow a six-month grace period will come as welcome news to those companies that have been struggling to meet the 1 February deadline.“If firms have difficulty in meeting the deadline, our SEPA Accelerator service will allow clients to convert their legacy credit transfers and direct debt files into SEPA-compliant ones,” he added, highlighting how many banks and vendors are hoping to gain volume and business from late-complying firms that need to turn to an outsourced processing service.
For Andrew Owens, SunGard’s managing director of global payments, the news of the SEPA delay was a bit of a surprise as the SDD migration figure had jumped from only 5% in September to 26% in November last year, according to the ECB SEPA Indicator figures, “but obviously this wasn’t a big enough jump to make the Commission comfortable enough to stick with the 1 Feb date and force the change through … most of us assumed that other measures might be put in place first, including punitive costs [i.e. fines to encourage compliance].”
“You may also be thinking that if the EC have moved the date once, they will move it again, but I’d caution against this,” said Owens. “For now, the Commission seem very firm on the point that this delay is a one-time shift.”
• To see the ECB’S country-by-country compliance assessments of the SEPA European payments harmonisation project, and other SEPA compliance data including SCT and SDD migration volumes, please click HERE. bobsguide has also run a number of SEPA blogs about the project in the past from Reval, Experian, Kyriba and the European Payments Council (EPC), among others. More guest blogs on SEPA, taking into account the delay, will feature on the website next month. Please click on the highlighted text to see the earlier guest blogs and visit the bobsguide blog section for all the latest fintech discussions and viewpoints.