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January 25, 2010updated 04 Apr 2017 4:17pm

The road to SEPA success

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 months.

By Jonathan Williams

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 take.


‘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 months.

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 steps

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 planning.

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 payments.

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 plans.

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 cost.

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 imposed.

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 manner.

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 they experience.

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 payments.

Jonathan Williams is the director of strategic development at Experian Payments

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