With the deadline for the Single Euro Payments Area looming, there is much speculation over who is actually ready to migrate, with many small and medium-sized enterprises lagging behind and businesses of all sizes struggling to implement systems for direct debits.

A vision that has been more than 10 years in the making, seamless cross-border payments in the Single Euro Payments Area (SEPA) are set to become a reality as the major migration deadline fast approaches. However, there are fears that corporates have left it too late to make the February 1, 2014, deadline and that the bottleneck will be too large for banks to get their clients compliant in time. 

“If they are not more or less ready now then they are not going to be ready by February,” says Gareth Lodge, senior analyst at Celent.

Karin Flinspach, head of payments and receivables for Europe, the Middle East and Africa (EMEA) at Citi, says that over the year-end period many organisations have change freezes and a lot of people are out of the office. “It is now crunch time,” she says. But she remains positive about the deadline being met. “It is not too late as such. There are still a few clients who are behind, but they are addressing this issue now. For them, it’s a question of whether they want to do it all in house or get external help from a third-party provider or a bank. There are a number of conversion services available – they can still get over the hump by the February 2014 deadline, but now is the time to make that plan."

Early movers

SEPA compliance in the euro area is mandated by European law and applies to euro-denominated credit transfers and direct debits within the EU. Non-euro member states of the EU have until an October 2016 deadline to make the change. 

Observers claim that banks are ready, large corporates are getting ready, and small and medium-sized enterprises (SMEs) are lagging behind with their compliance. The European Central Bank’s (ECB) first SEPA migration report in March 2013 noted that SEPA awareness among SMEs and local public administrations was fragmented and the level of preparedness was “rather poor”. A SEPA readiness report by professional services firm PricewaterhouseCoopers found that, as of July 2013, 34% of companies were still at risk of not being ready in time. 

By the time of the ECB’s second migration report, published in October 2013, Luxembourg and Slovakia had joined Slovenia and Finland as the countries that had completed migration to SEPA credit transfers. Greece, Cyprus, Belgium and Spain had more than 50% of credit transfers in the new format. 

Wilco Dado, managing director and EMEA head of cash management at JPMorgan, says that migration to SEPA credit transfers has reached a much higher percentage, in some countries close to 100%, because it is far easier to implement than SEPA direct debits. He adds that he expects a rapid acceleration in the migration in the lead up to the February 2014 deadline.

Pascal Augé, head of global transaction and payment services for Société Générale, says: “With SEPA credit transfers even if people are too late it is not too much of an issue. It is relatively easy to translate the format and make the move – the migration ratio is relatively high. The issue is with the SEPA direct debit."

Question of timing

In terms of SEPA direct debit, the migration has not been as encouraging. The second ECB report notes that no significant progress towards migration to the SEPA direct debit scheme has been made since the first SEPA migration report. Based on the Eurosystem's euro area SDD indicator, only 6.84% of direct debits were executed under the SDD scheme in European infrastructures in September 2013. 

Mr Lodge raises the question of how much of the remainder is ready to go. He cites anecdotal evidence that indicates large corporates are ready to migrate but are leaving the changes until the last minute. But this is contrary to what Mr Dado believes. “They won’t wait until the last moment. After they have done the testing, if things are not correct they will have no time,” he says. 

Mr Augé says that the largest corporate clients should be ready by November or December, and thinks that it is likely that there will be a bottleneck in the migration. “It is very tight – they will all come at once,” he says. Mr Augé believes that the reason that many have left it so late is because by first quarter of this year many of them had not had the budget approved by their top management.

“It is an IT and process project – there is no revenue and no business case for the clients so it is difficult to get it approved by their boards,”  he says.

Under pressure

According to Mr Augé, another issue has been the fact that, despite the marketing efforts of banks, many smaller companies that do not operate cross-border in Europe only realised quite late on that they had to migrate to SEPA. “A lot of them thought that it was only applying to cross-border payments," he says.

Javier Santamaría, chair of the European Payments Council (EPC), says that the latest ECB data shows that German corporates might not complete the migration for SEPA direct debits by the February 2014 deadline. But a large majority of stakeholders in the 17 euro area countries are expected to be SEPA-ready.

“Payment service users 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 towards the end of 2013," says Mr Santamaría. He adds that the national SEPA coordination committees, which usually have representatives from the central bank, finance ministry and stakeholders in the payments market, will manage migration at the country level and will take steps to ensure that those lagging behind will catch up. 

Ms Flinspach expects that the regulators will put pressure on the banks to help their customers migrate in time. On the question of whether the deadline could be moved, or if a grace period could be extended, the ECB’s position has been that there is no ‘plan B’. 

When questioned whether this stance could change, Wiebe Ruttenberg, head of the market integration division in the ECB’s payments department, is adamant, saying: “No, we have been and remain clear on this: there is no legal alternative to meeting the deadlines in the regulation for any stakeholders. This stance is in line with the position taken by the European Commission and the European Council. Any changes, besides not having a legal base, would cause more problems at the pan-European level than they would solve.

“If individual corporates are not ready they will see their payment orders rejected by the their payment service providers [PSP], as required by law. In case of a failure of a PSP to complete its own preparations, it would cause disruption in its own payment service operations as it would not be able to serve its customers in a legally compliant way after February 1, 2014.” Mr Ruttenberg adds that, in general, the national central banks expect PSPs and corporates to be ready in time. 

First pain, then gain

If the authorities were to grant a grace period now, it would undermine the migration and remove the motivation to meet the deadline. However, if a large number of corporates miss the deadline, it could undermine the SEPA project.

“We have all worked on plan B,” says Mr Augé, who adds that discussions are currently ongoing with the regulators about whether the old systems should be switched off or whether there should be a short grace period for the corporates that are not able to meet the deadline. “Once you switch off the old system you cannot switch it on again,” he says. 

Mr Lodge believes that a balance has to be found between giving a grace period and having a finite end to the migration, otherwise the laggards will not make the change. “Bear in mind that this is a once-in-a-generation move and so measuring the success of SEPA should not be done over the next year,” he says, adding that the true judgement will come in five, 10 or 20 years from now. “There is a lot of pain to go through now but for corporates and regulators the bigger picture is the longer term view."

That longer term view is to have seamless cross-border payments in Europe, which means that payments for businesses will be simplified across the region.

On how corporates are approaching SEPA, Ms Flinspach says: “The majority are treating it as a migration project. There are some early adopters, who have used it as a way to centralise and get better visibility.” However, many of those who have used SEPA as an opportunity to rationalise and re-engineer their processes have found that it is a much bigger project than they first anticipated, she adds.

“There is a lot of noise about the deadline, but largely the market will be ready,” she says.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter