SEPA: The Final Countdown
There is still much to be done to achieve compliance with the incoming single euro payments area (SEPA) payments formats, and with the 1 February 2014 migration deadline now very close there is still evidence of what can only be described as sluggish uptake across the board from corporate treasuries, banks, some countries public sectors and other organisations – all of whom need to comply if cross-border SEPA-compliant payments are to work. According to figures released by the European Central Bank (ECB) in November 2012, the adoption rate of SEPA credit transfers (SCTs) currently stands at 30.6%, while SEPA direct debits (SDDs) are at 2%. Many surveys also show a lack of readiness – the recent ‘gtnews Payments Survey’, for instance, shows that 37% of its corporate treasury readers’ still do not yet have SEPA services in place.
While panic may be too strong a word, many corporate treasuries are starting to feel the pressure as they look to realign their business cases for migration and obtain benefits from the necessary compliance. With time running out, however, just meeting the deadline may have to suffice for some. The compliance challenge has not been made any easier by tough economic times, with organisations reluctant to invest in compliance projects and updating treasury operations and technology unless they absolutely have to or it improves the bottom line. SEPA compliance can tick both boxes if it is done right.
Many businesses are struggling to support their technical message standards and don’t have the processes and systems in place to support the likes of creditor-driven mandate flow (CMF), by which the creditor is the biller and the corporate effectively replaces the bank in terms of holding the direct debit mandate. To circumvent such problems, they are being encouraged to follow the lead of some banks, and adopt a strong tactical approach to SEPA and their payments processing.
As one of Europe’s largest payment processors, with more than 40 years of experience and a market share of roughly 12.5% of European payments, Equens supports the development of SEPA and has dedicated itself to the standardisation and harmonisation of European and worldwide payments. It has already processed millions of SCTs and SDDs and is prepared for the mandatory usage of ISO 20022 XML messaging for SEPA payments, as are the other major European automated clearing houses (ACHs) making it a competitive marketplace for treasurers right now. Equens currently processes SEPA transactions for banks and between clearing and settlement mechanisms (CSMs) from 16 European countries and has offices in five countries consisting of Finland, Germany, Italy, the Netherlands and the UK; making it one of the more pan-European offerings available to treasuries.
I recently answered some questions about Equens’ readiness for the SEPA project, put to me by the ‘Future Banking’ website and I think the interaction below provides a good status update.
Q. How would you describe the current SEPA status? Is the February 2014 end date a realistic target for banks and corporates?
A. Michael Steinbach: Despite the current volumes being far from remarkable, particularly with direct debits, I would say that the end date is definitely realistic. The share of SEPA payments is increasing, albeit slowly, and we have actually seen progress made on the banking side, with players working hard to try and achieve migration. Equens processes SEPA transactions for banks and between CSMs from 16 European countries. As a payment provider, we have helped corporates through offering our capabilities to make things easier. However, I would be the first to admit that the current situation is not where it should be, given that we have less than a year before the initiative comes into play.
Q. Why do you think that adoption rates have been so underwhelming?
A. Steinbach: For SEPA migration to succeed, companies need to create a comprehensive IT assessment and road map, analyse the scale and scope of the SEPA migration project, and update payment databases to ensure that payments will be processed reliably and accurately. Yet, despite some exceptions, the sensitivity to SEPA, particularly among corporate treasuries, has been very low. In order to precipitate uptake, I would like to see greater exposure to the scheme across the whole financial supply chain, similar to that found amidst the official introduction of the euro in 2002.
Q. So you think the initiative could do with greater exposure?
A. Steinbach: Yes. We need to adopt a real market strategy, akin to when the euro was introduced. This means making use of various media, whether it’s television, radio or newspaper advertisements, in order to promote the SEPA message. Sending out a few brochures within the industry is okay, but it’s not enough if you want to really spread the word. Social media will also be imperative in this drive. For example, at the last Sibos conference at the end of October in Japan, Twitter statistics showed that on the first two days of the event, 361 messages using the word SEPA had been tweeted – an increase of almost 50% compared with the same days a week earlier before the show had opened. It’s important to remember that it’s an emotional thing as well; not just a simple business case.
It has also become clear that the manner and speed in which countries are working towards the SEPA arrival dates varies drastically. How much heart can eurozone states – still in the early stages – take from what’s happened in Finland [since the end of 2011, all payments across the country have been SEPA-proof]? The Finland case shows clearly what happens when the industry and stakeholders work together closely, and take action early on: the decision to switch to SEPA was made as early as 2008. Consumers, corporates and the financial industry came together within their political surroundings with the joint aim of introducing SEPA while working to a clear deadline. So there are definitely lessons to be learned from having a clear schedule, timely preparations, a strong commitment of software companies and continuous collaboration.
Q. Assuming that total migration takes place, what’s next for players beyond February 2014? Will we see a raft of value-added services on top of basic SEPA transactions?
A. Steinbach: While value-added services are bank and country-specific, they already exist. The likes of cash management, liquidity management, reports and account information are already on the market, and can be migrated on a European level. This can be offered in a competitive space to customers, just as we have seen in Finland. So it’s not a completely new service, despite rising in tandem with SEPA.
A version of this Q&A segment was first used by the ‘Future Banking’ website.