Is Europe prepared for the SEPA Direct Debit scheme?

1. Does the industry need tougher deadlines for SEPA migration, rather than just introduction, to enforce higher take up rates?

Paul Styles, Product Marketing Manager, Wholesale Payments at ACI Worldwide: “Earlier this year, the EU Commission bowed to the inevitable by launching a consultation on the possibility of an end-date for the migration from legacy payment instruments (credit transfer and direct debit) to the new SEPA products and in September, the ECB was urged to define business rules and set technical standards. This has to be welcomed but it is unfortunate that it has taken so long to get to this stage.

These developments are a result of the SEPA project stalling. Without strong customer demand, achieving SEPA through self-regulation remained problematic. As such, appropriate levels of regulation would help the progress of SEPA implementation and help deliver the much-needed clarification for the financial services industry and its corporate customers.

The industry has tried leadership by consensus and it really hasnt got us very far. With the SEPA DD deadline imminent, it is the time for effective and clear end-date for a switch over of old to new payment systems to ensure higher take up rates of the SEPA instruments. What we do not want, however, is a situation where there are multiple end-dates across Euroland”.

Jonathan Williams, Director of Strategic Development at Experian Payments: “The SEPA Direct Debit start date is almost upon us, but the debate around setting an end-date and confusion about exact requirements of SEPA migration has failed to move on in recent months. The confusion about the timeframes for an end-date of legacy payment systems also added to the lack of interest and urgency regarding implementation of the SEPA framework on the side of banks and corporates alike. Only setting a fixed end-date can provide the impetus needed to force the financial services industry into motion. While we can at least agree on what we mean by an end-date - the time when all domestic clearing has moved across to SEPA standards - there are still disagreements over how to address the country variations, or additional optional services, perceived to be necessary to migrate domestic clearing harmoniously.”

2. What, in your opinion, are the reasons behind the delay and below-expected industry take up levels for SEPA?

Paul Styles, Product Marketing Manager - Wholesale Payments, ACI Worldwide: With the Payment Services Directive about to come into force and the launch of SEPA Direct Debits being imminent, there is still a high degree of confusion in the market. The banks and the countries themselves are at varied levels of preparedness for both the PSD and SDDs to be implemented. What contributes further to the lack of preparedness is the fact that the SEPA Direct Debits are being launched into a market where the legacy direct debit instruments across Europe are still in play until some as yet indeterminate future date - a recipe to evoke resistance of both banks and their corporates.

Jonathan Williams, Director of Strategic Development, Experian Payments: In addition to the lack of a definite end-date for the switch over from legacy to new payment systems both the introduction of the PSD and SEPA DDs will have financial ramifications for the bank. Yet, there is no real business case for the introduction of either.

The lack of awareness around the SEPA migration requirements also stretches to conversion from domestic account numbering systems to the European BIC and IBAN system. It is still clear that national legacy systems will be a barrier to take-up which means that few banks and their corporate customers are likely to be prepared for SEPA and some of the obstacles associated with the conversion from the Basic Bank Account Number (BBAN) to IBANs. However, by cleansing and validating BBAN details before conversion into IBANs and by validating existing IBANs on the database, both banks and corporates will be able to get around some of the hurdles in migrating to SEPA and truly herald the arrival of the scheme. So what have we learnt from this? Who should take responsibility for governance of the initiative? Who should be responsible for developing and implementing the standards and systems needed? The answers to these questions are not clear with the European Commission proposing a new governance structure for SEPA and the project not yet nearing completion.

3. What, in your view, are there industry benefits / opportunities to be had from SEPA?

Paul Styles, Product Marketing Manager - Wholesale Payments, ACI Worldwide:
The fact is that SEPA started as a framework to benefit corporates and consumers but has morphed into an interbank framework that has been moulded primarily by the banks. Its not surprising therefore that SEPA migration has been considered disappointing to date.

In terms of benefits for the corporates, they will be able to prepare all payment instructions in a single format instead of one per country. They will only need one euro account for all payments and collections while increased competition is likely to drive down the general cost of transactions. In addition, their cash management processes should become streamlined and more efficient.

Jonathan Williams, Director of Strategic Development, Experian Payments:
With regard to the banks, through SEPA, they are able to reduce the number of payment processes in operation and apply their IT more efficiently through consolidated operations. Having achieved that, the banks will have the platform on which to build the ‘Additional Optional Services’ which should go a long way to convincing the end-user of the merits of a change to the SEPA instruments.
The Single Euro Payments Area (SEPA) is bringing markets closer together and increasing cross-border opportunities for corporate organisations and banks alike. SEPA Direct Debits in particular will enable direct debit originators to collect pan-European direct debits from any of the SEPA countries using a single direct debit service instead of the country-specific services that currently exist.

For banks and corporates the SEPA initiative will provide opportunities to improve end-to-end (E2E) Straight Through Processing (STP), reduce processing and transaction costs and expand markets. Those planning to make use of the initiative will benefit from 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 Euro countries. Those corporates which need to make payments to and receive payments from the European Economic Area will benefit from this more standardised approach to payment transactions.