February 1, 2013 - It is now exactly one year to go until banks, businesses and every other organisation across Europe has to migrate to the single euro payments area (SEPA) harmonised payment standards, yet only 30% of credit transfers and 2% of direct debits are currently SEPA-compliant, says a new survey from Experian.
The vendor is estimating that wholly avoidable costs from failing to address data errors and validate data ahead of the 1 February 2014 SEPA migration deadline could cost the eurozone up to €20bn.
The move towards a single, standardised SEPA payment system is intended to simplify and streamline processing operations for domestic and international payments across Europe. Anyone who wants to make and receive payments in euros will have to do so using the SEPA credit transfer (SCT) and SEPA direct debit (SDD) instruments and today, 1 February, marks the 'one year out anniversary' until the huge changeover must be completed. Non-eurozone European countries have until October 2016, but in reality most should move en masse towards the earlier compliance date to ensure smooth cross-border payments can continue across Europe and none of the potential efficiency savings are missed.
But is this massive changeover towards SCT and SDD-compliant payments forms happening fast enough? Experian's survey, suggests not with many businesses still a long way behind achieving compliance, which is bad news for banks or payment processors looking to sell them new SEPA services and white-labelled transaction platforms.
The research from Experian also shows that only 65% of euro transactions are underpinned by fully accurate destination routing data and 12% of electronic payments (e-payments) made to and from businesses in euros currently contain data errors.
The group said that businesses need to prioritise and accelerate their move to SEPA compliance before it is too late because full migration can take time, depending on data volume and integrity. Given the streamlining of the new data format under SEPA, full migration should involve a comprehensive validation process in order to ensure payments are successful going forward. If businesses fail to check the underlying banking data prior to migration to the International Bank Account Number (IBAN) format, pre-existing errors inherent to the current system are likely to jeopardise future payments.
Businesses which currently use IBAN-format account numbers have reduced error rates (4.6%) in comparison with those using domestic account numbers (12.7%), although these error rates are still problematic. Also, 45% of SEPA-compliant IBANs stored by large European businesses do not have the valid corresponding Bank Identifier Codes (BICs) required to enable successful routing of transactions.
"Migrating existing customer records to the IBAN standard will be a huge challenge given the sheer number of accounts, and, as a result, large businesses face notable challenges to migrate and maintain SEPA-compliant mandate information in time for the 2014 deadline," commented Jonathan Williams, director of payment strategy, Experian. "Businesses must look to use, leverage and embed data validation within their systems and processes if they are not to incur significant costs as their operating countries move to SEPA, due to the error levels inherent in the data which the SEPA system is liable to expose.
"These types of error, as we've found in alarmingly high numbers, will lead to payment failure when made through SEPA clearing, costing businesses approximately €50 for each failed transaction. Given an established average error rate of around one in eight, an organisation transacting with 100,000 bank accounts would expect a potential cost of €600,000, which leaves a total bill for the eurozone of more than €20bn. All businesses should work to comply now to avoid such unnecessary costs."
Uneven Progress
"While SEPA credit transfers (SCTs) and direct debits (SDDs) are rapidly taking over from legacy payments in the eurozone, the picture is more complicated at a country level," Williams reports. "Some countries are almost complete, such as Finland, Slovenia and Luxembourg, while others, such as France and Spain, appear to be making slow but steady progress. Simply put, despite confusion in some corporates, SEPA migration is making steady progress on credit transfers but slower progress on direct debits.
"These figures stand at odds with some survey results which claim that many businesses have yet to start their projects. Conversely, in conversation, many larger corporates believe they have 'done SEPA'."
"Local derogations, additional optional services and extensions to the schemes appear to be causing confusion about what applies where and by when. Examples of these regional differences include Ricevuta Bancaria [RiBa] in Italy as a local derogation, and the COR1, expedited, D-1 direct debit extension to the SDD scheme for Germany as a local variation.
"One multinational I spoke to recently had not appreciated that, although based outside the eurozone, all its payments initiated within eurozone countries would come under the 1 February 2014 deadline. Without a clear focus on dates and targets, businesses will not start the task of migrating their data and managing direct debit mandates early enough. The payments industry must address this lack of knowledge or mis-education if it hopes to hit the deadlines set."
