Companies in Ireland slow to prepare

Special Report The changes come into force in February and yet some firms have not addressed them


Many Irish businesses could be in for a rude shock. The introduction of the Single European Payments Area (SEPA), new banking legislation standard, is drawing ever closer. Chances are, though, that if you are an Irish company, you have only the faintest knowledge of what the new initiative is and how it will affect your business.

In recent months, a number of business lobby groups, such as Ibec and Isme, have voiced concern over firms’ readiness for SEPA, which comes into effect in February.The aim of the new payments regime is to simplify, and cut the cost of, cross-border electronic payments by creating common standards and rules across 33 countries, including Ireland.

It is hoped this will make payments made across Europe as efficient as national payments usually are.

Because the new payments regime has important consequences for how electronic fund transfers are processed and direct debit payments are made, it affects all businesses. So far, however, Irish firms have been slow to ready themselves for it.

Between now and February’s start-date, all businesses need to invest in reconfiguring their payroll, direct debit and accounting systems to deal with the changes to be introduced under the new legislation.

However, according to a survey by Ibec in April, as many as 42 per cent of firms had yet to begin preparations, with small firms found to be particularly unaware of the new rules and their likely impact.

The information services group Experian, which is advising a number of Irish companies on how to prepare for SEPA, is critical of how some firms view the legislation.

“Too many businesses have seemingly taken a ‘the diet starts tomorrow’ mentality towards becoming Sepa-compliant, yet time really is running out to get the process underway,” said Jonathan Williams, director of payment strategy at Experian.

“The arrival of SEPA legislation has been on the horizon for 10 years now, yet many businesses across the eurozone are still not prepared, Irish companies included. With time running out, the need for action is now,” he said.

Ibec, which has been running seminars across the country to promote better understanding of the new payments area, said that awareness of the legislation has increased since it carried out its survey earlier this year, but added that there is still much to be done.

“It is very important that companies understand that February 1st is a deadline and not a soft introduction of SEPA. We’ve been building towards it for a number of years now and all businesses need to be compliant by February 1st whether they like it or not,” said Fergal O’Brien, Ibec’s head of policy and chief economist.

When the new legislation comes in, current national payment schemes will be closed and all electronic payments must be processed using new schemes.

Among the other main changes are the use of International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs) for cross-border payments instead of current national sort codes and eight-digit bank account numbers, and the introduction of the ISO 20022 XML format for bulk payment files.

Banks have been working for several years to prepare for SEPA and are eager to assist customers in becoming compliant with the new legislation.

A spokesperson for Danske Bank said that while becoming SEPA-compliant may be a nuisance, it has plenty of benefits.

“If you’re a business customer sending a payment either in Ireland or to any of the other countries impacted by SEPA, you can be pretty much guaranteed that it will be treated and processed in the same way in each country,” he said.

“We would also expect costs associated with payments to fall over time with more competition from banks for processing payments.

“I think banks will really be upping their game because it is going to be a more competitive environment and they are going to offer more to customers to differentiate themselves from their rivals,” he added.

Ibec is also keen to stress the benefits to be had from the introduction of the new legislation despite the outlay required for firms to become compliant.

“There are obviously costs associated with SEPA and these will vary depending on the nature and scale of the business. Large corporations, such as utilities that have a huge number of customers, have had to engage in major work with very significant systems upgrades and testing to ready themselves.

“For the vast majority of SMEs though, it shouldn’t be a major outlay. It’s worth remembering, as well, that there will be benefits to businesses in terms of the speed of transfer of payments, which will be significantly reduced,” said O’Brien.

For businesses that are only now beginning to consider their approach to dealing with SEPA, the first move should be to consult with your bank and software systems provider to find out what you need to do to next.

“As with any piece of new legislation, one of the key challenges lies in the initial stage or the project whereby firms will need to accurately identify the knock-on changes that may arise. This can often prove demanding as it is difficult to appropriately consider all impacted business areas in advance and to effectively implement the required operational, technological and staffing changes,” said Colm McDonnell, enterprise risk service partner at Deloitte.

“It would be fair to say that SEPA will have a definite impact on all Irish businesses.

“However, the extent of the impact would depend on a variety of factors.

For some, quite significant challenges will be faced, including changes to payroll and accounting software, conversions to new account numbers, implementing new mandate management systems and aligning payments processing with the new Sepa timeframes,” he said.