Sorting priorities for SEPA deadline

February 1st 2014 is a red letter day in the calendar of Ireland’s financial services sector. The introduction of SEPA marks the culmination of many years of planning by banks, businesses and payment services providers. Integrating the multitude of existing national euro credit transfer and euro direct debit schemes into a single set of European payment schemes is considered a huge step towards making the euro a single and fully operational currency.

The vision for a single payments area was set out by EU governments in the Lisbon Agenda in March 2000, in a plan which aims to make Europe more dynamic and competitive. Following the introduction of euro notes and coins in 2002, the political drivers of the initiative – EU governments, the European Commission and the European Central Bank (ECB) – have focused on the integration of the euro payments market, a process now just over five months from its scheduled completion.

While the rollout of SEPA has been in train since 2008, the final months in the lead-up to its introduction will see a flurry of activity as businesses affected by the changeover scramble to meet the deadline.

The initiative has been driven by the European Commission and the European Central Bank at a policy level but at a practical level the project is being delivered by the European banking industry. The 28 EU member states together with Norway, Iceland, Liechtenstein, Switzerland and Monaco will complete the move to a single payments system on that date.

The Single Euro Payments Area benefits, first and foremost, bank customers including consumers, businesses and public bodies. Once it is is achieved, it will be possible to exchange euro payments between any accounts within the payments area as easily as it is within national borders today.

Sort codes replacement
The most obvious difference to customers will be the replacement of national sort codes and account numbers with international bank identifier codes (IBANS) and bank identifier codes (BICs).

Like many financial institutions across Europe, AIB Bank has been preparing for SEPA for several years. According to its head of payments, Peter Vance, some 2,000 customers have already migrated to the new standard. It has a dedicated customer migration team and has been contacting customers to assess their readiness and provide support services.

“Customers are increasingly realising the scale of the issue which is not just a technical issue around account numbers. It has implications across areas such as technology, finance, treasury and internal processing,” he notes.

In the first instance, companies need to be aware of the precise implications of SEPA migration. For example, companies may not be aware that direct debits will require an upgrade from their software provider and that not all providers will be able to support this, he notes.

Danske Bank’s Barry Manning expects a big rush in the final months of the year as customers realise the work that needs to be done. He expects that this will put significant pressure on financial institutions at the back end of 2013. “There is a still a view among some people in the business community that banks will do all the work for them and some are surprised when they realise that they need to take ownership of the process,” he adds.

While it will bring huge medium to longer-term benefits to financial institutions, corporates and SMEs, the immediate major beneficiaries of the introduction of SEPA will be consumers.

Consumer interests
The legislative framework around it, enshrined in the EU's Payment Service Directive is very focused on consumer interests. Among the benefits of the new regime will be a tighter timeframe on payments and an eight week "no questions asked" refund system on payments. In other words, if a customer wishes to recall a payment from a service provider such as a utility company for example, the bank will automatically honour such a request.

A consumer wishing to pay for services within any of the European countries involved in SEPA, ie utility bills or maintenance on property abroad, may now do so using one domestic bank account, eliminating the need to open a separate overseas account. It also means that people who live, work or study outside their own country may use their account in their home country to complete all their transactions.

While it will involve expense for financial institutions and businesses in the short-term, the longer term effects are set to be very positive.

According to a study conducted for the European Commission by Cap Gemini, SEPA holds a market potential of up to €123 billion in benefits – cumulative over six years – with a significant upside for all stakeholders while allowing banks to retain current margins. Consumers gain in all scenarios, while other stakeholders (especially SMEs and corporates) should benefit – by tens of billions of euros, it says.