Ireland slow to leave culture of cash behind

In a clear signal to Irish business to maintain the momentum towards SEPA compliance, the Irish Payment Service Organisation (IPSO) and its member banks have adopted a two month grace period for compliance, rather than taking the full six months proposed by the European Commission.

According to IPSO, Ireland is now well advanced in the process and it estimates that 95 per cent of all payments and the vast majority of companies will be fully migrated to SEPA by February 1st.

In its earlier announcement, the Commission noted that by last November, SEPA Credit Transfers in the scheme’s 32 participating countries were about 64 per cent compliant and SEPA Direct Debits only 26 per cent, so that the February 1st deadline was “now highly unlikely” to be met. At the same time it was stressed that the vast majority of stakeholders would complete their migration by the original timeframe. The latest figures for December show the pace accelerating with 74 per cent compliance on Direct Debits and 41 per cent in the euro area.

When fully operational SEPA will cover the 28 EU member states plus Iceland, Liechtenstein, Monaco, Norway and Switzerland.

Both the EU and IPSO announcements have not affected the pace at which compliance levels have been rising, according to AIB’s Peter Vance.

“Based on the first week in January 2014, AIB is now processing 70 per cent of direct-debit traffic and 63 per cent of credit-transfer traffic through the SEPA scheme, and these figures are increasing on a weekly basis as the last of our customers make the move over.

“We expect to have 100 per cent of our credit transfer traffic going through SEPA and over 93 per cent on the direct debit side by February 1st.”

While the pattern with other banks is mixed, a major push is on to achieve high compliance rates by the original February 1st deadline. Ireland has a midtable position in European SEPA compliance, slightly behind the curve on credit transfers and on par on the direct debit side, Vance says.

In general, big institutions with large numbers of transactions – such as large employers, utility companies and insurance providers – have led the way. Vance says 18 of the top 20 credit-transfer originators and 17 of the top 20 direct-debit originators at AIB had migrated by early January.

Legacy systems
Adoption rates are slower at the SME level, says Brian Hanrahan of Sentenial, a specialist provider of payment-system solutions that has been working on SEPA migration for many years.

“Many companies underestimate the degree of complication associated with SEPA migration. In some cases, legacy systems that have been used to process payments will not be able to cope with SEPA, so new systems will need to be put in place,” he says.

For those who have made progress, the bar is now set higher. “Companies that have met the standard for compliance are now looking to get ahead of the curve and to see how they can use SEPA to achieve best practice and are planning projects around this goal,” he says.

Many recognise that SEPA does not simply involve a once-off “big bang” migration but creates a new pan-European platform managed by the European Payments Council.

“What we have in SEPA is a dynamic architecture that can accommodate new elements. For example, we might find that the Germans want to introduce a new element to accommodate their needs in a couple of years’ time. Future proofing is very important, therefore.”

Simon Bell of Sage says those who have embraced SEPA have not had major technical difficulties implementing the new standard. The change is as much about internal processes and management as it is about technology, he says.

“Financial processes are often embedded into businesses, and things have been done in a certain way for many years. It’s about a change of mind, and practices, in finance and administration functions as much as anything else,” he says.

Eliminating cheques
One of the key benefits for business is that it will not only speed pan-European processing times but it will also reduce costs and help in the process of eliminating cheques that are expensive to process.

Typically a SEPA credit transfer costs about seven cent, says Bell, while a cheque costs upwards of €3.50, when all associated costs are taking into consideration. While some European countries have withdrawn cheques totally, Ireland is the second highest user of cheques in northern Europe.

Ronnie O’Toole of the Central Bank also sees SEPA adoption as part of the wider move to a more efficient bank payments systems, as outlined in the National Payments Plan. A key part of this is e-Day, on September 19th, when Government agencies will no longer accept or issues cheques for businesses.

It is hoped this will speed the overall move away from businesses using cheques in other areas of their businesses. Following consultation, it has been decided this plan will not affect payments to and from consumers.

The aim of the plan is to save €1 billion a year in payment processing associated with cheques and cash by increasing electronic transactions. Ireland is one of the laggards in Europe in this regard, second only to Belgium in cash usage, for example. The Irish withdraw as much in a month from ATMs as the Danes withdraw in a year.

“Moving to higher electronic payment rates is a key component in improving slow paying practices in business – the ‘cheque is in the post’ culture, if you like,” says O’ Toole.

“While having mandatory electronic payments in itself won’t eliminate this, it would be difficult to make progress in this area while cheques remain, so their removal is a significant element in addressing this issue.”