With single euro payment area (SEPA) adoption by organizations across Europe now less than a year away, many businesses remain unprepared for the changes, new research reveals.
SEPA – which will see businesses, banks, and other organizations across Europe move over to a harmonized payment standard – is due to be rolled out on February 1, 2014. Despite the deadline fast approaching, a minimal amount of preparation has been done to make payments compliant with the new regulations.
According to a new study carried out by global information services group Experian, just 30 percent of credit transfers are currently compliant with SEPA, along with just two percent of direct debits. Failing to make the necessary preparations to meet the introduction of SEPA could potentially cost the eurozone €20 billion ($27 billion). These costs would be mainly accrued through resulting data error issues when payments do not fit with SEPA, and are, Experian says, ‘wholly avoidable’ if the necessary preparations are put in place.
The main aim behind the introduction of the standardized payment system is to pare down and streamline payment processing for both domestic and international payments that are taken and received at organizations across Europe. The mass changeover will see those who wish to make and receive Euro payments being forced to do so using a SEPA direct debit (SDD) system or a SEPA credit transfer (SCT) system.
Whilst countries located within the eurozone must make the switch to SEPA by February next year, those European countries that are not in the eurozone will not change over until October 2016. However, such countries have been advised that it would be in their best interests to behave as if they must be SEPA compliant by the February date in order to allow for straightforward cross-border payments to carry on throughout Europe. Experian also warns that countries which do not work towards the earlier SEPA compliance date may well be missing out on some major efficiency savings.
Director of payment strategy at Experian, Jonathan Williams, told bobsguide.com, “While SEPA SCTs and SDDs are rapidly taking over from legacy payments in the eurozone, the picture is more complicated at a country level. 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... 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 miseducation if it hopes to hit the deadlines set,” Mr Williams went on to say.
SEPA offers a wealth of benefits for countries that become compliant. “For corporate treasurers, the primary short-term benefits will be a reduction in the volume of administration required to manage multiple payment types and formats, as well as the standardization of customer and supplier payment data brought about by the harmonized single euro payments area,” Kyriba's Bob Stark said.
Once the implementation of SEPA is complete, other benefits will be seen, including an increase in direct debit programs, the centralization of payments and collections and the simplification of banking structures – the number of bank accounts would be significantly reduced, leading to a reduction in banking costs.
A further benefit would be the transformation of treasury organizational structures, as SEPA will allow treasury teams to carry out money transfers and payments across Europe far more quickly, therefore reducing costs and workload.