European Central Bank warns against last-minute Sepa migrations

The European Central Bank (ECB) has warned businesses that have left their migration to the Single European Payments Area (Sepa) compliance late they could face problems.

In its latest report, the ECB said migration was progressing well for credit transfers but is late for direct debit. Sepa went live in 2008, when the system that makes all electronic payments in the Eurozone the same as making domestic payments, was launched for credit transfers. 

February 2014 is the deadline established by European law for Eurozone countries to migrate to the Sepa credit transfer (SCT) and Sepa direct debit (SDD) schemes. All European businesses making and receiving payments to and from the Eurozone – which includes most large UK businesses – must do so using the Sepa standard. This means using International Bank Account Numbers (Ibans) and the ISO2022 XML format.

“Payment orders that do not comply with the legal requirements as laid down in the Sepa Migration End-date Regulation will not be allowed to be processed by payment service providers after 1 February 2014,” said the ECB.

Despite the fact that the project has been around for years, there is a race against time for compliance. This is partly down to the fact that the deadlines were long, making businesses too slow to start and a lack of understanding of the need to be compliant among non-Eurozone countries in Europe.

ECB and the Eurozone national central banks have found many stakeholders have decided to migrate in the last quarter of 2013. “This approach generates operational risks and limits the ability to tackle any issues or unexpected developments that might arise during the changeover period,” said the ECB.

“I have said this before and will repeat it: everybody has to be ready on 1 February 2014 or risk disruptions in their individual handling of payment orders,” said Benoît Cœuré, member of the Executive Board of the ECB, pointing out that this is also the position of the European Union Council and the European Commission. 

“Both payments providers and users are responsible for being sufficiently prepared. And our message to them is still the same: don’t leave it to the last minute,” he said.

The report said late migration risks capacity issues and bottlenecks on the side of the payment service providers and software suppliers, and a lack of time for users to adapt to the payment service providers’ new standards as well as to test their own systems sufficiently.

“A successful migration will require considerable effort, so it is important to further strengthen communication and cooperation among key stakeholders and competent authorities at the national level”, added Mr Cœuré.

In July 2013 Experian research found only 2.5% of direct debit payments and 45% of credit transfers are compliant with Sepa.

Jonathan Williams, director of payments strategy at Experian, said part of the problem is that businesses have labelled Sepa as an IT project. “Banks and central banks have been getting the message across to corporates but the problem is it has been seen as an IT project that is all costs and no benefits.

“If we had known when the deadline was set that so few would have migrated we would have given ourselves more time.”