A European Central Bank (ECB) report reveals that migration to a Single European Payments Area (SEPA) is progressing well in credit transfers but is lagging significantly in direct debits. The regulator also warns that leaving migration until the last quarter of 2013, or even later, gives rise to operational risks and limits the possibilities of tackling any setbacks or unexpected developments during the changeover.
The deadline for euro area migration to SEPA credit transfers (SCT) and SEPA direct debits (SDD) made in euro is Feb. 1 2014. The ECB is advising payment service providers, banks users customers and individuals large and small to be prepared for SEPA migration by February or risk disruptions. The deadline is not going to be revised, the ECB reiterated in a press conference, and fines for failing to meet the deadline will be a matter for national regulators.
SEPA has been promoted since 2002 to ensure the smooth operation of payment systems since 2002. The second assessment by the Euro system of the stage of progress of migration reflects the developments made since the first SEPA migration report published in March 2013. Based on quantitative and qualitative reporting by the Eurosystem national central banks, this second report on SEPA migration describes the state of play in the euro area at the end of the third quarter of 2013.3
The ECB has deduced that many stakeholders have decided to migrate only in the last quarter of 2013, or even later. Migration is progressing at a healthy pace in credit transfers in most countries, said Benoît Coeuré, member of the Executive Board of the ECB but lagging in direct debits. According to the euro area SCT indicator, the use of SCTs accounted for 56.26% of the total credit transfer volume, a sharp acceleration, which originated in the euro area in September 2013. In the first three quarters of 2013, the pace of migration accelerated.
The ECB’s latest SEPA report revealed that no significant progress towards migration to the SDD scheme has been made since the first SEPA migration report. Based on the Eurosystem’s euro area SDD indicator, only 6.84% of direct debits were executed under the SDD scheme in European infrastructures in September 2013.
Coeuré explained that direct debits are much more concentrated than direct credit transfers and in terms of the nature of instruments moving in the system, SCT is similar to legacy credit transfers in member states. “For direct debits, it’s a new payment instrument and a new business process so it’s a quantum leap and it is more difficult. It involves more corporate and large entities,” he added.
Under SEPA there will be no differences in costs and fees between cross border and national payments, said Wiebe Ruttenberg, head of the market integration division in the payments and market infrastructure department at the ECB. “There is no objective to having differences in fees in terms of cross border and national payments. For the use of ATMs outside banks’ national borders there are not too many changes expected there either.”
Fines and punishment will differ from country to country, Ruttenburg added.
Early migration will save stakeholders in investments together with lifecycle of the payment chain, said Coeuré. “If you do it later it will be on a standalone basis and more costly. The key message is that no stakeholder should leave it to the last minute to complete migration,” he said.
Overall, payment service providers’ (PSPs) preparedness improved further in the first half of 2013, although significant efforts are still needed in terms of making customer servicing channels ready and providing more information to customers on the SDD scheme. Among payment service users (PSUs), small and medium-sized enterprises (SMEs), municipalities and regional authorities continue to represent the groups with the lowest level of general awareness, although communication campaigns launched in the second and third quarters of 2013, at the national level, have helped to improve this situation. Conversion services appear to be a useful tool in some cases to ensure smooth migration in the short term, however, in the long term, the benefits of SEPA can only be fully enjoyed if big billers and large corporates adapt their own systems to the SEPA standards, says the ECB.
Compared to the first report, the ECB reports faster migration from legacy credit transfers to SCTs in most countries. Central public administrations continue to lead by example and provide impetus for migration and, in many countries, they have already completed preparations. However, the level of awareness and preparedness in the SME sector still remains an issue with much work still to be done.
In some of the larger direct debit markets, PSPs will only provide their final solutions for migration in the last quarter of 2013. This has caused some PSUs, particularly the big billers and the SMEs, to adopt a wait-and-see approach when it comes to migration to the SDD scheme. Overall, this increases the risk of not being able to complete the preparations by the deadline, says the ECB.
The national SCT indicators continue to demonstrate a relatively large variation in the level of migration across countries, notes the ECB. Since the publication of the first SEPA migration report, Luxembourg and Slovakia have joined Slovenia and Finland in the group of countries, which have practically completed migration to SEPA. Greece, Cyprus, France, Belgium and Spain are well advanced in their progress, with more than 50% of credit transfers already being executed in the SCT format. Migration to the SCT scheme in Austria, the Netherlands and Portugal is also taking place at a fast pace.
Furthermore, when comparing this SDD data with the findings of the first SEPA migration report, little change was observed in the national ratios by the end of the third quarter of 2013. Apart from Slovenia, none of the countries are close to completing migration. Greece, Belgium and Austria are a little more advanced, albeit the latter two with ratios of below 20%. In the other countries, including the four largest direct debits markets, migration is still marginal in terms of the volume of actual transactions processed in the SDD format. In Estonia, Finland and Cyprus, national legacy direct debits will either be replaced by SCT-based e-invoicing solutions or simply phased out. In countries where there are a more limited number of payment service providers and large stakeholders on direct debit the changeover is less complex than in larger countries, explained Ruttenberg.
The report outlines some of the risks posed by a “big bang” late migration stem from the very short time period that remains for the changeover and include:
• the limited capacity and bottlenecks at PSPs and software vendors at the end of 2013.
• The limited time for PSUs to adapt to PSP systems.
• Insufficient end-to-end testing between end users and PSPs.
The experiences of those stakeholders that have already completed migration to the SDD or SCT scheme show that there is a real need for a fine-tuning period after changeover, the ECB notes.
The ECB concludes that overall, PSP preparations have progressed over recent months, and, as indicated by the qualitative indicators in all of the countries, PSPs will most likely be ready with their preparations by the legally enforceable end date.
ECB Publishes SEPA Progress Report and Reiterates Risks of Big Bang Approach to Migration
A European Central Bank (ECB) report reveals that migration to a Single European Payments Area (SEPA) is progressing well in credit transfers but is lagging significantly in direct debits.