The original February 1st deadline for migration to SEPA was supposed to be non-negotiable, but just after Christmas the European Commission decided that some of the 16 countries who were due to move into the Single European Payment Area at the beginning of February weren’t quite ready yet.
It proposed an additional six-month transition period which is expected to be ratified by the European parliament in early February.
While SEPA will still formally come into being in eurozone countries next month, it is up to the banking system in each country to set its own operational deadline - the Irish Payment Services Organisation (IPSO) and its member banks has extended the date by just two months to March 31st because it says migration by Irish companies is well advanced.While most companies are expected to meet the March deadline, it’s likely that any who miss it will still be given opportunities to get all their ducks in a row.
The Central Bank of Ireland is urging that businesses continue to aim for the original February 1st deadline however payments made in alternative formats will be accepted by banks across the EU until the beginning of August.
“I regret having to do this but it is a measure of prudence to counter the possible risk of disruption to payments,” the EU Internal Markets Commissioner, Michel Barnier, said of the proposed extension.
“I have warned many times that migration was happening too slowly,” he said, “and call once more on member states to accelerate and intensify efforts to migrate to SEPA. The transition period will not be extended after August 1st.”
The introduction of the new system will make the banks in the 28 EU member states, as well as Norway, Liechtenstein, Iceland, Switzerland and Monaco, speak the same financial language to allow for faster cross-border credit transfers and debit payments. It was to be rolled out across the eurozone first, with the other countries following suit by the end of 2016.
New statistics from the European Central Bank show that migration to SEPA gathered pace strongly in December. According to the figures published last week, 74 per cent of credit transfers and 41 per cent of direct debits in the euro area are now SEPA compliant.
IPSO has said that migration by Irish businesses is well advanced 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. “It is important to maintain momentum towards 100 per cent SEPA compliance. However, to enable companies who have yet to complete their migration to SEPA, IPSO and its member banks have agreed to extend the migration date to 31st March 2014,” SEPA Ireland Programme Manager, Michael O’Neill said.
Delay or no delay, SEPA is becoming a reality, and people will have started to see the four letters appear on their bank statements alongside credit transfers and direct debits in recent weeks. Others will have been asked for their IBAN and BIC numbers as they attempted to carry out transactions since the beginning of the year.
The head of SEPA delivery at the Central Bank, John Rice, has seen a two-tier awareness level emerging as the changeover has come closer. The vast majority of businesses are up to speed on exactly what SEPA is and what the changeover will mean for them and their customers; the vast majority of consumers, however, are largely oblivious to SEPA’s intricacies.
“If there was any company out there that was unaware of what they need to do I would be flabbergasted,” Rice says.
“Companies have been acutely aware of what they needed to do for a long time now, and while the changes required for credit transfers have gone very smoothly, many businesses have been surprised by the complexity of the direct- debit changeover,” he says.
“When it comes to consumers, most people are aware something is happening. But I think people will only really feel the impact of the changeover when it starts to matter to them in a real way.
“The biggest thing gaining traction right now is the switch to BIC and IBAN numbers for electronic transfers. Even though they have been on bank statements since 2008, people are only now realising they are there,” he says.
Slow-burning
Ronnie O'Toole of the Irish Payment Services Organisation agrees, although he plays down the likelihood of any dramatic changes when the deadline is eventually reached.
“This is a slow-burning thing and I don’t think many consumers will see any radical changes overnight, but over the course of the next five years we will see real benefits across the board as a fragmented payments market is put together into a single unit.”
AIB’s head of payments Peter Vance is confident that Ireland is ahead of the game when it comes to the changeover.
“The vast majority of businesses have moved across and are using it as their standard payment process, and the rest will hopefully move in the next few weeks,” he says.
He says banks may have initially struggled to get the message out about the importance of SEPA, and “in a lot of cases businesses have seen the changeover as a chore”.
Multinationals on the other hand have been faster to embrace it. “They have seen it as a major advantage and see it as a way to reduce costs and streamline processes.”
He is honest in his assessment of the consumer’s take on things. “The vast majority of consumers don’t care that much, and that is the honest answer, but a sub-set who have property abroad are now starting to change their direct-debit instructions so they don’t have to fund their accounts overseas. They are finding it much easier to reconcile their accounts.”
He says when it is fully implemented it will dramatically increase the speed of payments both at home and across Europe. “In the old days we would only interact with banks once a day; now we are doing it six times a day so we have same-day transfers across all of Europe and that is only going to get faster,” he says.
Prudent
While the banks came in for some criticism when the extension to the deadline – which was supposed to be immovable – was announced, Vance says the decision was prudent. Europe- wide, about 40 per cent of businesses were not ready in early January and migrating a critical mass over to the new system in four weeks would have brought the risk of systemic failure.
However he says as the migration of Irish companies to SEPA is well advanced, “ we were disappointed with the generalisation of the criticism,” he says.
More criticism is likely. One of the big problems being reported in recent weeks are delays in wages hitting accounts. Before SEPA, people typically saw their wages land in accounts in the middle of the night but many are reporting delays of six hours.
Some Ulster Bank customers due to get paid on Mondays used to see the money land on Friday night, but now it is not coming into their accounts on the Monday, making the weekends before payday long and lean.
The experts say these are teething problems and will be resolved in the weeks ahead. According to Rice, a switch of this magnitude is “always going to be a big challenge”, but he is confident that “everyone one will benefit from it. It will really step up the pace of money transfers both at home and across Europe. We will be part of a new payments motorway,” he says.
“There are no downsides to it, but there are challenges to be faced as people switch over. Mostly it will be about getting used to the changes.”
