10 September 2012

EPC: SEPA Direct Debit - Migration is manageable; the time to act is now

The SEPA Regulation defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SCT and SDD.

According to the Single Euro Payments Area (SEPA) Indicators compiled by the European Central Bank (ECB), as of July 2012 the share of SEPA Direct Debit (SDD) Core transactions, as a percentage of the total volume of direct debits generated by bank customers, amounts to 1.0 percent in the euro area. By comparison, the share of SEPA Credit Transfer (SCT) transactions amounts to 29.6 percent in July 2012.

In other words, 99 per cent of direct debit volumes currently processed in the euro area have to be migrated to SDD in less than 17 months. EPC has noticed that some market observers seem to be alarmed by this fact: these same observers however, appear unalarmed by the fact that 70 percent of credit transfer volumes also need to be moved to SCT. EPC also witness a tendency in the SEPA debate, which implies that implementation of SDD is more complex than adapting processes and operations to SCT.

Both notions contradict the experiences of SEPA project managers, representing payment service users such as corporates, public administrations and government agencies, all of which have reported on their lessons learnt in the EPC Newsletter. Their experience demonstrates that implementation of SCT and SDD is equally feasible and manageable. Early movers on the demand side, who successfully concluded migration to the SEPA Schemes, identified the following main challenges which are the same with regard to both the SCT and SDD Schemes:

• Conversion of customer account data to the International Bank Account Number (IBAN) and the Business Identifier Code (BIC).
• Adaptation to the usage of the ISO 20022 message standards.

SEPA practitioners among bank customers clarify that implementation of one SEPA Scheme is not more complex than the other, but each requires specific steps. Some of the specific requirements to be observed with regard to SDD implementation relate to, for example, mandate management, the time cycle and exception handling.

Article 7 of the SEPA Regulation states that any "valid payee authorisation to collect recurring direct debits in a legacy scheme prior to 1 February 2014 shall continue to remain valid after that date and shall be considered as representing the consent to the payer's PSP [payment service provider] to execute the recurring direct debits collected by that payee in compliance with this Regulation in the absence of national law or customer agreements continuing the validity of direct debit mandates". This provision therefore, ensures that existing mandates under the SDD Core Scheme continue to remain legally valid, thereby greatly contributing to facilitating the migration by bank customers to the SDD Scheme.

Early movers on the customer side who reported on their migration experience in the EPC Newsletter, concur that migration to SEPA pays off.

Last but not least, the EPC wishes to stress again: Article 16 of the SEPA Regulation permits individual European Union (EU) Member States to extend the deadline for compliance with some of its provisions to 1 February 2016. It is however, strongly recommended that payment service users analyse the impact of the SEPA Regulation on their day-to-day operations now, even if EU Member States opt to make use of the derogations permissible under Article 16. As the experience of early movers on the demand side handling major payment volumes indicates, migration to SEPA Schemes and technical standards is beneficial, but requires careful planning. The relevant actions and resources should be identified as soon as possible. Banks and other service providers are making available the tools required to facilitate the transition.

Migration to SCT and SDD by 1 February 2014 in the euro area is manageable and feasible. The time to act however, is now.

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