It’s the next step in creating a European single market; from February 1st 2014, Ireland’s national payments system will be closed for business and instead, will be replaced by the Single Euro Payments Area (SEPA), which will eventuallyextend across 33 countries.
The February deadline is for the eurozone while non-euro member states have to comply by the end of October 2016. But while the new payments regime should facilitate easier – and cheaper – payments across this region, the fear is that Irish businesses are not yet adequately prepared.
The goal of SEPA is clear: it aims to overcome technical, legal and market barriers between countries in order to create a single market for payments in euro. So, in essence, whether you make, or receive, a payment to an individual or business anywhere in Europe, it should be the same as if you are transacting with someone down the road.
At present, cross-border payments are done on a national basis. “This means that there are no economies of scale, no common standards, or legal basis in place for making payments across Europe fast, efficient and safe,” says Chris Stonehouse, category manager with Sage UK and Ireland.Its arrival, however, will see existing bank account numbers and national sort codes migrate to an international bank account number (IBAN) and a bank identifier code (BIC).
“It is a welcome initiative which should prove to simplify, standardise and accelerate interjurisdictional payment mechanisms resulting in increased cross border opportunities, improved cash-flow and cost reductions,” says Colm McDonnell, a partner in enterprise risk services with Deloitte.
It might also help with cash-management, as Stonehouse points out: “With SEPA you know that you need to deposit your money in your bank account on the day before you want to do the payment, then the money will be received on the exact day that you specify to your bank. This is especially important for businesses for whom cash flow is an issue, as they can now control exactly when money leaves their account, and they can guarantee when it will arrive in the recipient’s account.”
And with businesses faced with ever-increasing bank charges, the single payments system should mean lower transaction fees – after all, a central tenet of it is that paying someone in Europe should cost the same as paying someone in your home country.
Improved competition
"Fees should come down, because any bank could do the transaction processing for you, so it should improve competition, especially for larger companies with more transactions to be processed," says Barry Manning, head of corporate cash management at Danske Bank.For consumers, the move to SEPA should bring its own advantages.
“A good example of this would be if you have a house in Spain and you need to pay your electricity bill or your taxes there. You will be able to do a direct debit from your Irish bank account, without having to open a bank account in Spain,” says Stonehouse.
So why are businesses apparently so reluctant to engage with the new regime? A survey by Sage for example, indicates that almost one in two of its customers have not yet started preparing for SEPA. But is it the new payments regime that is causing paralysis – or simply the fear of change?
“As with many changes in legislation, often businesses aren’t thinking about it until later on,” asserts Stonehouse, while McDonnell agrees.
“New regulation can often strike fear into the hearts of impacted businesses and SEPA is no different in this context,” he says, adding that for some businesses, “quite significant challenges will be faced, including changes to payroll and accounting software, conversions to new account numbers, implementing new mandate management systems and aligning payments processing with the new timeframes.”
For Manning, the major change on the way is the introduction of new file formats for bulk electronic payments.
“From a technical perspective it’s the biggest change,” he says, adding that the conversion from existing eight digit account numbers to 22 digit IBANs might prove to be problematic.
So what happens if you’re not ready? “Businesses should be aware that SEPA will have a very real and practical impact on them as failure to effectively implement the regulations could affect such essential processes as payroll and direct debit payments to creditors,” says McDonnell.
Payment problems
It could also cause problems with payments. "If, after that time, a company hadn't updated their process to make sure they were compliant they wouldn't be able to process payments. It's an extreme example but then they couldn't pay people and they couldn't get paid," says Stonehouse.
And Manning warns that those companies that depend on direct debit payments for their revenue need to be more aware of the change than others. While he notes that the banks will look at some form of conversion service to facilitate those companies that might get caught out by not being compliant by the deadline next year, it may not be possible to do this for direct debit payments.
“If you’re a direct debit company I’d be making sure it’s a priority now,” he says, adding that it’s not just about the companies themselves – they also need to put pressure on their providers to be ready.
But companies are not yet at the stage of hitting the panic button. “I don’t think it’s too late for businesses, and I don’t think that there wil be any problems; but companies now have to get a plan in place,” says Stonehouse.
