PARADOXICALLY the Single European Payment Area (SEPA) commenced, without fanfare, on 1 February and yet it will drastically alter the way transactions are handled both within Europe and between companies dealing with eurozone-based businesses.
For many SEPA is in fact the whole point of the eurozone – the free movement of capital between member states, unfettered by the imposition of fees.
And yet it has taken 15 years since the introduction of the euro to get to this point, with surprisingly few businesses currently SEPA-compliant, or suitably prepared to become so. More worryingly, companies all across Europe admit they simply do not know the deadline for SEPA compliance.
The aim of SEPA is to unify payments processes across Europe. In simple terms, SEPA will enable corporations to make and receive payments to anyone in the region using a single bank account and a single set of payment instruments. It affects 32 countries, both within and beyond the EU, and corporates in all these participating countries will observe a synchronisation of payment formats. Not only that, the initiative includes the use of uniform standards and codes for exception processes – often generated when transactions cannot be completed by processing systems.
And it’s the usual suspects – the banks – that appear to carry the can for the rather protracted delay, says independent consultant on EU regulatory issues Graham Bishop.
“Not until you can pay for goods and services across borders as if we were dealing the way would at home, there isn’t a single market in anything,” he says. “The people who have resisted this tooth and nail are the banks. They said people don’t want to make payments cross-border.”
But when it costs someone in the UK £30 in foreign exchange charges to make a €50 payment, the disincentive, Bishop says, is profound.
“This was a real impediment to cross-border business, and it’s only now there’s finally a single market in payments to match the ability to buy goods and services,” he adds.
Britain, alongside Iceland and Switzerland, has a slightly different relationship with the legislation to eurozone member states, with compliance only required if companies deal with European clients or suppliers.
The consequences of non-compliance for companies affected are significant, with transactions both in and out prevented until the necessary SEPA provisions are put in place by the business concerned. In short, there is no choice. SEPA is obligatory.
As rollouts go, SEPA is, rather typically, well behind schedule. Research commissioned by Sage shows just 52% of mid-market companies actually are aware that the introduction date was 1 February 2014.
Nearly a quarter (24%) of French and more than three quarters (76%) of Polish businesses that claimed to know the date for SEPA compliance didn’t actually know what the deadline was, while more than half (55%) of British businesses also failed to confirm the correct date.
Almost half (49%) of the surveyed organisations don’t have a complete SEPA compliance plan in place, despite 81% appointing someone to manage the SEPA migration. And, despite the original deadline having elapsed, only one in seven (15%) can handle SEPA payments.
As far as UK companies are concerned, you might be forgiven for expecting SEPA to be treated as a poor relation given the recent introduction of real-time PAYE and pension auto-enrolment, which had the temerity to coincide. As British business comes to terms with those quite drastic changes, SEPA could simply have been shelved until the other two requirements were put in place.
Not necessarily so, believes CIoT president Stephen Coleclough.
“If you go down to your local branch [in the UK] and said ‘are you geared up for SEPA and can I have a direct debit set up for my Euro-denominated account for my travel expenses?’, they’d probably say they don’t know what you’re talking about,” he explains. “But if you went to the trading floors and trading desks and the investment banking side of the City, they will be well up on this because that’s what they do.”
The general lack of awareness, or urgency to comply, has seen a Europe-wide soft landing intiated for the next six months. The grace period has been established to enable business to catch up with the legislation’s requirements. Some nations, though, such as Ireland, expect to substantially beat that deadline.
As far as stakeholders are concerned, the message is a simple one; get SEPA-compliant as soon as possible, especially since the switchover is not an intensive one. The transition, Sage Europe’s Christophe Letellier notes, is more likely to entail days of work, not weeks.
Indeed, the most important changes companies need to make are updates of systems and applications used for payment and collection of funds. A SEPA credit transfer and SEPA direct debits must be set up, which include BIC/IBAN international account identifiers.
“Most companies, at least 80%, know what they want to do, they just haven’t done it yet,” Letellier told a round-table in Paris. “Most of the value chain has to adapt. It can be done. When I say ‘days’, I mean IT days, and after that, it is done.
“For most at the moment, it is about compliance. They are not treating it as an opportunity. SEPA will provide freer movement of capital as you will only need one account in Europe.”