By John Rice, SEPA Programme Manager at the Central Bank
There is a significant change about to happen in the area of euro-denominated electronic payments. An EU regulation set 1 February 2014 as the date by which all users of electronic payments in the Single Euro Payments Area (SEPA) – a 32 country area comprising the EU 27 along with Iceland, Norway, Switzerland, Monaco and Liechtenstein) – must migrate from ‘domestic only’ payment systems to a pan-European equivalent. This means big changes for our banks, many software providers and approximately 50,000 businesses that make payroll or creditor payments, or collect direct debits electronically.
So, what is changing?
Ireland’s national payment system for credit transfers (payroll, creditor payments) and direct debits will close for business on the 31 January 2014 and be replaced by two pan-European schemes, the SEPA credit transfer scheme (SCT) and the SEPA direct debit scheme (SDD). This will mean that payment file formats will need to change from the current domestic ‘Standard 18’ to the new SEPA ‘ISO 20022 XML’ formats. In addition our NSCs (National sorting codes) and bank account numbers will be replaced by BICs (Bank identifier codes) and IBANs (International bank account numbers). These technical changes will help standardise payment messaging across SEPA and lead to more efficient payment processing.
A benefit of SEPA is that next-day value is guaranteed for funds transferred between accounts in SEPA. To facilitate the change for both SCT and SDD, all impacted businesses will need to convert their data (NSCs and account numbers to BICs and IBANs) and make arrangements with either their software provider or bank to ensure that their payments comply with the new ISO 20022 XML format.
For direct debit originators there are further changes to be taken into account. The SDD scheme rules vary significantly from their current Irish equivalent. Areas such as mandate management, consumer rights and returned transactions, all require process changes in addition to the technical challenge outlined above. In addition, the new consumer right to ‘no questions asked’ refund for authorised transactions for an eight-week period poses potential additional credit and cash-flow risk for originators, particularly in the business-to-business space.
What should you be doing now?
If you don’t submit ‘bulk’ payroll, creditor or direct debit collection files to your bank, there is no need to panic. Companies and consumers making individual electronic payments will see little difference, as their bank will make all the necessary changes seamlessly in the background. The 50,000 or so impacted businesses should at least be at planning stage right now. The accountability for ensuring the necessary changes are made fall to each company. There is a lot of assistance available from banks and software providers to help in the process, but unfortunately many businesses appear to be under the illusion that the changes will be made on their behalf.
What will happen if I do nothing?
If you haven’t conformed to the new SCT and SDD technical standards by the 31 January 2014, your bank will not be able to process your transactions, which is likely to cause disruption for your business. Early planning and migration to the new schemes is highly recommended, as it may not be possible for all latecomers to be accommodated in a timely fashion.