Special Report

With SEPA migration projects mostly completed, it is time for treasurers to start thinking about the next steps in regulatory compliance and process automation.

For European corporations, 2014 was the year of SEPA. With only days to go before the February deadline for Single Euro Payments Area migration, the European Central Bank (ECB) announced a six-month transition period, giving many companies more time than expected to complete their migration. The following months saw an intense burst of activity as companies worked to meet the August deadline: During the first eight months of the year, the percentage of SEPA credit transfers rose from 83% of the total to over 99%, while SEPA direct debits went from 60% to almost 100%.

The industrywide migration to SEPA has progressed considerably—but it would be premature for corporate treasurers to declare the task complete. Although the main migration phase has taken place, a number of milestones are yet to come for companies that are grappling as well with other regulatory changes.

“Treasury teams have spent a lot of time on compliance during 2014,” says François Masquelier, chairman of the Association of Corporate Treasurers in Luxembourg, citing the European Market Infrastructure Regulation (EMIR) as well as SEPA. “They have dedicated lots of resources and exhausted part of their energy. However, they will need additional forces to face coming new regulations and to become compliant.”

Where SEPA is concerned, deadlines are once again looming, with a number of them coming next year. For one thing, as of February 1, 2016, companies will no longer need to provide bank identifier codes (BICs) when making cross-border payments. The arrival of IBAN-only (International Bank Account Number) payments will provide convenience for corporations but represents a challenge for banks, because deriving the
required information to process a transaction from a particular IBAN is not always straightforward.


Niche payment products that have benefited from a longer migration period will be phased out by February 1, 2016. This category includes a number of products but represents less than 10% of payment volumes, such as the Austrian paper-based credit transfer scheme called the ATIB and the French electronic payment order called the Télérèglement. Despite not being officially classed as a niche product, Germany’s Elektronisches Lastschriftverfahren (ELV) electronic direct-debit scheme will also continue to be used until 2016.

“Companies have done the hardest bit by becoming SEPA-compliant, but it is now important for them to maintain the momentum created during the migration process and recognize that their job is not yet complete,” says Rob Allighan, SEPA product manager, global transaction services, EMEA, at Bank of America Merrill Lynch. “They now need to move across niche products ahead of the February 2016 deadline, which is the next major milestone.”

In addition, in 2016, non-euro countries such as the United Kingdom, Sweden and Poland will be required to comply with SEPA for their euro payments by October 31. And 2016 will also see the end of the conversion services that some corporations have used to support their migration process. “Those companies that are still using conversion services to be SEPA-ready should look to reduce or eliminate their reliance on these so that they are truly compliant,” comments Allighan.

Some other aspects of SEPA are still evolving. Ruth Wandhöfer, global head of regulatory and market strategy, Citi Transaction Services, says that work is currently under way to identify barriers to e-mandates (electronic mandates for direct debits). “Over the course of 2015, it is hoped that realignment towards a pan-European approach can become a reality,” she explains. “For those companies that have not yet decided to fully embed XML [eXtensible-Markup-Language-based file formats] in their own systems, this would also be another milestone towards end-to-end XML, including the broader benefits that a standardized XML-to-bank/PSP [payments service provider] interface could bring.” These benefits could include the ability to switch more easily between banks and PSPs, enabling better risk management as well as greater competition.

And there’s more to come. At a global level, the topic of real-time payments is driving a lot of activity. Real-time payments have been around for a number of years in some markets—notably the UK’s Faster Payments Service, introduced in 2008. More recently, Singapore’s FAST (Fast and Secure Transfers) real-time national payment system went live in 2014, and other initiatives are soon to be implemented or are being discussed.

In the US, a McKinsey report commissioned by the Federal Reserve Bank found that the introduction of real-time payments would reduce the use of checks by a third. In Australia, meanwhile, the Society for Interbank Worldwide Financial Telecommunication (SWIFT) has recently won a 12-year contract to build a real-time payments system that is expected to be launched in 2017. The solution will incorporate a domestic messaging channel as well as a payments gateway handling clearing and settlement flows. In a press release issued in December, SWIFT stated that 15 countries are currently operating domestic real-time retail payments systems while a further eight countries are either considering adopting such a system or already in the process of launching one.

With SEPA now a reality, European countries are also increasingly focusing their attention on real-time payments. “We are seeing some real-time initiatives starting,” says Michael Knetsch, head of Western Europe cash product at RBS. “In the Netherlands, for example, retailers that are doing business during the weekend or overnight want to receive their funds directly on their accounts and be able to use those funds immediately. In Finland there’s also an initiative to look at twenty-four/seven payments.”

However, as Knetsch points out, real-time payments have to be tackled at a Europe-wide level, which is not easy. “A European-wide twenty-four/seven scheme isn’t possible at the moment, because there are no suitable interbank instruments,” says Knetsch. “In the UK, of course, Faster Payments is already a twenty-four/seven scheme that is in use.”

Wandhöfer says that the current debate around “instant payments” appears to be the next big step for SEPA in Europe. “It is not yet clear how, when and what will have to be delivered, and from some feedback [it appears that] the demand side is currently not united on requiring a pan-European ‘instant’ SEPA, given other existing solutions,” she says. “EPC [the European Payments Council] and other parts of the supply side are investigating the feasibility and potential issues, keeping a close dialogue with the ECB, and will have to report their findings to the ERPB [Euro Retail Payments Board] in June 2015.”