It all began in March of this year: The EU agreed on the start date for the Single Euro Payments Area (SEPA). As of February 1, 2014, all of the European Union (EU) member states and the four members of the European Free Trade Association (EFTA) – Norway, Switzerland, Liechtenstein, and Iceland – will be required to facilitate transfers and direct debit payments “without differentiating between domestic and cross-border payments.” So says the official gazette of the EU, ordinance number 260/2012.
What is an IBAN?
This means that every European money transfer from that date onwards will be processed via the International Bank Account Number (IBAN) – a bank account identifier up to 34 characters long containing a country code (such as DE for Germany), the account number, and bank routing number – as well as the internationally standardized Bank Identifier Code (BIC). This guideline for implementing SEPA was already established five years ago but was not binding for companies. The implementation rate is quite low as a result.
The Federal Association of German Industry (BDI) surveyed small and medium-sized companies (SMEs) as well as large companies in August of this year regarding their banking habits. Four out of five companies said that using the IBAN and BIC was “a matter of course” for them, yet only 27% of large companies used SEPA for at least half of their transfers. Just 16% of all SMEs felt adequately equipped to do the same. Forty-seven percent of all SMEs and 31% of large enterprises did not conduct any transfers via SEPA at all. And then there are the direct debit transactions. Rainer Böhle, spokesperson for the SEPA working group in the German-Speaking SAP User Group (DSAG), currently estimates the SEPA implementation rate here at 0.1%.
DSAG prepares for SEPA
There was a lot of uncertainty regarding SEPA at this year’s annual DSAG congress in Bremen. DSAG’s SEPA working group, also founded in March of this year, is still far from having all the answers. In theory, the EU expects SEPA to speed up the processing times of payments within the EU. Transfers and direct debit payments to traditionally “slower” regions like southern Italy, where transactions currently take around a week to process, are anticipated to be completed within a day. Even Spain, where payments via direct debit are not currently possible, will be able to enjoy this convenience as of February 1, 2014.
For companies in Germany, however, the initiative has brought forth new challenges when dealing with customers. “No one wants to ask their customers for their IBAN and BIC,” says Böhle. The accounting group manager is responsible for the IT systems and finances at the sales subsidiary of German energy provider EWE AG. SMEs in particular are being cautious: In the above BDI survey, only 29% of all companies said they would ask their business partners or customers for this banking information. One possible strategy to improve this could be to change the business terms and conditions and include mention of SEPA.
No early adopters here
The next challenge: No one wants to assume the role of pioneer when it comes to the technical implementation of this initiative. The finance module and the “RE” module for the real estate industry are apparently now ready for SEPA. According to DSAG, the module for sales and distribution is currently being tested as a prototype by a “major user” and will later be rolled out officially.
But this is not the number one problem on the technical side. “This initiative affects different business departments, such as the IT department, and new processes have to be set up for it,” explains Böhle. He gives the example of an apartment tenant who will now get asked by their housing association to provide their IBAN and BIC so that the rent can be deducted via direct debit. But who among us knows their own IBAN? “The processes are full of pitfalls,” Böhle says.
Manual signatures slow adoption
He goes on to mention another issue troubling many lobbyists: Current regulations require a SEPA direct debit to be authorized by means of a manual signature on the “SEPA mandate.” The current EU decision does not see any alternative to this, yet Böhle points out that an electronic signature “would, of course, speed up the process tremendously.” He also thinks that a “guideline for Internet trade” would benefit or even be vital for online merchants like Amazon and Zalando.
Because as it stands now, it will take at least five days to procure a hand-signed mandate. That’s how long it will take between a company sending the mandate document to the customer for signature, and receiving the signed document back by mail, at which time the company can then generate the necessary data record.
But the clock does not stop ticking at this point: First direct debits have to be submitted to the paying party’s executing bank at least five working days prior to execution. “It also takes time for the payment data to be transmitted from the sender’s bank via a SEPA clearing house to the executing bank,” explains Böhle. As a result, a “quick” direct debit is no longer possible at least the first time you use a particular mandate.
The SEPA regulations that were painstakingly agreed upon between the EU and EFTA members have introduced a new, hitherto unknown payment method for many countries. Böhle: “These countries first want to gather some experience with direct debit transactions, and have set high standards for doing so.”
One small, final question remains: What happens if a company isn’t SEPA-ready by January 31, 2014?