What SEPA Really Means

Peter Erbes from SAP Partner Ageto (Photo: Ageto).

SAP.info: Mr. Erbes, what changes will the SEPA introduction mean for online trading in terms of retailers and customers?

Peter Erbes: The new SEPA regulations mean a significant amount of added costs and work in the preparation and execution of payment transactions – in terms of direct debits in the B2C segment, but especially for direct debits in the B2B segment in cases where a goods delivery is linked to an advance payment or immediate direct debit on delivery. For example, take the exchange of direct debit mandates – previously known as “automatic debit authorizations” – that require a signature, and “prenotifications”, which is an advance notice of a direct debit: Previously, there was little administrative work involved for the customer, and vendors received their money immediately and securely. This useful payment system is now being replaced by credit card payments (e.g. MasterCard) and/or specialized service providers such as PayPal or Click&Buy. Unfortunately, the associated costs can reduce margins on the part of the vendor and lead to higher prices for the end consumer.

Let’s focus on the SEPA direct debit process. What will this mean for standard retailing systems?

Even for established ERP systems such as SAP, where the provider offers special Support Packages to simplify the installation of the technical element of SEPA in the software, there will be considerable costs. I’m thinking specifically about managing direct debit mandates, SEPA-compliant prenotifications, and ensuring the various submission deadlines and lead times are met. And it goes without saying that users of customized solutions face even greater challenges. They will now be forced to define the necessary routines of their direct debit procedures in their software. Often, only the aspect of transferring payment data to the bank is taken into account, but the process starts much earlier: namely, in the company’s decision to use SEPA direct debits, and to outline this in its Terms and Conditions, contracts, and business documents.

Next page: Should online retailers and companies be worried about a processing backlog?

What kind of timelines and financial frameworks should online retailers expect?

It’s impossible to give realistic figures. It very much depends on the line of business, the size and organization of the company, the amount that the company exports, and so on. Since 2001, the SEPA regulations have been determined by political bodies and central banks. SEPA money transfers have been possible since 2008, and SEPA direct debits since 2009, which has allowed cross-border euro direct debits to be implemented for the first time. Since this time, banks, auditors, and even providers of ERP software have been providing information across all possible channels, and offering support on the switch to SEPA in order to realize considerable savings. It wasn’t until the binding date of February 1, 2014 was set for the introduction of SEPA that companies started putting conversion projects into place. Since then, there have been publicized reports, for example at Deutsche Telekom, stating that the costs of switching to SEPA will far outweigh the expected cost benefits. How true this will prove in practice, and how relevant this will be to other companies, remains to be seen. In terms of our own projects, we have already had to quote at least 30 SAP consultant days even on projects with extensive customer involvement.

According to figures from the German Central Bank, around 400,000 creditor ID numbers have so far been assigned. That’s barely 10 percent. Should online retailers and companies be worried about a possible processing backlog?

So far, the Central Bank has been able to process requests within one to two days. We should therefore assume that they are preparing for the expected hike in demand. In the last 20 years, the Central Bank has become adept at dealing with major changes including the switch from the East German Mark to the Deutsche Mark, the “millennium bug”, and the switch to the euro. As such, I think we can have plenty of confidence in them. If slightly longer waiting times occur, it is unlikely they will jeopardize the overall SEPA project where completely different factors are key. For example, internal factors such as the number of business partners from whom new direct debit mandates must be collected. And then there are other factors such as the quality of the available software solutions. After all, even ERP software providers are facing significant technical problems implementing new direct debit mandate management systems and prenotifications.

Next page: How quickly must online retailers be SEPA ready?

What will the consequences be for companies and online retailers who have not switched over by February 1, 2014?

The legal situation is clear: As of February 1, 2014, banks and credit institutes must complete euro payments within the 32 SEPA member states only in accordance with the SEPA rules using the IBAN and BIC and with the data transferred in XML format. Exceptions and alternative procedures will be available until 2016 for private customers only. Although “strictly confidential”,  SEPA experts at the commercial banks all say the same thing: “You honestly don’t think that we will stop all payment transactions on February 1, 2014 ?” From practical experience, I tend to agree. What will be interesting, however, is who ultimately foots the bill. We recommend that companies start working on the SEPA conversion immediately. It is only possible to determine how much work there is to do once the company’s own situation has been analyzed, including SEPA targets and software solutions.