Acknowledging that there has not been enough of a migration to the Single European Payments Area regime, the European Commission Thursday added half a year to the original February 1, 2014 compliance deadline for companies to transition.
“As of today, migration rates for credit transfers and direct debits are not high enough to ensure a smooth transition to SEPA despite the important work already carried out by all involved,” Internal Market and Services Commissioner Michel Barnier.
Mr. Barnier added that it wasn’t really moving the deadline date, just adding more time for actual transition. “In practice this means the deadline for migration remains 1 February 2014 but payments that differ from a SEPA format could continue to be accepted until 1 August 2014,” Mr. Barnier said.
Andrew Owens, managing director of global payments at SunGard, says that because the deadline is a law passed by the European Parliament and thus any official change goes through it, the EC was just adding a grace period. “The EC … is saying, ‘We’re going to let you off the hook for a period of 6 months and we’re not going to penalize you and we’re going to continue to make sure that your payments and direct debits can be process by that time.’”
The EC was also likely adding a grace period because of the delicate nature of the European recovery. “It seems obvious … just when the economy starts to recover there was no way the European Parliament or European Commission would step in and stop people being able to do business,” Mr. Owens said. The deadline “was a bit of a mirage.”
Citing the most recent statistics from the European Central Bank, it is the direct debit side of the SEPA equation that likely stayed the EC’s hand. According to the ECB: “The overall migration rate in the euro area for SEPA Credit Transfers (SCT) has increased from 59.87% in October 2013 to 64.1% in November, whereas the overall migration rate for SEPA Direct Debits (SDD) has increased from 11.52% in October to 26% in November.”
The EC added that despite its “repeated efforts to raise awareness” there just wasn’t enough migration, particularly among small and medium size companies (SMEs) along with “small public administrations and local authorities.”
Tom Deas, treasurer at FMC Corp and current chair of the International Group of Treasury Associations, says his company is already ready for deadline. He adds that most treasurers that he interacts with via various treasury organizations, “have been focused on SEPA and the plan was to be ready.”
In the NeuGroup’s European Treasurers’ Peer Group, most members in a recent survey said they felt confident they would meet the February 2014 deadline. However, being fully compliant in all countries had so far proven to be a challenge, so perhaps this extended transition period will help many of those companies tie up loose ends.
And while many larger companies are likely close to compliance, it was many of their smaller suppliers that would not be ready, likely causing problems in collections and payments for an indefinite amount of time.
Enrico Camerinelli, a senior analyst at consultancy Aité, says the added transition period is a failure of banks’ efforts to educate business. “It’s a failure for banks because SEPA was, since the beginning, a for-banks-only matter,” Mr. Camerinelli says. He added that all along SEPA was about fixing the bank-to-bank relationships and cutting “unnecessary inefficiencies and costs.” However, “nobody really thought seriously of what that would mean in the B2B world… corporate representatives were never involved.”
So now companies are looking ahead to August 1, 2014. But SunGard’s Mr. Owens says there will be plenty of nervousness as the new deadline approaches. “Now [the EC has] opened up a Pandora’s Box in that, ‘what happens when we get to Aug 1 and people still aren’t ready?”