maandag 23 april 2012

Is the SEPA End Date a Continuity Risk for the Payments Business?

logo-enigmaBusiness continuity of payment processing could be jeopardised by SEPA migration if the majority of companies choose to migrate at the last possible moment, as the 2014 end date approaches.

Now that the end date for the single euro payments area (SEPA) migration has been agreed upon within Europe, the industry has begun to realise the challenges that it will face the coming years. The good news is that a clear target date is set; the bad news is that many - or maybe even most - corporates are still in the preparation rather than execution phase. The number of requests for SEPA advisory services has increased significantly in the last month. More and more corporates are now realising that SEPA is not only about technical formats, but will also impact their core business processes.

Will the Industry be Ready in Time?

As the industry is only at the beginning of the project life cycle, one risk becomes more apparent while the clock is ticking down. Is the industry really ready to migrate to SEPA in the next two years? Are the banks capable of migrating their clients in time? Are they able to handle the inflow of support requests? Are the systems capable of absorbing the domestic volumes? It is a question of whether the industry can manage this change, while ensuring that business continuity is not jeopardised.

Understanding the risks involved begins with an understanding of the current situation and expected outcome, plus the possibility that it could go wrong and the probability of this occurrence. Looking at the worst case scenarios can give an idea of the possibility that something goes wrong. Managing the probability means looking for factors or actions that will mitigate the risk.

What are the Current Facts?

The first fact is that finally an end date has been agreed. Although 2014 could be seen as just a date, it will clearly result in a greater focus on SEPA in the industry. Even within the financial industry there are still examples of ignorance, as some do not understand what the impact could be. Until this point, they have seen SEPA as a second priority project as they were focusing on other challenges in the euro area. Some banks are still in the process of implementing SEPA functionality or updating their systems. The requirement to be reachable has been easier to implement than the ability to initiate SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) through bank channels and back-office processes.

Now that there is a final end date, the banks' focus should clearly change and therefore immediate action is required. Looking at the current payment volumes, it is clear that only a small percentage is processed as SEPA transactions. An enormous increase in volumes will be seen over the next few years.

It is certainly not any better in the corporate space. Some corporate clients have started to act, but still a large group of corporates do not have a project in place, or are not willing or financially capable to invest in the required system and business process upgrades. Also there is still a perception in the market that SEPA is primarily a technical implementation and will hardly impact core operational and business processes. A clear example that the core operational and business process will be impacted is the collection process of utility companies that currently use a domestic collection scheme.

Although less impacted, consumers are not well-informed about the impact of SEPA. Communication will soon start in all countries to prepare consumers for changes that will have an impact on them.

Just as important to look at are the solution providers. The enterprise resource planning (ERP) system vendors are critical in the success of migrating to SEPA. At this point in time, many have upgraded or are in the process of upgrading their systems. Some of the ERP vendors have chosen to only upgrade technical requirements and not to implement the SEPA business rules in their software. An example could be that technical SDD formats are supported, but the business processes behind the first and subsequent direct debit collections are not. Apart from the solutions provided by the ERP vendors, there is a lack of providers of independent mandate management solutions.

Finally, there is already an increased demand for SEPA advisory services. Available payment consultants with sufficient quality are therefore becoming scarce.

What Could Go Wrong?

The worst possible scenario of what could go wrong is if the majority of clients migrate in the final few months preceding the February 2014 end date. Considering the fact that the whole industry is just beginning to migrate, this could become a realistic scenario. Other reasons that also push towards this scenario are:

  • Capacity constraints on required number of advisory consultants.
  • Dependency on ERP vendor solutions and release calendars.
  • Late start-up and impact analysis of corporate migration projects.
  • SEPA-readiness of financial institutions.
  • Certain countries have not updated their migration plans, which make it difficult for international companies to migrate early.

In case of a majority of clients planning to migrate in the last months, a business continuity risk begins to be a possibility. Are the banks capable of dealing with a large peak of testing and support requests during a very short timeframe? And, more importantly, are the systems within the banks and industry (i.e. clearing houses) capable and big enough to deal with the exponential growth of transaction volumes in a very short period? Are the bank’s operational units capable of dealing with a peak volume in investigations?

The above worst case scenario is a serious threat for business continuity, as the industry is not capable of dealing with such an increase of support requests, volume growth and operational impact in such a short timeframe.

How to Mitigate Risk

There are a number of possible actions that can be taken to mitigate risk:

  • Banks should start to engage actively with their key volume clients and agree on committed migration plans and testing and support timelines. They should also look for alternative ways to inform their clients, to provide test and supporting services, as well as to plan their own capacity for 2013, anticipating a peak at the end of 2013.
  • Banks could also investigate whether they are able to migrate client groups that are less impacted at an earlier stage. For example, this could be done by providing conversion services, and only migrate clients to SCTs during the first part of 2013. As a positive result, transaction volumes in the bank’s SEPA payment engines will grow, while at the same time the bank’s support organisations could focus on the more complex clients during the second half of 2013.
  • Corporate clients should preferably aim to migrate in the first half of 2013 rather than in the second half. This will allow them to timely execute their test scenarios and provide sufficient slack when tests are not executed successfully. Planning later also limits the required attention that banks can provide, as they need to divide the support capacity over multiple clients.
  • ERP vendors will have to actively engage with the banks in order to test their connections, formats and business processes in time.
  • SEPA country forums, such as the National Forum SEPA in the Netherlands, will need to monitor whether the industry makes sufficient progress, particularly overlooking the migration status of clients with larger volumes. In case it becomes clear that progress is lagging behind, the national banks will need to have emergency measures in place to guarantee business continuity.

Success will depend on immediate action and close co-operation.


Business continuity of payment processing could be jeopardised by SEPA migration if the majority of companies choose to migrate at the last possible moment. It is therefore important that the industry starts moving immediately, while governing forums need to keep a realistic view on progress. The migration to SEPA will only become a success when the whole industry starts to work closely together.

Robert-Jan Wekking, Enigma Payments Consulting - Pieter van Andel, Enigma Payments Consulting


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