Part II: Get Ready for SEPA by February 2014 – Early Movers on the Cus...

Part II: Get Ready for SEPA by February 2014 – Early Movers on the Customer Side Share Lessons Learnt. Why IBAN and BIC Remain Important for Bank Customers

25 October 13

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This series of Blogs highlights best practice identified by bank customers who have successfully completed migration to the Single Euro Payments Area ( ). Part II focuses on the transition to the International Bank Account Number (IBAN) and the Business Identifier Code (BIC). The complete series reflects the experience of early movers on the demand side who have shared their lessons learnt in the Newsletter and in the Video ‘ for Billers' (see links below). The European Union ( ) 'Regulation ( ) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the Regulation), defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by Credit Transfer ( ) and Direct Debit ( ). Project managers who have already concluded the migration exercise unanimously recommend that organisations which still have to adapt systems and operations to the schemes and technical standards become active immediately. These experts also identified the conversion of customer account data to IBAN and BIC as one of the main challenges.

It is important to note that the Regulation includes detailed provisions on the use of both IBAN and BIC by payers and payees. The Regulation also mandates that after a transitional period, payment service users will no longer have to indicate the BIC. It is recommended however that businesses and public administrations now preparing migration to the harmonised payment schemes continue to collect the BICs related to customer accounts for the reasons detailed below.

The Regulation (see 'related links' below), specifically, states that a payee accepting credit transfers must communicate the IBAN of the account to which the payment should be credited and the BIC of its payment service provider ( ), "but only where necessary", to its business partners (see Article 5 (4) and point (1) (a) of the Annex to the Regulation). Likewise, a payer wishing to make a payment by direct debit must communicate the IBAN of the account which should be debited and the BIC of its , "but only where necessary", to the payee (see Article 5 (5) and point (1) (a) of the Annex to the Regulation). Recital (8) of the Regulation states that "in the vast majority of payment transactions in the Union, it is possible to identify a unique payment account using only IBAN without additionally specifying BIC." It would be helpful if the European legislator could clarify how payers and payees are supposed to determine whether the IBAN alone is sufficient to identify the particular payment account which should be credited or debited.

The Regulation stipulates that payment service users will not have to provide the BIC for national transactions after February 2014 (see Article 5 (7)). The Member States however, have the option to extend this deadline to February 2016 (see Article 16 (6)). This ‘IBAN only' rule will apply for cross-border transactions after February 2016 (see Article 5 (7)). The Regulation also states that Member States may allow to provide consumers with conversion services for national payment transactions, enabling consumers to continue using the national account identifier (Basic Bank Account Number - BBAN) instead of the IBAN, until 1 February 2016 (see Article 16 (1) and point (1) (a) of the Annex to the Regulation).

The lawmaker introduced the ‘IBAN only' rule at the last stage of the legislative process leading to the adoption of the Regulation. The ‘IBAN only' rule effectively overwrites the and Schemes, which since their inception relied on the provision of both the IBAN and the BIC. Early movers on both the supply and demand sides already completed the transition to IBAN and BIC. As stated above, it is recommended that for the time being, businesses and public administrations continue to collect the BICs related to customer accounts taking into consideration the following:

  • The February 2014 deadline for application of the ‘IBAN only' rule for national transactions could be extended at the level of Member States to February 2016.
  • The BIC will be required for cross-border transactions until 2016, as specified in Article 5 of the Regulation.

project managers representing corporate and public entities, who have shared their migration experience in the Newsletter, stress the need for careful planning when preparing the transition to IBAN and BIC. They also highlight the importance of thorough testing prior to making the move in the live environment. To give an example: Deutsche Post Pension Service Business Division disburses 25 million pension payments per month on behalf of the public German retirement scheme, to retirees residing in Germany and abroad. The division started its migration project in early 2009 and essentially completed the process in June 2011.

Stefan Scheidgen, Head of Cash Management and Accounting at Deutsche Post Pension Service Business Division, comments: "The division converted all customer account data to the BIC and the IBAN in 2009. Correct customer account data is the precondition for timely and reliable disbursement of pension payments every month. We had national bank account numbers and bank identifiers for some 24 million accounts on file, which we had to convert to IBAN and BIC. The transition of customer account data worried us most, given that mistakes would have resulted in the inability to execute a pension payment. Obviously, the recipients of these payments can not be expected to tolerate any mistakes. We therefore managed the conversion of the account information in two steps: firstly, in the fall of 2009, all bank account related data was automatically converted and validated using tools developed by the German banking industry and recommended by Bundesbank [central bank of the Federal Republic of Germany], such as the ‘IBAN-Service-Portal' and the ‘ Account Converter'. In a second step, we verified and tested the converted data with every bank and group of banks with whom we cooperate. In fact, prior to migration in the live environment, each future payment was run through multiple test phases. Thanks to the great performance of our migration team and the support of cooperating banks, we were able to ensure a very high level of quality (about 99.99 percent) in the process of converting account data to IBAN and BIC."

It is also recommended that businesses and public administrations preparing for the conversion of account data to IBAN and BIC, take the following steps:

  • Review invoicing and accounting procedures.
  • Identify and adapt all systems that operate on the basis of account numbers and bank codes.
  • Define standardised processes for cross-border payments to add missing IBAN and BIC codes.
  • Provide easily accessible information on IBAN and BIC to business partners and customers. This includes, for example, updating invoices, stationery and other documents used to communicate account information to others.

In addition, the recommends that national banking communities provide centralised conversion services to their business customers. To obtain related information, businesses and public administrations should contact the appropriate bodies at national level. The European Central Bank (ECB) makes country-specific information, including -related contact links, available (see link to ‘ECB- -by-Country Hub' below).

Stefan Scheidgen of Deutsche Post Pension Service Business Division concludes: "In November 2009, the first pension payments were disbursed as SCTs. We made the decisive step in the transition to in April 2010, when approximately 1.6 million payments to retirees with an account at Postbank were executed for the first time as payments. This step served as our benchmark, which allowed the verification of all related concepts and processes. By June 2011, 20 million retirement payments were compliant and the migration project was essentially complete."

The next Blog, highlighting key aspects relevant for bank customers migrating to , will focus on best practice identified by early movers when determining the appropriate IT strategy to achieve compliance.

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