European Central Bank (ECB) reiterates: there is no alternative to complying with the legal requirements
Second migration report describes state of play in the euro area at the end of the third quarter of 2013
The European Union (EU) ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (see ‘related links’ below) effectively mandates migration to Credit Transfer () and Direct Debit (SDD) in the euro area by 1 February 20141. This legislative act is commonly referenced as the Single Euro Payments Area () Regulation. On 24 October 2013, the Eurosystem, which comprises the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro, published its second migration report (see ‘related links’ below). It analyses the state of play in euro area countries at the end of the third quarter 2013 in creating a single market for credit transfers and direct debits in euro across Europe. The report also provides guidance on managing the transition process.
With less than 100 days left to go, the project is now entering the critical stage of realising a vision born more than ten years ago. The Eurosystem – in its capacity as a catalyst – monitors the migration process towards the and SDD Schemes and raises general awareness by identifying potential obstacles in order to ensure that agreed deadlines are met by all stakeholders. In addition, individual central banks are closely involved at the national level in the coordination and communication activities so as to facilitate a smooth and timely migration.
New information available to the Eurosystem since the publication of the first migration report in March 2013 (see ‘related links’ below) confirms that many stakeholders have decided to migrate only in the last quarter of 2013, or even later. This approach gives rise to operational risks and limits the possibilities of tackling any setbacks or unexpected developments during the changeover. Overall, payment service providers’ () preparedness improved further in the first half of 2013, although significant efforts are still needed in terms of making customer servicing channels ready and providing more information to customers on the SDD Scheme. Among payment service users (), small and medium-sized enterprises (SMEs), municipalities and regional authorities continue to represent the groups with the lowest level of general awareness, although communication campaigns launched in the second and third quarters of 2013, at the national level, have helped to improve this situation.
migration is progressing well
Quantitative indicators of actual migration and qualitative indicators of the preparedness of stakeholders show that migration to the Credit Transfer () Scheme is progressing well. A few countries in the euro area have already completed the process, while many others are progressing at a swift pace.
The quantitative indicators published on the ECB Website (see ‘related links’ below) measure the share of and SDD transactions as a percentage of the total volume of credit transfers and direct debits generated by bank customers in the euro area. According to the latest quantitative indicators, the share of transactions amounts to 56.3 percent as of September 2013. The qualitative indicators also published by the ECB assess preparedness across the transaction chain in each country (see ‘related links’ below). The qualitative indicators take into account the specificities of the respective country with regard to migration progress by ‘big billers’, public administrations, SMEs and .
This data shows that compared to the situation described in the first migration report, there is greater, and generally speaking, faster migration from legacy credit transfers to SCTs in most countries. Central public administrations continue to lead by example and provide impetus for migration and, in many countries, they have already completed preparations. The national indicators continue to demonstrate a relatively large variation in the level of migration across countries. Since the publication of the first migration report, Luxembourg and Slovakia have joined Slovenia and Finland in the group of countries which have practically completed migration to . Greece, Cyprus, France, Belgium and Spain are well advanced in their progress, with more than 50 percent of credit transfers already being executed in the format. Migration to the Scheme in Austria, the Netherlands and Portugal is also taking place at a fast pace. However, in four countries, the current level of migration is still below 20 percent. Overall, and compared to the stage of progress at the end of 2012, almost all countries now seem to be making steady progress towards migration to the Scheme.
Figure 1: credit transfers as a percentage share of all credit transfers in the individual euro area countries (source: ECB second migration report).
Developments in the first three quarters of 2013 confirm that many stakeholders, particularly SMEs, will make use of XML conversion services to meet requirements. These conversion services may be useful in managing both the operational risks ensuing from delayed preparations and budgetary constraints, however, relying on these conversion services for too long may prevent stakeholders from reaping the full benefits of . need to remember that relying on conversion services is only a partial solution, which still requires thorough preparation on their part. The only instance where conversion services are not perceived to conflict with legal requirements is when those services are clearly separate from payments activities.
Assessing the developments with regard to migration to the Scheme against the expectations communicated by the Eurosystem in the first migration report, it would appear that substantial efforts have been made by stakeholders to avoid late migration. However, the level of awareness and preparedness in the SME sector still remains an issue with much work still to be done.
SDD migration continues to lack impetus
No significant progress towards migration to the SDD Scheme has been made since the first migration report. Based on the Eurosystem’s euro area SDD indicator, only 6.8 percent of direct debits were executed under the SDD Scheme in European infrastructures in September 2013. The information compiled by the ECB and the euro area national central banks show that many key stakeholders have decided to migrate only in the last quarter of 2013, or even later. In some of the larger direct debit markets, will only provide their final solutions for migration in the last quarter of 2013. This has caused some , particularly the big billers and the SMEs, to adopt a wait-and-see approach when it comes to migration to the SDD Scheme.
Furthermore, when comparing this data with the findings of the first migration report, little change was observed in the national ratios by the end of the third quarter of 2013. Apart from Slovenia, none of the countries are close to completing migration. Greece, Belgium and Austria are a little more advanced, albeit the latter two with ratios of below 20 percent. In the other countries, including the four largest direct debits markets (Germany, France, Spain and the Netherlands) migration is still marginal in terms of the volume of actual transactions processed in the SDD format. In Estonia, Finland and Cyprus, national legacy direct debits will either be replaced by -based e-invoicing solutions or simply phased out.
Figure 2: direct debits as a percentage share of all direct debits in the individual euro area countries (source: ECB second migration report).
Based on the levels of euro area and national indicators, it is unlikely that the expectations communicated by the Eurosystem in the first migration report with regard to migration to the SDD Scheme will be met by the or the . In some countries, the reason given for the decision for late migration by the and the is the implementation of the D-1 option (a 1-day collection cycle option) under the SDD Scheme. Overall, this increases the risk of not being able to complete the preparations by the deadline. Nevertheless, practical solutions materialising in many countries, which would help to tailor and facilitate the SDD processes (e.g. mandate databases for legacy mandates, pre-notifications, etc.), appear to be necessary to cover the gaps perceived between legacy products and the SDD.
Risks due to late migration
Many stakeholders have opted for late migration in the fourth quarter of 2013, or even later, in spite of the risks inherent in such a strategy and the earlier warnings given and recommendations made by the Eurosystem. The risks due to late migration, (as already highlighted by the Eurosystem in the first migration report), stem from the very short time period that remains for the changeover and include, inter alia:
- The limited capacity and bottlenecks at and software vendors at the end of 2013. Even if many service providers are aware of the increased demand for their services in order to assist with the migration of by the end of 2013, there may simply not be enough resources if huge numbers of customers concentrate their changeover into a single very tight time frame.
- The limited time for to adapt to systems. Those that wait for their to roll out new services or make available new systems may find themselves in a situation whereby they only have a couple of weeks left to finalise their own procedures or systems.
- Insufficient end-to-end testing between end users and . Even if systems are prepared for testing several weeks before the deadlines, there may be bottlenecks in resources and bandwidth. test systems are, generally-speaking, not designed to process files or data from a very large number of customers at the same time. This could prevent the from carrying out the proper end-to-end testing required before going live with their own systems.
The experiences of those stakeholders that have already completed migration to the SDD or Scheme show that there is a real need for a fine-tuning period after changeover. The risks due to late migration – even though being of an operational nature – could eventually impact the wider supply chain and even jeopardise the public’s confidence in payment services in general.
These risks require even better coordination and communication among stakeholders than is currently the case. Operational risks stemming from the short time frame could be mitigated by an even greater focus on, and more intensive efforts in, preparations as well as carefully devised action plans in case of potential setbacks. Examples of concrete actions to mitigate these risks include an increase in human resources devoted to migration projects, thorough end-to-end capacity testing, updating of all documentation and workflow processes well ahead of the deadline, etc. It is also important to realise that relying on conversion services requires thorough preparations and time on the part of those planning to make use of them. Therefore, in the event that conversion services are used for the purposes of migration, careful resource planning is still required.
There is no alternative to meeting the 1 February 2014 migration deadline applicable in the euro area mandated by EU law
The Eurosystem emphasises – in line with the stance taken by the EU Council [representing EU Member States] and the European Commission – that there is no alternative to meeting the legal requirements as set out in the Regulation. Making a reality requires the joint and harmonised migration of all stakeholders. Non-compliance by market participants or communities has negative repercussions for other market participants or communities, because the operational integrity of retail payment processing cannot otherwise be ensured. Both the Schemes and the legal requirements set out in the regulation are results of long negotiations at the pan-European level with the involvement of all stakeholders. The and SDD Schemes, in particular, were launched in 2008 and 2009 respectively and the final Regulation (EU) No 260/2012, also known as the Regulation, came into force in March 2012 providing sufficient time for these preparations.
Everybody has to be ready on 1 February 2014 or risk disruptions in their individual handling of payment orders. After 1 February 2014 will not be allowed to process payment orders that do not comply with the legal requirements as laid down in applicable law.
Wiebe Ruttenberg is Head of the Market Integration Division in the Directorate General Payments and Market Infrastructure of the European Central Bank (ECB). Gergely Kóczán is senior market infrastructure expert in the same division.
The views expressed in this text are those of the authors and do not necessarily reflect the views of the ECB.
Related articles in this issue:
SEPA Fact Check: The SEPA Benefits Projected by EU Governments, the European Parliament, the European Commission and the European Central Bank (1999 -2013). SEPA is an EU integration initiative driven by EU governments and the EU institutions. Note: the European Payments Council is not part of the EU institutional framework.
SEPA 2014: Clearing and Settlement Mechanisms are Ready to Turn up the Volume. Clearing and settlement mechanisms are prepared for the ramp-up towards the SEPA-only environment in the euro area by 1 February 2014
SEPA 2014 - the State of Play (October 2013): a Large Majority of Stakeholders Are Expected to Meet the 1 February 2014 Migration Deadline. Late Movers Must Catch Up. Now. The most significant risk to business operations is non-compliance, i.e. failure to meet the SEPA migration deadline applicable in the euro area mandated by EU law
Related articles in previous issues:
SEPA Migration - Don't Count on a Plan B. European Central Bank publishes first SEPA Migration Report and warns against risks of late migration ( Newsletter, Issue 18, April 2013)
1Owing to the later deadline of 31 October 2016 for the migration of euro transactions in the non-euro area Member States, developments in these countries are not covered in the ECB migration report.
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