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SEPA Update: Top Marks for the Banks

2014 was anything but an easy year for the banks. After the official SEPA launch on 1 February, a good many banks were fighting to keep their payment systems running. Already in the run-up to the launch, consultancy house PPI was demonstrating with its SEPA Readiness Indices that many banks had underestimated the challenging technical requirements and time needed for the switchover. It was therefore unsurprising that many had problems meeting the deadline. In the end, the European Union granted the banks a six-month respite during which they could continue using the legacy formats (comprising account numbers and bank sort codes) for fund transfers and direct debits, in parallel to the new SEPA procedure.

This somewhat bumpy start now lies almost four years in the past and the SEPA baby has meanwhile learnt to walk. But the banks have been facing a new challenge since 19 November 2017: they must now implement the SEPA changes defined in the new “2017 SCT Rulebook Version 1.1”.

This means that, for the first time, banks must to able to process SEPA transactions in accordance with the EPC Rulebook and EPC guidelines – without regard for the individual SEPA countries’ “national dialects”. Although the current SEPA update is nowhere near as complex as the original SEPA launch, it should be remembered that it contributes significantly towards unifying payments and payment systems in the SEPA area.

The specific tasks to be handled by the banks can be found in Appendix 3 / Version 3.1 of the DFÜ Agreement. DTE (Express Domestic Payment) and EUE (Euro Express Foreign Payment) have been dropped and replaced by CCU (XML Euro Urgent Payment), for example. New business transaction codes and mapping rules, as well as electronic recalls, are also being introduced – to name but a few of the requirements.

Spotlight particularly on IT

To ensure trouble-free payments, the banks primarily had to scrutinise and modify their IT systems. Their internal processing systems and rules, as well as their technical verification routines, had to be analysed, and updated or re-designed if necessary.

Despite optimal preparations, a residual risk remains for the payment processes. One example is that, before the transition date, payment files contained only urgent or only regular payments, and were processed separately from one another. But with the latest SEPA guidelines allowing setting of the instruction priority at the payment level as well, hybrid files containing both payment types have also been possible since 19 November 2017. France has been using this method since the introduction of EBICS, while, in Germany, urgent payments are identified using pre-filtering logic. But because the URGP tag can still be used at the transaction level, uploading these files into a banking portal is potentially error prone: an inappropriately adjusted  bank parser could in the worst case throw out such a payment.

A certain error potential also arises from the stricter data-technical demands of the new Rulebook. The banks must spin an ever-closer-knit web in their dataset analyses. But even then, it is impossible to anticipate or prevent every possible problem.

Positive bottom line

In retrospect, the banks have successfully mastered the SEPA switchover thus far and acquired further skills. Today, they are better equipped than ever before to face tomorrow’s challenges and act far more foresightedly. For the current SEPA Update, for example, they factored in the ongoing need to process legacy formats, and provided their customers with timely information.

It’s therefore unsurprising that only minor problems have arisen to date and the banks are declaring the latest SEPA Update an overwhelming success. But new challenges – such as Instant Payments, EBICS 3.0 and the SEPA Card Framework (SCF) – already lie ahead in the digitalisation process. The ensuing risks and opportunities for the banks will be the topic of the following three instalments of the SEPA Series.

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