Central banks of EU member states, including the Central Bank of Malta, are deeply unhappy with a European Commission’s decision to extend the deadline for Sepa migration by six months.
Payments within the Single Euro Payments Area (Sepa) are meant to migrate to a new format based on the IBAN, a harmonised account identification code, by February 1.
However, the European Commission is concerned that the migration rates for credit transfers and direct debits are not high enough in some member states, with the main laggards being Malta, Germany, Ireland and Italy. Other countries like Luxembourg, Slovakia, Slovenia and Finland were completely migrated months ago.
“Although migration rates have been growing over the last few months to reach 64.1 per cent for credit transfers and 26 per cent for direct debits in November, it is now highly unlikely that the target of 100 per cent for credit transfers and direct debits can be reached by February 1, 2014,” the Commission said.
The problem is that without the extension, banks and payment service providers would have to stop processing payments which are not in Sepa-format as from February 1.
Since it is unlikely that the Commission proposal would get through the European Parliament and Council stages in time, it is proposing a “transitional period” until August 1 which would allow banks and payment institutions to continue processing payments. There would also be considerably uncertainty about the legal deadlines until the proposal is actually adopted or rejected by the EP and Council.
The European Central Bank, the European Payments Council and the European Banking Federation have all taken a stand against the extension.
“The most recent information suggests that the pace of migration is high and accelerating and the vast majority of stakeholders will complete their migration on time,” the ECB said.
“The problem is that the momentum has built up considerably as the deadline loomed and if the transitional period is introduced, companies would lose the sense of urgency. There would be a real danger that they would just relax again and we would merely have another last-minute surge at end July – not exactly the best time either,” the head of the CBM’s Payment and Banking Department, Herman Ciappara, said.
According to the CBM, only 42 per cent of credit transfers in Malta were Sepa-compliant at the end of December, and hardly any direct debits.
But Mr Ciappara said that another 40 per cent of credit transfers will have been migrated by the deadline, as a large number of businesses suspended the process as the festive season approached and have only now got back on track.
“All government departments have been migrated except for the Malta Stock Exchange which will be transferring its dividend payments soon. This leaves mostly companies which send ‘bundled’ data to banks for their payroll. To be honest, these will not need to migrate until the February payroll is due so they actually have a few extra weeks,” he said.
“We would have preferred a better rate but there is a lot happening on the ground and a lot of testing being done.”
The transitional period would put a considerable burden on local banks, which have been offering a comprehensive conversion service, working one-to-one with clients to help them with the migration. Extending these services for another six months would add to their already considerable costs so far.
“Bank of Valletta believes that all parties should continue to strive to meet the February 1 deadline especially given that the proposal to modify the relevant EU law to give an extra transition period of six months has not yet been confirmed by the European Parliament and the Council of the EU.
“We are pleased to note that most of our customers have taken the necessary steps to get ready for Sepa, and are in a position to go live from the beginning of February. The proposed end-date extension would mean that the bank would have to keep the legacy direct credit and direct debit systems switched on for a further six months, during which the bank will need to maintain two systems with the obvious related additional workload and costs.
“Nevertheless, we are always very active to assist customers in their payment needs and we shall continue to be supportive to ensure that they start benefitting from Sepa with immediate effect,” a BOV spokesman said.
The other stakeholders are the IT companies that provide payment systems – which could have been a major bottleneck. However, many companies were proactive and took it upon themselves to ensure that users of their systems migrated in good time.
Shireburn, a leading provider of payroll systems, said its approach paid off.
“We provided all the necessary development and testing to support our clients to be ready by September 2013, well ahead of the deadline.
“This was yet another example of how responsive and timely Shireburn is in ensuring local businesses can meet evolving business needs,” managing director John de Giorgio said.