Euro electronic payments will fail unless SEPA deadline is extended, warns European Commission

The Commission wants to extend its deadline by six months to give countries such as Germany a chance to adopt new payment rules

By , IDG News Service |  IT Management

Many electronic payments will fail in Europe next month, unless the deadline for switching to the new SEPA payment system is extended, the European Commission warned Thursday.

By Feb. 1, banks and businesses within the Single Euro Payments Area (SEPA) are supposed to accept only credit transfer and direct debit instructions conforming to rules creating a single European market for retail payments. After that deadline, set in a 2012 regulation, instructions for euro payments that do not meet the specifications for SEPA Credit Transfers (SCT) or SEPA Direct Debits (SDD) should be rejected.

However, by November only 64.1 percent of euro credit transfers were SEPA compliant, and just 26 percent of direct debits, prompting the Commission to warn Thursday that it is now highly unlikely that the target of 100 percent for SCT and SDD can be reached by the deadline.

"If no action were to be taken by the Commission and the co-legislators, banks and payment services providers would be required to stop processing payments that differ from the SEPA format," the Commission said, adding that this could result in "serious difficulties for market participants that are not yet ready, particularly SMEs, who could have their payments (incoming or outgoing) blocked."

Banks and payment institutions should be allowed to process non-SEPA payments until Aug. 1, the Commission proposed, with no further transitional period after that. The proposal requires approval from the European Parliament and the Council of the European Union, composed of the ministers of member states, and could, according to the Commission, be applied retroactively if adopted after the deadline.

The Commission said its proposal does not change the "formal" deadline for migration, but will give businesses an extra six months to make their systems compliant, making sure their payments aren't blocked.

Adoption of the new payment formats varies widely across the Single Euro Payment Area. European Central Bank (ECB) figures for the third quarter of 2013 show several countries are lagging well behind. In Germany only around 14 percent credit transfers were SCT-compliant, in Ireland a little over 15 percent and in Italy almost 23 percent.

Other euro area countries with fewer than 50 percent of SEPA-compliant credit transfers in the third quarter included the Netherlands, Austria, Portugal, Estonia and Malta.

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