The European Commission is sticking to its original Single Euro Payment Area migration deadline of next month, but is establishing a grace period of an extra six months for banks and businesses struggling to make the switch to euro payment formats.
Industry experts have been predicting for the past year that banks in Europe would not meet the 2014 SEPA deadline.
But the commission's grace period may not help all of the European banks and businesses needing more direction on how to prepare for SEPA, says Gareth Lodge, a London-based industry analyst with Celent and an expert on SEPA.
The commission and various other governing bodies regulate the SEPA initiative, which began in 2008 to establish the euro as a common currency in the European market. Supporters of SEPA have viewed the initiative as a way to make it easier for Europe to compete in global commerce and to facilitate cross-border electronic payments.
The deadline extension focuses on components such as the automated clearing house for direct deposit and direct debit functions, Lodge says.
"Banks were supposed to have been ready several years ago, though there have been some question marks about how many at that time were able to handle transactions versus actually handling the volumes that go through the soon-to-be-legacy systems," Lodge says.
The commission is urging legislative bodies to study and agree to the extension so that all stakeholders are clear about the legal implications of not meeting SEPA deadlines. The commission says it will not impose fines on banks and payment service providers at the Feb. 1 deadline if various governing bodies are still reviewing its proposal and have not officially approved the grace period.
"An efficient single market needs an efficient SEPA," says internal market and services commissioner Michel Barnier in the EC press release. "The entire payments chain consumers, banks, and businesses will benefit from SEPA and its cheaper and faster payments."
The increasing use of cross-border transactions prompted the commission to seek an efficient cross-border payments system, Barnier says.
Currently, migration rates for credit transfers and direct debits are not high enough to ensure a smooth transition to SEPA "despite the important work already carried out by all involved," Barnier adds.
"I regret having to do this, but it is a measure of prudence to counter the possible risk of disruption to payments and potential consequences for individual consumers and small and medium enterprises in particular," Barnier says.
Barnier warns the transition period will not extend past Aug. 1, 2014. He asks the SEPA countries to "accelerate and intensify efforts to migrate to SEPA so that all can enjoy its benefits."
The proposed extension gives banks and businesses more time to get the end-to-end payment process in order, Celent's Lodge says. "The deadline was always going somewhere between tough and impossible," Lodge adds.
About 20 million businesses in Europe are affected by the SEPA changes, Lodge says. "In many countries, it's fundamentally different with different technologies, sending different files, containing different information to different participants in different orders," he adds.
Even large billers that prepared for SEPA are seeing prices rise for SEPA transactions, which means they are holding off on a complete migration until the last minute, Lodge says.
Many in European financial and payments circles are concerned that the European Commission has no backup plan, while insisting Aug. 1 now becomes the deadline written in stone, Lodge says.
Even those dealing with card payments want answers, as European acquirers have asked for more clearly defined SEPA standards.
While banks have struggled, those in payments have been on a consistent track for the conversion even in the face of a financial crisis in Europe two years ago.
The deadline extension is helpful, but there is no way of knowing the current levels of readiness throughout the region, Lodge says.
"The commission hasn't offered any other form of help," he adds. "This is there initiative but, in effect, they've washed their hands of the responsibility of delivering it."