More than a third of euro transactions lack accurate SEPA data

All cross-border electronic payments have to be in ISO 20022 format

With a year to go until the 1 Feb 2014 deadline for implementation of the Single Euro Payment Area in eurozone countries, it is becoming increasing clear that banks have significant work to do with corporate and SME clients who are not yet ready to make the transition.

New research from Experian shows that “only 65% of euro transactions have fully accurate destination routing data and 12% of electronic payments made to and from businesses in euros currently contain data errors”. If that remains the case in a year, it would cost European businesses up to €20 billion just to correct the errors – and the possibility of being penalised by regulators could increase that figure.

Experian also found that those businesses currently using IBAN-format account numbers have reduced error rates (4.6%) in comparison with those using domestic account numbers (12.7%), although these error rates are still problematic.

On top of that the survey found that 45% of SEPA-compliant International Bank Account Numbers stored by large European businesses do not have the valid corresponding Bank Identifier Codes required to enable successful routing of transactions.

The move to a single SEPA payment system imposes a mandatory duty to switch existing payments applications and databases in favour of the new payment schemes and corresponding formats, specifically XML-formatted ISO 20022. This comes into force in February 2014 for eurozone countries, and October 2016 for businesses in non-eurozone territories that make and receive payments in Euros.

It may be that some businesses outside the eurozone think that they are exempt until the 2016 deadline, but they need to look closely, said Jonathan Williams, director of payment strategy at Experian. “Many corporates will have customers and bank accounts in eurozone countries, even though they are based in the UK, for instance. Some don’t realise that if they are receiving payments in, say, the Netherlands, then they have to comply.”

Williams said that full migration can take time, depending on data volume and integrity. Given the streamlining of the new data format under SEPA, full migration should involve a comprehensive validation process in order to ensure payments are successful going forward. If businesses fail to check the underlying banking data prior to migration to the IBAN format, pre-existing errors inherent to the current system are likely to jeopardise future payments.

“Migrating existing customer records to the IBAN standard will be a huge challenge given the sheer number of accounts, and, as a result, large businesses face notable challenges to migrate and maintain SEPA-compliant mandate information in time for the 2014 deadline,” said Williams. “Businesses must look to use, leverage and embed data validation within their systems and processes if they are not to incur significant costs, due to the error levels inherent in the data which the SEPA system is liable to expose. These types of error, as we’ve found in alarmingly high numbers, will lead to payment failure when made through SEPA clearing, costing businesses approximately €50 for each failed transaction. All businesses should work to comply now to avoid such unnecessary costs.”