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A Steria Report SEPA: will European businesses be ready for the transformation? Prepared in collaboration with è 02 SEPA : will European businesses be ready for the transformation? è Contents Introduction 05 Methodology 07 Executive Summary 09 Who is affected by SEPA? 14 Do European corporates understand SEPA Direct Debit? 21 Impact of the migration to SEPA Direct Debit 30 How will European corporates migrate to SEPA Direct Debit? 39 Next steps for the migration 45 Conclusion 47 Appendix 48 Company profiles 50 è SEPA : will European businesses be ready for the transformation? 03 Introduction Payments are undergoing major changes in Europe Following the creation of the euro currency, the European Union initiated the Single Euro Payments Area (SEPA) initiative in the Lisbon Agenda in 2000 to create a single payments market in the euro zone. SEPA encompasses card payments with the SEPA Card Framework, as well as direct debit and credit transfer transactions by creating the SEPA Direct Debit and SEPA Credit Transfer schemes. SEPA currently includes the 27 EU Member States plus Iceland, Norway, Liechtenstein, Switzerland and Monaco. Within SEPA, bank customers can make electronic euro payments across 32 countries under the same basic rights and obligations. On 14th February 2012, the European Parliament voted Regulation 260/2012 that introduced key changes including end dates of 1st February 2014: existing domestic euro credit transfers and direct debits will have to be replaced by SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD). SEPA is part of a broader regulatory trend to harmonise payments in Europe and remove any hurdles limiting payments integration. Alongside SEPA, the Payment Services Directive (PSD) was transposed into national laws in late 2009 in order to provide a common legal framework for payment services. Another key initiative is the Green Paper of the European Commission titled Towards an integrated European market for card, internet and mobile payments that might involve additional regulatory changes. Countries included in SEPA 04 SEPA : will European businesses be ready for the transformation? è SEPA is changing how businesses will collect payments from their customers SEPA encompasses a very large market with 32 countries, 500 million consumers, 71.5 billion electronic B2C and B2B payment transactions annually. In order to maximize this large market opportunity, it is important for businesses to optimize how they collect payments from their customers. This is currently fairly challenging as there are a lot of disparities in payment methods and payment preferences across Europe (e.g., high level of cheque usage in France, of cash in Germany, of credit cards in the UK, etc.). The SEPA initiative is in the process of creating a single market for payments and this provides new opportunities (and new challenges) for businesses. As of September 2012, 30% of credit transfers have migrated to the SEPA Credit Transfer scheme and 2% of direct debits used the SEPA Direct Debit scheme. As European businesses will need to migrate before the 1st of February 2014 end date, understanding SEPA s implications is key to plan a smooth migration and seize market opportunities. This report is focused on SEPA Direct Debit because the migration is more complex and less advanced to provide an overview of the migration to SEPA by answering five questions: Who is affected by SEPA? Do European businesses understand SEPA Direct Debit and what is the status of the migration to SEPA Direct Debit? What is the impact of the migration to SEPA Direct Debit for European businesses? How will European businesses migrate to SEPA Direct Debit? What are the next steps to migrate to SEPA Direct Debit? Volume of SEPA Credit Transfers regularly increases while volume of SEPA Direct Debits is still very low % 25% 20% 15% ,0% 1,5% 1,0% % 5% 4 2 0,5% 0 0% 0 0,0% Volume of SCT transactions (in million) % SCT transactions / Total transactions Volume of SDD transactions (in million) % SDD transactions / Total transactions Source: European Central Bank è SEPA : will European businesses be ready for the transformation? 05 Methodology Steria, a leading provider of IT-driven business services, in partnership with Edgar, Dunn & Company (EDC), an international strategy consultancy specialised in payments, have published an independent report about SEPA This report is based on a phone survey conducted by market research company CSA among 300 businesses with 250 to 5,000 employees in France, Germany and the UK. All quantitative data used in this report are based on the results of this survey (unless stated otherwise) and the term European businesses refer to the businesses surveyed in France, Germany and the UK. This report is focused on SEPA Direct Debit because the migration is more complex and less advanced. As there are few or no direct debits in retail face-to-face transactions, the survey has not taken into account face-to-face retail businesses and specific sectors have been targeted to be representative of sectors issuing direct debits with a focus on B2B activities. Businesses have been grouped in three sectors: Commerce (focussing on B2B trade), Services (including administration) and Manufacturing & Construction. EDC has also conducted more than 15 in-depth face-to-face or phone interviews among large corporates and payments experts in Europe to provide a qualitative perspective and take into account viewpoints of major stakeholders in payments in Europe. 06 SEPA : will European businesses be ready for the transformation? è è SEPA : will European businesses be ready for the transformation? 07 Executive Summary Following the creation of the euro currency, the European Union initiated the Single Euro Payments Area (SEPA) initiative in the Lisbon Agenda in 2000 to create a single payments market in the euro zone. SEPA encompasses card payments with the SEPA Card Framework, as well as direct debit and credit transfer transactions by creating the SEPA Direct Debit and SEPA Credit Transfer schemes. SEPA currently includes the 27 EU Member States plus Iceland, Norway, Liechtenstein, Switzerland and Monaco. Within SEPA, bank customers can make electronic euro payments across 32 countries under the same basic rights and obligations. Steria, a leading provider of IT-driven business services, in partnership with Edgar, Dunn & Company (EDC), an international strategy consultancy specialised in payments, have published a report about SEPA. The report, mainly focused on SEPA Direct Debit, is based on a phone survey of 300 businesses in France, Germany and the UK completed by market research company CSA. EDC has also completed more than 15 in-depth interviews among large corporates and payments experts in Europe. Steria and EDC have structured this paper to provide stakeholders with a better understanding of key aspects related to SEPA Direct Debit: the awareness of SEPA, the impact of and the migration status to SEPA Direct Debit, and the way businesses will migrate to SEPA Direct Debit. 08 SEPA : will European businesses be ready for the transformation? è Who is affected by SEPA? 1.SEPA encompasses a very large market and affects a majority of European businesses SEPA s objective is to turn the Euro area into a single payments market for credit transfers and direct debits by migrating these payment methods into SEPA Credit Transfer and SEPA Direct Debit. The majority of surveyed businesses are affected by SEPA (i.e., businesses using credit transfer or direct debit): 96% of businesses in France and Germany and 65% of British businesses (with European cross-border sales activities). More than 9 European businesses out of 10 use credit transfers and half issue direct debits to receive payments from their customers. All businesses that use credit transfers or direct debits in Euros will need to migrate to SEPA by February 2014. è SEPA : will European businesses be ready for the transformation? Do European businesses understand SEPA Direct Debit and what is the status of the migration to SEPA Direct Debit? A majority of surveyed businesses are aware of SEPA, but most do not have a full understanding of SEPA and its consequences. More than one business out of five issuing direct debits are not even aware of SEPA Direct Debit Almost 70% of European businesses are aware of SEPA in general, and more than 80% of businesses have heard about SEPA Direct Debit in France and Germany. However, only 26% of British businesses are aware of SEPA Direct Debit and a large majority of European businesses fail to understand how SEPA Direct Debit is different. SEPA s vision might face significant difficulty as more than one business out of five issuing direct debits are not even aware of SEPA. Have you heard about SEPA Direct Debit? Base: businesses issuing direct debit Have you heard about SEPA Direct Debit? Base: businesses issuing direct debit 21% 79% Yes No 10 SEPA : will European businesses be ready for the transformation? è Only few surveyed businesses in France, Germany and the UK have migrated or are in the process of migrating to SEPA Direct Debit All French businesses issuing direct debits and a large majority of German businesses issuing direct debits (85%) claim that they will be SEPA compliant on time for the end date. But only few European businesses issuing direct debit (31%) have migrated or are in the process of migrating to SEPA Direct Debit (42% in Germany, 35% in France and only 3% in the UK). The migration could become a significant issue as 30% of French and German businesses have not started to work on migration to SEPA at all, and 62% of British businesses issuing direct debits will not be ready or do not know if they will be SEPA compliant before February Status of migration to SEPA Direct Debit - by country Status of migration to SEPA Direct Debit - by country Has migrated or is in the process of migrating You have fully migrated 35% 3% 42% 6% 3% - 9% 15% You are in the process of migrating 29% 33% You are assessing the migration 35% 59% 25% You have not started to migrate Doesn't know 31% - 24% 30% 3% è SEPA : will European businesses be ready for the transformation? for European businesses? What is the impact of the migration to SEPA Direct Debit SEPA can be a double-edged sword and proper migration is key to ensure that benefits exceed costs. SEPA Direct Debit is considered as bringing more benefits by half of European businesses. Larger businesses consider that SEPA Direct Debit brings more benefits and makes the payment process easier. However, SEPA Direct Debit is not widely considered as a way to simplify direct debit payments: 40% of European businesses think that SEPA Direct Debit simplifies payments, while 33% consider that SEPA direct debit scheme makes the payment process more complex. SEPA Direct Debit will have a significant impact on multiple business activities More than 70% of European businesses are not worried by migration costs to SEPA Direct Debit. But SEPA Direct Debit will have a significant impact on multiple business activities with accounting, billing and IT being the most impacted activities. European businesses expect a positive impact of SEPA Direct Debit on bank fees, fraud and bad debt. This will contribute to an increase of direct debits: 11% of European businesses currently not issuing direct debit plan to issue SEPA Direct Debits in the future, and 37% of European businesses currently issuing direct debits plan to increase the number of SEPA Direct Debits. Which Which are the are activities the activities that are that most are most affected affected by SEPA by direct the SEPA debit direct scheme? debit scheme? 60% Your accounting / finance activity 50% 83% 34% Your billing activity 38% 44% F Your activities linked to IT systems 21% 34% 45% UK G Your litigation activity 6% 15% 20% Your sales / marketing activity 14% 12% 11% 12 SEPA : will European businesses be ready for the transformation? è How will European businesses migrate to SEPA Direct Debit? 4.Businesses are considering different ways to implement SEPA and a quarter of European businesses consider working with external payment partners Almost a quarter of European businesses currently plan to develop a specific technical solution externally for their SEPA Direct Debit activities: 12% intend to use a hybrid solution (internal and external) and 12% plan to use an external solution. More specifically, 26% of large businesses (more than 1,000 employees) plan to develop part of or all of SEPA Direct Debit activities externally, while 36% will develop an internal solution. Three processes are more likely to be outsourced by European businesses: turning paper documents into electronic documents (38%), the conversion of national direct debits into SEPA direct debits (20%) and the management of mandate (19%). è SEPA : will European businesses be ready for the transformation? What are the next steps to migrate to SEPA Direct Debit? Planning now for a SEPA transformation project focused on IT and on cash management optimisation A thorough assessment of SEPA Direct Debit s impact should not only identify required IT changes but also help to re-design cash management processes. SEPA is indeed an opportunity to consider the consolidation of banking relationships across multiple countries, create synergies (e.g. through the creation of a European structure to collect payments across multiple countries) and optimise cash management systems and processes. 14 SEPA : will European businesses be ready for the transformation? è Part 1 Who is affected by SEPA? SEPA encompasses a very large market and affects a majority of European businesses è SEPA : will European businesses be ready for the transformation? 15 SEPA s objective is to turn the Euro area into a single payments market for credit transfers and direct debits by migrating these payment methods into SEPA Credit Transfer and SEPA Direct Debit 2014 There is currently a significant diversity in usage of payment methods within Europe and SEPA aims to create an integrated euro payments market. The three largest economies in Europe (France, Germany and the United Kingdom) have all a different payments mix, mainly due to the historical development of payments in each country: The high usage of cheques by both consumers and businesses sets apart the French market. Cheques account for 17% of non-cash payments, equivalent to close to 3bn transactions per year. Card usage is significant in France accounting for 45% of non-cash payments, mainly driven by consumers Germany is characterised by a high usage of cash, direct debit (accounting for 49% of non-cash payments) and direct credit (34% of non-cash payments). By comparison, card payments only account for 17% of non-cash payments, as opposed to 45% for France and 56% for the UK. It should be noted that the German-specific ELV payment method uses card as a physical support but direct debit as the underlying payment method. The usage of ELV, meaning literally electronic direct debit in German, partly explains the significant difference of direct debit and card usage compared to France and the UK The UK is the most developed card market of the three countries with card payments, accounting for more than half of non-cash payments. Both direct debit and direct credit are commonly used, accounting approximately for 20% of non-cash transactions. Cheque is continuously decreasing, being replaced by electronic payment methods and accounts for only 5% of non-cash payments. Distribution of non-cash payments in France, Germany and the UK Distribution of non-cash payments in France, Germany and the UK February, 2014: SEPA end-date 71.5 billion transactions per year encompassed by SEPA % 17% 17% 5% 80% 60% 45% 49% 56% million consumers encompassed by SEPA 40% 20% 19% 20% 34% 17% 20% 0% Direct credit Direct debit Card Cheque Source: European Central Bank data 16 SEPA : will European businesses be ready for the transformation? è The majority of businesses are affected by SEPA: 96% of businesses in France and Germany, and 65% of British businesses (with European cross-border sales activities) The survey reveals that a majority of businesses are affected by SEPA: credit transfer also referred to as direct credit is used by more than 9 businesses out of 10 to accept payments from their customers : 97% for France, 94% for Germany and 92% for the UK. When considering credit transfer, 96% of French and German businesses are affected by SEPA. Credit transfer can be described as a push payment method whereby the initiation of the payment is controlled by the payer. direct debit is used by fewer businesses as direct debit is most of the time linked with recurrent payments and requires a certain degree of trust between the biller and the payer (the payer can either be a consumer or a business). Direct debit can be described as a pull payment method whereby the biller pulls funds from their customer s bank account. Almost half of French businesses issue direct debits to collect payments from their customers. This is lower than in Germany (66% of businesses issue direct debits) but significantly higher than in the UK (34% of businesses issue direct debits). Direct debit is mainly used by consumers to pay utility and telecommunication companies and direct debit in the UK is indeed mainly used by businesses such as billers and government to collect payments from consumers. SEPA is particularly relevant for businesses with sales activities in the euro zone. In the case of the UK, SEPA is only relevant for businesses with European sales as the UK is outside the Euro zone, and this is the case for 65% of UK businesses. By comparison, 73% of French businesses have cross-border activities in Europe and 65% in Germany. These businesses will benefit from SEPA by being able to collect payments in a similar manner across Europe, knowing that all direct debits and credit transfers in euro will need to be SEPA compliant. Overall, when considering the situation of the three countries, almost all businesses in France (97% of businesses are being paid by direct credit) and Germany (94% of businesses are being paid by direct credit) are affected by SEPA, while the proportion is lower in the UK with 65% of businesses (that engaged in cross-border sales activities) impacted by SEPA. These results might differ slightly compared to statistics from European central banks because the survey does not take into account businesses with face-to-face retail transactions (e.g., ELV transactions in Germany would not be captured in the survey). Payment methods used by businesses to Payment methods used by businesses to be paid be paid by their by clients - by - country by country 100% 97% 94% 92% 80% 66% 60% 49% 40% 34% 20% 0% Businesses being paid by direct credit Businesses being paid by direct debit è SEPA : will European businesses be ready for the transformation? 17 Credit transfer is used by almost all businesses regardless of their size, while the usage of direct debit increases with the size of businesses According to the survey, direct credit is used by all businesses surveyed with employees and by more than 9 businesses out of 10 for businesses with more than 500 employees. This confirms that direct credit is a well-spread payment method and is used significantly by all businesses to accept payments from their customers regardless of their size. The situation is different regarding direct debit where there is a correlation between the size of businesses and the usage of direct debit. The usage of direct debit increases with the size of businesses, ranging from 30% of businesses with employees issuing direct debit to 57% of businesses with 1,000-5,000 employees. This reflects the fact that large businesses are more likely to set up (or, in some cases, request) recurring payments to be paid by
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