The end-date as stipulated by the SEPA (Single Euro Payments Area) Regulation comes into force on 1 February, 2014 not just for Malta but for all the other 32 member countries. All personal and corporate credit transfer details will have to be changed well before that date and companies handling direct debit will need to get in line long before that date if we are not to experience a chaotic introduction.

Before the atmospheric heroics, threats and impending doom scenarios, what exactly is SEPA?

SEPA is the harmonisation of electronic payments across the entire SEPA area so as to facilitate and harmonise payments, so as to remove all borders or boundaries between countries and all that hinders the prompt execution of payment orders.

The SEPA regime makes it as simple and as easy to send a payment to Luqa as to Frankfurt, in the same timeframe and without making the recipient in either place go to the bank.

The effects of the introduction of SEPA will impact both the individual and businesses.

The individual need not be too affected by the changeover.

All that will be changed is that every person who has a bank account will have the account number enlarged from a 12-digit one, known as the BBAN, to a 31 alphanumeric number in Malta’s case, known as the IBAN.

This is the number that will enable people to effect payments to Finland as easily as to Germany as to anywhere in Malta.

The IBAN number for every account already exists and can be found on the bank statement. Alternatively, people can ask their banks for their number.

Those who receive payments through their banks, such as pensions, salaries etc may be asked before the end of the year to confirm their IBAN numbers so that, when the changeover occurs, they will still be able to get their money. If they do not do this, they risk not getting their money There is no need to memorise one’s IBAN number. What is needed is that people look for it, find it and then know where they can look for it when they need it again.

One advantage of the SEPA regime is that it will be easier and quicker to get paid: the principle is known as D+1, that is execution day plus one day.

It will be also simpler and quicker for companies paying through the banks.

With regard to businesses, however, the introduction of SEPA is slightly more complicated.

First of all, employers who pay their employees through credit transfers to their bank accounts need to get to know, in time for the changeover, the IBAN and BIC (SWIFT code) of every employee they have.

Banks are offering companies the facility of  converting the account numbers of employees to the new IBAN numbers. This is a free service offered by the banks, as long as there will not be an almighty queue on the last days.

Companies must realise too that the file format with which they effect payments in bulk will also need to change to be SEPA-compliant.

One other main requirement with regard to business regards software suppliers. Companies must upgrade their software to be compliant with the new regime.

The Central Bank of Malta and the Malta  Bankers’ Association have been talking for a long time to software suppliers, who are now upgrading their own systems to be SEPA-compliant.

 As from 1 February, 2014, the old software will not be able to be used and banks will need to receive the proper SEPA compliant file format for payments to be processed.

Businesses must therefore be aware of the coming changes and plan to get in the new software, to install it and to test it before the end-date. Businesses must therefore allow for enough time to effect these changes. The software companies must be allowed to have enough time to service those who require their help. Gate-crashing at the last days will only compound the confusion.

A particularly complicated issue regards those companies in Malta that operate direct debits, such as the mobile phone companies, insurance providers, ARMS, etc. The technical procedure with regard to these companies is rather complicated and these companies, in particular, are urged to contact their software suppliers and their banks as soon as possible.

One advantage with the new SEPA direct debit  regime is that payers who are not happy with the amount that they have been charged by the service provider have a right of refund with no questions asked for a period of up to eight weeks after the collection was made.  In other words, the SEPA regime offers more rights to consumers.

This SEPA change will also bring about an important back-office change: so far Malta did not have a proper direct-debit scheme. Instead, what is there, even to this day, is an arrangement whereby direct debits are only possible where the bank accounts related to the consumer and the service provider reside with the same bank. Instead of this rather simplistic system, there will now be the seamless SEPA direct debit system operational not just within Malta but also throughout the banks within the SEPA area.

For instance, a German person residing in Malta and using one mobile company in Malta will be able to pay that company through direct debit from his own bank account in Germany without all the complications he is subjected to even nowadays, whereby he would have needed to open a Maltese bank account.

As already hinted, the change-over needs its own time: it is not enough to change the system and to upgrade the software. Time must be allowed for testing the system and to iron out eventual problems so that everything is ready by 1 February, 2014. Otherwise people and suppliers will not be able to get paid and companies may thus face an almighty liquidity challenge with consequent impacts on cash flow.

Now to some numbers.

There were 5.3 million transactions involving credit transfers last year in Malta.

According to the Central Bank of Mata last August, only 22% of credit transfers were SEPA-compliant.

The European Central Bank is actively monitoring the situation and is quite worried by this lateness. Malta is one of the five laggard countries in the eurozone.

However, soon this situation is expected to change. Social security benefits, government payroll, and the Treasury dividends are all due to switch to SEPA compliant systems in the coming weeks, which will of course contribute to a substantially higher migration rate.

The software providers have stated that they will be ready to implement their SEPA compliant payroll systems and financial packages by late September or early October.

There is no Plan B: SEPA will definitely be mandatory on 1 February, 2014.  Companies should use the next 16 weeks well to ensure they are able to tackle this migration.