2 May 2013
Finland: a SEPA showcase for other countries (part 1)
Finland has been 100 per cent SEPA Credit Transfer (SCT)-proof since 2011, long before the deadline of February 1st in 2014. Why did Finland feel the need to migrate as soon as possible? Marianne Palva, Senior Advisor in the Financial Stability Department at the Bank of Finland, explains in this first blog post why Finland was an early SEPA adaptor and the problems it had to overcome. In the next blog post she will expand on the role of the different stakeholders in the migration process.
Marianne Palva primarily works on issues related to financial market infrastructures and payments. She also represents the bank of Finland in the Payment and Settlement Systems Committee of the Eurosystem & European System of Central banks (PSSC) and is chairing the core group of the SEPA stakeholder forum in Finland. Saying that she knows SEPA very well is an understatement.
Finland was early in the migration process and can be seen as a showcase for other countries. But why was this country so fast in changing its payments structure? “Good question,” says Marianne Palva. “Finnish banks saw SEPA coming and decided to get the work done. A short migration period is in the interest of everyone. Prolonging the migration only incurs additional costs for everyone, as two systems would have to operate in parallel for a longer period.”
Migration to SCT was completed in 2011, but that does not mean that the job is finished. Marianne Palva: “We are still working on replacing the legacy direct debit with services based on e-invoicing and SCT. Conversion has started and should be completed on time, before February 2014. We don’t use SEPA Direct Debit (SDD) much.” As an example, SDD accounts for less than 10 per cent of the transactions in Finland, while SCT accounts for more than 90 per cent. “Overall, we are very close to being 100 per cent SEPA-proof.”
No SDD, but e-invoicing
Finland uses e-invoicing instead of SDD. The reason why Finland decided to replace the legacy direct debit with e-invoicing and direct payments is two-fold. Already for some years, large buyers and suppliers as well as the public sector have tried to eliminate paper invoices and convince consumers to use e-invoicing services offered by banks. “Initially they had little success, although volumes are growing now. E-invoicing between companies is already used more widely than traditional paper-invoicing.”
Another reason was that the legacy direct debit was based on mandates given by the payer to his bank. The payer’s bank checked the mandate before debiting a direct debit transaction. The end-date regulation enhanced consumer protection. It allowed the payer to block any direct debits to his/her account or to block any direct debits initiated by one or more specified payees or to authorise direct debits only initiated by one or more specified payees. This is not the case under SEPA SDD. Palva: “There is no central database for mandates and Finnish companies did not want to take over the mandate handling.”
On the debtor side all banks offer SDD as required by the regulation. “For the time being, only a few banks offer SDD Core or B2B services to billers. More banks might start offering the services later, depending on the demand for the services.”
Another difference in the migration process between banks and consumers are the SCT transactions. The SCT migration for companies and public authorities using electronic interfaces with the banks, which is quite different compared to the migration of consumers or small businesses using only Internet banking. Already in 2011, 99,4 per cent of all transactions were forwarded to the banks electronically.
Before migrating, companies and public authorities had to update their software and customer information in databases (IBAN & BIC) in order to be able to send (ISO 20022 compliant) SCTs to their banks. Companies also had to update their invoices, payment forms and the bar code on the invoice/payment form with information on IBAN and BIC.
Crucial role software providers
Consumers and small businesses using Internet banking only had to adapt to using IBAN. Banks have already been offering conversion from BBAN to IBAN in the Internet banking applications to help the users. In addition, the Finnish Social Insurance Institution supported this move by requiring IBAN already in 2009 for paying out social benefits. Bank identifier codes have never been required from domestic SCTs users.
The role software providers played was crucial. “In order for companies to be able to migrate, they needed SEPA compliant systems. So, software companies had to update their programs to comply with SEPA requirements and provide converters.”
Software companies also played a vital role in testing banks’ interfaces. Not as actual ‘testers’, but helping companies with problems when interfacing banks. Although banks had agreed to implement the EPC B2B standards in consumer-facing interfaces, there were differences in the interpretation of the standards. “Similar problems seem to occur also related to the B2B implementation in Europe.”
In the second part of this blog Marianne Palva will elaborate on the role of the stakeholders and the work that needs to be done in the near future.