Experian: Payments not ready for SEPA

SEPA requires that businesses make changes to their existing payments applications to support new payment schemes both cross-border and domestically. The new format for payment instructions for these schemes is the international standard ISO20022 which requires the use of the International Bank Account Number (IBAN) format. The migration to SEPA depends heavily on an effective migration to this standard and the use of the IBAN, along with the Bank Identifier Code (BIC).

Experian`s whitepaper aims to quantify the issues of conversion to IBAN, underlying the fact that many European corporates are not even aware that there are significant problems with data currently held in their business systems.

Key findings:

• Over 20% of the records analysed were in an invalid format or contained errors
• The most common problem was “bank or branch code not in use”, meaning that either data has not been kept up to date as branches close or invalid data has been supplied at point of capture
• Quality of data varies significantly by country; for example, 94% of the Swedish records analysed contained errors, as compared to 29% in The Netherlands, 6% in the UK and 3% in Germany.
• Error rates vary significantly between industries from around 5% to over 60%; for example 18% of the records from the travel and leisure industry contained errors, compared to 6% from the banking industry.

Jonathan Williams, Director of Strategic Development at Experian Payments, shares some insights regarding the issues that corporates face when migrating existing payments data to the new format:

“Over the last 20 years many banks have repaired faulty domestic transactions where possible without charge or notification to the originator of the transaction. This has perpetuated poor data quality in business systems used for national payments. SEPA makes little or no provision for such repairs and charges for both repaired and rejected payments are a real possibility, up to as much as €70 per transaction.

“Experian Payments’ analysis showed that the percentage of records containing one or more errors was 13%. This is in contrast to the typical error rates reported by companies of between 2% and 10%. It is clear that the domestic schemes are therefore coping with some degree of error, whether this is manual error correction or automatic error correction such as redirection of transactions for branches of merged banks, for example. As the IBAN data format is a relatively new standard, and it differs greatly between countries, correcting these payment errors will become more difficult and error rates are likely to increase.

“These high error rates demonstrate the need for validation both as part of a data conversion process and as a periodic cleansing process. The statistics show that account checking is necessary not only for cross-border transactions but also for domestic payments, as these will also have to move to the new standard. Without significantly better data quality, error rates will rise and the confidence of consumers will be undermined. In addition, this will mean greater error handling costs for business, further affecting consumer confidence. It is therefore essential to the SEPA project that businesses and payment service providers deliver good validation tools to ensure that payments are successful first time, every time.”