Last week, PwC released an update to the “SEPA Readiness Thermometer” that itoriginally developed in January2013. The first report suggested that 55 percent of companieswere at risk of missing the February 1, 2014, deadline for clearingeuro-denominated credit transfers and direct debits through SingleEuro Payments Area (SEPA)-compliant systems. This time around, PwCsurveyed 150 organizations about the state of their readiness forSEPA and found that although some companies are making progress,many are still lagging.

The survey found that 26 percent ofrespondents do not have in place a project plan for SEPA readiness;that number has not decreased since January. “This number issignificant,” states the PwC report, “given the incomplete understanding of what SEPAreadiness entails. We observe a widespread inconsistency in scopedefinition—in particular, for companies that have not planned theirreadiness activities.”

Among all respondents, only 11 percent havefully operational SEPA-compliant systems at this point, whileanother 20 percent are currently testing their systems. Nearly twoin five are still in the implementation phase with their SEPAcompliance projects. And almost a third of respondents indicatedthat their company is way behind—either currently designingSEPA-compliant systems or just now assessing their needs. (SeeFigure 1.)

Almost 40 percent of respondents said theircompany has either completed SEPA readiness testing with theirbanking partners, or else is in the process of testing with alltheir banks. However, 33 percent are planning to do all theirtesting later this year, 2 percent are planning not to run tests,and 4 percent have “run into complications” during testing. (SeeFigure 2.)

The PwC report expresses concern aboutrespondents' levels of preparedness: “Experience has taught us thatSEPA projects take, on average, 6 to 12 months. However, heavydirect debit users, decentralized organizations, and corporationsusing in-house developed IT systems may need up to 24 months.”

PwC recommends that companies at risk of SEPAnoncompliance on February 1, 2014, should develop a “Plan B.” Thismay entail reducing the number of cash management banks theorganization works with. It may involve using cloud-basedconversion software that sits between the company and the bank,translating legacy payment formats into SEPA-compliant formats. Oran organization with concerns about the SEPA deadline mayreconsider the payment options it makes available to Europeancustomers, using online payment formats as alternatives to credittransfers or direct debits.

“Having such alternatives in place will reducethe stress of setting up mandate-management solutions,” the PwCreport states. “It should be noted that this solution is the leastpreferred from a treasury point of view because of the possibleimpact on liquidity. Late payments and/or increasing receivablesmay void the benefits gained by reducing the SEPA scope.”

How do survey respondents expect the Februarydeadline to affect companies that are ill prepared? The same number(23 percent) think regulators will enforce the deadline, regardlessof the consequences, as think regulators will continue to acceptuse of legacy payment products for a grace period. Another 25percent expect banks to step in, or regulators to ask banks to stepin, and provide conversion services for clients that aren't readyfor SEPA. (See Figure 3.)

Only time will tell which approach Europeanregulators will take. For the two-thirds of companies that have notyet reached the testing phase of their SEPA compliance initiatives,one can hope they opt for leniency.