SEPA: ready or not?
For those operating in the treasury space in Europe SEPA (or the Single Euro Payments Area to give it is unabbreviated name) seems to have been around for years. As we start 2014, one of the finishing lines for this project is now firmly in sight. The SEPA Regulation (EU) No 260/2012 set the final end-date for ‘legacy’ national euro credit transfer and direct debit schemes as 1st February 2014 in all Eurozone states. This can be deferred until 31st October 2016 for non-Eurozone states like the UK. From these dates the existing national euro credit transfer and direct debit schemes will have to be replaced by the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes and the politicians’ goal of having ‘no frontier effect for cross-border payments’ will have been largely achieved.
It has been a very slow and painful process getting to where we are. The banking industry in Europe was slow to respond despite the EU politicians’ vision that was expressed throughout the 1990s. This was reiterated by Commissioner Bolkestein in November 2000. “The full benefits of the single market will only be achieved if it is possible for business and individuals to transfer money as rapidly, reliably and cheaply from one part of the community to another as is now the case within most member states,” he said. So, the banking industry was told to build such a system that would also mean that the banks make much less money from transaction fees and effectively eliminate the ‘float’ that often occurs when making cross border payments. Is it any wonder the banking industry was slow to move?
Differing legislation in the various EU countries also made harmonisation difficult but this presented a revenue opportunity for the lawyers and there have been a series of legislative directives that have driven forward the integration of the euro payment market; notably the Payment Services Directive and sections on the SDD Core Rulebook to assist in the transition from legacy mandates.
The result is that fundamental change has now been achieved and cash management in Europe is never going to be the same.
We can reflect on these developments in two ways – tactical and strategic. Tactically companies are having to react and this issue of Treasury Today includes a Problem Solved case study which shows how one company has addressed SEPA and managed to migrate all its direct debit mandates to SEPA ahead of the 1st February deadline. Meanwhile, our Question Answered this month poses the question “What will SEPA Phase II look like for your company?” We provide an answer from three corporates. We will report on more in the months to come as corporate treasurers find ways strategically to take advantage of the new payments landscape in Europe.
But there are also more fundamental issues to be considered. How will business change as these major barriers to cross border trade are finally removed? Even quite small businesses may find ways to reach across borders and try to find new customers. But they will also encounter new competition domestically as companies elsewhere in the EU do the same? Will governments open their procurement to EU wide competition or remain country focussed? How else will trade change?
A different issue is that the introduction of SEPA payment schemes makes any break-up of the Euro payment area that much more difficult. Domestic payment systems will have been replaced in the same way that domestic currencies, including notes and coin, have been. But this does not resolve the fundamental economic pressures resulting from individual government and country surpluses and deficits. This issue is not resolved.
The changes we are seeing in Europe are fundamental and game-changing. We are living in interesting and challenging times.