Regulation & Standards

Beyond SEPA

Published: Oct 2014
Portrait of Claus Wild
Claus Wild, Project Manager Payments and Cash Management, Adolf Würth GmbH & Co KG:

The introduction of SEPA has brought a wide range of changes for the majority of European market participants. Even though the 1st August deadline has now passed, there is still work that can be done by corporates to maximise their SEPA projects.

During the migration period, many participants criticised the organisational complexity and lack of harmonisation between the data formats in the SEPA area. Indeed, if we look back on the migration and the implementation of EU Regulation 260/2012 in general, corporates have been – and still are – faced with many format and country-specific deviations from the SEPA standard.

As a result, we are still missing homogeneous data formats in the SEPA area, and only when these are achieved will corporates be able to fully reap the efficiency benefits of their SEPA projects. Despite this, we are still at the start of the journey regarding the opportunities which SEPA can offer corporates – after the initial consolidation phase, companies will need to examine further the benefits SEPA can offer.

Developments and changes

As a next step, or as a part of a centralisation project, companies can now look to bundle their payments in a payment factory or in a central hub. Furthermore, companies should assess their banking landscape and terminate any redundant bank accounts.

In addition, regarding the treasurer’s banking administration, I expect further trends to develop. Primarily I expect corporates to increasingly require Bank Account Management (BAM) solutions and to ask for transparent bank charges (for example TWIST or camt.086 messages). Both of these should be at the top of the treasurer’s wish list over the coming months as they will allow improved control and oversight over both bank relationships and costs.

Since the SEPA formats are limited to the SEPA area, CGI-MP formats will continue to gain importance in the global payments space. However, these formats are limited in the range of banks which can be included, and provide, as well as the SEPA formats, a certain degree of complexity. To close the cycle of XML formats I expect increasing bank statement processing for the XML bank statements (camt.053 or camt.054). Additional challenges will arise when attempting to integrate these within the company’s ERP system.

Finally, companies which are primarily engaged in business-to-consumer (B2C) activities could focus their efforts on simplifying the collection from the often unloved BIC and IBAN. In addition to this, I expect increasing QR codes on invoices to facilitate the simplification. The relevant payment data is encrypted in the QR code, which can be scanned and paid easily with an app on a smartphone by the customers. The recipient will then receive the exact information they need to process the payment in the ERP system.

Portrait of Brian Hanrahan
Brian Hanrahan, EVP Sales and Marketing, Sentenial:

The revised SEPA end date has now passed and so in principle every business using SEPA credit transfers or direct debits will be following the new regulations. In reality there could be some stragglers, particularly direct debit users who, say, collect annually, but these will be a very small percentage of the total.

All but a small number of companies with particular needs treated the move to SEPA as a regulatory issue, something that had to be done at a cost but something that generated little or no business benefit. A direct consequence of this was that businesses left migration to the last minute only to discover it was actually more difficult than they had anticipated leading in turn to project overruns.

Whilst businesses had ten years to plan for this, the last minute dash has resulted in many tactical solutions being deployed that are not necessarily optimum in terms of efficiency or the features they support. With material volumes of transactions now flowing through SEPA we are gradually seeing the schemes settle down to more of a business as usual, stable process. Progressively inconsistencies and uncertainties are being ironed out, it has to be remembered that the processes are nearly as new for the banks and infrastructure as they are for businesses.

Actual experience of a process is invaluable and based on this we are seeing growing interest in implementing more robust solutions and solutions which better fit a business user’s environment. Apart from improving the solidity of the processes used to generate the new SEPA data, businesses are also looking at mechanisms to deal with the exceptions produced by the scheme, the so-called R messages. Another area that has caused confusion, particularly for direct debit users, is reconciling the process in terms of balancing what money businesses expect to receive with what actually arrives in their bank account. Much confusion here results from the differing clearing cycles applied to the first and subsequent collection in the debit scheme, something which did not happen in most legacy schemes.

For the small number of businesses that operate in a multinational way within the Eurozone, other opportunities also exist to rationalise banking relationships. Very few businesses undertook this before the end date, but now some are embarking on projects to review the benefits that may arise from this process. Businesses operating within a single country could opt to use a different bank, either in their own or another country to reduce costs, but there is not much evidence of this happening.

Another area attracting attention is the use of paperless mandates in the direct debit process. The functionality is required by a significant percentage of users but has been badly handled within SEPA. Many countries had well established procedures for paperless mandates before SEPA and the move back to a paper-based environment is not seen as very progressive. There is still considerable confusion on this topic both with business users and banks alike. This is an area where solutions are now emerging and the market may dictate the outcome rather than the scheme, simply down to the time being spent to resolve.

Portrait of Francis de Roeck
Francis de Roeck, Head of SEPA Offering, BNP Paribas Cash Management:

The SEPA migration is now complete in euro countries. The figures speak for themselves, with SEPA Credit Transfers (SCTs) being fully migrated as of July 2014 (98.47% rate according to the European Central Bank); whereas the SEPA Direct Debit (SDD) showed a 97.01% migration rate. It is interesting to see that SDD volumes took off at a very late stage of the SEPA calendar.

As a reminder, the original end-date for the 18 countries of the Eurozone was 1st February 2014. However, an additional six months were granted by the European Institutions to allow for all economic players concerned to smoothly complete their migration.

Even though the migration period is now behind us, SEPA remains high on the agenda. For example, countries that declared niche products are now looking to replace these products either by integrating them into existing schemes or by introducing Additional Optional Services (AOS). Stakeholders are still addressing the topic of niche products, and no final decision on how they will be replaced in February 2016 has been made as yet.

Some countries (eg Italy, Spain, and Portugal) have also requested a waiver on legacy formats, meaning that corporates can still use non-XML formats; meanwhile banks will continue converting them until February 2016. However, given the current volumes still being handled in legacy formats, a heavy migration effect is still to come.

Looking more closely at the implementation of SEPA, the SEPA workflow is now up and running. Considerable volumes are being handled, with more than 36 billion credit transfers and direct debits being exchanged. To date, corporates have mainly focused on migrating, however, and the full benefits of SEPA have not yet been leveraged.

The next step

Now that SEPA is a reality, corporates can develop a more concrete, broader sense of the initiative’s potential. At BNP Paribas, we believe that SEPA is a strong driver for treasury centralisation: payment and collection factories with frequent payments and collections-on-behalf-of (PoBo and CoBo) can all be enabled through SEPA. We have supported countless migrations on behalf of EU and non-EU corporates, and we know that beyond the regulatory and compliance aspects, SEPA is seen as a facilitator for standardisation and harmonisation. Moreover, the richness of SEPA XML reporting should typically ease the reconciliation process. Most of the benefits come from streamlining internal processes, rather than from the optimisation of bank relationships.

Corporates are now in a position to significantly reduce operational and processing costs and improve their treasury through greater automation and bank rationalisation. However, some challenges are still keeping them from taking full advantage of SEPA, and significantly improving their order-to-cash cycle as a result.

Today, it is important for non-EU companies to understand the momentum that SEPA has created in Europe if they want to take advantage of the latest market trends. For example, the standardisation brought by SEPA actually makes it possible to optimise the implementation of treasury projects.

The next question:

For the treasury function, information is key. With the constant evolution of technology and the rise of big data, have there been any notable changes in the way that treasury departments obtain their information? Also, how can treasurers manage enhanced data and turn it into tangible business information?

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