So here we are, crystal ball gazing. It is February 2014 already and all businesses are happily sitting in their offices using single euro payments area (SEPA) to process all of their credit transfers and their direct debits servicing both customers and employees in all of the countries in the eurozone. So what has changed over the last two years and what has all the fuss been about?
Well that may be too rosy a picture. While we as an organisation managed to meet all of the deadlines, it seems that a number of other organisations either missed the end date or had to adopt strategic interim solutions just to continue processing their transactions.
To get to this point we know that businesses had to adopt a range of activities to get through the migration process. All have had to make modifications to their system to deal with new data formats, implement new business processes, grapple with the infamous international bank account numbers (IBAN) and for those using direct debits, work out how to cope with a new form of mandate.
With so many of our fellow organisations affected we have seen many different routes taken to achieve operability within SEPA. One of the first steps is to evaluate the capabilities of any enterprise resource planning (ERP)/accounts package that was in use to see if there would be updates available to make them SEPA compliant. While this route provided a solution for many, we understand that, particularly when it came to direct debits, many of the enhancements were fairly rudimentary, giving base compliance only. Others we know have had the skills available to engineer their own solution, an option we thought has a modicum of risk attached to it in view of the business critical nature of the resulting payments or collections. Many of our compatriots using direct debits also made use of services offered by a number of banks that isolated them from many of the changes required to work with SEPA by doing this work for them. This was particularly valuable to the very large number of organisation collecting small numbers of debits where the cost of change could be prohibitive. We know of some larger users who opted for the banks services as well, as a means of providing some form of guarantee around meeting the deadlines.
Irrespective of the mechanisms used to change the systems within a business, all of us were faced with migrating data, at least converting the legacy bank account to an IBAN. With the large number of customers involved we considered it impractical to ask each customer to provide their IBAN. Some form of automation was thus required. Having established that automatic conversion from one to the other is possible in the vast majority of cases, we used a service offered by our chosen bank to achieve this conversion, with the other requirements for SEPA debit mandates being generated at the same time. Two countries, Germany and the Netherlands, initially created some problems in this respect, but facilities were eventually introduced to tackle accounts in these areas. As this process demonstrated that a computer can change a local account to an IBAN and vice versa, it made us wonder what the point of introducing an IBAN was – perhaps this is a political battle for the future.
During the migration process we have been submitted to pressure from the various banks we use. In the olden days of 2012, we made sure we used a number of banks in each country we traded in. The use of one bank for payment processing was considered risky as banks could use proprietary formats and mechanisms which made it very difficult to switch the process from one bank to another in the event of difficulty. Banks would also offer us lower charges for ‘on us’ transactions giving some benefit to a multi-bank approach even though this made internal processing more complex. SEPA has changed this landscape in that it defines a common interface between us and whichever bank we would like to use. Some banks have latched on to this shift and are prepared to offer preferential terms if terms if we agree to run all of our transactions through that bank, the bank here looking for increased transaction volumes and liquidity from our collection process.
The concept of rationalising the number of banks involved in the process has, of course, taken on an additional dimension in that we no longer need to maintain accounts in the different countries we are trading in. This proved to be an attractive option for us in terms of managing our cash as we could have it all in one place removing our need for a cash pooling operation. From a system point of view thought we did encounter some issues on the way to achieving this. One issue was the readiness of the different banks to provide different SEPA services. We actually found we intended to be using SEPA before some banks could actually support us in our chosen country. Another factor we uncovered was that there are some differences in the interpretation of the standards for submitting and receiving SEPA data.
Country of Origin
Another factor that came to play regarding our choice of bank is the country in which we are going to have originating account. This can have a significant effect on the charges the bank levies on us. There are two parts to this. One is the transaction cost where there are currently significant differences from one euro country to another. This charge is set by the bank we have a contractual relationship with and was thus be negotiable. Larger customers of the bank we understand are able to use their weight to achieve good prices, but this option is not available to the rest of us. Our choice was then to select a country with a low base transaction cost in place before SEPA. It has to be remembered that the banks have been unable to increase transaction charges as a result of SEPA, so prices have been pegged at their pre-SEPA rate. Whilst we have not had time to see the impact this imbalance will make it would seem likely that the prices that banks charge will progressively balance out towards the lower end of the current spectrum, which must have been one of the politician’s original aims with this project.
The other pricing factor we had to consider was interchange fees. Principally these are being charged by French banks used by French payers. Fortunately these charges were eliminated back in 2012 for cross-border transactions but still exist for payments within France. This situation arises because a large number of payers here use banks that do not provide services to businesses. Such banks thus face cost in processing the payments for their customers but have no way of recovering these costs from businesses. For us this made France look like an expensive option and we know that fellow users of debits have been looking to use originating accounts outside of France to eliminate these charges. This again is one of the direct consequences of the open market promoted by the politicians.
The Finishing Line
Having reached the finishing line, we are now looking at what happens next. For us we can now sit back and look at the opportunities SEPA can offer. Clearly, it is easier for us to make payments or collection in any country within the eurozone. This is bound to have some impact over time but we have not been holding up new business projects just for the sake of SEPA, similarly talking to our compatriots there does not seem to be a large queue of business waiting for SEPA to arrive so they can expand their operations. For us we see the SEPA world continuing to evolve with the ongoing introduction of enhancements aimed at improving the usability and applicability of the service. Known examples are shorter clearing cycles, new debit types and enhanced mandate processing.
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