Beyond SEPA: Cash Managers Still Have Much to Do After the Deadline

What can be done? First of all, there is no black and white. Companies can use makeshift interim solutions, or workarounds, to fulfil the SEPA requirements – at least in the initial stage. They can optimise the solutions bit by bit, transitioning to the ideal solution.

Formatting as a Service

There is no way around converting master data to the International Bank Account Number (IBAN) and Bank Identifier Code (BIC), which means that ‘halfway solutions’ have no place here. With payments, companies need to differentiate between credit transfers and direct debits. The interim solution for the former is relatively simple: the company utilises formatting services. Without a suitable solution, many companies will not be able to deliver the data in the SEPA payment formats required by the banks.

Theoretically, companies could use the banks’ conversion services – lawmakers have obligated all banks to make “emergency measures” available to inadequately prepared customers. However, it really isn’t that simple. For one thing, using these services can quickly become very expensive. Of primary importance is the fact that as of the new changeover date of 1 August 2014, banks are no longer permitted to accept data in the old formats. In this ‘catch-22’ situation, banks currently have various options available to them – in other words, they have a good amount of latitude available to them, both in terms of the implementation (and thereby also the legal classification), the price structure and the day-to-day execution.

When Commerzbank announced its offer of conversion services in mid-2013, it brought this topic into the limelight with other banks and in the market at large. Nonetheless, conversion services are a transitional solution that will become obsolete with the changeover date on 1 August.

Another possible and expensive approach is to simply continue sending data in the local formats even after the changeover date, and migrating to individual formatting at a later date. Banks will still accept data in the old formats after the changeover date and will execute that data as SEPA payment data. However, there will be high fees involved. Both alternatives enable companies to navigate through a SEPA-oriented world in terms of new formats, but increased costs must be taken into account.

In general, companies need to check whether a conversion is semantically possible and whether the existing formats can be converted 1-to-1 to SEPA formats. If this is not the case, the company is not using IBAN/BIC and as a result, is producing formats without that data – which in turn creates a master data problem. The master data must then first be made SEPA-compatible – otherwise a conversion process cannot be applied.

As a rule, national payment transaction formats can be converted to the ISO-XML format. However, the crux of the problem is not the format conversion itself, but rather the numerous differences between the respective national rules and the SEPA rulebook. For example, addressing by means of IBAN and BIC is compulsory for SEPA, while the national rules are generally based on account number and bank sort code.

Moreover, there are procedural differences, especially in the area of direct debits, which cannot be taken into account without enhancing the master data (example: SEPA direct debit [SDD] mandate). A conversion service cannot generate data when no source data exists. The path toward an ideal solution in the format environment is one of incremental adjustment of the data on a bank-by-bank or format-to-format basis.

Mandate Management

As was seen with bank transfers, interim solutions only function if certain preconditions exist. Even more challenging is the switchover process for direct debit transactions. These transactions include the additional process of mandate management for the customer or partner, i.e., the management of issued debit authorisations. In the future, SEPA will entail much more stringent requirements than the ones currently in place for direct debit transactions.

Various options can be considered here. In scenarios where there is currently just one homogeneous enterprise resource planning (ERP) system – e.g., SAP in its newest release with integrated payment transaction and integrated mandate management – all indicators point to leaving the mandate where it is. More common nowadays, however, are heterogeneous ERP landscapes. Management of mandates should focus on as few ERP systems as possible. Inefficiency will also be factor in this case, but at least the system is functional insofar as mandate management is concerned.

In the short-term, this type of operative approach is the most appropriate option for risk-averse companies that don’t have a clear SEPA strategy. An easy and low-cost interim solution is to manage the mandates in a separate system – separate from payment transactions. The disadvantage: every SEPA payment data file must be submitted, manually if necessary, together with the mandate information and subsequently loaded into the eBanking solution.

The most efficient approach would certainly be to bundle mandate management into a payment transaction solution, where it can be controlled as a central process. If the payment transaction solution is also SAP-integrated, then customer data is also always immediately available from accounting. The company becomes independent of ERP release versions and would have a flexible and scalable solution for managing direct debit authorisations.  

In addition to workarounds for makeshift compliance to SEPA requirements, there are a number of topics that treasurers should already be giving thought to, but which have been put on the backburner due to the looming SEPA challenge. The next challenges for cash managers are already lined-up and waiting, namely, bank fee management, and electronic bank account management (eBAM), e.g., 100% electronic data exchange with the bank. Other strategic considerations move in the direction of extending existing in-house bank systems to include payments factories.

Bank Fee Management Offers Potential for Savings


For a long time, the nonblack of transparency of the banks has presented a sore spot for cash management departments – particularly with regard to fee calculation. Banks charge their commercial customers fees that use non-transparent, manual processes with many various ‘price points’. The problem is, the transaction type is not indicated. In general, analyses can only be performed manually and are very time-consuming. This means that erroneous invoices remain undiscovered. In the case of large companies, the annual bank fees are often in the six-figure range.

That is the reason why there are already intensive efforts going on within the transaction workflow innovation standards team (TWIST) initiative to promote use of the bank services billing (BSB) Standard. This XML standard defines performance reports (reports, statements) that can be sent by financial institutions to their customers. However, nowhere near all banks are presently using this standard. One alternative is a controlling solution. Such solutions work on behalf of the customers and collect new, electronic invoices directly from the banks and verify them completely and automatically. Incorrect amounts are discovered without manual intervention – companies can potentially save up to 15% of bank fees.

Another important topic ‘beyond SEPA’ is electronic bank management, aka eBAM. The topic has been long and vehemently propagated by the banks, but by no means all institutes currently offer suitable interfaces for data exchange with customers that is completely electronic. First and foremost, eBAM only relates to the messaging system itself. The next move should be consolidating and centralising (approval) processes and efficient stock-taking of payment transaction data within the company itself. Only after the internal bank account management system is structured accordingly and more banks support the standard should companies move to eBAM.

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