February 2014 marks the eagerly anticipated single euro payments area (SEPA) end date. This will see the introduction of a single domestic payments area for the eurozone and the curtain close on legacy European payment instruments. Much industry discussion has focused on SEPA’s undoubted potential to bring a wealth of tangible business benefits to corporates. However, with the end date looming, the key focus now should be on how corporates can prepare for the deadline. Consideration should also be given to SEPA’s potential to be used as a springboard for a broader programme of payments transformation.
The switchover won’t be a quick and easy process. New system implementation can take up to nine months alone, not to mention the lengthy process of building a business case. So with time ticking, corporates need to take action now to ensure they are adequately prepared. After all, getting SEPA ready is a requirement, not an option.
The Rocky Road to SEPA Compliance
With the realisation that migration is more difficult than initially envisaged, there is a rising uneasiness brewing among corporates. For example, SEPA Direct Debit’s (SDD) use of creditor-driven mandates places responsibility on the corporate. In many countries this represents a significant change and will call for new business processes, for example sending pre-notifications, and potentially costly and time-consuming system upgrades, such as mandate databases and new data sets.
Once the end date arrives, in principle it will be sunset for all legacy domestic schemes: every national credit and direct debit scheme in the eurozone will be replaced by SEPA Credit Transfer (SCT) and SDD.
Migration to SEPA, however, will not happen in one ‘big bang’. Most large corporates will transition individual operational units separately, for instance on a per country basis. The pace and priority of the switchover will depend on many considerations. This includes each country’s national migration plan as well as their particular national SEPA campaigns, the latter being important as most corporates choose not to be frontrunners. Interdependencies between individual operational divisions, where processes and systems are shared, could also have an effect on the speed of transition. For instance, if corporates operate in two countries with a shared system, they would have to synchronise the switchover to meet the domestic requirements of both operations.
Warming up for the Switchover
It’s clear that there is a minefield of challenges on the horizon, but if corporates start to prepare now, there is sufficient time to meet the deadline. First, corporates should establish a SEPA migration project and at a minimum familiarise themselves with SEPA’s technical requirements, scheme rules, as well as its impact on reporting and internal processes. To get a clear vision, corporates should consider:
- Which enterprise resource planning (ERP) and back end systems will be impacted?
- How will I get bank identifier code (BIC) and international bank account number (IBAN) information from clients? Can my systems handle BIC/IBAN?
- How do I convert to XML standards? Can all my systems handle BIC and IBAN numbers?
- How will the SEPA cut-off times impact my operational processes?
- What impact will the SDD payment rules have on my processes and resource requirements?
- The introduction of SEPA mandates and the migration of local mandates.
- What is the impact of the key milestones in the national migration plans in each country where we operate?
- How many banking relationships can be closed?
SEPA will be a catalyst for some corporates to transform their wider payment and collection processes and infrastructure. For instance, larger corporates may consider moving to a payment factory model. A payment factory is a shared service centre (SSC)for payments which delivers greater visibility and control over cash, significant operational efficiencies and ultimately greater flexibility over banking and supplier relationships.
Corporates that are considering sourcing SEPA solutions and services will also need to think about whether to use service-based solutions (and then whether to use a bank or non-bank service provider) or in-house deployment. The key criteria used in making this decision include capital expenditures (CAPEX) versus operational expenditure (OPEX) preferences, time to deploy, resource availability and skill sets, total cost of ownership (TCO) and banking relationships.
Ready, Steady, Go
As the deadline for migrating to SEPA is fast approaching, many corporates will take advantage of SEPA solutions, delivered as software-as-a-service models (SaaS), to ease the migration process and mitigate risk. Nevertheless, with cloud-based deployments realistically taking between three to nine months, corporates can’t rest on their laurels.
SEPA’s potential to bring solid business benefits is compelling. It will bring faster and less costly payment and settlement, the opportunity for increasingly standardised and centralised processes and the ability to leverage banking relationships. SEPA should be embraced as an opportunity to review and improve payment processes, rather than viewed as just another regulation to follow. That said, to ensure a seamless switchover, corporations need to fully prepare and consider if and how they are going to procure new SEPA systems. And, now is the time to take action.
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