Before the so-called migration end dates for the single euro payments area (SEPA) – on 1 February 2014 for the EU’s eurozone members; 31 October 2016 for its non-euro members – were set in stone, there was widespread doubt over whether SEPA was even going to happen.
Finland’s businesses experienced this uncertainly over how and when the changes involving SEPA should to be carried out more than most as the country’s government – and many firms -were among the first to start using SEPA-compliant payment instruments. Finland, as the most northerly eurozone member, was an early adopter of SEPA and the second country to implement the migration, with the
first national migration plan
completed in 2008. At that time the credit crunch was at its worst and investments for SEPA migrations were difficult to justify on the corporate level. It was hard to prove there was a business case, especially for those companies operating only domestically. Added to that, in Finland it was decided that the scope of SEPA was to be wider; in addition to SEPA credit transfers (SCTs) it was to include salaries, tax payments, local express payments, and cross-border payments, with SEPA direct debits (SDDs) to follow on.
Looking Beyond Banks and ERP Vendors
It quickly became evident that development phases varied from one bank to another in Finland. Technical readiness did not guarantee that banks were actually fully prepared with their processes, support, know-how or agreements to support businesses and treasuries. The level of preparation varied even more between enterprise resource planning (ERP) vendors – due mainly to the fact that banks were simply not ready back in 2008. Furthermore, as Finland had decided favorably upon additional optional services that extended beyond the basic SCT scheme, it did not make the job any easier for big central European ERP vendors.
During these confusing times Itell Information asked its customers who used its OpusCapita cash management software what their needs regarding SEPA were as the national end date approached. The response was quite unanimous: they wanted professional advice on what SEPA actually meant for them, and how the migration could be carried out in practice. They wanted help from someone with a secure and risk-free solution to help them to be ready before the national end date; effectively someone to hold their hand throughout the project. I believe that studying Finnish examples can now provide this information for treasuries elsewhere.
Benefits of Early Preparation
Today the discussion around SEPA compliance in Central Europe is similar to that which took place in Finland a couple of years ago. It is now widely recognised that something needs to be done; the downside is that hundreds of thousands of corporations across the eurozone are doing the same thing at the same time. The schedule, or end date, is set from a legislative perspective and leaves no room for extended project plans. The tight time frame also means huge pressure for qualified persons who are able to work with SEPA projects, and perhaps a shortage of suitably skilled people.
Companies need to be able to book their internal recourses, ERP and other vendors’ resources, as well as external consultants for their SEPA project. A general rule of thumb has been that those that opt to start their migration early could experience a few more challenges but this is offset by the ability to access the best experts available and gain efficiency benefits. Those that start late will end up with whatever resources are left. SEPA is all about harmonised payment types and rules with the euro as the currency concerned; with non-eurozone countries joining in 2016. From the customer’s point of view it also means that they have to use new standards like international bank account numbers (IBAN) and the mandatory ISO 20022 XML messaging format. All companies, if they have not already started, should now be creating their migration plans and gathering together their teams.
For the migration plan the first thing to decide is when you wish to be ready. That time period, minus vacations, should give you some sort of an idea what kinds of goals can be reached in the interim. In most cases the 1 February 2014 end date means only the bare minimum can be achieved at this point, or that the focus turns to the two most critical instruments: SDDs and SCTs, depending on which country and what field of industry the company operates in.
This will create a need for system changes and conversions in order to reach the goals. The usage of the ISO 20022 XML standard is mandatory, according to the regulation, and it is a major part of a SEPA treasury compliance project. For those companies that cannot use this format, it will be necessary to employ some sort of conversion service in order to comply with the regulation. They might be well advised to ask what the capabilities of their ERP vendors around ISO 20022 XML are, and how the master data can be converted from basic bank account number (BBAN) to IBAN. The ERP or middleware vendor can be the most important SEPA advisor for a company, as the old maxim ‘practice makes perfect’ applies to SEPA projects as well.
In a multivendor project like SEPA, scheduling of the rollout is vital for success. There are so many factors that affect the final outcome. Additionally, as there are so many different players involved, it brings that extra challenge to the project. One should also not underestimate the efforts needed for end-to-end integration testing to ensure a smooth migration.
Payment Factories are the Future
Ultimately, if you regard SEPA as no more than a system change, then that is all you will get from it. To be able to get the maximum benefit from a change of this magnitude, you should re-think your approach. ISO 20022 XML and its business model are a catalyst in this change. SEPA is an opportunity and will most definitely increase the demand for international payment factory solutions. Migration to the ISO 20022 standard will produce clear benefits to payment processing that reach far beyond SEPA as business can also carry out their international and non-euro domestic payments using the same standard. Treasury efficiencies should be obtainable.
There is clearly a trend for centralisation and payment factories as they bring benefits to corporations. Payment factories may not be established right away but they definitely represent the logical next step – right after complying with the regulation.
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