When it comes to business operations such as accounts payable (AP) and receivable (AR), the desire for maximum utility at minimum cost is universal. However, sometimes these objectives can stand at odds with each other. The vision of a single euro payments area (SEPA), for example, promises a unified framework for euro payments using exactly the same instruments, channels and rules across Europe. SEPA aims to finally eradicate the frictional costs of cross-border trade in Europe, enabling commercial partners to improve the efficiency and reduce the cost of their AP and AR processes. But in order to enter SEPA’s promised land, corporates must abide by its rules – or face higher costs.
To qualify, multinational corporates (MNCs) that can process as many as 100,000 transactions a day must identify their payment counterparties with additional sets of identifiers. For many companies and their treasury teams, this presents a data management challenge on an unprecedented scale.
As an attempt to integrate and harmonise the payment markets of the eurozone, SEPA is a logical extension of the founding principles of the European single market and the single currency. Nonetheless, it still has the capacity to provide corporates with an unwelcome surprise or two.
While SEPA primarily affects the financial institutions (FIs), it has far-reaching effects on any corporate making or receiving payments in the 32 countries adopting SEPA, which include all 27 European Union (EU) member states (regardless of whether the euro is their domestic currency), plus five other European states: Monaco, Iceland, Liechtenstein, Norway and Switzerland. From February 2014, the European Payments Council (EPC) mandates corporates to use identifiers such as International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs) to initiate and validate SEPA payment instructions within a SEPA-country+.
New Data Requirements
Changes in the format of payments messages require corporates to fulfill the Interbank Convention on Payments (ICP) straight-through processing (STP) requirements for payments messages, so they can be sure that the beneficiary will receive the funds in full, and in the timeframe guaranteed. In line with EU regulation 2560/2001, the requirements apply to all payments up to €50,000.
In addition to the ICP there is also a BIC and IBAN resolution, which has been in force since January 2006. The use of BIC and IBAN is designed to make payments more secure, efficient and error-free. Since 2006, the EPC had mandated the use of IBAN and BIC for all euro transactions, so originators of euro payments have been required to get IBANs from customers, suppliers and staff.
But an even bigger shift is scheduled for 1 February 2014. This is the end date for migration to SEPA, after which IBAN and BIC will be recognised as the only acceptable beneficiary customer account identifier and bank routing designation for euro payments in SEPA countries.
After this deadline, if there is no valid BIC and IBAN in the payments message, a bank can treat the transfer as a ‘value added service’, regardless of the amount of the payment. Banks can also reject any payment that doesn’t contain a BIC and IBAN. As a result, corporates will not only have to deal with repair charges, they could also be penalised with interest costs if the beneficiary does not receive their funds on time, which could be significantly more expensive than a repair cost. Because of this change, the importance of collecting IBAN and BIC information should not be underestimated.
A recent survey by payment service provider Experian revealed that businesses could lose millions of euros per year as a result of using incorrect data in their transactions. More than 650,000 bank account details and a further 220,000 IBAN records were assessed, alongside supporting data from the European Central Bank (ECB) and the European Commission (EC). Every year, around 34 billion transactions are made within the SEPA countries relating to salary, vendor payments and other business payments. An analysis by Experian of existing bank transfers found one in eight entries containing errors that would prevent payment completion post-February 2014.
The most common problem was the accuracy of data, meaning that either invalid data is still residing in these systems or the relevant data is missing. Processing payments with incorrect data residing in the systems of corporates could cost them up to €50 per transaction.
Challenges for corporates
What is the BIC of this bank? Which IBAN and BIC correspond to my customers and suppliers local /national account (BBAN)? Is this IBAN still active? Which BIC relates to this IBAN? Where can I find up-to-data bank identifiers to build my bank master file? Each of these questions must be addressed by treasury departments.
If corporates want to be ready for SEPA payments, they need to collect the exact IBANs and related BICs to update their customer and supplier databases. If these reference data are not updated by the set SEPA migration end dates of 1 February 2014 and, for euro-denominated payments in non-euro area coountries, of 31 October 2016, incorrectly formatted payments will lead to payment rejections and additional costs from their banks, not mentioning possible failures in payments – and associated commercial risks
To accommodate these changes, corporates will need to update their internal payments and treasury management systems (TMS). Also interfaces may need to be amended.
For corporates, this maintenance and updating of existing enterprise resource planning (ERP) and customer relationship management (CRM) systems will be seriously challenging, due to the sheer number of records they typically manage in their customer and supplier databases.
The true source of the challenge, however lies in the collection and extraction of the required reference data from multiple sources. The relevant reference data are provided by a multitude of FIs, code issuers and third party data providers. In order to generate successful payments to suppliers and direct debits to customers, a corporate typically needs to collect the reference data from all these different sources, cleanse, cross-reference and permanently maintain it.
There are relatively few providers in the market able to provide a single source of all the required payments reference data. As the International Standards Organisation (ISO) registration authority for BIC and IBAN formats and thanks to its role as financial industry cooperative interconnecting over 10.000 FIs and corporates worldwide, SWIFT is positioned to centrally collect and maintain these reference data, thereby providing a single source solution.
Through SWIFTRef’s reference data for corporates, European and worldwide businesses can access all BIC codes worldwide from both SWIFT-connected and non-connected FIs and corporates. Along with the national BICs of more than 140 countries, SWIFTRef also provides banks’ SEPA data, payments routing information and IBAN validation from a single source available either online, as a file, via webservices application programming interface (API), and in txt or xml format.
In addition, to support the many corporations using SAP or other ERP systems for customer and supplier account management, SWIFT recently launched a SEPA-compliant bank directory for SAP, allowing corporates to conduct a single and speed import of all SEPA bank data needed into the bank master file of their SAP/ERP system. SWIFT is also working with other ERP software providers to make SWIFTRef compatible to their products.
With the SEPA deadlines fast approaching, corporates now need to take quick action to respond to the regulatory changes. The path to further payments processing efficiency has been mapped out by SEPA but, as with any long journey, careful planning and preparation is required.
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