The fundamental change that the single euro payments area
(SEPA) brings from an operational perspective is the standardisation of all
euro-denominated automated clearing house (ACH) payments in the SEPA zone. All
businesses that make euro payments within Europe can do so using a single euro
account to submit a SEPA compliant payment, which becomes mandatory with effect
from 1 February 2014.
SEPA Migration: A Strategic
Opportunity for Asia Pacific Corporations
At a basic level,
some global treasurers headquartered in Asia Pacific and with operations in
Europe may simply view SEPA migration as a European issue with limited
relevance to them, leaving it up to the European operations to deal with the
From a more strategic perspective, however, SEPA
offers a unique and very real opportunity for treasurers to achieve far greater
benefits by rationalising payments practices, enhancing processes and reducing
the cost of payments and banking fees. One major reason for corporations’
ability to achieve these benefits is that SEPA will enable them to make all
their euro payments out of one account, significantly reducing the number of
bank accounts and simplifying the liquidity structures. Companies can even use
a payment-on-behalf-of (POBO) model to make payments for their entire group
from one single euro account.
With SEPA, all euro ACH payments and
collections in the SEPA zone are subject to one common set of conditions from a
legal, formatting, processing and pricing point of view. Since one single
account per legal entity will thus be sufficient, corporations will have the
ability to rationalise their account structures and operations, which means
they can reduce their risk and further lower the cost of payments.
Corporations that have multiple bank accounts across the eurozone will gain
tremendous strategic benefits from rationalising their accounts and
streamlining their payments so that they use one account (per legal entity) to
make and receive payments in the same manner. Using just one account will also
immediately concentrate funding and liquidity, thereby reducing the need for
physical and or notional forms of cash pooling, which simplifies the process of
managing liquidity and enables better operational risk management.
Corporations can achieve further gains by analysing the cost of payments
across the SEPA zone, and re-evaluating where it will be most cost-effective
and efficient to make their euro payments. A corporation that has a large
number of payments in a country where payment processing is expensive, for
example, could shift payments to a lower-cost location and take full advantage
of what will truly become a single market.
Along with replacing
their current set of complex structures for payments with fewer accounts,
treasurers also have an opportunity to consider rationalising the number of
banks they deal with and potentially working with a single banking partner.
While it is not absolutely necessary to change banking relationships, all banks
operating in the SEPA zone will essentially have the same reach under SEPA from
a banking point of view and corporations can take advantage of SEPA to work
with a smaller number of banks.
Rather than just leaving SEPA
migration to European counterparts as an operational issue, treasurers in Asia
Pacific with operations of any size in Europe can benefit from focusing
strategically on how best to rationalise their entire payments and collections
process and practices during SEPA migration.
Beyond simply looking at
how to change processes in the eurozone for SEPA, treasurers can also examine
innovations within the SEPA markets and leverage them to gain further benefits
from leading-edge practices. The shift from fragmented markets to increasing
harmonisation in a single market over the past decade, as well as the
additional congruence that SEPA migration provides, has resulted in
increasingly sophisticated innovations in cash or liquidity management in
Europe. Treasurers can leverage these developments to enhance their own global
payments, collections and liquidity practices further.
Once a corporation has decided on the
strategy for SEPA migration that will bring the greatest benefit, it needs to
start on the implementation process. Corporations will have to perform a
technical analysis of their enterprise resource planning (ERP) and treasury
systems to determine their ability to send SEPA-compliant euro payments, as
well as evaluate process improvements to streamline payments. They can then
develop an implementation plan for any changes that are needed to rationalise
bank accounts and banking relationships.
Since SEPA migration
affects ACH payments and direct debit (DD) payments in 33 markets in Europe –
17 of which have the euro as their main currency and others, such as the UK,
which support the euro next to their local currency – corporations will need to
ensure that their plans include all payments in all markets that need to be
SEPA-compliant. Any company in Asia Pacific that initiates payments for the
euro in SEPA markets from a shared service centre (SCC) or other processing
unit in Asia will also face similar operational requirements due to SEPA
Whilst the time required to become compliant will vary
depending on the corporation’s size and their level of sophistication in making
payments or using DDs, typically it could take up to six to nine months to
The cost of implementation and technology also
varies, depending on the level of sophistication and the size of the
corporation. The cost savings, however, will usually far outweigh the cost of
Corporations can benefit from working with their
global banking partner at a strategic level to use SEPA as a key driver to
assess their current structure of euro accounts in multiple countries;
determine how best to rationalise their euro payments operations; and
rationalise banking relationships, as well as liquidity management. The banking
partner can also provide consultative advice at a tactical and operational
level on switching package strategies, legacy account conversion or other
practices to meet SEPA requirements.
The Risks of
Following the SEPA migration deadline of 1
February 2014, legacy systems that corporations use for euro accounts payable
(AP), accounts receivable (AR), taxes, payroll transactions and other payments
may no longer be usable. From an operational perspective, the risks of not
meeting the deadline for SEPA compliance could range from simply not being in
compliance with the rules, to potentially not being able to make payments for
suppliers, staff salaries or even taxes.
While there has been
speculation that the date for compliance will be extended, the 1 February 2014
date is fixed and companies that miss the deadline will face the difficulties
More importantly, corporations should ensure
that the changes to platforms and processes do not stop them from reaping the
strategic benefits of SEPA immediately.
Although Asia Pacific treasurers often
regard SEPA migration as a European operational exercise, the benefits go far
beyond simple compliance. Corporations can benefit greatly from taking
advantage of SEPA migration to rationalise account structures and enhance
payment processing efficiency to reduce costs, complexity and risks.
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