It is projected that the 1 February 2014 SEPA deadline measures will save individuals, banks and corporates across the eurozone over €100bn
according to a February 2012 European Union (EU) parliamentary press release
The further extrinsic benefits are predicted to range even beyond this figure. Corporates that adopt the changes will experience lower processing costs and higher margins through efficient payment processing and greater flexibility with partnerships.
Beyond ensuring the accuracy of payment information transmission and reception, companies are also able to leverage advantages from settlement windows to streamline operations. Under the regulations, fees for cross-border debits and credits will be less costly as all SEPA transfers will be priced as domestic transactions.
These simplified payment processes will be an important mechanism that corporates can deploy to ensure control on their receivables, therefore sustaining appropriate liquidity to facilitate day-to-day operations. The standardisation brought about by SEPA also affords corporates greater flexibility to switch bank partners, driving increased competition and profitability.
How Organisations have Responded
In 2013 it was larger institutions that were fastest in beginning their preparations for SEPA. By working with their customers around the world to reject incorrect payments and request corrections, many organisations have taken large steps forward in this process. Many have also discovered the potential for increased revenue from fees charged on any non-SEPA compliant payment.
The changes required in preparation for SEPA are not simple to implement with the necessary procedures being time-consuming and laborious, which may affect current and future workflow. Ensuring a high level of data quality and cleanliness requires a thoughtful and thorough approach. Many corporates have used these requirements as a catalyst for change and have found it convenient to include new policies and programmes with their SEPA conversions. With a greater focus on maintained compliance and legacy integrity, many businesses have hired dedicated personnel to oversee the effectiveness and quality of data both internally and externally.
As with any new regulation, unforeseen complications can also be expected to arise.
Many national regulators have noticed that their core data and banking files were aggregating poor or incorrect data due to inconsistent maintenance and data decay. Incorrect payments, poor quality data, and payments made to banks that are no longer in operation are all issues that have become evident as a side benefit of SEPA conversion activities.
To address the issue of payment data decay a large European national banking authority will release one file, which will exclusively contain data on active banks with another subset consisting of closed banks and their legacy information. This active bank information file is being put into the marketplace as a dataset to be used only for SEPA payments and will ensure that only active bank details are being used for base bank account number (BBAN) conversion and international bank account number (IBAN) bank identifier code (BIC) pairing. This reduces redundancy by eliminating the time spent converting information for bank accounts that will no longer transact.
As with corporates, regulatory agencies also require correct data in order to function efficiently as well as to adhere to SEPA regulation. Regulators are working closely with third-party data providers to ensure that banks and corporates are SEPA-compliant.
Another area where complications for businesses have been identified is with the SEPA direct debit (SDD) scheme. With the core scheme, a customer paying by direct debit has the right to instruct their bank to refund any authorised direct debit payment within eight weeks of making the payment on a ‘no-questions-asked’ basis, even if the goods have been received. This can pose a significant business risk, which some trade bodies are looking to solve – such as the Irish Payment Services Organisation (IPSO), which is addressing it in Ireland with the support of the Irish Association of Corporate Treasurers via the SEPA Business Service initiative.
While the refund policy is not present in the business-to-business (B2B) direct debit scheme, this is still opt-in and not every bank has joined the scheme. The IPSO initiative enables businesses to seek legal agreement from their business customers who pay by direct debit to waive their right to a no-questions-asked refund as part of the regular direct debit scheme. A bank can then provide a new creditor ID to show that a business is participating in the SEPA Business Service and the business must use this for all file submissions of this type.
SEPA is bringing much needed change to the European payments markets, although this is a substantial overhaul in how individuals and businesses work on a day-to-day basis. As with any new process, there will be teething issues which need to be worked out both on a corporate and banking basis. However, there is a strong desire from the financial community to make this transition as smooth as possible for their corporate customers. Furthermore, trade bodies such as IPSO will address the higher level complications which may arise as the scheme is adopted. Through this joint approach, it is expected that SEPA will be introduced successfully in a relatively straightforward manner.
Looking Toward 2016
After 1 February 2014, changes will continue to be implemented. There is language that suggests that in 2016, corporates and their customers will only be required to submit an IBAN in payment instructions, instead of both an IBAN and BIC. Although banks must ensure that they can accommodate flows from their clients with only IBAN information, they will also retain their obligation to process transactions in extensible markup language (XML)-compliant SWIFT messages that have BICs.
It is expected that these future regulations may require re-engineered systems for corporates and banks. FIs will have to change settings to reject supplied instructions that lack BICs. They will need to have tools in place to appropriately map IBANs lacking BICs to payment processing systems with BICs. This process will be no small feat given the dynamic nature of banks and the global economy.
Even though the benefits of SEPA are clear and will be long-lasting, many organisations still remain sceptical. These abstaining corporates will experience delayed processing, increased costs and potential cash flow disruptions; not to mention the risks of non-compliance once the deadline has been reached.
The goal of SEPA is not to impose regulations in order to receive fees for non-compliance, but to remove the financial barriers in a modern Europe. SEPA compliance requires preparation, a change of perspective and a revised workflow which will result in a stronger global economy, both now and into the future.
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