It is a truth universally acknowledged that the age of the single euro payments area (SEPA) is now upon us. Ever since the end dates for migrating to SEPA Credit Transfers (SCTs) and Direct Debits (SDDs) were first proposed, SEPA has come further to the fore in the discussions treasurers are having with their banks and with their industry peers.
However, it is also well-known that the industry is not fully prepared for migration. Forty-three respondents to a recent gtnews poll stated that SEPA would have no impact on their business in 2012, and suggested that other operational issues were more imminent priorities. Where treasurers are in the early stages of their migration programmes, there are a number of challenges and opportunities that they have yet to uncover. This article aims to shine a light on five such areas that are under-reported, and what they mean for treasurers.
European legislation establishes two new and separate payment instruments in SCTs and SDDs. In our experience however, approximately 80% of questions from clients are about SDDs and there are clear contrasts in how prepared treasurers are to use and process each. SCTs are easier to implement, and because they were introduced before SDDs, there is more familiarity with the instrument and its impact. As such, SDD is a source of many unknowns for treasurers.
1. Mandate management: how difficult will this be?
One of the biggest challenges that corporates will face around SEPA is their mandate management processes. For SDD, a signed mandate is required to allow a creditor to collect funds from a debtor’s account.
In the business-to-consumer (B2C) space, companies are allowed to reuse mandates from the legacy schemes in order to minimise the potential disruption and impact on end-consumers. However, in many instances these mandates will be old and paper-based, and so it will not be easy for businesses to access the accurate information they need. Moreover, such mandates may no longer exist, as it was not always a requirement to store them. Old mandates may also need to be enriched according to the new data elements necessary for SEPA instruments, such as the debtor’s international bank account number (IBAN) and the bank identifier code (BIC) of their bank. In the business-to-business (B2B) space, new mandates must be set up in all instances.
In both the B2B and B2C arenas, making mandates SEPA compliant represents a substantial effort over a period of time. Many treasurers analysing this situation are considering how to assemble a project team to manage and update mandates in-house, but external providers can also support this process. Banks providing specialist mandate services can scan and enrich old mandates and support the creation of new ones in a way that does not divert in-house resource.
2. ‘R’ transactions: will SEPA make these easier or more difficult to process?
Another area that has not attracted much attention is the various ‘R’ transactions. The good news is that the change SEPA will instigate could bring significant benefit for treasurers. To date, R transactions such as rejects, refusals, returns, reversals and revocations have been created and processed in different formats in each country, creating additional complexity for a business operating in several European countries. With SEPA, all these instruments should be brought into a standardised format. The manual labour once involved in sorting and inputting such R transactions could be eliminated, creating a much leaner and more efficient payments process.
3. Optional fields: how will they work in practice?
Some SEPA data elements are mandatory to fill out, such as the type of payment and signature for place and time. However, SDD formats are flexible enough to allow for a number of optional fields, such as a contract description. The elephant in the room is that this very flexibility means it is possible each bank will use these fields in a different way, filling in different amounts of information. This could make integration more complex and impact on the level of standardisation achieved. Banks using optional fields in varying ways could also limit the extent to which interoperability is achieved. In fact, even with mandatory fields, there can be different interpretations of the rulebook which may impact on the ease of interoperability.
While such flexibility in fields does not represent a major obstacle, treasurers and banks need to be aware that this may not result in the creation of one single standard. It may be that the use of additional optional fields becomes limited, or that banks work together on a solution designed to maximise uniformity.
4. Risk mitigation: how will SEPA help mitigate the risks business faces today?
Many businesses have delayed SEPA migration because of the raft of other challenges treasury departments and boards are faced with today. Chief among these is the eurozone debt crisis, and analysing what impact this may have on companies’ growth plans and ability to operate effectively across markets.
However, treasurers should be aware that SEPA could play a valuable role in mitigating such risk. For example, SEPA enables pan-European clearing mechanisms, which provide a contingency plan should issues within any individual country impact on its ability to clear payments. Treasurers can route payments through a different clearer in a different country and still reach national accounts.
Migration undoubtedly requires investment in terms of time and resources, but we are confident that the benefits of migration can outweigh the costs. The standardisation and efficiency that SEPA brings could increase a business’s visibility of their cash positions and their ability to move cash around, both of which are fundamental objectives for a treasurer at any time.
5. The post-SEPA world: compliance achieved, or the starting point for new innovation?
Many commentators have highlighted the benefits of SEPA in comparison to legacy schemes. However, the potential benefits could reach far more widely than this. It could confer benefits into new areas of business, such as electronic invoicing (e-invoicing). By re-using SEPA fields as fields for e-invoicing, payments could become more closely integrated with other parts of the supply chain.
Some benefits could be wider than it is currently possible to predict. Once SEPA has been fully rolled out, we could see more innovation spreading more quickly across countries, beyond what we can imagine now. In a pre-SEPA world, for example, one can argue that any form of business innovation is limited, in the first instance, to operating on a purely national basis. Post-SEPA, a business could devise a new product, implement, initiate and roll it out across Europe, immediately accessing a much wider customer base. Furthermore, any innovation in payment instruments over the past 10 years has always been based on one of the core payment instruments – cash, card, credit transfer or direct debit. Once these core instruments are harmonised for the eurozone, an innovation in Europe immediately has a wider reach. This will benefit innovation, for example, in mobile and online payments.
Getting to Grips with Migration
Treasurers will undoubtedly come across unexpected and unforeseen challenges, and opportunities, as they work through SEPA migration projects. What is certain about SEPA, however, is that it has arrived, and that banks are required to have fully completed their migration to SCTs and SDDs by 1 February 2014. It is also certain that both corporates and financial institutions can reap significant benefits from adopting SEPA, and for this reason we remain bullish on the opportunities that it could create.
It is possible to foresee a bottleneck situation as we get closer to the end date with the potential for capacity compression from banks and application service providers. Last minute solutions are rarely the most efficient ones, and putting off SEPA compliance could simply store up further issues for 2013.
The solution to all these issues starts with putting plans in place in good time. Collaborating with banks that can provide advice, information and technical solutions will help treasurers create a realistic and achievable route map and timescale for migration so they can take full advantage of what SEPA can offer.
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