The recent extension by the European Commission (EC) of the SEPA migration deadline by six months, until 1 August 2014, was an acknowledgement that many organisations still have much work to do. The number of organisations still not SEPA-compliant is large.
Why the Struggle?
Businesses all have different priorities and for many, the SEPA migration has not been at the top of the list. In addition, banks and corporates have interpreted the SEPA guidelines in their own way, leading to obvious problems. Some banks have not fully implemented the standards but instead have essentially created a patchwork. Per bank there are nine formats to be supported – one could say it was inevitable that there would be a delay at some point. In the bank-to-bank space there have been fewer issues, but for corporates, for which this is not their primary business, there have been more problems.
What are the Options?
For those corporates operating in a multi-bank or multi-enterprise resource planning (ERP) environment, there already exists the challenge to make and manage payments securely through a single channel while realising the benefits of reduced IT costs, lower bank charges, accurate cash management and forecasting and superior business analytics.
The conversion of payment messages to SEPA and International Bank Account Number or Bank Identifier Code (IBAN/BIC) formats adds to this growing list of challenges, as does the lack of centralised operational control. In addition, corporates must also ensure that their credit transfers are migrated to SEPA credit transfer (SCT standards) and direct debits are migrated to the SEPA direct debit (SDD).
While there has been a significant increase in the number of eligible SDDs that are now SEPA-compliant, the SEPA direct debit continues to be a pain point for many businesses that have embarked on their SEPA conversion project, resulting in some countries stopping the use of direct debits altogether.
Some corporates have chosen to work within their existing systems capability, undertaking upgrades or minor system changes to become fully SEPA compliant, while others have had to invest more heavily to implement significant changes. Some have yet to start the planning process, which could put them in the driving seat, albeit a little behind schedule – possibly they have seen the choices others have made, noting what works well, and where they can improve.
For these corporates, the choices lie in looking for a SEPA solution that integrates with their ERP, or they can consider outsourcing options to manage parts of the SEPA lifecycle. It is definitely not too late to adopt the right approach. Implementing a centralised payment hub will not only ensure SEPA compliance but can enable corporates to leverage the many opportunities which exist to conduct pan-European business.
The Right Approach
With limited time remaining, businesses need to ensure that they make the most of this additional time. Those just starting on their SEPA journey need to consider the ‘right approach’ via conversion services built-in to a payment hub, rather than setting up separate conversion services. In this way businesses will not only meet the deadline, but will also achieve all the benefits of a payment hub:
- Streamlining all payments through a single channel.
- Controlling all payments at lower costs, and without capital outlay.
- Solving the SEPA issue and other payment challenges.
A centralised system also provides increased control, together with transparency of financial and operational risk, by holding the data in a single harmonised system. Corporates must learn from the mistakes made by others in the financial services industry, and move away from inefficient silo systems.
There must also be clear separation of business and back-office applications from network connectivity applications; this must be taken into consideration when selecting a vendor partner.
System solutions should include unified high-value/urgent and low-value/non-urgent payments messaging, with a high level of service and security. The solution should also incorporate industry best practices as standard.
To realise the full benefits of their investments, corporates need to take a holistic view, and take into account their banking relationships, the opportunity to optimise their financial supply-chain, compliance requirements and the management of cash flow, liquidity and credit. Moreover, to benefit fully from SEPA, corporates must be prepared to make investments and changes.
The key issue here is information exchange – by linking payments and invoicing, corporates can gain greater visibility and control over their liquidity. At a time when credit is hard to find, this capability is paramount.
Organisations must prioritise the SEPA challenge as the opportunities that exist, once SEPA is complete, are vast. The SEPA initiative came about initially in order to improve the efficiency of cross-border payments and turn the fragmented national systems for euro payments into a single domestic market.
SEPA will enable customers to make cashless euro payments to anyone located anywhere in the area, using a single bank account and a single set of payment instruments. Borders will open up and companies, if they chose to, can fully leverage the increased business opportunities that arise based on centralized accounts. Of course many companies already operate in such a way but for other, smaller businesses, SEPA provides the opportunity to step out of national boundaries and look to pan-European possibilities.
After all, unless you are going to leverage these opportunities there is no real business case for undertaking the change. Businesses cannot afford to wait and allow themselves to be overcome by cost and complexity ? they must make the choice now to centralise onto a single integrated platform for all their payment processing requirements. The upside is that they will benefit from greater efficiency and cost reduction. The message is: you must adapt to survive and thrive.
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