SEPA: One Year To Go

The single euro payments area (SEPA) will make payment processing much easier and cheaper. There is now a standard set between the banks in euro-countries and beyond for euro payments. Also the payment remittance information is now officially assured to help organisations to reconcile their payments without delay.

As the deadline of 1 February 2014 for eurozone countries to comply with the SEPA Regulation fast approaches, the issue is getting more and more important for treasurers, finance professionals and operations centres. Non-compliance might put incoming and outgoing cash flows at risk for organisations that do not migrate in time. 

PwC conducted a global survey in December 2012 and January 2013 for its ‘ PwC SEPA Readiness Thermometer Report’ which will be published imminently and is about organisational readiness for SEPA. In total 293 respondents from 21 countries, covering 28 industries replied. The majority of participants came from the Northern eurozone countries of the Netherlands, Germany, France and Belgium, plus Italy. There are also respondents from other countries like the US. The survey included small or non-European organisations with very little euro payments processing up to and including firms with over 10 billion of revenues in euros. 84% of the respondents have revenues over 500 million, while 83% of respondents were from regional or group treasury functions. 

This article looks at some of the key findings of the PwC survey and the general state of readiness for SEPA, examining the objectives of the project; its scope; the departments typically involved in SEPA compliance; and the expected readiness date. Others surveys, such as the ‘gtnews Payments Survey’, which shows that 37% of its corporate treasury readers’ still do not yet have SEPA services in place, and the figures on the European Central Bank (ECB) website showing the latest SEPA indictors for the adoption rate of SEPA credit transfers (SCTs) and SEPA direct debits (SDDs), are also useful resource tools. 

SEPA Readiness 

The outcome of the PwC survey clearly indicates that it is very important that organisations start to plan their SEPA readiness initiatives, rather than starting the project late and then seeing where and when it ends. 

PwC see significant differences between organisations that plan their readiness initiatives (78.5%) and organisations that do not plan their SEPA readiness initiatives (21.5%) in terms of its success. 

The Objectives of SEPA

Respondents to the PwC survey were asked to which degree they are intending to perform SEPA as a ‘compliance only’ task or as a ‘holistic treasury optimisation programme’. We found that 40% of the 293 respondents from 21 countries questioned have the ‘minimal compliance only’ approach. 

Figure 1: SEPA Project Objectives.

PwC_Fig1

Source: PwC SEPA Readiness Thermometer Report.

The main focus in regard to the compliance deadline of 1 February 2014 is with achieving minimal SEPA compliance on a ‘least effort’ basis because time is now running out. Nevertheless most of the organisations surveyed are planning to take advantage of SEPA, at least directly after the official migration date. 

The SEPA project provides deep insights into processes, systems and organisational procedures for cash management and payments. This knowledge can easily be used for a post-SEPA initiative (SEPA 2.0 if you like and many corporations may focus on this achieving minimal compliance to avoid fines or regulatory problems).

The objectives for a SEPA 2.0 follow-up project, if a treasury wanted to pursue this, should be: 

  • Global payment standardisation (66% chose this in the PwC survey). It is one of the key benefits seen by the respondents as it can reduce the cost for maintenance and running everyday systems.
  • Optimisation of cash management (55%) by centralising cash flows. This can increase the available cash and reduce the cost of interest.
  • Establish payment factory or In-house Banking (IHB) approach. In the PwC survey 25% chose this option as it can further enhance payment processing by centralising the flow of payments for optimal visibility of outgoing payments. It can also be an enabler for a quicker migration to SEPA as the payment factory can facilitate the ISO 20022 XML formatting that is mandatory for outgoing payment files.
  • Bank relations management (34%) is also one of the possible SEPA benefits according to the respondents to the PwC survey. Cutting the number of banks treasuries deal with can reduce the cost of operation and maintenance, and increase economies-of-scale at the remaining banks. 

Although 40% of the surveyed organisations have a minimal SEPA compliance approach, it is helpful to not only focus on this, as the above bullet points demonstrate, but to also have a view about further optimisation business value drivers. A SEPA project can provide a deep insight in many business areas, which can benefit improvements outside of SEPA compliance alone. 

The Scope of the Project 

The scope of a SEPA readiness project is of key importance for corporations. The results show that organisations, which plan their SEPA readiness, have a broader scope than the organisations that did not plan for SEPA readiness. 

Figure 2: Scope of a SEPA project for organisations. 

PwC_Fig2

Source: PwC SEPA Readiness Thermometer Report.

Missing scope elements are typically discovered when the operational phase is started. With the short time period to the start of the 1 February 2014 deadline, there is now only minimal time left for fixing issues. This creates a large risk about not being SEPA ready on time. 

Figure 3: The scale of a SEPA project for organisations.

PwC_Fig3

Source: PwC SEPA Readiness Thermometer Report.

A SEPA project consists of many elements and the scale is often large, involving third parties, specific solutions, approaches, products and technologies, which are all interrelated and will change when others elements are changed. A thorough project scope is therefore required and planning is key for a successful SEPA project. 

The Departments Involved in SEPA Projects

Having a holistic view about a SEPA implementation project is crucial if success is to be achieved. The PwC survey shows up some significant differences between planned and unplanned readiness projects regarding the departments involved. 

In unplanned SEPA readiness initiatives, only 31% of the respondents involve local finance, including accounts receivable (A/R) and accounts payable (A/P) representatives. In planned initiatives this percentage jumps to 74%. The results also indicate that other non-treasury departments, such as human resources, procurement, legal and controlling, score much higher on involved departments for planned SEPA readiness initiatives, compared to unplanned initiatives. 

Figure 4: The Departments Involved in SEPA Projects, depending on if a SEPA readiness plan is in place or not.

PwC_Fig4

Source: PwC SEPA Readiness Thermometer Report. 

The above graph shows the departments involved in SEPA projects. In the planned readiness projects there are more departments involved then there are with non-planned projects, which suggests that the full centralisation and efficiency benefits possible under SEPA are only being achieved by firms that involve everyone.  

A key risk for a SEPA migration project is the lack of scoping out of departments, processes and IT affected by SEPA. As the first step of a project, it is important to conduct a holistic impact analysis, starting in the mail room, covering sales, billing, procurement, HR, workers council, data security officer, etc. 

The key stakeholders and project drivers should be the treasury, finance and IT departments. However in general all departments, processes and IT, which handle or work with any kind of payment relevant information, need to be analysed if process optimisation benefits are to accrue. A complete analysis at the beginning of the project is crucial to set the scope according to the requirements, and have all stakeholders involved from the beginning. 

Local finance departments, including A/R and A/P representatives and treasurers, are in 31% of the cases not involved when a SEPA project has no pre-planning. As mentioned previously, that grows to 74% for planned projects and this is a much better, more holistic route to follow. 

The Expected Readiness Date

The availability of a SEPA readiness plan has large consequences for the timing of an organisation’s actions. For the organisation that planned their SEPA readiness more than half (59%) expect to be ready before Q4 2013. These corporations have some time left over before the 1 February 2014 deadline in case any unforeseen issues occur. Less than half (41%) of the organisations expect to need the period of Q4 2013 to Jan 2014 to get ready for SEPA.

For the organisations, that did not plan their SEPA readiness, they will conversely rely on the period between Q4 2013 and January 2014 (74%). Except for delay in the project there is an additional risk of this unplanned approach as these periods are typically used for closing periods for accounting and system freezes for IT. 

Figure 5: What Date Do Organisations Expect to be SEPA Ready by? 

 PwC_Fig5

Source: PwC SEPA Readiness Thermometer Report.

 

PwC asked the respondents if they expect that the deadline of 1 February 2014 will be postponed to a later date. 72% of the respondents answered this with “no”; the other 28% expect that the deadline will be postponed. ?

The Key Concerns About SEPA Readiness

SEPA readiness requires significant effort for each organisation, but also implies dedicated dependencies towards external parties, such as banks, suppliers, customers, system providers, et al. PwC analysed the key concerns within SEPA projects rated as top priorities (up to three responses per participant were possible). The findings were: 

  • Technical readiness of enterprise resource planning (ERP) and finance systems, which was mentioned by 53% of respondents. Based on our understanding of the market, these concerns are qualified at this point in time. Not all ERP and finance system providers have released their SEPA-compliant version yet, based on the latest releases. Furthermore many organisations do not yet use the latest and updated release of their ERP system. Many of them will technically not be able to make their current versions SEPA ready. 
  • Bank readiness was mentioned by 27% of respondents. Bank readiness is also a concern. Also not every bank has proven to be SEPA-ready for their corporate business. The implementation of SEPA standards does require alignment of standards and formats between banks. PwC itself has seen that XML formats are not as exchangeable as they should be and many banks are still working on the SEPA account statements (CAMT) messaging for statement reporting. This has to be taken into consideration and should be recognised in any project plan.
  • Supplier readiness was mentioned by 19% of respondents, and client readiness scored 19% too. Suppliers and clients are also affected by SEPA, not only regarding master data conversion. SEPA direct debit mandates have to be migrated, letters and correspondence needs to be adopted, pre-notifications processes will be established and payment processes might be changed. These activities need to be aligned with suppliers and clients, also ensuring that the external parties provide SEPA-compliant information. 

Although these are the most prominent concerns for a SEPA project, it is also worth remembering that the ‘devil is in the detail’. Internal human resources are required, which have operational tasks to carry out as well and thus less time available to devote to SEPA, so don’t forget this in your planning. Legal aspects need to be clarified as the consumer is more protected by SEPA schemes. Internal understanding and stakeholder involvement are also topics for concern. All those topics need to be managed by the SEPA programme manager, which will often be a treasurer or similar finance professional in this instance. 

Quality assurance (QA) within a SEPA project is also necessary. An external advisor can help in order to make sure that the scope is correct and the required persons are involved.

Risk management is also needed to identify, address and manage possible risk, concerns and issues. Fallback and back-up solutions need to be taken into consideration, especially when business continuity is required and this too needs to be integrated into each SEPA program. 
A strong SEPA project and risk management figure is a key success factor. To keep the consistency in communication, appointing a ‘Mr or Mrs SEPA’ internally, who is responsible for external communications, is a good step to take.

 

 

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