SEPA: The Catalyst for Payments Centralisation

The single euro payments area (SEPA) will become a
reality from February 2014 and is quickly becoming a catalyst for wider
payments re-engineering among today’s corporates.  But while SEPA affects every
company needing to make cross-border euro payments, larger organisations with
operations in several eurozone countries probably stand to benefit most from a
payments centralisation project in conjunction with SEPA. Why is this?
Centralising payments enables a corporate to replace its disparate systems and
point-to-point bank connections with a single payments infrastructure that
handles all SEPA instruments and is connected to the relevant eurozone banks
over – potentially – a combination of SWIFTNet and the electronic banking
internet communication standard (EBICS). 

As SEPA and payments
centralisation would appear to go hand-in-hand, then it makes perfect sense to
invest in technology that facilitates both SEPA compliance and payments
centralisation, right? This is where a payment factory enters the equation. 
Payment factories should, in most cases, support both SEPA credit transfers
(SCTs) and SEPA direct debits (SDDs). They should also offer integration
capabilities, so that the various back-office systems located across the
eurozone operations of a corporate can be connected to, thereby enabling
treasury to:

  • Perform necessary conversions to SEPA-compliant
    messages.
  • Validate the payments (via the Bank Identifier
    Code/International Bank Account Number (BIC/ IBAN) and other attributes)
    centrally and enrich and/or repair them before they go out to the bank, thus
    saving on repair fees.
  • Manage the bank connectivity to ensure payments
    are transmitted to the correct bank.

This centralisation of
payment flows is the precursor to further efficiency gains such as:

  • Rationalising banking relationships to a small number of strategic
    transaction processing partners for euro payments. This will result in easier
    cash management and potential cost savings on bank fees, as economies of scale
    apply in the negotiation process with the banks.
  • The ability to manage
    euro currency balances within the SEPA zone, move money easily and cheaply to
    where it is needed and make better use of the cash.
  • The ability to
    decommission disparate, country-specific systems and focus on one centralised
    solution for direct debit (DD) payments processing, reducing infrastructure
    costs.
  • The ability to centralise the processing of euro transactions
    in one location; for example, a shared service centre (SSC), reducing people
    costs.

Going beyond SEPA and deciding to rationalise/centralise
all payments, not just euro payments, can mean being able to take advantage of
the above benefits and more across all payments globally. The move to one
currency and one set of scheme rules means that SEPA naturally guides an
organisation towards a centralised approach. What might be less obvious to
corporates is that centralisation of the payments process across all payment
types, banks and countries in which they operate can harvest similar efficiency
gains. The move to a global payments reengineering project can be started in
conjunction with a SEPA project and it can also involve aspects not always seen
as part of SEPA. 

Payment Factories: The Driver for
Structural and Process Changes

Payments centralisation via a
corporate payment factory can also be the driving force behind structural
process changes. The structure that a company employs for payment
responsibility can significantly impact its effectiveness, so having the right
technology in place is imperative. A payment factory can support various
organisational structures and processes such as SSCs, as well as in-house
banking and payments-on-behalf-of (POBO) models – all gaining in popularity
today. 

Payment Factories are vital to the SSC environment because
in order to make the process effective, organisations need to centralise their
payment flows through one platform. Users within the SSC then only need to
understand and support one payments process through a single platform, rather
than many different processes which can be implemented by many bank-specific
payments solutions. Another payments process structural change that is
achievable once a payment hub/payment Factory is in place is the introduction
of in-house banking within treasury and, in particular, the introduction of a 
POBO model. Adopting a POBO model allows central treasury to gain greater
control of cash through the replacement of business unit-level accounts with
payments made through a central cash pool, reducing the need for subsidiaries
to borrow from outside sources. This internal borrowing system reduces costs of
borrowing, and any surplus cash can then be invested. Such a model can help
treasury gain operational efficiencies and better manage working capital.

Integration Requirements: Corporates
considering the implementation of a payment factory often wonder about the need
for integration with other critical systems, such as the treasury workstation.
There is clear value in integrating a payment factory with the treasury system,
as it gives treasury much greater control over cash both from a forecasting and
visibility perspective. 

A common integration point between
treasury and the payment factory is in cash flow notifications. The payment
factory is a central system that can be configured to notify the treasury
system about actual cash flows (for the enterprise resource planning (ERP)
systems that cannot send forecasts, for manually entered payments, or in case
any exceptions occurred in the payments processing chain). Interpreting and
reconciling that information on the treasury system side is sometimes a
challenge and a payment factory can vastly simplify this process.

System Administration and Support: Unlike a treasury
system, operated mostly by treasury, a payment factory is typically accessed by
a broader population of users and it processes a greater volume of deals with
more bank accounts. As such, centralising payments via a payment factory
requires the setting up of a support and functional administration team that
will help support decentralised users – sometimes over a thousand – in their
daily use of the system. 

These support staff will have to
proactively monitor the operational flows and take early action in the case of
any issues, such as missing account statements or rejected payment files. They
also need to administer the system (for example, change users and bank
accounts) and they also need to assist subsidiaries in understanding and
managing exceptions. A strong link with the IT team is also required as a
payment factory uses many internal (subsidiaries) or external (bank) interfaces
and communication channels.

Conclusion

SEPA regulation has spurred the adoption of payment factories, with much of
the uptake among large corporates operating with many disparate systems and
bank connections that can stand to benefit from centralisation and wider
payments reengineering. Using SEPA as the catalyst for centralising payments
through a payment factory can motivate corporations in establishing common
standards, gaining greater control and taking advantage of efficiency gains.

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