SEPA: Moving into 2009 – Challenges and Hurdles

Q (gtnews): As we look back over the year and consider industry progress around SEPA, what have been the major milestones and achievements?

A (Andrew Reid, director and head of corporate cash management sales, UK & Ireland, Deutsche Bank): SEPA encompasses two key elements – the SEPA Credit Transfer (SCT) and the SEPA Direct Debit (SDD). The launch of the SCT on 28 January 2008 hailed the successful introduction of SEPA which was an important industry achievement. Furthermore, within a few months of the SCT’s launch, over 95% of banks and payment volumes in Europe were effectively connected with minor operational issues ironed out and high levels of straight-through processing (STP) achieved. Initial volumes were supported somewhat by banks providing conversion services to map generic (and proprietary) formats into SEPA XML for entry into SEPA clearing but in the weeks and months ahead, we expect to see further SEPA volumes ramp up with bank’s competitively positioning themselves as SEPA service providers and with more corporates delivering XML-based payment files.

At Deutsche Bank, we are continuing to focus on enablement solutions for our clients to allow them to access the SEPA clearing infrastructure with minimal efforts and a full understanding of the implications, while at the same time, helping our customers plan and prepare to be able to access the new schemes, including the SDD. On a related point, we believe that another important recent milestone has been achieved with the European Payments Council (EPC) and the European Central Bank (ECB) underlining their commitment to launch the SDD on 1 November 2009 as initially scheduled.

Q (gtnews): In the recent gtnews survey on SEPA, the majority of corporate respondents indicated that they have begun to make their plans for SEPA but 35% admitted that they had not yet started their migration plans. Why do you think this is and how can more corporates be encouraged to adopt SEPA?

A (Reid, Deutsche Bank): We believe there is still insufficient understanding among some corporates about SEPA that stems from the lack of clarity about what SEPA is and what it means to them. For example, there is still a lingering assumption in the marketplace that SEPA will only have value for those clients with a high percentage of cross-border payments. This is not the case. While SEPA does substantially affect cross-border payments, it can also have a significant impact on domestic payments. Banks need to help corporate treasurers understand the cost savings that can be achieved in their payments processing in different markets in Europe through a clear presentation of their SEPA pricing strategies. Corporates can then make informed commercial decisions on whether, for example, to re-locate bank accounts from more costly domestic markets to more efficient processing markets to realise cost savings. A proportion of the 35% of respondents who are yet to kick-start their migration plans are possibly those who have yet to be fully informed about the opportunities SEPA presents. This is perhaps due to the fact that it is a multi-layered initiative and banks have to rise to the challenge of outlining all the different options to corporates and putting SEPA into the wider context of cash management.

Banks are trying to develop their own strategies to promote these benefits and simplify the realisation of these advantages quickly. We have been working hard and successfully on this, as the gtnews SEPA survey results also illustrated. When asked which of the global transaction banks corporates perceived as having the strongest solution, we were delighted that almost half of the respondents (49%) said Deutsche Bank was the provider with the strongest SEPA proposition1. I firmly believe this is testament to how seriously we take this subject and also how hard we are working with our clients to help them take advantage of any available opportunities.

The tone and message from banks about SEPA has become progressively more positive and bullish over the last few months. That being said, a further proportion of the 35% of respondents noted may include those who felt, after first review, that the SCT would not meet all their local processing needs from either a data perspective or, more likely, from the perspective of incorporating both account payables and account receivable transactions simultaneously. In this respect, it is important to note that SEPA was always going to be an evolutionary process and that the core scheme would look to be enhanced over time. The more recent developments around ‘on behalf of’ payments and the introduction of payment category codes are examples of how SEPA is evolving in a positive way that will allow corporates to more effectively utilise data in a standardised manner via the SCT in up to 31 markets across Europe. These represent incremental improvements to the core scheme and will be supplemented with further developments in the coming months. Additionally, with the 1 November 2009 deadline for the introduction of the SDD approaching, we expect many more corporates to be able to begin their active preparations for SEPA in the weeks ahead.

A final proportion of respondents from the 35% bracket could be those who, in the absence of a specific industry timeline regarding the decommissioning of local clearing systems, have found it difficult to prioritise a SEPA project. Thankfully, we expect to see a greater level of focus on this from the regulatory bodies with more transparency around deadlines which will ultimately further support implementation plans. This is crucial because treasuries are constantly balancing a number of strategic projects. The European Central Bank (ECB) has recently taken a more active role in leading the discussions around the end dates for national clearing systems. This is particularly important because, as a key political body in Europe, the ECB’s commitment to SEPA will help banks set an end date and create a timeline for transition management (i.e., planning, dates and implementation) within their own organisation and for their corporate clients.

Q (gtnews): Sixty-seven per cent of the respondents see banks as their main source of information on SEPA. Can you outline how banks can further support their customers in their adoption of SEPA?

A (Reid, Deutsche Bank): A corporate’s preparation for SEPA will depend to a great extent on its partner banks’ strategies, infrastructure and capabilities. Our strategy dates back to 2007 when it was first positioned to enable corporates to access SEPA with minimum effort and disruption. Overall, there has been some confusion in the corporate space around, first, what formats they had to send to banks to allow for SEPA processing; second, where accounts needed to be located and whether existing accounts could be used; and third, what the actual cost benefit would be for them to proactively transmit SEPA-based instructions to a bank (i.e. would it provide discounting opportunities?).

In order to address these issues, we have based our SEPA strategy on four pillars to support corporate clients. First, we have always said that we will enable clients to reap the medium-term benefits of SEPA from day one by allowing them to continue to send us their generic formats that we will translate into a SEPA XML format for submission into the pan-European clearing system to access SEPA. Second, we have never made it an obligation to open new accounts or migrate accounts to a particular account location in order to access SEPA. Third, we have elected to go beyond the regulations on bank fees and have noted that we will charge SEPA transactions at domestic prices regardless of the €50,000 cap that was introduced by EU Regulation 2560. Finally, on the validation side, in an effort to help deliver volumes through SEPA in a proactive manner and support the ramp-up, we provide a number of transaction enhancement services to ensure that if at all possible, we do not reject SEPA eligible transactions.

We have placed SEPA at the cornerstone of all of our cash management relationships so it is at the top of the agenda in our day-to-day client conversations around cash management. This dialogue has helped many of our clients develop their preparation strategy for SEPA and stay abreast of more recent developments. This includes, for example, the introduction of the ISO Creditor Reference field for SCTs which, along with the ‘on behalf of’ payments, will be available from February 2009 and which will further allow corporates to improve their reconciliation efficiencies. We have been working with clients over recent months to explain how these fields can be used to facilitate centralisation projects or help to improve processes.

Q (gtnews): In the gtnews survey, 82% of the respondents said they had already allocated responsibility for SEPA to someone within their organisation but the results revealed a lack of consensus about who this should be. Why do you think this is?

A (Reid, Deutsche Bank): SEPA obviously affects accounting, treasury, bank relationships, invoicing and liquidity, but what is perhaps less understood is that it will affect a number of other divisions. For example, the human resources side of the business where migration of payroll processing could be directly affected, as well as the sales and purchasing division in terms of customer service. Mapping out where SEPA will have touch points within the organisation is key to gaining a better understanding of the impact of the initiative and the business process improvements that can be made. In terms of who should manage the project, this really depends on each corporate’s operating infrastructure, the size of the treasury team and financial resources. For instance, some large corporates might have centralised infrastructures in place in the form of a SSC or payment factory where they will devolve certain responsibilities to strategic project teams with the responsibility to co-ordinate and manage the project across the divisions.

Corporates need to identify the group companies within their organisation that might be affected by a SEPA implementation project and how that relates to accounting or ERP system integration. Helping corporates to determine the markets in which SEPA accounts are maintained or could be maintained, as well as explaining how they can undertake transaction analysis to get a better handle on the payment methods or accounts being used, will help to improve their understanding of SEPA and its impact. Through our conversations with corporate clients, it has become clear that a SEPA project team needs to be cross-divisional in its composition.

Q (gtnews): Looking ahead, what are the key action points and issues that corporates should keep front of mind as we move into 2009?

A (Reid, Deutsche Bank): There are still challenges that the industry has to tackle and we are keeping a close eye on these issues, as well as encouraging regulatory bodies to do the same. One challenge is ensuring the timely introduction of the Payment Services Directive (PSD) next year, as this is a prerequisite for the launch of the SDD. It is worth noting here that the PSD and SEPA are two separate initiatives with different backgrounds. The PSD is the creation of a European legal framework for a range of electronic payments, which will regulate payment services and payment service providers and it extends beyond SEPA payment instruments and transactions. Specifically, the PSD’s focus is consumer protection, information reporting obligations and transparency regarding contracts and pricing. We expect that the PSD will come into force on time as the industry has made a commitment to making this happen.

In 2009, there will be considerable focus on preparations towards the second phase of SEPA, i.e. launching the SDD. In some countries, further clarity is still required on direct debit mandate treatment and regional regulators are tackling this issue under the coordination of the EPC. A clear ruling is needed in the first quarter of 2009 to ensure that corporates can start their implementation plans for the SDD with confidence. Clarity around the use of mandates is vital for this and we are working on a number of value-added services around mandate handling.

SEPA will also help corporates accelerate internal projects aimed at increasing levels of centralisation, standardisation and automation, and here we believe that the use of new XML format for corporate-to-bank integration will play an increasingly important role. Further marketing is needed to explain the benefits of XML for clients and, under the direction of the EPC and SWIFT, some of the major transaction banks are working to this end. At Deutsche Bank, we are focused on providing solutions based on XML to help our corporate clients accept XML as their standard format in the future for not only SEPA related business, but also on a global level.

Finally, in 2009, it is vital that banks stay close to their corporate clients and provide context, content and collaborative solutions around SEPA. These key objectives will continue to remain at the heart of our marketing efforts as well as our investment strategy going forward.

1 Read the full results of the gtnews SEPA survey here: Survey Reveals Corporates View SEPA as an Opportunity but Further Clarity is Vital



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