After years of uncertainty, companies now have to be prepared for the Single Euro Payments Area (SEPA) because it’s the law. Rather than merely complying with SEPA rules and regulations, corporates need to focus on the opportunities that SEPA brings, says Robin Terry, head of business development and sales for HSBC’s cash management business in Europe

 

 

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Payments are crucial to business and are the lifeblood that keeps the economy going. In Europe, the Single Euro Payments Area (SEPA) underpins the political vision to have Europe as a cohesive trade bloc, a vision where there is no difference between national and cross-border transactions.

Creating efficiency, increasing competition and allowing seamless payments across Europe are part of the SEPA ideal. Like world peace, everyone agrees it is a good idea, but when it comes to the details of implementation, things are a lot more complicated.
In the law

For the vision to work, everyone needs to be committed to the same payments standards. For many years companies were reluctant to invest in a new set of standards they weren’t wholly convinced would ever take off.

But now there is certainty and a clear end date for SEPA migration as local ACH systems will cease to become available.

“One of the things that has changed in the last 12 months is that legislation has been introduced that makes SEPA migration mandatory,” says Robin Terry, head of business development and sales for HSBC’s cash management business in Europe.

The European Parliament and the Council of the European Union have fixed a legally-binding end date for SEPA direct debit and credit transfers: February 1, 2014. And the deadline for euro-denominated payments in non-euro area countries is October 31, 2016.

Now the SEPA migration end date has been fixed, there is a clear goal to work towards. For years many businesses were unconvinced of the need to migrate their payments to SEPA. And more recently there has been scepticism about the political vision of the European Union itself. With a crisis raging in the eurozone, many speculated that countries would drop out of the euro and the shared currency could collapse altogether. With the future of the euro in doubt, many questioned the need to continue standardising payments in a currency that could eventually disappear.

When it comes to the eurozone, corporate treasurers have perhaps been in crisis mode, rather than focusing on longer-term plans to comply with new rules and regulations. Although the eurozone is dynamic and a rapidly-changing environment, businesses cannot ignore SEPA. “This is now mandatory  and it is the law in the various countries in Europe – you cannot ignore this,” says Mr Terry. “If you don’t meet these regulations, you are in breach of them, so whatever goes on in the eurozone between now and 2014, you have to do this because it’s law,” says Mr Terry.
Business advantage

Companies have to comply with the regulations, but SEPA also brings many benefits. “It’s a project that also brings a great deal of opportunity with it as well. This is not just about meeting a regulatory change,” says Mr Terry. He adds that businesses need to make the most of the SEPA changes by considering re-engineering their European cash management structures.

“SEPA brings huge opportunities for treasury, payment factories and shared services in the way that you can conduct your business,” Mr Terry says. The key for companies, he argues, is to look at how they can improve their business at the same time as meeting the SEPA deadlines.

One example is that SEPA can improve liquidity for corporates, says Mr Terry. He explains that before SEPA, businesses held bank accounts in each of the separate countries in Europe that were linked to the local low-value, ACH clearing system.

“The benefit of SEPA is that you can bring all those accounts together into a payment hub in one location. You can get all your receivables into one bank account, or you can pay your payables out from a single bank account,” says Mr Terry.

Having fewer bank accounts is a dream scenario for corporate treasurers, especially if they are managing a business across numerous countries and indeed legal entities. “Because you’re concentrating funds on that one bank account, you’ve got a natural pool of liquidity. With the liquidity in one account, it does away with the previous requirement for cash concentration around the eurozone,” says Mr Terry. In addition, the SEPA payment messages are specifically designed to make “payments on behalf of” which is an ideal scenario for a company with an in-house bank structure and just one euro account in their name.
Adapting to Sepa

Before companies are SEPA ready, there are a number of things that need to be completed – particularly on the IT side of the business – such as moving to the ISO20022 XML payment message standard. Mr Terry explains that the systems that usually create payments are typically enterprise resource planning (ERP) systems or treasury management workstations, which often have their own formatting. “There may need to be upgrades so that there is an XML generator that will produce these messages within the ERP system,” says Mr Terry.

Other issues to consider, says Mr Terry, are the quality of the data. “For example, if you’re using legacy clearing systems, the routing and sort codes will be the domestic ones known as BBANs,” he says. Under SEPA, the International Bank Account Number (IBAN) will be the sole payment account identifier for national and cross-border credit transfers and direct debits in euro within the EU.

However, until February 2014 for domestic transactions and February 2016 for cross border, the Business Identifier Code (BIC) will also be required. “SEPA will work until these dates on BIC and IBAN and will eventually just move to IBAN.

Businesses can drop the BIC eventually, but for the moment they’ve got to collect BIC and IBAN data. So part of the issue for companies is actually getting this data and making sure their customers know their BIC and IBAN,” says Mr Terry. This data could be printed on invoices, and collected from invoices which are received and have to be input  into the ERP systems, rather than the legacy bank account numbers and routing codes that may already be held. “So there’s some IT work to be done around that as well,” says Mr Terry.
Future gain

Although there is a lot of work to do around implementation and systems testing, there are a number of benefits in the long-term for companies that do business in Europe. The whole idea underpinning SEPA, explains Mr Terry, is that there should be a much more level playing field in the payment space in Europe. Under SEPA there is no differences between the pricing of cross-border and domestic payments.

“It will allow great opportunities for centralisation, because with SEPA you can pay from any one bank account location to all of the other EU countries,” says Mr Terry. “You don’t have to have all those  different bank accounts around the Continent – which many companies typically have had – and that leads to centralisation and to better management of liquidity, so there are some tremendous upsides as companies re-engineer their treasury around this particular upgrade,” says Mr Terry.

The same preparation and usage also applies for companies based outside Europe that want to do business inside Europe.

“HSBC are spending a lot of time educating and helping our clients who are based outside the region and are much less familiar with what goes on in Europe. They may have subsidiaries in Europe and they have to be SEPA compliant too. Their ERP systems might be based in the US, Asia or the Middle East, but they have to go through the same process of generating XML messages and deciding where the euro bank accounts are going to be,” says Mr Terry. “It’s an education exercise, but those projects have got to be thought through just as much outside of Europe as they have to be inside of Europe.”

Getting the XML messages ready is perhaps the biggest challenge, says Mr Terry. “A lot of banks, HSBC included, are looking at how we can help our customers in being able to take their legacy formats and help turn them into XML format so they can be ready and compliant for the deadline of February 1, 2014.”

“I think when companies look at the amount of work they have to do, it will be in the ERP space that will give them the greatest challenge.  This is because these ERP systems are fairly complex and there may be separate instances that need to be worked on. Just getting the budget and lead time to change them can actually be a reasonably long process,” says Mr Terry.

And now the February 2014 deadline is approaching. “To be truthful companies should have already started – it’s getting a bit late to be starting it now – there is still time, but they have to have a very firm project plan, and it has to be carried through with the right kind of impetus from treasury and senior management,” says Mr Terry. It is no longer an option that can be ignored.

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