Sepa is not final word on liquidity

The need for fewer in-country bank accounts to make payments in the Single Euro Payments Area (Sepa) will automatically streamline company cash management structures, enabling better cash concentration and more efficient use of capital. However, companies will still have much to gain from the use of liquidity management solutions to further optimise cash management, globally and regionally, both during and after the Sepa migration period.

For many companies, the sophisticated automated sweeping techniques they have employed since the introduction of the euro, to get around many of the problems that Sepa aims to reduce, will still be as relevant and as beneficial.

Lisa Rossi, head of liquidity management and US product management, global transaction banking – cash management, at Deutsche Bank, says that Sepa is an operational efficiency that addresses format, infrastructure and the clearing process. “When you can use just one bank to clear and reduce the number of accounts, it makes the management of your cash positions more effective,” she says.

SEPA benefits

SEPA will bring more efficiency and more transparency into the market, plus harmonised pricing and value dating. But, says Ms Rossi: “It is not expected to result in the pooling of accounts. The information flows will basically remain the same for the corporate. However, in a pooling context, Sepa will offer corporates the opportunity to reduce the number of in-country banks, and accounts, because they will not have to clear in each country. This will present the opportunity to consolidate accounts and optimise cash positions among subsidiaries.”

Ms Rossi says that many large global corporates will be unable to operate with just a single euro account for disbursement, receivables and investment funding. It will be based on each company’s business directive and what businesses they need to support, but there will no longer be any reason to have in-country accounts to facilitate local clearing and that will provide improved information, she believes.

The infrastructure of Sepa will help corporates to streamline operations throughout the eurozone. In terms of pooling, Sepa as a clearing system will bring next-day direct debits. “We currently pool on a same-day [basis] across all of Europe. Cash concentration in each country, across borders or across regions will still be utilised by our clients,” says Ms Rossi.

Deutsche Bank distinguishes itself by offering a global liquidity platform that has strong regional components but with a global overlay. Corporate clients doing business in Europe can consolidate their accounts in-country and at the end of the day, Deutsche Bank’s cash pool engine pools all their accounts into a corporate’s account structure. This cash pooling can be done on a same-day basis.

“From a Sepa standpoint, as a corporate treasurer, it would be important to be able to view that information flow, the account balances, the opportunity to see interest earned as part of the management of the funds,” says Ms Rossi.

She believes that the Payment Services Directive (PSD) will have an equally important impact on the payments industry as the Sepa initiative. “The PSD may have a more far-reaching effect than Sepa will from a pooling and liquidity management standpoint, because it proposes changes to current value-dating practices.”

The European Parliament adopted the proposal for the PSD in April 2007. The EU Council has adopted the proposal and it is currently being transposed into national law by each of the member states.

Real-time system

Sepa is starting the move to real-time information and execution into a clearing system for a major region of the world. Ms Rossi believes that Sepa will provide more information and, as information is one of the main tools for liquidity management, this will serve as a benefit for corporates from both a liquidity and clearing perspective.

“It will require treasurers and cash managers to make sure they have a clear view of their cash positions,” she says. “Pooling, cash concentration and various forms of liquidity management all help them not only to provide a view, but also gives them a consolidated position so that they can optimise their interest earnings, reduce their overdraft and even support internal funding.

“We don’t expect Sepa to help support internal funding, so liquidity management will continue to be an important part of the cash management business,” she predicts.

The part of liquidity management that has evolved substantially in the past eight years is the automation of the movement of funds, not just for clearing and the infrastructures, but also for liquidity purposes and the automation of the concentration of funds. “Clients are increasingly looking for straight-through processing and automation of the movement of funds to manage their business,” says Ms Rossi.

Liquidity structures

Although Sepa will enable corporates to reduce the number of bank accounts from January 2008, the real impact on cash management liquidity structures will not come until there is full migration from domestic payment instruments, and execution times have been harmonised across countries. Until then, euro cross-border cash concentration techniques will continue to be employed by the large multinationals.

Willem van Alphen, senior vice-president and head of global cash pooling, transaction banking, at ABN AMRO, says that large corporates, some with hundreds of accounts across Europe, will be able reduce that number but not necessarily to just one account. “Many companies feel they have too many current accounts and Sepa will help them to streamline, but the larger companies will still use local accounts. They will not move to a single account for all their payments and collections,” he says.