The Long March to SEPA

20 Mar 2012

The single euro payments area (SEPA) end date was one of the hot topics discussed at the International Payments Summit (IPS), held 12-15 March in London. With much uncertainty still remaining despite the end date regulation and a tight timeframe for compliance, it is essential to highlight a number of success stories.

After promoting cross-border payments harmonisation for the past 10 years, in February the European Parliament finally bit the bullet and legislated dates for the migration of national credit transfer and direct debit schemes to the single euro payments area (SEPA): 1 February 2014 for euro-denominated Member States and 30 October 2016 for those Member States that do not have the single currency.

This has sent a shockwave through corporates and banks alike. Although both have been lobbying hard for a legislated end date for legacy payment instruments, less than two years may not be enough time to do the job. Plus there are many outstanding issues still to be resolved, such as additional optional services (AOS), national niche schemes that will remain in place after migration, and details that were last minute additions. For example, the last round of debate in parliament removed the bank identifier code (BIC) as a mandatory identity alongside the international bank account number (IBAN). This means that, as of 1 Feb 2016, BICs will not be used in cross-border payments.

At the International Payments Summit (IPS) in London, which attracted more than 300 bank, vendor and corporate representatives, the Payments Regulations Boot Camp on Monday 12 March and SEPA Migration stream on Wednesday 14 March grappled with SEPA challenges, but also showcased a number of success stories to spur the industry forward.

How Can Corporates Define the Value of SEPA?

What could be done to help corporate adoption of SEPA? During the Payments Regulations Boot Camp, Gianfranco Tabasso, chairman of the Payments Commission, European Association of Corporate Treasurers (EACT) and chief executive officer (CEO) of FMS Group, argued that the SEPA governance had to change to allow corporates, and other end users, more input in the design of SEPA - until now it was solely the banks that decided where the dividing line was for competition and collaboration.

The SEPA Council, which met for the first time in June 2010, was set up explicitly for this reason. But, as Etienne Goosse, secretary general, European Payments Council (EPC), pointed out in the SEPA Migration stream: “The SEPA Council will need to be strengthened with renewed stakeholder involvement in order to steer a firm course through the changing environment.”

Tabasso also questioned why a harmonised version of bank transaction codes was not included in the SEPA remit, as that is something that corporates are much more interested in because of its usefulness in reporting.

Massimo Battistella, manager of accounts receivables (A/R), administration services, Telecom Italia, said that he dreamed of standardised processes across all of Europe. Yet the reality is still quite different. “We are facing a nightmare of compliance within the next two years. We will need to change all our payments systems, which will have a huge impact on our business model. We will need to change the way we deal with customers, as they will now need to go to their bank to sign a mandate,” he explained. With some 10 million direct debit mandates, some of which were signed 20 years ago, it is no wonder Telecom Italia is feeling the pressure from SEPA migration deadlines.

Ruth Milligan, legal expert on payment systems, Eurocommerce, an association for retail, wholesale and international trade interests, echoed Battistella’s sentiment during the SEPA Migration stream. She said that the association wanted a Europe where payments are “efficient, cheap and simple, with same experience in different Member States”. What they didn’t want was just “transferring old processes and Sellotaping them onto new technologies”.

Interestingly, in the debate over whether or not BICs should be mandatory, both corporate representatives at the boot camp argued in favour of IBAN-only. This point was also supported by corporates in the SEPA Migration stream.

SEPA: Step-by-step to Success

Despite all the difficulties, there are a number of successful initiatives being rolled out across Europe. The high SEPA adoption level in Finland, Belgium, the Netherlands and Estonian, particularly with regards to public authorities (PAs), shows just how important it is to have a clear roadmap driven forward by the national government.

Finland, Belgium and the Netherlands are well on their way, with Belgium reporting 52% of payments are now SCTs, while SCTs make up 80% of PAs’ payments. SDD is already at 20% adoption due to a big biller migrating in November, compared to just 0.4% across Europe. The Netherlands, where all stakeholders participated in the development the national migration plan, is launching a mass media campaign in May to make everyone aware of the impending changes. Estonia, on the other hand, is just beginning the journey, but it has a good excuse - it only joined the euro at the end of 2010.

Despite these countries having a significant head start, none are convinced that they will hit the deadline of 1 February 2014.

In his presentation, Jeroen Oort, project manager SEPA at Randstad, an HR service provider, showed how it was possible to use SEPA to streamline payments processes. Randstad provides temporary workers in 40 countries, and has 3500 branches, including 1100 in-house locations; in total it employs 28,700 people. The company’s treasury is centralised, it deals with three banks, ING, Rabobank and ABN Amro, and operates a shared services centre (SSC).

Oort outlined six strategic decisions Randstad took before beginning the SEPA project:

1. Have one programme and minimise impact.
2. Phased implementation, therefore a dual period.
3. Implement as part of late majority, not first in the market.
4. Minimise number of internal standards.
5. Align SEPA amendments with existing projects.
6. Same service level agreements (SLAs) with all banks.

The SEPA project touched five main areas of the business:

1. Invoices.
2. Payment hub.
3. Front office application.
4. Back office application.
5. Bank statements.

In all these areas, applications had to be upgraded, or bespoke software used. Randstad put IBANs on invoices as soon as it could and upgraded its payment hub to be SEPA compliant. “For domestic payments, we used an online conversion tool to convert to IBAN from BBAN [basic bank account number]. We have a whole database of beneficiaries that has to be converted. Bank statements are delivered using MT940 format. As far as the new ISO standard goes - if the market moves, then we will too,” said Oort.

From his experience, Oort recommends:

• Start the SEPA project now.
• Do an inventory (work/risk).
• Discuss with you bank/supplier.
• Define strategy/end date.
• Have a clear project plan.

First published on www.gtnews.com