SEPA: The Benefits of Middleware

If we take a narrow view of the money transfer process, the payments can be considered in terms of ‘batches’. But when we understand a corporate’s financial concerns, stakeholders and effective liquidity management, we know that efficient intra-day liquidity requires efficient tools. Figure 1 illustrates this:

Figure 1: The Money Transfer Process

OpusCapita is one of the first IT vendors to have implemented SEPA payments in a customer project. During the implementation process, we recognised that although we have the ISO 20022 standard and, therefore the extent of variation is small, banks tend to apply the standard according to their own service strategy. This does significantly hinder fluent ERP implementation. Competition will drive this trend forward. Under SEPA, the service function rather than technology will create the competitive edge for banks.

SEPA and Incoming Information

A company’s ambition to develop true straight-through processing (STP) will be leveraged via competition and banks will have to offer certain services to their customers. At a minimum, these comprise electronic account statements, real-time balance information and beneficiary reference codes (BFRs) in the countries where reference codes are in use. Direct debit information will be included in these services.

Figure 2: The Increasing Role of Middleware Software Under SEPA

Role of Middleware Software

Figure 2 illustrates that the role of middleware software is going to increase, not wane. If a company integrates its ERP directly with a bank’s system in the first phase the customer can be satisfied but later, when the company wants to switch bank or get a new bank connection, the cost of the change process can become a barrier, as each integration interface must be built separately. One scenario involves banks offering bespoke solutions to each customer, but that would be expensive for both the banks and the companies. That process would undermine increasing competition between banks. Therefore, it can be argued that the middleware solution acts as a shield against banks’ interest in limiting competition.  

Below are some of the most important functions of middleware:

• Sarbanes-Oxley (SOX) introduces several new requirements, such as monitoring, double-checking of payments, user rights management, forbidden combinations of work tasks. These requirements can all be handled by middleware.
• Straight-through processing and its development: Bank competition will offer new features to automate financial processes. When a software vendor’s core business is focused in this area, the vendor can respond more rapidly and innovatively to the requirements.
• Efficient liquidity management: Liquidity management is a multi-faceted process, for which one main requirement is tight integration throughout the financial process.
• Increase in the number of in-house bank implementations as a result of SEPA: Now companies can create centralised software for payment factory operations; it doesn’t matter whether the processes are centralised or part of an in-house ASP solution. The in-house bank offers many advantages over traditional cash pools.
• Support for the continuing process of transformation in the treasury function.
• XML-based e-invoicing, which offers a fully effective way to develop companies’ processes.

Conclusion

SEPA will introduce a new approach to efficient liquidity management. It is a step towards global integration of financial process information, where the new standard ISO 20022 serves as a tool and middleware has an important role in delivering information while also acting as a shield against bank that want to limit competition.