Putting the 'e' into e-SEPA
As the prime movers of economic progress, corporates are constantly looking for new business opportunities throughout the eurozone and beyond, but they must also manage the cost of doing business. As always, it is a case of balancing the potential new revenues against costs, but as geographic reach increases so does commercial risk. In principle, the position of the corporation should be greatly enhanced from January 2008; each company need only have a single euro account for all disbursements and collections and European banks will compete fiercely for this important business. Inevitably, this exerts downward pressure on transaction charge levels. Over time, a state of price equilibrium will prevail in the transactions market, probably somewhere around the level of the most competitive national price levels today.
Banks have deep and complex relationships with their corporate customers that extend far beyond transaction services so the reality of changing bank is a major consideration for any company. Nevertheless, prevailing market forces will tend to work in favour of all companies with significant exposure to Europe, so the rollout of SEPA should be a welcome change. Yet, the extent of the benefits depends on the starting point.
At present, Europe is far from being a level playing field in transactions. There are huge discrepancies in the transactional efficiencies of different regions through Europe; some estimates suggest a ratio of 1:8 between the most and least competitive transactions markets. So it is difficult to imagine that the reality of SEPA is anything but good news for most corporations, and ultimately for the European payments industry as a whole. If a company is active in many countries throughout the eurozone, it can consolidate its transaction business and so lower its costs. All good news in principle, but initial SEPA services are likely to be quite basic and potential savings will depend on many other factors such as straight-through processing (STP) levels and other efficiency criteria.
Transaction volumes are important too. As transactions are a non-core activity for corporations, any SEPA project may have to compete with many others. SEPA needs to be perceived as a significant opportunity providing strategic advantage. So how can companies raise the profile of SEPA within their corporate strategy? One way to accelerate adoption is to start thinking beyond SEPA, towards ‘e-SEPA’.
A drive towards e-SEPA generates several strategic benefits throughout the financial value chain. For example, banks have the commercial incentive and necessary expertise to help their corporate customers implement Electronic Bill Presentment and Payment (EBPP) solutions. The implementation of e-SEPA gives banks the opportunity to offer many value-added services. As e-SEPA grows, it has the potential to create a virtuous circle between banks and their corporate customers; companies benefit from lower transaction costs and their banks have the opportunity to sell value-added services and so deepen the customer relationship. But is this realistic?
The European Commission has already identified the rationale for linking e-invoicing to SEPA. An informal task force of industry experts has been established to create a common European Electronic Invoicing (EEI) Framework. Representatives include stakeholders with relevant national experience and the commercial incentive to participate.
The corporate community is represented through the European Associations of Corporate Treasurers (EACT). In parallel, a project called Corporate Action for Standards (CAST) seeks to define and introduce standards on e-invoicing, the interoperability of electronic signatures and corporate requirements for additional reference information by the end of 2007. The establishment of both of these bodies suggests that there are real savings to be made.
EACT estimates that the introduction of electronic invoicing has the potential to reduce supply chain costs by up to €243bn across Europe. Further savings can also be made as a result of streamlining business processes and associated innovations. So there is a compelling case for banks and their corporate customers to embrace SEPA as an opportunity to do things differently. But is it taking longer than it should?
At present, EEI penetration and adoption throughout Europe is limited due to several factors; technical complexity, legal uncertainty and operational constraints that have hampered a common European approach. During the remainder of 2007, the European Commission will form an EEI steering committee to replace the current, fragmented e-invoicing activities with standards that can be adopted throughout Europe. This will ensure that the momentum created by SEPA continues to deliver real business benefits throughout the rollout of e-SEPA.
As a major supplier to the transactions industry, VocaLink participates in the EC task force to help break down legal and technical barriers and to promote harmony throughout the European transactions industry. We have also established an independent euro clearing and settlement mechanism in partnership with several major banks throughout Europe.
The new clearing mechanism provides reach throughout the SEPA and beyond, and is developing value-added services to support customers’ evolving needs. In 2008 we will see attention turn away from SEPA as purely a compliance issue and towards seizing the opportunities that it presents.