SEPA and Non-banking Institutions
Various market studies, such as the PricewaterhouseCoopers (PwC) and Enigma Payments Consulting’s ‘SEPA Barometer’, have indicated that awareness of the single euro payments area (SEPA) is rising. Organisations outside the banking industry are increasingly aware of the characteristics and impact of the new SEPA payment schemes, the process implications and cash management opportunities.
In our discussions on SEPA with corporates, non-bank financial institutions and public sector organisations, Enigma Payments Consulting sees a number of related topics being added to the mix. The reason for this is that in many cases it remains difficult to create a business case to invest fully in SEPA, unless other benefits exist.
These benefits are related to:
SEPA brings necessary changes to existing bank relationships. Organisations are also required to adjust their correspondence (IBAN/BIC), and to communicate the specifics of the new payment schemes to their customers. In addition, SEPA pricing is still quite diverse, which provides opportunities to negotiate better future rates with banks. Furthermore, there are significant differences in the migration services (e.g. cut-off times, reporting, value-added services, etc) that banks offer to relieve organisations from making their own (internal) investments outside their natural investment cycle.
After taking all this into account and adding the growing interest in bank independence, it becomes clear that the migration to SEPA offers the perfect moment to review current primary bank relationships.
As many providers of enterprise resource planning (ERP) solutions have a conservative approach towards SEPA, there is room for vendors of payment hubs to position their product as a tactical, or even structural, solution, to ensure SEPA readiness. A payment hub can help organisations avoid, reduce or delay investments for SEPA payment schemes in their legacy applications and at the same time streamline their payment processes. Examples of the latter are:
SEPA offers existing in-house banks the opportunity to increase their added value by becoming the ‘SEPA advisor within the group’, offering value-added SEPA services to the various business units and capitalising on the cash management opportunities that SEPA brings. This development helps the in-house bank to better position itself and to increasingly take over the role of the external house bank and/or external advisors. For organisations where no in-house bank yet exists, SEPA may just add the final arguments towards a positive business case for an in-house bank capability.
Taking the in-house bank discussion one step further is to evaluate whether it is beneficial to become a so-called ‘payment institution’. With the implementation of the Payment Services Directive (PSD) in November 2009, non-bank institutions have the possibility to connect to the interbank clearing systems without any involvement of a bank (apart from the actual settlement). More and more organisations are exploring this route and are preparing the business case to change their payment operating model by partially removing banks from the process.
While in Finland SDDs are already being replaced by an e-invoicing variant based on SCT, other countries are still discussing both products in parallel. However, SDDs and e-invoicing have similarities which make it logical to combine discussions about their implementation:
With an average saving between €2 and €4 per invoice for the sender, and up to €30 for the recipient, the savings potential of e-invoicing for the EU as a whole is estimated at €234bn. By adding this savings potential to the SEPA business case, management can be convinced that it is favourable to invest in a project covering both items.
The overall business case to start a SEPA project that includes a review of the entire payments value chain improves significantly, when other payments related factors are discussed alongside. While some companies still see SEPA still as an (often regulation-driven) necessity, many are now seizing the momentum to widen the scope of their SEPA projects to ‘SEPA-plus’. The entire payments spectrum of their organisation is analysed against the various opportunities that arise from the need to migrate to SEPA. Combining the need to invest in SEPA with the topics discussed in this article will improve the business case of many companies. This might just be the catalyst to convince management that now is the time to scale up investments in SEPA-plus.