SEPA Implementation for Corporates: A Chore or an Opportunity?
The single euro payment area (SEPA) is fast becoming a new reality for corporates in the eurozone. The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) schemes have been introduced by most major banks. The European Commission (EC) has recently published its plan for phasing out domestic products. The market expects that the domestic credit transfer will be phased out on 1 January 2013, with the domestic direct debit following suit on 1 January 2014.
With this plan in place, SEPA implementation for corporates in Europe is becoming more of a reality. For the past few years, many corporates in Europe have put off SEPA implementation due to the lack of a business case for compliance. However, as it becomes a necessity, corporates can either do the bare minimum to comply or, alternatively, view SEPA as an opportunity.
Many corporations have indicated that SEPA adoption will have a negative impact on their business. To become SEPA-ready, corporates need to change the way they run their business – from changing their account administration to BIC and IBAN to reorganising their counterparty risk profiles due to new regulations regarding Direct Debit revision. In some countries it could even impact the cost of processing payments by increased prices. So why is SEPA being introduced?
SEPA aims to bring about benefits to businesses by the standardisation of accounts payable (A/P) and accounts receivable (A/R) processes across Europe. This will create a simpler system for domestic and cross-border payments, as well as significant cost savings when doing cross-border transactions. This should encourage small businesses to do more cross-border business within the eurozone. In addition, it will give all organisations the chance to standardise and centralise their European bank account management. This, in turn, should make it more easier to centralise treasury, cash management and payment functions. By centralising these functions, the full benefits of SEPA adoption can be met and innovative cost-saving techniques can be used, such as electronic invoicing (e-invoicing) and electronic reconciliation (e-reconciliation).
The SEPA business case depends on the scale of the business and the market. If you are a pure domestic player, SEPA adoption will have long-term benefits. It removes the barrier of doing cross-border business. By using XML formats, which provide enriched information, reconciliation accuracy will be greatly increased and efficiencies in the financial supply chain will be improved. In addition, due to increased competition of payment services in some countries , transaction prices will go down. But to benefit from these opportunities, investment is required.
The SEPA business case is much stronger for an international player. By adopting SEPA, these organisations can benefit from an increased centralisation of the financial supply chain, as well as the development of new value-added services. These can help improve cash and liquidity management and cash forecasting, which in turn can decrease the need for external funding.
In the long run, SEPA is positive for both domestic-oriented and international-oriented businesses. For international organisations, adoption of SEPA will bring cost reductions and enhance treasury centralisation with relatively small financial impact. Domestic-orientated businesses will face a relatively large financial impact, but the potential for these businesses to do cross-border business should outweigh the short-term investment when compiling the business case for SEPA.
Several banks introduced SCTs and SDDs over the past few years and are looking ahead. But for corporates, these are uncertain times. Common questions include:
For these questions, most corporates rely on their banks to have the answers. But is that all that you can expect from your bank? In a longstanding corporate bank relationship, should banks only be expected to answer some simple questions? Should banks only offer guidance to their clients how to progress their in-house SEPA projects. Hopefully the answer to these questions is ‘no’.
Some of the more proactive banks have already offered tools and techniques to help ease their clients into SEPA. These include workshops, discussions and checklists. But these pieces are only relevant when you are starting up a SEPA project. And there are some concerns within the banking industry that corporates are not as advanced with their SEPA projects as they should be. Therefore the next helpful offering would be a conversion service. This service should allow clients to use their existing payment formats while banks convert them to the SEPA compliant format. By implementing these kinds of services, or even introducing payment factory-style offerings, for corporations at the bank side, the burden on the corporate is reduced. Introducing a corporate payment factory on the bank side could even decrease the corporate burden in other ways. By having a payment factory or collection factory offering, banks could offer their clients more ways to centralise their payment/collections flows. This could result in a strong relationship between the corporate and a particular bank, and provide the corporation with all the benefits of having an outsourced payment/collection factory, rather than merely making them SEPA-ready.
Whether banks will develop services such as these depends largely on the scale of their clients. Most multinationals have their own payment/collection factories or use external payment service bureaus. But for mid-size corporations, this service could be extremely valuable. One side effect of services such as these could be that many corporations will never start their own SEPA projects, because they still can use their old formats. Therefore banks will need to maintain these services indefinitely – with all the attendant pros and cons.
Whether corporates view SEPA implementation as merely necessary or in fact as an opportunity depends on a number of factors. These include: when you start your project; what you implement; who your partners are (bank partners and implementation partners); and which opportunities you grasp in the new environment.