SEPA: Focusing on the Long-term Gains
The announcement of 1 February 2014 as the formal end date for migration to the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) schemes to be completed by eurozone countries means that the once optional initiatives are now mandatory. As a result, all corporates operating within the euro area must take action now if they are to meet the deadline, especially given that year-end technology freezes effectively make December 2013 the ‘real’ cut-off point.
Despite such urgency, however, there remain a significant number of corporates that have either yet to begin a migration programme, or make meaningful progress. According to a recent survey by EuroFinance, more than half (52%) of corporates in the SEPA area have not yet started their SEPA project and almost a quarter of these have not even started to investigate the issue, despite the looming deadline. The 2013 gtnews Payments Survey also shows that 37% of its corporate treasury readers’ questioned do not yet have SEPA services in place. Worrying as these figures may be, it is understandable for a number of reasons.
Firstly, compliance comes at a cost and it is hardly surprising that the majority of companies are unwilling to spend in a recession. Secondly, commercial challenges presented by the tough economic climate mean many companies have, at least in their view, more pressing concerns. Finally, a significant number of corporates, particularly the small, domestic-market operators, are struggling to perceive the initiative’s benefits.
Such arguments, at least in the immediate-term, are difficult to refute. There is no denying that the move to SEPA (particularly the SDD scheme) can be a complex, costly and labour-intensive process. However, corporates must not lose sight of the fact that help is at hand, regardless of where they are on the compliance spectrum. They should also not allow short-term concerns to blind them to the longer-term cost and efficiency gains SEPA can bring further down the line.
Stage One: Becoming Compliant
Of course, the realisation of the ultimate aim of the SEPA vision, a harmonised European-wide standard payments environment using mandatory ISO 20022 XML messaging, is a long way off, and it will be the end result of a series of tactical and strategic steps. For obvious reasons, it is impossible to go from current levels of national market fragmentation to European wide end-to-end financial supply chain offerings with the flick of a switch. This same principle applies to stage one of SEPA compliance; even the minimum-level requirements cannot be achieved overnight. However, the current low take-up figures suggest that many companies are relying on this being the case.
Indicators from the European Central Bank (ECB) show that, as of November 2012, the share of SCT transfers as a percentage of the total volume of credit transfers generated by customers, amounted to 30.6% in the euro area, while the corresponding volume of SDDs amounted to just 2.1%. Given that the move to the SDD – a significantly more convoluted process than migration to the SCT – necessitates a number of tactical, time-consuming steps, this latter statistic is particular cause for concern.
The chief challenge with the SDD is that it necessitates brand new data elements, such as a creditor identifier and a unique mandate reference for each direct debit. These in turn require corporates to collate the required payment-related information for their banking partners and find ways to manage the mandates, which SEPA requires them to store either physically or electronically. Though addressing these tasks requires effort, they do not necessarily have to prove as taxing and disruptive as companies’ fear, if they seek the right guidance.
Take, for example, the gathering of information. For SEPA transactions, the sole permissible account identifiers are International Bank Account Number (IBAN) and Bank Identifier (BIC) Codes. As the methods for obtaining these codes differ between countries, it can be a significant challenge, particularly for corporates that operate across a number of European borders. While some help is available in this respect – there are non-bank third-parties that can lighten the load to a degree – it is impossible for corporates to absolve themselves of all responsibility for this task. With this in mind, corporates are advised to seek expert advice as to how best to begin, and the sooner the better.
Companies have two options for these requirements: use bank-supplied data conversion and mandate storage solutions or upgrade proprietary systems. There are, of course, pros and cons to both, but expert knowledge and understanding of both SEPA and individual corporate objectives can help companies break down the tasks into manageable steps. As a result, corporates of all sizes will be able to take the compliance-path most suitable for their short-term objectives (i.e. getting legal) and longer-term business objectives.
End-to-end Guidance and Operational Support
After much debate, and widespread doubts, SEPA is happening, and meeting the requirements of the first phase to the full SEPA is a legal requirement, rather than a choice. Non-eurozone countries must comply by October 2016. While concerns and reservations are understandable – especially in light of current market difficulties and the particular compliance challenges for niche markets and services – the move to SEPA cannot and will not happen overnight. As such, corporates should not dally any longer in the hope of a miracle migration solution, as such hopes will prove unfounded. Action is required now.
Corporates should also avoid any further delay as a result of misplaced fear. Many treasurers will be relieved to discover that the majority of the refund rights under SEPA are no worse from a cash management perspective than they are today, and that compliance is a surmountable task that can lead to positive change. Examples of such changes include the opportunity for centralisation of the treasury function and the standardisation and automation of the reconciliation process – currently an inefficient, manual process for a significant number of corporates. While such benefits may be the next stage in the game – they currently present an additional and unwelcome layer of time, investment and complexity for many companies – they cannot and will not happen unless this initial phase is achieved.
And certainly, this is how the 1 February deadline must be viewed – as a vital stepping stone to the benefits of the full initiative. February must also be viewed as an achievable deadline, as indeed it is, as long as there is expert and flexible guidance and support, and treasuries implement plans and act upon them now.
Flexible is the operative word in this respect, and it underpins the approach that major bank providers throughout the eurozone will be offering to help corporates meet compliance requirements. Regardless of company size, size not being an indicator of readiness, or where companies may be in terms of compliance, expert help and support is available. With this in mind, corporates that have yet to do so should make consulting their bank(s) and other third parties their top priority, as it is only through understanding and practical support that stage one compliance and the resulting future benefits and opportunities of SEPA can be realised.