All companies doing business with European partners and sending or collecting payments in euros will be affected by the Single Euro Payments Area, and the February 2014 deadline is closer than you think says FSN writer Lesley Meall.
The crisis in the eurozone has been rumbling on for so long that it is starting to look like ‘business as usual’ and talk of further ‘unification’ has become synonymous with fiscal and political union. But whilst it remains to be seen if and when this level of European integration eventually materialises (and what form it takes), there is an area where further eurozone harmonisation is already a done deal: the single euro payments area – better known as SEPA.
‘It is one of the largest projects in the history of pan-European monetary transactions,’ observes Juergen Bernd Weiss, principal research analyst, Gartner, ‘and it is another step toward a common financial market’. SEPA aims to simplify and harmonise euro bank transfers across the 27 European Union (EU) member states, plus Iceland, Liechtenstein, Monaco, Norway and Switzerland, by replacing the numerous (costly and incompatible) national payment schemes currently in use with a single unified scheme that uses the pan-European payment instruments:
- SEPA credit transfer: the SCT will be used by debtors to initiate payments
- SEPA direct debits: the SDD will be initiated by creditors to collect outstanding receivables.
A legally binding SEPA implementation deadline has been set as 1 February 2014, and by then many European and non-European organisations will need to focus on their SEPA migration projects – and the associated challenges. ‘Banks, businesses, and public authorities will have to invest heavily between 2012 and 2014 to upgrade software, revise internal procedures and migrate customers and suppliers from national payment schemes to SEPA,’ warns Leo Lipis, analyst, CEB TowerGroup, and many organisations are unaware of the impact this could have on them.
Corporates will need to be able to send SEPA-compatible SCT and SDD transactions to their banks using XML (the eXtensible Business Markup Language) and settlement instructions must include the IBAN (International Bank Account Number) and BIC (Bank Identifier Codes). This will create a number of technical and administrative challenges. For example, customer and supplier records must include accurate BIC and IBAN numbers, and although banks and other vendors will offer conversion and other related services, you’ll need to clarify the cost and check on availablity.
Some organisations will use services such as these to treat SEPA as a compliance exercise that minimises the associated cost and business disruption; others are taking the wider opportunity that SEPA offers to centralise, streamline and standardise processes and information flows. Either way, you still need to identify the systems and processes affected by SEPA, assess the migration options, and decide on your plan of action – which may require input from the accounting, treasury, legal and IT departments, plus some external providers of services and software.
The off-the-shelf and proprietary systems that can potentially be impacted by SEPA include those used for bank communication, customer relationship management, payroll, cash and liquidity, treasury automation, and the back office accounting and enterprise resource planning (ERP) systems where accounts payable and accounts receivable modules typically create payment files. Then there are point-of sale and other customer-facing systems to be considered, likewise data warehouses and shared services (which may be inside the enterprise or outside it).
Some software already supports SEPA and the required XML formats, some does not, and there are variations in approaches, timescales and even XML messages. Extra XML data fields can be added by additional optional services (AOS) and local, national and pan-European communities of banks are using them to support legacy products such as the ELV (Elektronisches Lastschriftverfahren; electronic direct debit) which Germany plans to retain until 2016, and if one country were to add AOS to a half dozen schemes the complexity could go off the scale.
So if you aren’t sure whether SEPA is going to affect your organisation, or to what extent, now might be a good time to find out. ‘Treasurers and finance managers need to engage with their banks and technology vendors and factor their compliance timescales into their SEPA project preparations and risk analysis,’ urges Frank Taal, global head, product management payments, ING. Mindful that the more extensive your SEPA migration project is the more extensive the technology challenges will be – and that 2014 is getting closer every day.
You can also learn more about SEPA by visiting the relevant section of the website of the European Payments Council here.