Making EU payments faster

There aren’t many EU reg­u­la­tions that promise to make life eas­i­er for busi­ness­es, but there is one, set to arrive in Feb­ru­ary 2014, that could reduce cost, sim­pli­fy process­es and improve vis­i­bil­i­ty over cash flow. The arrival of the Sin­gle Euro­pean Pay­ments Area, or SEPA as it’s com­mon­ly known, her­alds, accord­ing to its cheer­lead­ers at least, a whole new world of pay­ing third par­ties and set­tling accounts.

The experts tell us, with good rea­son, that SEPA com­pli­ance should be viewed more as an oppor­tu­ni­ty to cut costs and stream­line process­es, and not just anoth­er lay­er of red tape to be nego­ti­at­ed. And cer­tain­ly there are real ben­e­fits to be gained by equip­ping your busi­ness for SEPA.

And it’s not just cost. Log­ic sug­gests that clean­ing up old and out­dat­ed sys­tems and man­dates will inevitably improve effi­cien­cy. Finance and trea­sury teams may find gen­uine improve­ments to sys­tems and process­es once they have been through a SEPA con­ver­sion. Think of it as an over­due spring clean for your pay­ment sys­tems, and per­haps the chance to re-ori­ent and eval­u­ate your rela­tion­ship with your bank.

“There is a com­pli­ance aspect, cer­tain­ly,” says Mic­ah Will­brand, direc­tor risk and pay­ments for Europe, the Mid­dle East and Africa (EMEA) at con­sul­tan­cy Bankers Accu­ity. “But the ori­gin of SEPA is to unlock all the waste and inef­fi­cien­cy that goes into the pay­ments sys­tem.”

Think of it as an over­due spring clean for your pay­ment sys­tems, and per­haps the chance to re-ori­ent and eval­u­ate your rela­tion­ship with your bank

“Cross-bor­der pay­ments from France to Ger­many a year or two ago would cost €20 and take three or four days, where­as a domes­tic pay­ment would cost 10 cents, instant­ly. So SEPA is aim­ing to make a real-time pay­ment union, like the Unit­ed States, where it doesn’t’ mat­ter where you are mov­ing mon­ey – it’s all the same time and cost, and we can unlock all the val­ue we’re wast­ing at the moment.”

Which all sounds great. But for busi­ness­es and banks with­in the euro­zone, this isn’t an option­al extra – the dead­line for com­pli­ance arrives in less than six months. And, says Andrew Reid, man­ag­ing direc­tor and co-head cor­po­rate cash man­age­ment, EMEA, at Deutsche Bank, SEPA has a deep impact on the fun­da­men­tals of a business’s oper­at­ing mod­el.

“It affects mas­ter data, IT sys­tems – pro­to­cols, data-base struc­tures and inter­faces – AP/AR [accounts payable/accounts receiv­able] process­es, as well as forms – paper, elec­tron­ic and web. For most siz­able busi­ness­es, the tran­si­tion project will require cross-func­tion­al col­lab­o­ra­tion across finance, IT, sales, mar­ket­ing, HR, IT, legal, com­pli­ance and gen­er­al ser­vices, to name the most impor­tant.”

For busi­ness­es engag­ing in any pay­ments with­in the euro­zone, the process of pay­ing sup­pli­ers and trad­ing part­ners will change. But Mr Will­brand says even for small­er busi­ness­es, with lit­tle aware­ness of SEPA’s arrival, there’s no need to pan­ic.

“The UK is out­side the scheme until 2016. If they’re mak­ing pay­ments into the euro/SEPA area, then they have to con­vert the account num­bers they have to IBAN [inter­na­tion­al bank account num­bers] with the paired bank – that’s the easy bit. That’s sim­ply updat­ing infor­ma­tion. And we’ll see com­pa­nies that used to do it elec­tron­i­cal­ly per­haps using a man­u­al process. They can call the bank and give them instruc­tions – here’s the IBAN and the asso­ci­at­ed BIC [busi­ness iden­ti­fi­er code], please make this pay­ment. They may not have their account­ing sys­tems up to speed elec­tron­i­cal­ly, but as a bare min­i­mum, they should be able to get up to speed.”

But this isn’t nec­es­sar­i­ly a ques­tion of avoid­ing penal­ties. The sit­u­a­tion with SEPA is dif­fer­ent. “Banks will, for reg­u­la­to­ry rea­sons, not process lega­cy mass euro trans­ac­tions pay­ments from Feb­ru­ary 1, 2014 onwards,” warns Deutsche Bank’s Mr Reid. “Cor­po­rates send­ing such trans­ac­tions will find that banks can­not process them any­more as the lega­cy clear­ing will be shut down.

“For the SME [small and medi­um-sized enter­prise] mar­ket, SEPA readi­ness is more a ques­tion of process effi­cien­cy than a ques­tion of dead or alive,” he says, adding that help is at hand. “We have scanned the mar­ket for third-par­ty solu­tion providers and found 50-plus ven­dors where clients can get help on short notice to con­vert pay­ment files into SEPA. We do not believe in the threat that cor­po­rates will run into illiq­uid­i­ty due to a late start in their SEPA project.”