Companies may not have as long as they think to comply with the single euro payments area (SEPA) stipulations following the recently announced European Commission (EC) six-month grace period, says Tino Kam, product director for Europe, Middle-East and Africa (EMEA) at the global transaction services’ unit of RBS International Banking. The sooner companies comply the better because they can gain efficiencies quicker, but also because there are a number of differences about meeting SEPA milestones from one country to the next, with Belgium for example, wanting compliance by April.
Non-SEPA payments are now allowed up until 1 August 2014 after the EC extension, but authorities in Belgium, for example, want all payments from 1 April onwards to be made under the single euro payments area (SEPA) formats, so there is not a uniform picture. Germany, conversely, has embraced the full six month grace period for everything except legacy business-to-business (B2B) direct debits (DD), which have already been discontinued in the country, while Slovakia has no grace period at all for its euro payments mechanisms.
Corporate treasurers and financial professionals need to understand these country-by-country differences and ensure they’re working to the right timescale.
There are similar disparities around the adoption of the SEPA standard - ISO 20022 XML. Some countries, such as Spain and Italy, applied for a two-year waiver from adopting it last year so the stipulations don’t apply there.
These differences have serious implications for the aim of creating a level playing field and harmonised cross-border payment environment in Europe. Even when every company finally migrates to SEPA, there will be differences in the standards used among countries. True harmonisation won’t be achieved until 2016 when the mandatory messaging format is adopted across the board, niche products have migrated to SEPA and the platform becomes mandatory for countries that are EU members, such as the UK, but not part of the eurozone.
SEPA: A Three-stage Compliance Process
Achieving a pan-European payments system has actually become a three-stage process. Firstly, the market must achieve mass migration of all companies, financial institutions (FIs), public authorities and consumers to SEPA. The EC’s grace period has given more time but this “transition period” will not be extended further. Companies that don’t migrate their legacy payments in time could find them blocked because banks won’t be allowed to process them.
From August, the next priority will involve removing country-by-country variances and ensuring companies make the most of the benefits. SEPA can bring higher reconciliation rates for receivables. Corporates will also enjoy better control and visibility of their daily liquidity by working with fewer banks and operational accounts across countries.
And finally businesses need to ensure they can operate under SEPA for years to come, while also using the technology and standards involved to benefit them in other areas such as electronic Bank Account Management (eBAM) which can help drive treasury efficiency and centralisation.
Companies are just getting started in terms of discovering these wider benefits. Migrating to SEPA is not just about meeting a deadline. It’s about cutting costs, speeding up processes and building a treasury operation fit for the future.
SEPA Blueprint: E-commerce
SEPA will be the blueprint for a host of pan-European electronic e-commerce programmes including e-mandates and e-invoicing. Companies can benefit from any other initiative based on the ISO 20022 XML standard. This marks the dawn of a new era because, although there are currently country-wide e-commerce solutions, we don’t yet have a cross-border one that is efficient and cost-effective running across Europe.
For example, companies compliant with the platform will find it easier to adopt the electronic bank account management (eBAM) scheme, which brings greater control and transparency over data and processes to corporates, utilising modern technology. Businesses will be able to keep a close eye on their data requests and handle a number of their needs thanks to online technology.
Another XML-based initiative - the TWIST Bank Services Billing (BSB) effort - will let corporates standardise billing statements across several banks, enabling them to compare prices and analyse data more effectively. This too offers treasury efficiencies and will further support the widespread adoption of ISO20022 XML messaging and standards.
Over time, as companies become more efficient through SEPA, they could also enjoy the benefits of virtual account structures set up within a master account. Transactions can be posted to the relevant virtual account easily and associated with a particular activity or cost centre. This means improved reconciliation rates for accounts receivable (A/R) and less need for a large number of real accounts.
Companies which adopted the SEPA credit transfer (SCT) format early also soon discovered the extra benefits of simpler, same-day, more standardised processes on payment systems that are centralised regionally.
It’s in companies’ interests to adopt SEPA fast. The end of the grace period looms - in some countries sooner than you might think - but this is not just about meeting deadlines. It’s about building a solid business capable of extreme efficiency. It’s about common sense.