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SEPA

The Closing Chapter in the SEPA Story? The six years between the launch of SEPA Credit Transfers in 2008 and the end date in 2014 marked a period that heralded great opportunity, but was often troubled by inertia and contradiction. One year on, what stage have treasurers reached in achieving the benefits that SEPA promises?

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The Closing Chapter in the SEPA Story?

by Helen Sanders, Editor, TMI

From the launch of SEPA Credit Transfers in 2008, to the final end date in February 2014 – and the ‘final final’ end date six months later, the intervening six years marked a period that heralded great opportunity, but was often troubled by inertia and contradiction. A year later, what stage have treasurers reached in achieving the benefits that SEPA promises?

Beyond compliance

Although extended migration periods were required in many European countries to support the inevitable flurry of last minute adoption, banks, corporations and public sector organisations have now completed their migration to SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD), with new instruments, processes and formats now largely bedded down. The benefits of a harmonised euro payments area have been documented extensively: centralise cash management, payments and collections; rationalise banking partners and accounts, and standardise connectivity and integration. However, while a number of companies used their SEPA migration project as an opportunity to centralise, standardise and increase efficiency in cash management, a larger group of organisations approached SEPA from a compliance perspective. As Natalie Willems-Rosman, Head of Payables & Receivables, EMEA, Bank of America Merrill Lynch says,

“The focus of many companies’ SEPA migration projects was compliance, and many adopted a ‘lift and shift’ strategy: effectively transferring existing processes and formats to meet the new requirements. With the compliance deadline now passed, they are able to leverage this investment and look at the opportunities that SEPA presents.”

The challenge now for treasurers and finance managers is to transform their view of SEPA (and that of their board) from being an exercise in compliance to a platform for financial and operational efficiency improvements, both in Europe and more widely. For example, many treasurers are now seeking to leverage XML-based formats on which SEPA payments are based to standardise the flow of transactions and information in other currencies and countries. There are still differences between banks in their adoption of XML formats, but standardisation projects are becoming easier. Format standardisation is often a part of corporate initiatives to rationalise bank connectivity through multi-banking channels such as SWIFT, or through cloud-based/ SaaS (software as a service) cash and treasury service offerings, as Gabriele Schnell, Head of Payments and Cash Management, Germany, HSBC explains,

“With the SEPA migration phase now coming to an end, corporate clients are now looking at how they restructure processes to achieve greater efficiency, such as extending standardised XML formats to other currencies, and rationalising bank connectivity through host-to-host or SWIFT-based communication for enhanced straight-through processing.”

Degrees of centralisation

A major area of potential advantage that SEPA offers is centralisation of cash management processes and information. Treasurers are looking at this opportunity in various ways. For some organisations, the goal may be regional or global centralisation of financial processes; for others, such as corporations with a decentralised business culture, achieving a single view of cash and risk may be the primary objective. Gabriele Schnell, HSBC highlights, 

Gabriele Schnell“A harmonised environment for payments and collections is encouraging larger clients in particular to centralise key cash management processes, with payment factories and in-house banks becoming increasingly common. In addition, achieving a single view over liquidity and risk is a universal requirement irrespective of the degree of treasury centralisation.”

Amongst those seeking a more centralised approach to cash management, extending (or implementing) payment/ collection factories and in-house banks to make payments-on-behalf-of (POBO) and collections-on-behalf-of (COBO) is becoming increasingly common. Under a POBO model, a payments factory collates payment files from participating entities, processes them in line with the company’s procedures, and channels payments through a single account, usually owned by the holding company, on behalf of the relevant group entity. Payments are accounted for through the in-house bank. The key benefits include the ability to reduce the number of external accounts, and to minimise cross-border payments by processing payments through a local account in the relevant currency. A COBO model operates on a similar basis, with comparable benefits. In many cases, companies use virtual accounts to automate reconciliation and account posting of incoming payments, as well as providing customers with a local account number.

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Helen Sanders
Editor, TMI

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