SEPA: welcoming the inevitable

EUROPEAN CORPORATES that have yet to prepare for the Single Euro Payments Area (SEPA) are already behind. SEPA – which aims to simplify transactions through the unification of payments execution processes across Europe – is now a compulsory initiative, and the deadline for the migration to both SEPA credit transfers and direct debits has been set as 1 February 2014.

That said, the transition to SEPA payments should not be regarded as an obligatory burden. Instead, corporates should recognise the strategic benefits of SEPA implementation and should start preparing their systems to welcome the change.

SEPA as a strategic concern
The aim of SEPA is to unify payments processes across Europe. In simple terms, SEPA will enable corporates to make and receive payments to anyone in the region using a single bank account and a single set of payment instruments. SEPA affects 32 countries in total, both within and beyond the EU, and corporates in all these participating countries will observe a synchronisation of payments formats. Additionally, the initiative includes the use of uniform standards and codes for exception processes (often generated when transactions cannot be completed by processing systems).

The implementation of SEPA is now a given, yet the opportunity to benefit from the changes is not. Finance Directors must realise that the question is no longer whether to “SEPA” or not to “SEPA”, but rather whether to “SEPA” or “SEPA+”. Essentially this means that corporates should recognise the strategic opportunities presented by the move towards payments centralisation and standardisation of accounts payable and accounts receivable processes.

One way corporates can benefit is by embracing a centralised structure for payments which could increase visibility and control over liquidity for corporates – leading to standardisation and improved efficiency. With a single payments process across Europe, corporates would no longer need to have multiple bank accounts across the region. Instead, they would only require one account to handle all European-based transactions – thus increasing operational efficiency and speeding up settlement times.

Furthermore, by eradicating the need for both cross-border and domestic payments systems, payments will be easier and faster. Indeed, the European regulation stating that a payment transfer within SEPA must not cost more than a national transfer will be expanded to all payment transactions regardless of the respective amount.

This means that, with all major European cash flows including domestic and cross-border payments being considered, and priced, as domestic payments, the potential savings SEPA offers are far from insignificant. These steps would allow a corporate the capability to expand its business across 32 countries without having to open new accounts or handle foreign currencies.

What is more, the use of the XML ISO 20022 standard – designed to replace the plethora of local standards across countries – will save corporates from having to deal with the technical inflexibility and complexities of handling numerous file formats. The transition to IBAN as the only permissible account identifier for SEPA transactions will also result in improved security – ensuring that corporates both transfer money to the right account and receive payments when due.

Taking the first steps
The sooner corporates start to budget and prepare their systems for migration, the easier they will find the transition, and the faster their company will be able to reap the rewards. The deadline for the migration to both SEPA credit transfers and direct debits might not be until February 2014, but failure to plan ahead means that when the deadline hits, some corporates will be forced to use an unfamiliar system – exposing them to correction and rejection charges of failed payments.

With less than two years until the deadline, time is running out. There will be no extended warm-up – just a short, sharp, cut-off. The choice of a banking partner to ease the transition is, therefore, crucial. In addition to enabling the SEPA migration itself, the right banking partner should have the expertise to advise on wider SEPA strategy and adoption. They must be equipped to help corporates assess their existing operations against the new regulatory requirements and help them migrate as quickly as possible – thus avoiding the need to maintain two separate sets of data in parallel.

SEPA is an initiative that finance directors should welcome. It will simplify complex transactions and increase efficiency. Certain European banks, including Commerzbank, are already helping their corporate customers by familiarising them with the upcoming changes and supporting them throughout the migration process. And for those corporates that are yet to start their own migration, it is clear that now is the time to take the first steps on the journey.

Dirk Braun is director of cash management and international business at Commerzbank