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SEPA COMPLIANCE

Q & A with Tony Virdi, Vice President and Head of Banking and Financial Services in the UK & Ireland, Cognizant

What advice does Cognizant have for affected UK corporates that have yet to start considering their options for migration to SEPA? Are SEPA file conversion/services the only practical approach within the current timescale, for example….

Tony Virdi
Tony Virdi

Major banks have already started advising and guiding their corporate clients in readiness for migration. Having said that, some companies are only now working on getting support with regards to understanding and fully complying with SEPA. The corporate community is keen on more proactive advice from banks, the regulator, the UK Payments Council and the Government, and we are seeing a strong increase in the demand for SEPA compliance services from corporates in the Eurozone already.

Some UK organisations may be thinking that the SEPA mandatory 2016 migration date for non-Eurozone countries seems a long way off. However, they should carefully consider whether the more immediate migration date of 1st February 2014 is applicable to them before they put it on the back-burner. If they have subsidiaries, branches or even bank accounts within Eurozone countries they will need to be SEPA compliant in less than 12 months. They also need to work closely with banks to ensure they are compliant, which requires effective planning and communication to determine the right solution and process ahead of the deadline.

The solution is dependent on the corporation’s needs. If you view it as a compliance issue then you will prioritise it according to the latest possible deadline for the UK – February 2016. If the company sees SEPA as a business opportunity to reduce costs by centralising accounts, improving capital management and increasing revenue, then you will prioritise it according to other cost reduction initiatives in the pipeline, or as a competitive threat.

Some corporates may be able to become fully SEPA compliant quickly using existing systems capability or with vendor upgrades or minor system changes. Other PSUs may have to implement significant changes to their operational models and invest in system upgrades, testing and staff training.

Not all businesses have started planning for SEPA migration and they need to consider their options. Based on their requirements, they could opt for a simple end-to-end SEPA solution that integrates with their ERPs or any other invoice management systems. For those that feel they might not be able to manage the entire migration along, there are also a lot of outsourcing options for parts of SEPA lifecycle management including mandate capturing, transaction files creation, and reconciliation.

Our view is that Eurozone corporates have some way to go to meet the timescales of SEPA compliance by 1st February 2014. The challenge here is that the banks need to work with their corporate clients as a trusted partner to explain the rationale for the approach to compliance. This alongside the wider economic issues in the Eurozone is proving a challenge, and corporate take-up is slower than anticipated. Plans need to be put in place to respond to this in a timely and effective manner.

What sort of SEPA-related factors do corporates have to consider w.r.t back-office systems, such as those used for CRM and ERP? Are point -of -sale systems affected? What about data warehouses and shared services?

SEPA will provide better integration with ERP systems and aid communication with banks. However, corporate customers will need to carry out due diligence on the scale of the SEPA solution. For smaller businesses with minimum to medium level exposure to x-border Euro transactions, a simple outsourced solution would be the best option. For bigger corporates, a centralised automated solution is important, and should cover the entire lifecycle from mandates to reconciliation of transactions. This should be backed with an efficient CRM/data capturing solution for each of the Euro countries.

Corporates can also re-engineer legacy systems to accept ISO 20022 formats. However this can be costly and time consuming. Another more cost-effective option is using message transformation to insulate the internal systems translating between ISO 20022 and the legacy format, which can also be achieved in quicker timescales.

Alternatively, corporates can use a bank or other financial institution as an “agency” to send and receive SEPA messages. This means they can use the bank’s existing infrastructure after agreeing with them to provide specific corporate data in their preferred format. However, businesses will need to check that their back office or ERP systems are SEPA Compliant.
SEPA Direct Debits seem to be presenting challenges….are existing DD mandates easier to migrate if businesses stick with the core scheme? What about the impact on debtors refund payments?

Under SEPA, corporates have to manage their mandates and their customers’ mandates, and require electronic storage solutions. Migration from current mandates to electronic mandates is a one-off critical activity, which needs to be done accurately without any data errors. Businesses will therefore need to assess if they require a suitable outsourcing option for mandate lifecycle management. An efficient e-mandate solution enables processing of r-transactions, and reconciliation effectively.

The Core scheme replaces the existing schemes and is mandatory for the industry. However, the preferred voluntary Bank to Consumer (B2C) scheme is often seen as more beneficial and is used by the majority of corporates, as it can be implemented and executed in quicker time. The B2C scheme is specifically designed for debiting institutional customers and typically involves larger amounts of money, executing transactions more quickly, providing faster settlement and ‘no standard right’ to refunds. For it to work, debtors must notify the debtor bank where there is end-to-end account reconciliation to confirm the SEPA Direct Debit Euro payment.

The slow uptake of the Core scheme is partly due to the substantial workload required to overcome technical and contractual issues. Careful checks are required to avoid errors around data input and if corrections need to be made, this will incur a cost to the business.

Can Cognizant comment on the SEPA migration experiences of any of its clients…and how it helped them to manage the transition?

Education is key in successfully managing SEPA migration. Currently, many corporates lack awareness and knowledge of SEPA and do not necessarily understand the business implications, if it is not carried out correctly.  They also have limited knowledge about the options available in order to become SEPA compliant.

Cognizant is working with leading banks and Eurozone corporates to identify the challenges and opportunities presented by the SEPA Regulation. At the moment, we are helping to plan the IT strategy for a leading UK bank.. Through centralizing processes in the UK, the first phase will be to align the bank with the Euro-In jurisdiction SEPA End Date Compliance by February 2014, and the second phase will be to meet Euro-Out SEPA End Date Compliance by 2016.

Above all, corporates must plan for a medium term strategy, if they are to be fully aligned with the new regulations and take advantage of the opportunities. Now, businesses should look beyond the initial challenge and start realising the benefits of centralising Direct Debit collection. This includes reduced costs and increased revenue for the business, while providing the ability to accurately predict the date of collection, enabling businesses to expand into new regions.

SEPA migration has already been successful in Finland. This has been due to timely preparations, a clear schedule, strong relationships with software companies to help them with this change and continuous collaboration with all parties involved. It is this level of in-depth planning that the UK market can learn from.

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