URGENCY: SEPA COMPLIANCE. AND THEN WHAT?
By José Teixeira, Cash Management and Electronic Banking Market Manager with Sage
As UK firms and the rest of the Eurozone make the transition to Single Euro Payments Area (SEPA) compliance, a key deadline passed just a few weeks ago on 1 February. Firms within the Eurozone were given an extra six months to get fully complaint, but José Teixeira, Cash Management and Electronic Banking Market Manager with Sage, reflects on the implications.
Less than one month before the SEPA migration deadline, the European Commission extended the transition period by an additional six months, during which time any payments not in SEPA format may still be accepted.
It must be said that the last migration figures recorded at the end of 2013 were unequivocal: Only 65% of company credit transfers (SCT) and 26% of direct debits (SDD) were made in compliance with the SEPA standard in the Eurozone. Companies are slow to migrate, although any that do not adopt this new obligatory format for their credit transfers and/or direct debits, whether in the Eurozone or UK firms making payments in Euros, will face great difficulties. For example, it will be impossible for a UK-based firm to pay employees or suppliers based in the continent by bank transfer, and they will incur severe financial penalties for all rejected payments.
SEPA Migration: the race against the clock is on!
The cut-off date of 1 February 2014 remains the official date, but for the many companies that have not completed or even started to migrate their payment systems to the SEPA European standard (Single Euro Payments Area) there is now a six-month buffer period in which to do so.
This is a true race against the clock for companies to complete the transition in time. The many last-minute migrations by companies that wanted to be ready on 1 February 2014 generated bottlenecks. The urgency is therefore to take advantage of the agreed transition period to launch the migration process as quickly as possible. The UK and Poland have until October 2016, however of those firms who do a lot of business with the rest of the Eurozone the onus is to get SEPA compliant in order to stay competitive with their European neighbours, and to optimise their own cash systems.
Next step: harmonise all the flows in XML
The Single Euro Payments Area is where more than 500 million citizens, over 20 million companies and the European public authorities can make and receive payments in euros under the same basic conditions, and with the same rights and obligations, whatever their geographic location.
For all the companies that have migrated to SEPA, this deployment not only marks the end of an era, it will mark the start of a search for harmonisation of all their bank processes. The format used for SEPA actually relies on the international ISO XML 20022 standard, which must be used for all other types of financial processes in time. This concerns cash transfers or commercial transactions, unpaid returned and rejected payments, the flows of account statements or notices, but also international money transfers beyond the SEPA zone.
The application of this worldwide standard will lead to the improved technical and functional harmonisation of companies’ international centralisation projects. Thus, for companies that operate internationally it provide them with an opportunity for rationalising a common platform for all their processes. The benefit for UK firms is about remaining competitive – payment codes in two different formats could be off-putting to a customer or supplier based on the continent
The benefits for companies are numerous. This includes simplification of cash management; optimisation of costs and service provisions in their relationships with banks; financial processes including the centralisation of back offices; cash flow management on a larger scale; optimisation of the value chain towards Straight-Through-Processing (STP). On top of this, there are benefits for information systems with aspects such as centralised interbank communications for making payments, as well as improved communications with third parties.
Interbank payments and electronic payments: deadline of 1 February 2016
The next two years will provide the ideal occasion for launching optimisation projects, such as companies wishing to transfer all their processes to XML or those making strides towards a paperless system.
By 1 February 2016, certain types of purely local payments will disappear in favour of a SEPA payment.
These interbank payments (in each European territory) are traditionally done in paper, and will be replaced in party by online or mobile payment. This allows payments to updated in light on modern business practices such as cloud and mobile working.
This type of process affects insurance companies for example, but it mainly concerns the tax authorities which represents transactions of several billions of euros.
Generally, all non-SEPA payment methods, including niche products like bills of exchange, will have disappeared from all European companies before 2017. The SEPA process converters mentioned will therefore become obsolete and the complete migration to SEPA will no longer be an option, but an obligation for all European companies. This includes those in the UK wanting to make payments abroad!
While SEPA may be deemed a “necessary evil”, it should actually be seen as an opportunity – it will open up the market in a digital economy. These major legal, organisational and financial upheavals should represent opportunities for European companies to create new services in e-commerce, as well as an opportunity to move towards paperless authorisations and electronic signatures. On top of this, we will even move towards replacing the localised interbank payments and the good old paper cheque!