From 1 February next year, SEPA credit transfers and SEPA direct debits become mandatory for euro payments. Now is the moment to look beyond compliance and plan to make the most of the opportunities for increased efficiencies and innovation SEPA offers.
The forthcoming changes will help companies cut payment transaction costs and take standardisation to a new level by building on previous centralisation and standardisation efforts.
Companies should re-evaluate the impact of these changes on their payments and collections processing, and the possible impact on existing treasury structures and in-house banking arrangements. For example, early adopters of the SEPA credit transfer have quickly seen the additional benefits of simpler, more standardised processes on payments systems centralised regionally.
Accounts receivable processing is typically more domestically focused than payments. The introduction of SEPA credit transfer means processing will be much simpler. Industries such as telecommunications and utilities, which use direct debits to collect payment in domestic markets, now have an excellent opportunity to centralise and achieve new economies of scale.
Companies will also be able to simplify their treasury account structures. Although prudent risk management will continue to call for multi-bank structures and a balance of counterparties and credit providers, corporates will be able to cut their number of operational accounts across different markets, improving the control, visibility and efficiency of their daily liquidity.
Although some countries have obtained a two-year waiver on fully adopting agreed standards for SEPA credit transfers and SEPA direct debits, the introduction of mandatory ISO 20022 XML messaging formats from 2016 will finally deliver a level playing field.
This could unlock possibly the greatest benefits of all in terms of increased process efficiency.
First, the structured messaging formats ensure important information is always transmitted and readable in a standard way. This facilitates automated reconciliation and optimises matching success.
Second, ISO 20022 brings SEPA instruments under the mantle of a globally-recognised messaging framework, which allows for the possibility of a global payments standard, offering even greater economies of scale.
As well as delivering efficiencies in processing of payments and accounts receivable, SEPA will also act as a valuable catalyst to innovation. SEPA is a key driver for XML adoption, allowing companies to benefit from other XML-based initiatives. One example is the electronic bank account management (EBAM) initiative from SWIFT.
EBAM gives users transparency and greater control of their data and processes. They will be able to follow the progress of their requests and handle many aspects of their requirements themselves online. Another XML-based SWIFT initiative will let corporates standardise billing statements across several banks, improving price comparison and data analysis.
A key objective of SEPA has been to deliver a level playing field for payments, including fair and transparent pricing. So it is also delivering some of the necessary conditions for the further development of e-commerce. The SEPA direct debit has the potential to be a valuable e-commerce instrument, although a common standard for collecting direct debits electronically (e-mandates) still seems some way off.
As companies become more efficient, thanks to SEPA, they could also tap into the additional benefits recently developed for in-house banking and treasury operations, such as single account/virtual account solutions.
These structures let companies to set up virtual accounts within a master account. Individual transactions can then be easily posted to the relevant virtual account and associated with a particular activity or cost centre. Benefits include improved reconciliation rates for accounts receivable and a reduced need to make foreign exchange transactions.
SEPA is poised to deliver a harmonised environment for payments across 33 countries, with common pricing, standards, service levels and legal foundations. Companies will have a simpler, more transparent and standardised operating environment, paving the way for greater efficiencies that extend well beyond the unit cost of payments transactions. The time for action is now. Looking beyond compliance and making concrete plans to take advantage of the opportunities for innovation and transformation will pay dividends.
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