It's time to realise the SEPA opportunity
An important milestone for the industry and for everyone making payments in euros across the region is about to be reached: Steve Everett, Global Head, Cash Management and Tino Kam, SEPA Product Executive explore how the long-held vision of a Single Euro Payments Area (SEPA) will become a practical reality at last.
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.
This communication has been prepared by The Royal Bank of Scotland N.V., The Royal Bank of Scotland plc or an affiliated entity (‘RBS’). This material should be regarded as a marketing communication and has not been prepared in accordance with the legal and regulatory requirements to promote the independence of research and may have been produced in conjunction with the RBS trading desks that trade as principal in the instruments mentioned herein.
This commentary is therefore not independent from the proprietary interests of RBS, which may conflict with your interests. Opinions expressed may differ from the opinions expressed by other divisions of RBS including our investment research department. This material includes references to securities and related derivatives that the firm’s trading desk may make a market in, and in which it is likely as principal to have a long or short position at any time, including possibly a position that was accumulated on the basis of this analysis material prior to its dissemination. Trading desks may also have or take positions inconsistent with this material. This material may have been made available to other clients of RBS before it has been made available to you and regulatory restrictions on RBS dealing in any financial instruments mentioned at any time before is distributed to you do not apply. This document has been prepared for information purposes only. This document has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty or assurance of any kind, express or implied, is made as to the accuracy or completeness of the information contained herein and RBS and each of their respective affiliates disclaim all liability for any use you or any other party may make of the contents of this document. This document is current as of the indicated date and the contents of this document are subject to change without notice. RBS does not accept any obligation to any recipient to update or correct any such information.
Views expressed herein are not intended to be and should not be viewed as advice or as a recommendation. RBS makes no representation and gives no advice in respect of any tax, legal or accounting matters in any applicable jurisdiction. You should make your own independent evaluation of the relevance and adequacy of the information contained in this document and make such other investigations as you deem necessary, including obtaining independent financial advice, before participating in any transaction in respect of the securities referred to in this document. This document is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. The information contained herein is proprietary to RBS and is being provided to selected recipients and may not be given (in whole or in part) or otherwise distributed to any other third party without the prior written consent of RBS. RBS and its respective affiliates, connected companies, employees or clients may have an interest in financial instruments of the type described in this document and/or in related financial instruments. Such interest may include dealing in, trading, holding or acting as market-makers in such instruments and may include providing banking, credit and other financial services to any company or issuer of securities or financial instruments referred to herein. This marketing communication is intended for distribution only to major institutional investors as defined in Rule 15a-6(a)(2) of the U.S. Securities Act 1934 (excluding documents produced by our affiliates within the U.S.). Any U.S. recipient wanting further information or to effect any transaction related to this trade idea must contact RBS Securities Inc., 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700. In Singapore, this marketing communication is intended for distribution only to institutional investors (as defined in Section 4A(1) of the Securities and Futures Act (Cap. 289) of Singapore). In Hong Kong, this marketing communication is intended for distribution only to Professional Investors (as defined in Schedule 1 of the Securities and Futures Ordinance of Hong Kong). Issuers mentioned in any material may be investment banking clients of RBS Securities Inc. and RBS Securities Inc. may have provided in the past, and may provide in the future, financing, advice, and securitization and underwriting services to these clients in connection with which it has received or will receive compensation. Accordingly, information included in or excluded from this material is not independent from the proprietary interests of RBS Securities, Inc., which may conflict with your interests. For further information relating to materials provided by RBS, please view our RBSMarketplace Terms and Conditions: RBSM Terms and Conditions
The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. The Royal Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Royal Bank of Scotland N.V., established in Amsterdam, The Netherlands. Registered with the Chamber of Commerce in The Netherlands, No. 33002587. Authorised by De Nederlandsche Bank N.V. and regulated by the Authority for the Financial Markets in The Netherlands.
The Royal Bank of Scotland plc is in certain jurisdictions an authorised agent of The Royal Bank of Scotland N.V. and The Royal Bank of Scotland N.V. is in certain jurisdictions an authorised agent of The Royal Bank of Scotland plc.
Copyright © 2013 The Royal Bank of Scotland plc. All rights reserved. This communication is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without The Royal Bank of Scotland plc’s prior express consent.
Copyright © 2013 RBS Securities Inc. All rights reserved. RBS Securities Inc. member FINRA (http://www. finra.org) / SIPC (http://www.sipc.org), is a subsidiary of The Royal Bank of Scotland plc. RBS is the marketing name for the securities business of RBS Securities Inc.