Gear up for Sepa 2.0
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Treasury

Gear up for Sepa 2.0

The extended deadline for Sepa is fast approaching and, despite initial fears, corporates are set to meet it – but this is the first step in creating an efficient single European payments framework. Debate about Sepa 2.0 is now in full swing.

The Single Euro Payments Area (Sepa) was established to create a simplified, streamlined payments process across the European Union, European Free Trade Association nations, San Marino and Monaco for all transactions completed in euros.

The new rules replace the individual country file formats for payments, which need to be adopted by each jurisdiction every time a payment is made, despite the transfer being made in the same currency.

Earlier this year concerns centred on whether corporates were ready for the February 1 deadline, resulting in the European Commission (EC) introducing a six-month extension for compliance to August 1.

Carole Berndt
 Sepa 1 is about building the car and the second
part is about learning
how to drive it

Carole Berndt

The extension was announced at the beginning of January, with almost a full month still remaining before the deadline. The push-back did not change the deadline, but allowed an additional six-month grace period for payments that differed from the Sepa format to be accepted.

At the time, EC internal market and services commissioner Michel Barnier spoke of his “regret” at having to take the step, and at his frustrations of having “warned many times” the migration was happening at too slow a pace.

Barnier also called on member states to step up in their responsibilities to ensure compliance was being met on their own home soil. Failing to meet the deadline could lead to invoices not being paid and direct-debit collections being rejected. He also stated there would be no further extension periods.

So, has enough been done to meet the deadline? 

Markus Straussfeld, head of international cash management sales at UniCredit, says all corporates will meet the extended deadline, but in January that was not the case.

“Some clients under-estimated the time and effort that was necessary to meet the deadline, so the extension has allowed more precision, and facilitated that more time could be spent on testing and improving straight-through processing (STP) rates,” he says.

Ad van der Poel, head of GTS product management, corporates, EMEA at Bank of America Merrill Lynch (BAML), backs the view, adding: “The extension was probably necessary. Corporates would have made it happen with the help of their banks, but the extension gave them more time to test, especially on the direct-debit side. The extra time was useful for a large number of companies.”

With corporates now hitting the deadline, there are still some obstacles to overcome, such as improving the aforementioned STP rates. This is the ability to process transactions electronically, without the need for the details to be manually processed at each stage of the transaction.

The transaction will generally be completed within the same day, although it is often much faster, completing within minutes or even seconds.

“The devil is in the details and ongoing process improvements show that former high STP rates are not quite back yet,” says UniCredit’s Straussfeld.

Sepa 2.0

This is not the end for Sepa, as minds are already turning towards Sepa 2.0. Countries that do not use the euro have until October 31, 2016, to become fully compliant. And the number of opportunities the new framework could create has yet to be fully explored.

Carole Berndt, head of global transaction services, GTS, RBS, says: “The magnitude of Sepa has only just begun to dawn on some corporates. Sepa 1 is about building the car and the second part is about learning how to drive it.”

Markus Straussfeld
 The devil is in the details and ongoing process improvements show that former high STP rates are not quite back yet

Markus Straussfeld

Now the new framework is in place, attention has to shift back towards meeting high standards that fall within the boundaries of the new compliance rules.

“Clients will need to come back to the former high STP and data quality,” says Straussfeld. “Secondly, clients are sitting on a huge amount of data and the question will be how to make use out of this.

“As focus has been on meeting the deadline, several organizations has avoided making changes to workflows and organizational structures. Therefore, at the moment we are in discussions with a large number of clients who are now looking at improving their organizational set up and workflows.”

He adds: “We are convinced that services like virtual accounts will allow clients to massively improve workflows, processes and transparency.”

However, as the compliance rules are met, the realization this is creating new opportunities is emerging. The system has laid the framework for the implementation of XML and the ISO 20022 messaging standard, and has potentially provided a framework for other regions to replicate to ease payments between boarders.

Andrew Reid, managing director and co-head of corporate cash management, EMEA, at Deutsche Bank, says: “Sepa heralds a new era in payments, and should be viewed by treasurers as a strategic and far-reaching initiative, rather than a one-off compliance challenge.

“Sepa-style thinking can even be applied beyond the Sepa-zone. For example, the use of Sepa’s XML format offers the chance to standardize practices across a corporate’s global operations, creating harmonized and enriched data, leading to greater transparency and control.”

The framework can also help corporates to streamline and consolidate their banking – potentially reducing the number of accounts they hold internationally from dozens to single digits. And some banks with international footprints are seeing the potential in stepping forward to offer their corporates a consolidated banking network across the whole continent.

“Previously, conversations were about payables centralization and payments factories,” says BAML’s Van der Poel. “Through Sepa, the discussion has moved to how to centralize the receivables side. We are bullish on Sepa as it is provides an opportunity for us to talk to clients about centralization.

“Until now, it is just the foundation that has been built and what we can add on top is probably more than we can even think of today. In 10 years’ time we will consider that the biggest value-add from Sepa. The end date is really the start date. It is the end of legacy systems.”




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