For multinational corporations, Sepa offers a unique opportunity to streamline payments and collections.
For example, they can centralize them into a regional shared service centre and utilizemethods such as 'payments on behalf of' and 'receivables (or collections) on behalf of' – a technique that allows corporates to to convert all payments within the group into domestic payments by using local bank accounts owned by a single central unit.
|The challenge for collection factories is the reconciliation of the receivables. Virtual account or virtual reference is really beneficial to this reconciliation process|
“Looking at the treasury operating model, there is an increasing trend for multinationals migrating from in-country to regional operating models to benefit from simpler processes and greater flexibility."
He adds: "However, any treasury transformation needs to look end-to-end so that it is coupled with strategic investment in a reporting hub that can leverage the underlying data to provide robust reporting and reconciliation tools that allow for improved decision-making on a corporate’s cash position.”
Wilco Dado, EMEA head of cash management at JPMorgan, refers to corporates centralizing their euro accounts in London for payments to and collections from the eurozone.
However, he suggests that while payment factories are well established, collection factories are much less widely implemented.
“The challenge for collection factories is the reconciliation of the receivables," he says. "Virtual account or virtual reference [a cost-saving technology to segregate funds] is really beneficial to this reconciliation process.”
Paolo Zaccardi, senior analyst Aite Group, agrees that the journey towards centralization and standardization has been accelerated by Sepa.
“Corporations are gradually shifting from the centralization of sets of functions [financial and non-financial] to highly specialized payment and collection factories to increase traceability and straight-through-processing capabilities and streamline cash and liquidity management," he says.
“In addition, integrating supply chain finance with centralized payment processes allows companies to use existing centralized data to optimize corporate working capital through specific financing services, such as dynamic discounting and automatic delayed payment terms.”
Threat to established
Sepa has also stirred interest in centralized regional payment infrastructure systems in regions such as Africa and Scandinavia, suggests Fundtech vice-president Joanna Wright.
“We have not seen a demand for cross-currency consolidation for company accounts," she says. "But we have seen various foreign-exchange initiatives offered by banks where corporates are offered currency conversion at the source, allowing the servicing institution to perform the exchange and to share commission or favourable rates with the corporate rather than being performed at the beneficiary's bank.”
|Sepa: special focus|
Deutsche Bank's Reid refers to corporates reducing non-essential foreign-currency accounts, placing greater scrutiny on their operating organizations and seeking to optimize FX exposures and minimize costs, and describes virtual accounts as a useful tool for supporting models, such as in-house bank structures.
“They are also being increasingly applied to help clients manage and handle reconciliation challenges, when combined with solutions such as virtual IBAN-based infrastructures.”
For example, firms can assign virtual international bank account numbers to subsidiaries, with funds transferred to these IBANs automatically re-routed to real accounts.
“So far, corporates have been restricted – or at least risk-averse – to enter into business relations for markets with non-liquid currencies or have used non-delivery forwards to mitigate risks," he says.
"They can now use defined meta-currency delivered through block-chain technology with their counterparts, potentially pushing banks and their risk-mitigating products out of the equation.”