Western Europe sets standard on payments
The Single Euro Payments Area prompted a wholesale change in how European banking operates and set a precedent for other regions on the possibilities open to them.
Cash management has experienced some big changes in recent times, none more so than in Europe with the implementation of Sepa. The arrival of the Single Euro Payments Area in 2014, in combination with the adoption of the ISO 20022 payment standard, has shown other diverse regions how to establish a holistic payments landscape.
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“Last year was one of the most active we have seen in some time,” says Matthew Davies, co-head of product management, GTS EMEA at Bank of America Merrill Lynch. “Sepa enabled treasurers to change and consolidate their systems whilst reconsidering their operating models, taking full advantage of the opportunities that Sepa can offer.”
Despite the delay in the implementation, the arrival of the final deadline of August 1, 2014, heralded a relatively seamless transfer to the single payment format. The implementation has changed how corporate treasury can be managed across Europe. It is opening up new opportunities to make the region’s corporate treasury functionality the most unified in the world.
Andy Reid, managing director, head of corporate cash management EMEA, Deutsche Bank, says: “Sepa has been a strategic opportunity.”
The challenge, now that it has been implemented, is to leverage the benefits of the new infrastructure across the whole region. A key change was the arrival of the XML ISO 200022 messaging standard. As other regions look on it as a strategic differentiator, in Europe it is now the only accepted messaging platform.
“Where previously standards varied by country, Sepa has helped to push the standard to XML,” says Davies.
The implementation superseded the region’s previously disparate payments methods, bringing the first step towards full standardisation of payments platforms. Another layer of standardisation came with the introduction of electronic bank account management (eBAM). The eBAM system allows for the further automation of the process, enabling corporates to open, close and manage their accounts electronically. The system is most commonly facilitated through the implementation of the ISO 20022 platform.
Sepa has also enabled the corporates to dramatically reduce the number of bank accounts they hold, as it is no longer necessary to open an account in each new country. Numbers could be cut from dozens of accounts across the region, to just one or two, which could be managed remotely. The next goal is to deliver actual business benefits of this homogenization, via time and financial efficiencies.
“Many clients are now looking at virtual accounts. In a centralised treasury, these give the treasurer a greater level of oversight and flexibility and can significantly reduce the number of physical bank accounts that they need to maintain,” says Davies.
The ability to move payments is enabling treasurers to attempt more sophisticated methods of treasury management. Payments-on-behalf-of (POBO) is emerging off the back of the change.
“Sepa has been the catalyst for centralisation and defining standards. It has created more options for corporates, opening up the chance to use in-house banks and virtual accounts,” says Reid.
The developments have allowed banks to work on creating tools specifically to educate their corporate clients on the greater possibilities to manage their businesses.
Commerzbank has developed its Treasury Tools app. Treasurers are still working towards how to make the most of the harmonisation of payments processes that Sepa has enabled. Commerzbank’s Treasury Tool suggests to a corporate how much they could save through implementing different functions, such as consolidating their accounts or establishing payments factories.
Where previously standards varied by country, Sepa has helped to push the standard to XML
Matthew Davies, BAML
The tool is specifically pointed towards the small and medium-sized enterprise (SME) sector, as those companies may not realise the full capabilities open to them.
“The treasury tool has been made to stimulate awareness for the customer of points in their business they need to consider to make their operations efficient. There are often small details they overlook which can have an impact on their business,” says Klaus Müller, head of product management, cash transaction services, Commerzbank.
The flow of business has become more efficient as all of the separate functions have come together, giving banks the scope to look at what other technology can be developed and implemented off the back of the success.
Reid at Deutsche Bank says the use of more in-house treasury processes is starting to become more popular for corporates, to the point that they are starting to ask for help in setting up the services.
“Payments-on-behalf-of is starting to pick up pace,” he says. “For a long time it was just something that was discussed at conferences but now we are seeing RFPs that are looking for ways to implement it,”
This greater understanding and digitisation of the banking space is opening up exploration of what else can be implemented. Some banks, like Commerzbank, have created divisions specifically to look into how their business can work more closely with the emerging fintech companies, and develop a reciprocally beneficial service.
Christian Hoppe, CEO of Commerzbank’s main incubator division which is working on banking sector innovation, says: “We invest strongly in fintech. We look at every segment within the fintech universe, eg payments, big data. We also analyse the developments in the cryptocurrencies space.”