SEPA

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Leveraging the SEPA Opportunity SEPA should make it easier to centralise treasury, cash management and payment functions for a wide range of incoming and outgoing cash flows in Europe.

Leveraging the SEPA Opportunity

by Frank-Oliver Wolf, Managing Director, Global Head Cash Management & International Business, Commerzbank AG

Standardising, streamlining and centralising payments has become a key treasury priority as companies seek to reduce risk, increase transparency and control over working capital and improve cash flow management in a challenging economic and regulatory environment. Although there is a clear business case for standardisation, centralisation and optimisation of payments, the impending Single Euro Payments Area (SEPA) implementation deadline is accelerating these standardisation efforts. SEPA should make it easier to centralise treasury, cash management and payment functions for a wide range of incoming and outgoing cash flows in Europe.

SEPA+

Much of the focus on SEPA has centred on the 1 February 2014 end date. However, SEPA is not simply a compliance issue but offers a variety of strategic and operational advantages. Consequently, treasurers should be considering how best to leverage these opportunities, including as a catalyst for optimising payments: effectively a ‘SEPA+’ strategy. For example, as SEPA harmonises payment instruments and the legal basis for payments, treasurers should be looking at how they can centralise and standardise accounts payable and receivable processing, and considering how they can expand the use of a single format from SEPA payments more widely, such as for legacy payment types within the Eurozone and euro and foreign currency payments in other regions.

Elements of SEPA migration

Advantages of payments standardisation

Many treasurers overlook the cost saving opportunity that SEPA offers, which has often meant that SEPA migration has been delayed. For example, corporates can reduce their payment fees by channelling payments through low-cost markets. Furthermore, cross-border payments within the SEPA zone are priced at the same level as domestic transfers.

The use of XML ISO 20022 on which SEPA payment types creates a harmonised messaging format, replacing the diverse formats that have traditionally existed in each market. This is particularly valuable for companies that operate in more than one European market and/or make cross-border payments. In addition, ISO 20022 has applicability beyond the Eurozone and many companies are extending its use into other regions and currencies, therefore simplifying their financial messaging and integration standards that they need to maintain. This can result in substantial cost savings as well as simplification in companies’ treasury and payments technology infrastructure.

Uniform settlement periods and exception processes (e.g., returns) for all European countries will contribute to these savings by replacing cumbersome legacy processes.

Migrating to SEPA also offers security advantages. By stipulating the use of IBAN (International Bank Account Number) as the account identifier for SEPA transactions, treasurers have greater certainty that cash will be transferred to the right account and that they receive payments when due.

Beyond the short-term cost, efficiency and security advantages, however, SEPA opens up a host of opportunities for corporates to expand their business, e.g., by increasing the feasibility of new trade routes powered by new payment instruments (such as SEPA Direct Debit) and thus encouraging small and medium-sized enterprises to do more cross-border business within the Eurozone. For those corporates that already conduct trade on a pan-European or global basis, SEPA will allow them to consolidate their bank accounts, optimise liquidity management and potentially centralise payments and collections through payment and collection factories. SEPA can also improve the level of straight-through processing automation, not least due to improved transaction referencing (e.g., end-to-end reference, originator reference and transaction reference). The potential for optimisation also extends beyond bulk payments in euro to payments denominated in foreign currencies and third-party bank payments, for instance.

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