Published: October 01, 2011
W ith adoption of the euro taking place in 2009, Slovakia is one of the most recent countries to join the single European currency, which includes adopting the Payment Services Directive (PSD) and the planned migration to the Single Euro Payments Area (SEPA) payment instruments. Migration to SEPA payment products is already under way in many European countries, with banks and corporates alike in the latter stages of preparation and in some cases migration, but with later euro adoption, transition plans in Slovakia are at a later stage of development. This article looks at the status of migration to SEPA in Slovakia and some of the opportunities and challenges that it presents for businesses located in the country.
Banks in Slovakia are making active preparations for migration within an aggressive timescale.
Banks in Slovakia are making active preparations for migration within an aggressive timescale. The National Bank of Slovakia is spearheading these efforts by publishing migration guides that will enable commercial banks to migrate processes and technology to support the new instruments. Banks such as ˜CSOB, KBC’s subsidiary in the Slovak republic, is proactively analysing, preparing and implementing changes to its own systems and processes to facilitate migration to SEPA. While the official deadline for SCT migration is February 2013, we are on target to support SEPA-based clearing by end 2012, a far shorter time than most countries have enjoyed.
Introducing SCT represents a more straightforward proposition than SDD, and consequently, the project to develop and support SCT is further advanced. The SCT (see box) is not fundamentally different from the existing domestic credit transfer, with the same pricing and value dating, although the technical standards (i.e., ISO 20022 formats) have not yet been introduced. As the requirements of the PSD (figure 1) have already been implemented, pricing of domestic and cross-border payments is now consistent. In reality, this has already had a significant impact on companies operating internationally, even before the SEPA payment products have been introduced, as cross-border transaction costs are reduced.
Consequently, we are not yet experiencing demand from corporate clients to migrate to SEPA, although it will ultimately be a requirement for all companies. Some subsidiaries of companies based in Germany and other European countries are keen to keep themselves informed about the status of SEPA migration plans so that they can integrate their Slovak payment operations with those in other countries, taking advantage of the technical convergence that SEPA offers.
However, harmonising the technical, legal and pricing conditions for payments across the Eurozone brings considerable advantages particularly to companies operating internationally. In the past, it has often been difficult for multinational companies to centralise and standardise payments and collections processing. Consequently, many have maintained multiple banking partners with different interfaces, complex cash management structures to consolidate cash, and separate payments and collections departments with diverse processes and technology. SEPA therefore offers the ability to centralise payment, collection and cash management processes and rationalise the number of banking partners, with advantages such as:
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While SCT is relatively consistent with existing domestic credit transfers, SDD (see box) is a very different instrument from the existing, popular domestic direct debit instrument, such as the mandated flow. Currently, responsibility for the direct debit mandate lies with the debtor’s bank. The debtor sets up a limit for the ‘collection’ transaction and there is no option for revocability after processing (the debtor gives upfront consent to debit his/her account because they know the nature and purpose of the upcoming collection transaction). Under the SDD scheme, direct debit mandates are set up between the debtor and creditor, with direct debit mandates retained by the creditor bank during and beyond the period of validity. Although there is still some confirmation required about the mandate flow in Slovakia, this is likely to require significant preparation, particularly for companies with high volumes of direct debits, such as telecoms and utility companies. We are waiting for the final conclusions about mandate requirements, at which point we will be able to work with these companies to plan for migration.
The SDD will allow many companies to simplify payments and increase predictability of collections.
While the new SDD will represent a significant change, there will be some advantages. The SDD enables business-to-business as well as consumer-to-business direct debits and cross-border direct debits, which will allow many companies to simplify payments and increase predictability of collections.
As yet, companies do not need to prepare specifically for migration, except to be aware of the deadlines. One major issue to consider is that the international bank account number (IBAN) and bank identifier code (BIC) that is required on both SCT and SDD is not currently used domestically as existing domestic bank account numbers are shorter and support only digits. There are other domestic fields too that do not correspond to SEPA requirements, particularly for payment identification, which will therefore require some changes to existing ERP, payment and reconciliation systems, as well as banking interfaces.
To help clients with these processes, at CSOB we are actively investing in systems, processes and resources, including drawing on the experience of other parts of the KBC Group who already have expertise and a successful track record in SEPA migration. Clients can therefore be assured of our ability to support a smooth and successful SEPA implementation, enabling them to overcome challenges and leverage the opportunities that the SEPA payment instruments present.
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