Published: March 01, 2013
One of the best attended workshops during the Cash Management University organised by BNP Paribas was on the topic of SEPA migration, moderated by Richard Delvaux, Director, PricewaterhouseCoopers. The workshop focused on the migration experiences of two major BNP Paribas customers, GDF Suez and AkzoNobel, with commentary from Luca Poletto, Head of SEPA at BNP Paribas Cash Management, and Andreas Knopf, Managing Director of BPI Business Process Integration GmbH. The workshop had two key objectives: firstly, to what extent companies are able to leverage SEPA as an opportunity as opposed to simply a compliance project; secondly, the major areas that require attention for a successful SEPA project.
Luca Poletto, BNP Paribas Cash Management, emphasised that the SEPA migration end date of 1 February 2014 in the SEPA countries is a binding commitment, at which point existing domestic credit transfer and direct debit schemes will cease. To achieve this, every entity operating in a Eurozone country needs to be ready to migrate its entire volume of transactions to the new schemes. This is a particular challenge bearing in mind that migration rates to date remain very low: according to the most recent figures (November 2012) 30.6% of credit transfers were under the SCT scheme 2.1% of direct debits were under the SDD scheme (source: ECB).
The scale of the migration challenge should not, therefore, be underestimated, particularly as projects typically take 6-12 months, particularly for larger remitters; therefore, all companies should be starting immediately to achieve the end date. While it is easy to ‘wait and see’ in case the end date could be delayed, there has been no indication to this effect, and there is strong motivation across the banking, regulatory and political community to migrate promptly.
Luca went on to discuss that the most likely way in which many corporates will migrate in time is by leveraging additional banking and vendor services. Furthermore, there will be a transition period from now until 2016 when companies may need to support both SEPA formats, based on XML, and legacy formats in countries such as Spain and Italy where the requirement to migrate from local formats has been extended until 2016. He emphasised, however, that it will be essential to select the right SEPA partners to support the new harmonised European landscape.
Based on PwC’s experience of supporting a variety of different organisations through their migration process, Richard Delvaux suggested that while SEPA migration posed challenges, it also offered opportunity to improve the efficiency and control of payment, collection and cash management processes. If a SEPA project is treated solely as a compliance issue, and the focus is on fulfilling the minimum requirements for migration, there is likely to be little benefit. However, by recognising that SEPA can be a catalyst for process transformation, the project can deliver a positive return on investment. Some of the benefits that SEPA can deliver are illustrated in figure 1, including:
He continued however by noting that bearing in mind the limited time that companies have to migrate to SEPA, the top priority must be on compliance; however, by preparing the ground now, treasurers and finance managers will be in a position leverage the benefits as soon as possible once compliance has been achieved.[[[PAGE]]]
Michael Girszyn, who has responsibility for SWIFT connectivity and electronic banking at GDF Suez, the world’s largest utilities corporation with a turnover of €90.7bn (2011). The company has a long history of M&A, resulting in a large number of subsidiaries. One of the outcomes of this was a decentralised, fragmented approach to payments, with disparate processes, banking relationships and connectivity. In 2008, therefore, a new payments factory was conceived, replacing two existing payment factories in Gaz de France and Suez. Initially, the intention was to include all group companies in France, Belgium and Luxembourg, but it was also rolled out to entities in the UK. To streamline bank connectivity, GDF Suez recognised that SWIFT was the most appropriate means of communicating with its banking partners in a consistent way.
Between 2009 and 2012, the payments factory was rolled out to around 1,000 entities across the four countries, with 2,500 users. Thirty banking groups are connected to the payments factory via SWIFT with more than 2,200 bank accounts. In France, around 100 million local direct debits are managed each year, and more than six million credit transfers. In Belgium, around 20 million SEPA Direct Debits (SDD) and one million SEPA Credit Transfers (SCT) are processed every year.
Bearing in mind the timing of the payments factory project, SEPA has inevitably arisen as a significant issue. Initially, GDF Suez considered SEPA migration to be solely an imposed, regulatory requirement and focused predominantly on the cost of implementation. This was particularly significant bearing in mind that a lot of work was required to update existing systems, which was difficult to justify to senior management. To gain management support, the project team had to focus on the benefits of migration. Specifically, business entities had previously had different processes, formats and banking partners. This was inefficient, compromised control objectives and increased costs. For GDF Suez, therefore, the primary benefit of SEPA was standardisation across the business, combined with centralisation through a payments factory.
Michael Girszyn, GDF Suez then described how a panel of users was appointed across business units with the aim of creating two standardised models: one for banks and one for systems. All entities would work with the same panel of SEPA banks, and use the consistent formats and processes as part of the payments factory. GDF Suez launched a request for proposal (RFP) in late 2012 to implement a standard format for both SCT and SDD, achieve more competitive pricing for SDD, and develop a single contract template across all banks. Initially, the scope of the project is limited to France, but once this has been concluded, the same model will be established for other Eurozone countries.
Within GDF Suez, one communication method and set of business processes has been defined for all 40 ERPs that are connected to the payments factory, with compliance as an essential criterion for inclusion. SEPA migration involves a wide range of stakeholders, including payments/ collections functions, sales, customer communication, reconciliation etc., so a precise model is required, with very specific communications across the stakeholder community.
The standardisation advantages of SEPA, including rationalised banks, formats, bank communication and processes, together with the implementation of the payments factory will ultimately benefit all entities in GDF Suez, both within and beyond the Eurozone.
The panel also discussed the fact that while payments are often a logical focus for SEPA migration, every transaction is both a payment and a collection, so there is inevitably an impact on collections and bank account reconciliation. Andreas Knopf, BPI Business Process Integration GmbH explained that even without the impact of SEPA, the accuracy of automatic bank reconciliation often declines over time as a company appoints new banking partners and customers pay in different ways. This will be exacerbated further during the period of SEPA migration. Over the next year, every company should expect to see a gradual increase in the number of SEPA flows, which need to be managed from a reconciliation process. This is not simply a matter of new formats; existing formats for bank statements (e.g., SWIFT MT940) will remain initially, but the content and structure of references in these files will change to reflect the way that remittance data is held on SEPA transactions. As a result, constant changes can be expected until SEPA has been implemented at each of the corporates’ business partners. Furthermore, a degree of bank specificity in the way that data is presented is also to be expected.[[[PAGE]]]
Marco Schuchmann, AkzoNobel then described the approach that AkzoNobel has taken to SEPA migration. The company has a comprehensive payments and collections factory in place. Two hundred and twenty entities across 22 countries are using the payments factory, with €800m and 60,000 transactions each month. Over 50,000 collections via direct debit are processed, and 80,000 bank account postings are reconciled every month across 545 accounts. The payments/collections factory is integrated with local clearing systems to enable a standardised approach to transaction processing whilst supporting local requirements.
In 2011, AkzoNobel made the decision to develop a roadmap for SEPA migration. Fundamentally, the company recognised that if there is a change to the end point in purchase-to-pay or order-to-cash processes, there is an impact right at the beginning, which therefore involves a variety of different people. Being an early adopter of SEPA instruments brought a number of challenges. Not all banks were fully prepared, and there were inconsistencies over issues such as value-dating practices. Some challenges were internal. For example, not all business units recognised the importance of SEPA migration, and some payments, such as salary payments, were performed outside of the regular purchase-to-pay process. There were some technical issues too, primarily due to the number of different ERPs and versions in place, which were difficult to integrate. Furthermore, there is a considerable logistics exercise involved in migrating to XML formats across 206 business units that each use different systems. For AkzoNobel, a key factor in the success of the SEPA migration project was therefore to standardise interfaces; once this had been done, it would be far easier to deal with incremental changes in the future.
Implementing SDD also raised a number of issues. For example, AkzoNobel’s ERP provider had limited mandate support, with only two languages and no distinction between one-off and recurring direct debits. There was also a change required in the mapping logic for direct debit transactions in order to indicate in the outgoing file the identity of the ultimate debtor.
As of January 2013, AkzoNobel’s treasury system is SEPA-compliant with SCT, and business units that use the company’s primary ERP can now use SEPA instruments for all payments. In addition, treasury will only process euro payments on behalf of business units which have an IBAN and BIC code included, a process that started in 2010.
For SDD, AkzoNobel has obtained a SEPA creditor ID. New direct debit schemes will be set up as ‘collection on behalf of’ wherever possible to encourage standardisation and control. SDD implementation requires significant business unit co-operation, as they manage customer contracts, including direct debit mandates. AkzoNobel is fortunate, however, in that it is easier to enable the necessary process and system changes required to implement SDD in a centralised environment such as a payments/ collections factory. Luca Poletto, BNP Paribas Cash Management noted that multinational businesses have more challenges than those migrating from direct debits in one country as different rules apply in terms of the mandate management and transfer processes that are required.
In addition to payments and collections, external bank statements are imported for reconciliation against the systems in, and then match the two using BPI’s cash application tool.
For AkzoNobel, although SEPA brought challenges, not least due to the company’s wish to be an early adopter to cement its leadership position in corporate treasury, it has also been a catalyst for change. Fragmentation of processes, information and integration formats have all resulted in difficulties in the past, but the mandatory nature of SEPA was an opportunity to resolve these issues and achieve greater efficiency.
In response to a question from the floor, Marco emphasised the importance of making, and communicating, clear decisions on the company’s payment and collection strategy to the whole range of stakeholders, including migration timelines and company policy on whether it would continue to pay or accept non-SEPA, domestic formats in the future. The stakeholder community in a SEPA project is wide and diverse, but IT is a key enabler, and the SEPA project frequently needs to be aligned with other ERP projects underway. He also pointed to the need for flexibility as new information emerges or alternative solutions are found.
The panel concluded that while SEPA was a mandatory, regulator-driven project, its implications and benefits extend way beyond compliance:
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