Published: September 01, 2013
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“While the need for every company operating in the Eurozone to migrate to SEPA payment instruments is dominating the headlines, less attention has been given to the advantages that European harmonisation offers to optimise cash management. As Andreas Kriz, Head of Treasury, MIAG outlines below, SEPA offers a historic opportunity to review and enhance bank relationships, payments processing and cash management. Although SEPA migration has been slow in some cases, we are now seeing companies across all industries seeking to leverage the opportunities of harmonisation and standardisation that SEPA offers. For example, centralised payments processing, often on a payments-on-behalf-of model, is becoming increasingly common. This enables treasurers and finance managers to rationalise bank accounts and relationships, simplify cash management and achieve significant operational efficiencies and cost savings. MIAG, which acts as the shared service centre for payments and working capital solutions for the METRO GROUP and its suppliers, was one of the first companies globally to centralise payments processing. In this article, Andreas Kriz, Head of Treasury, MIAG describes how the company has taken the opportunity of SEPA migration to enhance its payments processing and optimise bank relationships.” Thomas Eisenhuth, Vice President, |
At MIAG, we have operated a centralised payments factory on behalf of METRO GROUP entities for nearly 40 years. As a pioneer in this area, we have refined our processes and technology over many years to achieve the highest levels of efficiency, control and security. Migrating to SEPA (Single Euro Payments Area) marks the next step in our journey in optimising payments processing at MIAG. Once the SEPA end date was confirmed in early 2012, it was quickly apparent that we needed to adopt SEPA instruments promptly to avoid interruption to our payments processing. As the third largest clearer in Switzerland after UBS and Credit Suisse, with around 1.5 million payments each year, it was essential that migration could progress smoothly without risk of error or loss of automation.
We recognised that our SEPA migration project was an opportunity to make improvements to our payments processing that extended beyond regulatory compliance. In particular, we identified two key opportunities:
In the past, we worked with two banks in each country on an equal footing (as opposed to having one primary bank and one back-up). We used these accounts at MIAG to make payments on behalf of group companies. Harmonisation of payment instruments, formats and legal conditions in Europe meant that we no longer needed to maintain accounts or bank relationships in each country. We therefore decided to centralise our banking relationships in Germany with a view to reducing the number of bank accounts we maintained, cutting bank charges, rationalising formats, streamlining fragmented data hubs and reducing the amount of administration time spent on maintaining bank relationships.
We started a tender process in Germany in co-operation with Metro Finance, our Group Treasury function. Initially, we contacted around 25 banks, a list that we later reduced to 10 and then to four. Many of our requirements were familiar: the bank’s financial stability; quality of service provision; reliability and depth of solutions. An essential condition was that a partner bank could provide same-day value on SEPA Credit Transfers (SCT), including both the debit from MIAG’s account and the credit on the beneficiary’s account, and at a low cost (less than 1 eurocent per transaction). We were also interested in the bank’s transactional capabilities, such as supporting SWIFT Corporate Access. We have had SWIFT in place since 2007 and we connect to all our banks (around 40 in total) so it was an essential requirement.
We selected Societe Generale as one of our four SEPA payment banks as it satisfied all of our criteria and the relationship was very positive. We already worked with Societe Generale in three countries, so we were confident in the bank’s capabilities and the team’s commitment to developing the relationship further.[[[PAGE]]]
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“Although MIAG is unique in that its experience of centralised payments processing has developed over many years, the advantages that they have realised are widely achievable. SEPA is proving a catalyst for corporations across all industries, both in Germany and in other European countries, to review and optimise their payments, and in some cases collection processes. In many cases, companies are opting to roll out their SEPA migration on a country-by-country basis, in which case centralisation would typically be a second step. However, the more consistent payment processes are across the enterprise, and the fewer banking partners involved, the more straightforward the migration project is likely to be. The factors that led MIAG to select Societe Generale as a partner bank are consistent with many corporations that have decided either to extend an existing relationship with the bank to include SEPA, or to build new relationships with the bank. For example, Societe Generale’s position as a top European bank in SWIFT Corporate Access is an important decision criterion for many of our customers as we have the capacity, experience and ability to advise on best practices for bank communication and integration. Our ability to make SEPA payments with same-day value is not a standard capability across all banks, so it is very attractive to both new and existing customers to maximise payments efficiency and optimise working capital, particularly as part of a centralised payments and cash management infrastructure.” Thomas Eisenhuth, Vice President, |
Migration in practice
Having selected our banking partners, we needed to open new accounts and decide on which SEPA format to use. Although SEPA instruments are based on a standard format, there are a number of variations in Germany, so we worked with our banks to agree on a single format which we could use to communicate.
We already had an efficient payments system in place, based on Coconet’s MULTIVERSA IFP International Finance Portal, in addition to SWIFT, so we did not need to make significant changes to our technology infrastructure to support SCT, except to support ISO 20022 formats. We already had BIC and IBAN in place in some countries e.g., in Greece and Italy, these are already part of the domestic formats, but we needed to augment suppliers’ bank details in other instances. Maintaining suppliers’ bank details is performed by local business units using SAP, which we then access centrally at MIAG. We therefore worked closely with each business unit to ensure that suppliers’ bank details were complete and accurate in good time, ready for migration. We then worked with our banks to exchange test files and validate IBAN/ BIC etc. to minimise errors or interruptions to payments processing as a result of implementing SCT.
We are now around two-thirds of the way through our project in terms of the number of customers and countries that we have migrated to SCT, but around one-third in terms of volume, as we have not yet migrated our payments in Germany. We aim to complete this by end November 2013 so we still have time to resolve any final issues before the 1 February 2014 deadline.
Although we have not yet completed our migration, we have already achieved considerable benefits as a result of rationalising our banks and accounts, and migrating to SCT in some countries. We now have one euro account with each of our four banks and we make payments-on-behalf of group entities, which considerably reduces the amount of time and resource required to administer bank accounts and relationships. This, together with competitive transaction costs, mean that we have been able to reduce our bank charges by around 40% so far. Liquidity management is easier and more transparent in that we no longer need to fund multiple accounts each day. This allows greater concentration of cash and more efficient deployment of cash. With fewer day-to-day banking contacts, our communications are more efficient, there is greater accountability and closer personal interaction, resulting so any issues are resolved more easily and quickly.
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“It is rare that such an important catalyst for centralising and optimising payments, collections and cash management arises. Many companies will no longer have time both to achieve SEPA compliance and fully leverage the opportunities for centralisation, optimisation and harmonisation. However, by working closely with partner banks from the start of the project through compliance as the first step and optimisation as the second, treasurers and finance managers can add considerable operational and financial benefit to their organisations.” Alain Grugé, Global Head of Cash Management, Societe Generale |
Sharing experiences
Although MIAG’s SEPA migration project is of a larger scale than for some companies, it is a major project for any organisation with multiple stakeholders. A variety of departments need to be involved, including IT, Treasury, Accounting, Accounts Payable, Sales and Procurement, in addition to customers, suppliers and banks. With such a diversity of parties involved, it is easy for a project to lose momentum, so central ownership, a clear vision and management commitment to the project is essential to clear roadblocks and keep the project on track. To achieve this, we held meetings for the SEPA team that includes representatives of our major internal stakeholders every two weeks. We also have regular conference calls with our banks and meetings with the overall SEPA project team at a Metro AG level so that each element of the project is aligned.
With the end date for domestic payment instruments approaching quickly, time is now very short for companies that have not already made considerable progress towards SEPA migration. Selecting the right SEPA bank(s) and communicating with these banks effectively should be an important priority, not simply amending file formats. SEPA offers a historic opportunity to review and enhance bank relationships, payments processing and cash management. Despite the need to focus on compliance first, given the timescales involved, SEPA migration is an optimisation opportunity that should not be missed.
The project has resulted in a great deal of change at MIAG, including bank relationships, account structures, payment instruments and formats. Consequently, once we have completed the SCT migration and closed the remaining legacy accounts, we will reflect on our new organisation to ensure that our operations remain as efficient as possible. We will then start looking at how we can leverage our new banking infrastructure more fully, such as incoming payments and cash pooling. In addition, having implemented ISO 20022 formats for our euro payments, we will seek to standardise payments in all currencies using the same format.
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