Published: February 01, 2010
With the Single Euro Payments Area (SEPA) now a reality, and momentum building towards a migration deadline, companies should be considering their migration plans seriously. SEPA brings a wide variety of benefits, particularly for companies operating across borders. However, every company that is seeking to maximise payments, collections and cash management efficiency should be considering SEPA migration now to leverage the advantages of payments harmonisation in Europe. Every major change project inevitably presents some challenges. Therefore, to help clients implement SEPA payments and collections as smoothly as possible and take early advantage of SEPA benefits, Citi has formed a strategic alliance with leading payments processing provider, Experian Payments, to provide customers with an innovative SEPA data conversion service based on proven, robust processes and technology.
Since 2006, the use of BIC (bank identifier codes) and IBAN (international bank account numbers) has been compulsory on cross-border payments in euro. With the introduction of SEPA, however, this information will now be mandatory for domestic as well as cross-border payments. Use of IBAN/ BIC formats for payment instructions results in more secure, efficient payment processing and fewer errors; consequently, it will ultimately be beneficial for all individuals and organisations. These fields also resolve technical issues that exist in some markets (see fig. 1 below).
However, the need to amend payment instructions for all beneficiaries of euro payments brings migration challenges for all companies across the 31 countries covered by SEPA. BIC and IBAN information needs to be collected and recorded for every supplier, employee and other payee paid in euro. Internal systems used for payments origination, or in which payment instructions are stored, need to be modified to hold and transmit this information to other systems, and interfaces need to be amended. If either the BIC or IBAN is absent, erroneous or incorrectly formatted on a payment, it is likely to be delayed, rejected or penalised.
Early adopters of SEPA identified various common issues as part of their migration process:
Firstly, during the recent economic downturn, companies have had to prioritise their investments. While SEPA brings tangible benefits for many firms, treasurers were keen to effect migration without major financial overheads;
Secondly, many companies identified problems with converting and upgrading routing instructions for suppliers, specifically IBAN and BIC data;
Thirdly, there were questions over bank reachability and therefore their ability to support SEPA payment instruments; consequently, some companies were concerned that they would not be able to migrate to SEPA in a single process.[[[PAGE]]]
As a growing number of Citi customers recognise the benefits of SEPA migration before the deadline looms, many are now benefitting from Experian Payments' services.
To manage these concerns, and ensure a smooth migration to SEPA, Citi and Experian Payments have worked together for some years on individual client engagements. As a pioneering bank in Europe and a leading innovator in European payments respectively, it was a natural development to establish a more formal alliance in order that a wider range of customers could take advantage of the combined benefits offered by the two organisations. Consequently, as a growing number of Citi customers recognise the benefits of SEPA migration before the deadline looms, many are now benefiting from Experian Payments’ services. These include data conversion from BBAN (basic bank account numbers) to IBAN and BIC, and validation of this information. While most companies will anticipate including data conversion as part of their SEPA migration plans, validation of IBAN/ BIC information both as part of the initial migration process and on an ongoing basis is vital to ensuring a high STP (straight-through processing) rate. Bearing in mind the potential cost and inconvenience of delayed or rejected payments, it is highly beneficial to ensure early validation of this data
Step One
There are a variety of implications of SEPA migration, including the ability to simplify cash management structures, rationalise banking relationships and accounts, and centralise payments and collections more easily. In many cases, companies will wish to appoint a SEPA bank to help with all aspects of migration and act as their European cash management bank. This bank needs to have expertise and experience with SEPA, and a long-term commitment to European payments processing. Your SEPA bank will help you to understand the implications of the new SEPA payment instruments and the Payment Services Directive (PSD) on your business. Having understood the key impact of SEPA, your SEPA bank should be able to provide you with insights into your preferred payment geography, such as local clearing house migration plans.
Step Two
Having embarked on the migration process, it is important to complete it as quickly as possible to avoid having to maintain two separate sets of data in parallel. Your systems (including customer-facing systems such as websites for online retailing) will need to be able to support SEPA payments, including IBAN and BIC information, which may require vendor support to upgrade these systems, or additional in-house development in the case of proprietary systems. System vendors should therefore be involved in the process at an early stage.
Usually, payment details originate from a variety of systems, so the location and quality of bank account information needs to be examined and the relationship between data held in separate systems established. This will define the number of records that need to be converted, and how many of these are likely to need correction or enhancement to avoid errors.
Step Three
To convert and validate IBAN information is a two-stage process. Due to the volume of records typically involved, and the need to update systems without affecting data and systems integrity, it is very valuable to work with an expert partner throughout this stage. Firstly, the process is to identify errors and exceptions inherent in the existing data and codes which may have been retired or redirected. The second step is to update or convert as many records as possible with IBAN data using existing bank account information (BBANs). Key to the success of this process is to identify upfront where errors are likely to be and dealing with these, rather than running a conversion process with a low success rate. For example, it may be necessary to seek more information from the payee. By separating high quality information from lower quality data early on, the conversion can be as efficient as possible.
Once IBAN information has been updated, correct routing of BICs can be added to payment instructions. To do this successfully, BIC data should be accessed from a variety of sources to ensure data integrity, so once again, it is valuable to work with an expert partner to ensure that BIC information is updated accurately.[[[PAGE]]]
While the migration process to SEPA will vary in length and complexity for each company, particularly if they have a large number of retail customers, it is an excellent opportunity to enhance the completeness and accuracy of bank account information, resulting in a higher STP rate, fewer errors and lower costs. However, in order for this to be a long-term benefit, data needs to be maintained over time to ensure that new records are stored accurately and changes to instructions are correctly reflected in relevant systems. Once again, use of specialist tools from expert providers can increase data integrity and process efficiency significantly.
While many treasurers have put off the decision to migrate to SEPA, particularly during the crisis when there were other priorities and investment requirements, this is not a situation that can continue indefinitely. With a probable migration deadline of 2013, many companies with more complex euro payments and cash management requirements will need to start planning their migration projects now. Furthermore, banks and service providers are likely to experience more resource constraints as the deadline approaches, so it is preferable to engage earlier in order to secure access to the expertise required for a smooth migration. Working with an experienced SEPA bank and a specialist payments processing provider is a valuable means of reducing implementation risk and maximising the potential advantages of SEPA – harmonisation, efficiency and reduced cost.
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