Published: August 01, 2010
The European Direct Debits went live in November 2009. Since then, ING has been a pioneer in supporting clients moving from domestic direct debit arrangements in Eurozone countries, particularly in Belgium which was the country ING chose for its pilot project. In this article, ING outlines how we have addressed some of the opportunities and challenges that corporate clients have experienced, and the solutions that are becoming available to facilitate efficient migration.
In addition, there are companies with a pan-European customer base, who have either not been in a position to use direct debits for collections in the past, or who have had to maintain separate collection banks and/or accounts with different conditions in each country. These companies can benefit from harmonised conditions with same-day value in a single account under the European Direct Debits scheme. Consequently, European Direct Debits presents a significant opportunity to automate, accelerate and harmonise the collections process for all customers in the Eurozone, which is a major factor in encouraging companies to implement European Direct Debits, particularly the B2B scheme.
There are other motivating factors in companies’ decision to migrate to, or implement European Direct Debits. For example, European Direct Debits is based on ISO 20022 XML formats. XML is becoming a company-standard for messaging and integration amongst many of our clients; therefore the ability to leverage XML is considered an important advantage by some companies.
Creditor mandate flow
Some countries currently have direct debit schemes based on a debtor mandate flow, i.e., debtor banks are responsible for maintaining mandates. In contrast, the European Direct Debits scheme has a creditor mandate flow, so creditors are responsible for maintaining and validating mandates. This represents a substantial shift in responsibility, and potentially increases the administrative requirement dramatically for companies with a high volume of direct debits.
The requirement for XML
Another challenge is that while some companies are keen to promote XML standards within their organisation, others have domestic formats more entrenched within their technology infrastructure, which makes it more difficult to adopt new XML-based formats.
File delivery times
While creditors have been accustomed to delivering direct debit files to their bank only one day before value date, under the European Direct Debits scheme, files must be delivered either five days beforehand (for one-off and first collections of recurrent direct debits) or two days beforehand (for subsequent collections of recurrent direct debits) or one day beforehand (for B2B direct debits). This creates additional pressure on already stretched business processes and has the potential to delay collection dates, with the resulting impact on working capital.
Reachability
Finally, European Direct Debits does not yet have full reachability across every bank that supports direct debits. This is generally more of an issue for companies seeking to implement European Direct Debits on a pan-European basis; however, this is a short-term obstacle as it will become mandatory for banks to support European Direct Debits by November 2010.[[[PAGE]]]
ING has been a primary advocate for SEPA and a pioneer in realising the benefits for our clients. We have focused our efforts on introducing solutions that help clients to leverage the advantages whilst mitigating the potential challenges. To achieve this, we have formed a strategic alliance with Sentenial, a leading provider of direct debit processing services with a great deal of experience. Together with Sentenial, we have developed three elements to our European Direct Debits and mandate management, which have been successfully piloted and are now being rolled out more widely. These three elements can be implemented together or individually, according to the needs of an individual organisation.
Creditors who wish to migrate to European Direct Debits need to hold information on their debtors in XML format with specific mandate-related information, such as the IBAN and BIC codes, unique mandate reference and creditor ID. This information must be included on each European Direct Debits file which is sent to the bank. While companies can enrich existing data themselves, this can be time-consuming and erroneous. Consequently, ING clients will be able to send their debtor information to Sentenial, who can perform the necessary enrichment and either send the file back to the client, or use it to perform one of the services outlined below. Creditors seeking to introduce the European Direct Debit B2B scheme need to obtain a re-signed mandate from their customers. Inevitably, this creates additional administration, so to help clients with this, ING is working with Sentenial to enable ING clients to use debtor information (either generated by the client directly, or through the ING mandate management service) to populate mandate forms, send them to customers with a covering letter, process responses and chase uncompleted forms.
While the services above assist with the initial migration or introduction of European Direct Debits, clients are also seeking solutions for ongoing management of European Direct Debits mandates, such as setting up direct debits for new customers, having mandates printed and posted to debtors. Once again, ING clients will be able to outsource this activity, and monitor direct debits actively through an online channel.
In addition to the core services above, ING has worked with Sentenial to address other concerns and challenges that our clients have identified. For example, companies who want to introduce or migrate to the European Direct Debits scheme but who are not yet in a position to generate files in XML format, are able to send files in domestic formats for conversion to XML and onward transmission to ING. While Belgium has been the pilot country for this capability, this service will be available to clients in all Eurozone countries.
In addition to providing innovative European Direct Debits and mandate solutions, ING is active in advising clients on European Direct Debits, best practices for migration, how to leverage the opportunities and overcome the challenges. We advise clients to appoint one person to take ownership for SEPA migration to ensure consistency of approach and that the needs of the company as a whole are taken into account. We then suggest that the person or team responsible for SEPA consider in detail the opportunities that SEPA presents.
Every company has individual requirements so the project stages and activities can differ significantly. We help clients to develop a project plan that is appropriate to their business, as well as providing flexible solutions. For example, we have found that in Belgium, creditors receive files from the National Bank of Belgium with debtor information that may be out of date. Our services enable these files to be cleansed and updated before the migration. Furthermore, if there are delays in receiving re-signed mandates from customers, it may be that companies choose to operate both the domestic direct debit and European Direct Debits scheme for a period of time.
Clients’ response to the new European Direct Debits and mandate services that we are rolling out with Sentenial has been extremely positive. Clients welcome our pragmatic approach to overcoming their challenges and constraints, and they are increasingly seeking our advice on how best to leverage the European Direct Debits scheme in their organisation. To do this, they are seeking our guidance on how to manage their SEPA project end-to-end. We have completed the pilot project, with 30 clients now live on European Direct Debits with ING, and 100 contracts in place. Our European Direct Debits and mandate management services and processing capabilities are supplemented with detailed reporting that facilitates easy reconciliation.
Although the final end-date for existing domestic schemes has not yet been confirmed, a date of December 2012 is being discussed as a possibility, which gives companies relatively little time to plan and deliver a SEPA project. As soon as an end date is announced, momentum will pick up rapidly, and resources experienced in SEPA will become scarcer. Consequently, we are recommending to our clients that they start planning their project now, and leverage the expertise and solutions that ING provides.
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