Pioneering SEPA Migration

by Thomas Klein, Senior Consultant, International Cash Management, UniCredit, and Stefan Scheidgen, Head of Cash Management and Accounting, Deutsche Post AG Renten Service

Deutsche Post AG Renten (or Pension) Service is a major pension management outsourcing company based in Germany. Inspired by the German government’s commitment to the European Payments Council to be a frontrunner in SEPA migration, DPR embarked on a project to migrate its existing payment methods for making pension payments to SEPA instruments in 2009. This article outlines some of DPR’s experiences of implementing SEPA and its advice to other corporations and other organisations on how to do so successfully.

Although the project had a political motivation, DPR recognised that there would also be a variety of benefits to migrating to SEPA. For example, cross-border payment costs would be reduced, and in some cases, payments could even be processed same-day. In addition, legacy payment applications could be phased out, reducing the cost and resourcing required to maintain the IT infrastructure.

In November 2009, the project to migrate approximately 300,000 payments each month from DTA to SEPA through the Bundesbank clearing system was first conceived. By April 2010, DPS had designed a proof of concept to ensure the infrastructure, project and test plans met the project objectives.

The project comprised a series of key stages as follows:

• Agreement on formats between DPR and its partner banks;
• Changes to contract agreements to reflect new products and services;
• Joint definition of project plan, timelines and resourcing;
• Migration of master data to SEPA formats, including enrichment and validation of BIC and IBAN data;
• Implementation of changes to payment platforms, including using EBICS for domestic payments and FTP connections with banks’ electronic banking systems for international payments;
• Definition and delivery of changes to interfaces between internal systems and payment platforms;
• Retirement of legacy payment applications
• Testing with payment banks, including format, transmission, performance, and end-to-end process efficiency;
• Monitoring of exceptions and refinement of processes
• Production phase with parallel provision of data files in legacy formats.

Although the preparation phase for DPR’s processes, formats and infrastructure took some months, the migration process itself was very rapid and focused on mitigating project risks. In summer 2011, DPR started the migration with UniCredit. Overall DPR issues about 23 million SEPA Credit Transfers on a monthly basis in March 2012.

Addressing challenges

As an early adopter of SEPA Credit Transfers, DPR’s banks were at different stages of preparation. For example, not all banks were able to support the migration of master data to incorporate IBAN numbers on settlement instructions.

Supporting implementation at UniCredit

DPR was fortunate to receive a considerable amount of support from the UniCredit team throughout the proof of concept and migration process. In particular, the bank was able to provide practical advice on master data migration and supported DPR with the conversion file regarding each pension beneficiary with accounts at UniCredit Bank in Germany (IBAN Hin und Rück Service). Furthermore UniCredit supported DPR during the testing and quality assurance processes.[[[PAGE]]]

In cases of refusals of payments (accounts closed) UniCredit provides DPR with the required file format DTI (Dtaus to customer). In addition UniCredit is able to provide refusal batches as CAMT messages, if required by the customer.

Project outcomes

DPR has experienced considerable benefits both from implementing SEPA Credit Transfers, and also from enhanced bank connectivity. For example, using EBICS has enabled DPR to reduce data transmission costs. While it has taken some time to achieve the same level of sophistication in exception handling as DPR was accustomed to by banks previously, this has now been addressed. In addition the company has also been able to implement new processes for continuity management.

Using SEPA Credit Transfers has accelerated payment processing, reduced cross-border payment fees and enabled greater levels of standardisation. DPR has rationalised its payment systems, reducing maintenance effort and cost.

There are still some enhancements that are required over the coming months. While a large proportion of payments are now transmitted through XML messages, around a thousand payments each month are still converted to domestic formats (DTA) as the payment beneficiary banks are not yet able to support SEPA payments. This will change over the coming months as SEPA becomes a reality across the Eurozone.

However, SEPA is a reality and companies must start now in their migration plans in order to meet the February 2014 deadline. It is not simply bank integration or file formats that are affected, but the impact extends across the entire payment cycle. Therefore, a project of this type requires the same degree of focus and investment as historic projects such as Y2K or euro adoption. This is also supported by the joint experience of DPR and UniCredit, as well as in their mutual project. SEPA is still new, and therefore there will be areas where it will not be possible initially to replicate the same degree of efficiency that companies have achieved today. Consequently, treasurers and finance managers need to anticipate some additional resource requirements and costs in payment processes, at least until SEPA has matured.

Futhermore some additions to the SEPA rulebooks are expected by DPR to achieve the same level of comfort available within incumbent German payment processing today. Theses required additions do include for example mass cancellation and mass value date change procedures.