Published: June 01, 2012
Electricité de France (EDF) was an early adopter of SEPA Credit Transfers (SCT), having made the decision to migrate in 2008. This article explores EDF’s migration experiences, project outcomes and gives advice to corporates that are planning their migration.
The decision to migrate was not a difficult one for us at EDF, as we recognised the value of harmonisation and standardisation, and by reducing costs and streamlining processes, we could become more competitive. Furthermore, as President of the SEPA commission of the AFTE (French Association of Corporate Treasurers), I wanted EDF to be a pioneer for SEPA in France and set a good example.
Having explored the project in detail, we discovered that introducing SCT would not require substantial modifications to our business organisation or processes, and the costs of migration would be limited. In this respect we were fortunate, as our payments factory had been built to comply with SEPA. The payments factory had integrated SWIFT’s IBAN and BIC directory, so we could leverage this to convert RIB or BBAN data into IBAN and BIC in real time, and generate the XML file.
Without SEPA-compliant systems already in place, a company would need to upgrade its ERP or other internal systems to take advantage of new developments. It would also need to approach its bank for BIC and IBAN conversion, integrate the SWIFT IBAN and BIC directory, or work with an external vendor providing conversion services. However, even if the workload is greater than it was for us, the value can be immediate and substantial: for example, in our case, using SCT, 10,000 cross-border euro transfers each year now have the same conditions as for domestic transfers, with a major cost implication.
We took a phased approach to implementation, with all three phases now complete. We started with supplier and other third-party payments; secondly, we focused on employee payments, which are made through one bank, and director payments that are made through another; thirdly, we migrated expenses reimbursements. In total, this involved migrating 16 million credit transfers each year, with five different banks.[[[PAGE]]]
Click above image to enlarge
We chose ING as one of our SEPA partner banks based on the high quality of the relationship, both in Paris and globally.[1] We were confident in the skills and experience of our primary contacts, the commercial terms were favourable, and the bank offered high quality customer service and implementation support. Although it had not been our deliberate intention, a valuable advantage under SEPA is that payment processing can be performed by any bank that provides payments services in the Single Euro Payments Area, as opposed to being restricted to French banks.
At the beginning of the project, ING established a dedicated task force to follow the payments process and ensure that all payments were being processed correctly and promptly.[2] The migration process took a few months to complete. In 2011, we have succeeded in migrating 100% of our euro credit transfers to SCT.
As an early adopter of SCT, we inevitably met some challenges during the migration process. Firstly, we found that banks had a different interpretation of the execution date, which had to be addressed to achieve the same level of service from each bank. Secondly, during the early days of SCT, there were some banks that were not reachable, but this is not the case now. Finally, there were initially some discrepancies between the BIC and IBAN and the Bank of France’s guichets domiciliataires but this has also since been corrected.
EDF was the first corporation in France to adopt SCT, which has enabled us both to pioneer and advocate the advantages. We have realised the financial benefits we were expecting, but just as importantly, harmonisation and standardisation enables us to be more competitive across all of the Eurozone countries in which we operate.[[[PAGE]]]
Now that we have implemented our payments factory successfully, for both SEPA and non-SEPA payments, we are focusing on developing a collections factory, that will also incorporate SEPA Direct Debits (SDD). Initially, the scope of the collections factory will be for collections in France, and other countries will be added at a later stage.
As a utilities company, SDD is a collections rather than payments issue for EDF. Bearing in mind the large volume of domestic direct debits in different locations, this is a major undertaking. Implementing a collections factory is therefore a significant challenge, in both process and organisational terms, exacerbated by the need to migrate to SDD. Once we have designed the collections factory and defined the business processes, we will select a solution for migrating existing mandates and mandate management. As with all other creditors, we will need to manage SDD mandates for our customers from now on, which represents a major additional overhead for a company with a large volume of collections such as EDF. Consequently, we will need a highly efficient tool to convert the existing mandates, create new ones, and manage them in the future. As this is not our core business, we will look for a specialist third-party multibank tool to provide this capability.
Another step is to define and test XML format for SDD. While we are already able to generate the relevant XML file for SDD, not all of our banks are yet ready to process them. We will then be able to test our processes and XML formats with our banks, including ensuring that the R-messages are transmitted successfully back to EDF as the creditor by the debtor bank.
Initially, we will only implement the core scheme, as we believe that our business customers will not be willing to adopt the SDD business-to-business (B2B) scheme without a reimbursement period, which is eight weeks under the core scheme. This is a wider trend that we are seeing in France.
Our current intention is to start the SDD migration after November 2012, as long as the economic benefit is sufficient. In France, there is an interchange fee per transaction paid by the creditor to its bank, which then pays it back to the debtor bank. There are currently discussions under way between the major creditors such as EDF to suppress this interchange fee, which could remain on domestic direct debits until 2014 or even 2017 under current proposals, even though the fee will be waived for cross-border SDD from November 2012. We are working hard with banks and the regulator to try to ensure that the November 2012 date applies to both domestic and cross-border direct debits.
With the end dates for national payment schemes barely 18 months away, corporate treasurers and finance managers should lose no time in analysing their systems and processes in preparation for SEPA, and constructing a project plan. This process in itself can be very time-consuming, which leaves little time for actual migration. While the SCT migration is less extensive and disruptive to processes than SDD, it is still a significant undertaking for some companies, particularly those that have to upgrade or develop new system capabilities. The SDD project involves more change to business processes than SCT, with more stakeholders due to the need to convert customer mandates, so this also needs to be a priority.
SEPA is an opportunity for corporations, despite the initial investment that may be required. At EDF, we are seeing the benefits of harmonisation and standardisation, and we will build on this in the future by further streamlining our payments, collections and cash management technology and processes, and leveraging new pan-European products and services as they become available.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
