Published: March 01, 2014
A six-month extension to the SEPA deadline should not stop firms from planning their next steps, but the foundations laid by SEPA provide ample opportunities to innovate both in the SEPA zone and further afield.
Ultimately, February 1 did not bring the end of all payments inconsistent with the Single Euro Payments Area (SEPA) format, thanks to an added six-month transaction period from the European Commission. But that date still brought the abolition of nationally-designated payment systems and marked the transition to the SEPA Credit Transfer and Direct Debit schemes. And even if most of the outdated payment types will be accepted through August 1, the deadline also held for some types such as Abbuchungsauftrag in Germany.
Even so, the extension remains welcome news for those running late in making all of the necessary changes. And this short breathing space also gives corporates an opportunity to look beyond August. While the next step for corporates – and life after SEPA – depends largely on their specific treasury strategies and operational structures, they need not consider compliance with the SEPA Credit Transfer (SCT) and Direct Debit (SDD) schemes to be the end of efficiency-creation in treasury management.
In reality, the SCT and SDD schemes – as well as the transition to the SEPA-designated XML payment format – lay the foundations for greater efficiency gains. Crucially, this is the case both in the SEPA zone (the EU, EFTA and Monaco) and further afield, in places like central Europe, Turkey and Russia.
Before now, many corporates have not had the means to fully explore SEPA’s larger potential beyond its initial requirements, such was the importance of ensuring compliance while maintaining operations throughout the transition. In fact, many corporates are still unprepared, as the extension confirms. But those that are already fully compliant with SEPA’s initial requirements can begin to shift their focus towards the future. These firms can work to exploit the deeper efficiency gains made possible by SEPA by extending its principles beyond its original purpose.
Indeed, by driving the centralisation of payments processes – and the end of historical fragmentation – SEPA gives corporates the opportunity to create payments (and perhaps collections) factories. These are central, payment-executing units that can work on behalf of multiple subsidiaries – and, in doing so, increase visibility and control of liquidity and cash management for corporate treasurers, while reducing transaction cost and risk.
For businesses that already include payments factories in their liquidity and cash management operations, SEPA provides the opportunity for yet further efficiencies in rationalising banking relationships, e-banking channels and bank accounts. By taking this to its logical conclusion, some corporates may reach the point where a single euro account handles transactions for the whole jurisdiction – the pinnacle of efficiency and transparency.
But this comes with its own challenges. For instance, corporate treasurers may be concerned about a loss of detail in payment-related information. Of course, the ability to monitor every payment made and received by individual branches and profit centres must remain, not least to ensure disparate operations remain within budget and meet profit projections.
These concerns are partly allayed by the introduction of the XML payment format. While local clearing systems would often truncate payment-related data, the larger size of XML files – compared to its domestic and global counterparts – allows for all of the payment-related data needed by treasurers to remain untouched. As such, any treasurer hoping to promote further efficiencies will find XML to be a powerful tool – especially when used in combination with the centralisation and rationalisation benefits offered by SEPA. But if these benefits are to be exploited fully, innovation is necessary on the part of banks. Indeed, the development of solutions has to come alongside advisory support.
Banks have already begun to innovate in this area, and virtual accounting is a good example. With one company banking hub acting as a conduit for payments in and out, the virtual accounting process looks much like a payments factory at the most basic level. But virtual accounting innovates further by dividing the single account into particular streams corresponding to existing clients’ organisational structures such as branches or profit/cost-centres. Consequently branch managers and group treasurers are able to look at each ‘virtual’ accounts’ undertakings on an individual basis within a single, streamlined ‘physical’ account. [[[PAGE]]]
While separate local accounts are retained only for national-specific payments like tax, all other payments and receipts are directed through one ‘physical’ account – a practice that still allows local reporting through the attachment of local indentifiers along with virtual accounting structures that include a reporting function (such as statements or tailored reports) for each account. It also provides the obvious advantages of a single account such as cash and working capital optimisation.
Developments such as this will define the next phase of treasury management. And, what’s more, by allowing foreign currency payments before reconciling to the single euro account, they provide the foundations for innovations outside of the SEPA-zone. Such innovation is possible because of SEPA, with schemes such as virtual accounting simply taking its efficiency-generation to the logical conclusion.
Virtual accounting is only part one of SEPA’s larger potential, where the future of payments allows a system of truly seamless cross-border banking across Europe, including its eastern and south-eastern fringes. Single banking portals – with the power to authorise, validate and convert payments – have the potential to make payments truly borderless, at least from the corporate perspective.
Currently, these systems are largely the domain of specialist cash management providers with a deep understanding of the SEPA zone – including non-euro markets in the SEPA zone – and its neighbouring geographies with their complex legal and regulatory systems.
UniCredit is one such provider. Besides offering solutions for virtual accounting systems and centralised payment hubs through EuropeanGate plus our supporting e-banking portal – we are also constantly working on enlarging our already existing cross-border cash pooling structures mainly by adding more and more countries to allow corporates efficient and extendable SEPA-payment programmes in Western Europe. On a country-by-country basis, these cash pooling structures can extend the same standards and systems in Eastern Europe. This initiative is unique to UniCredit – giving our clients the opportunity to achieve real efficiency in cash management throughout Europe and beyond.
While some central and eastern European countries – like Poland and the Czech Republic – are included in the EU and SEPA areas, Russia and others are not likely to join them in the medium term. As such, any cash management efficiencies here are hard-won. But UniCredit plans to service the strong demand for improved cash visibility within Russia with its local and cross-border cash pooling services for Russian-domiciled businesses.
Creating Russian cash pooling facilities meant navigating the complex legal and regulatory regime of that country and satisfying all of the necessary legal audits and requirements. But the result is the first cross-border pooling capability available to that jurisdiction. The bank can also directly handle request-for-transfer (MT101) messages – revolutionary for the Russian market, where only domestic organisations could act on behalf of MT101s previously.
UniCredit is targeting other challenging markets, such as Croatia and Bulgaria, for cross-border cash pooling structures and has established pilot programmes to this end. It also allows its clients to operate on a SEPA-payments basis in Western Europe, while using the same standards and systems on a country-by-country basis in Eastern Europe – an approach unique to the bank.
Ultimately, the desire is to broaden and deepen the potential of SEPA by taking its spirit beyond the SEPA zone while exploring its potential further within it. There is much that the principles and ideas behind SEPA can do to inform progress in the most challenging of environments.
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