Comply first, optimise later

Intended to make cross-border euro payments as cheap and straightforward as domestic payments, the Single Euro Payments Area (SEPA) offers great potential for companies to manage their cash more effectively.

For years, the focus of any discussion on SEPA has been on when the industry will be fully migrated. While the migration end-date had been set for February 1, 2014 for the majority of European countries, the European Commission announced in the eleventh hour that a transition period would be added allowing migration to take place up to six months later.

With the August deadline just around the corner, industry-wide migration is finally almost complete. As of March, SEPA credit transfers represented more than 95 per cent of credit transfers in the eurozone. SEPA direct debits, which had lagged behind for so long, now account for over 82 per cent of the total.

As a non-euro country, the UK is not required to migrate to SEPA until October 2016. However, many of the country’s larger corporations that do trade with eurozone countries have already begun to enlist SEPA services.

“Companies in the UK have the choice,” explains Ruth Wandhöfer, global head of regulatory and market strategy, at Citi Global Transaction Services. “As there is no compliance requirement for the UK market, as a non-euro country, SEPA is optional for businesses until 2016. Alternatively they can use TARGET2 [Trans-European automated real-time gross settlement express transfer system] to complete a cross-border transaction. But firms that already see value in SEPA, because it is cheaper and more harmonised across the euro markets, have already pushed their banks to deliver these solutions to them.”

At a European level, while most companies are now expected to achieve migration within the transition period, the SEPA story is not over. “Many multinational corporates have adopted a compliance first, optimise later approach,” says Garry Young, director, IP, commercial sector, at IT and business process services firm CGI.

Companies operating in Europe can use SEPA to reduce the number of bank accounts they hold, as well as simplifying their liquidity management structures

These companies may have missed an opportunity to improve their cash management structure, but there is still time to benefit from SEPA once compliance has been achieved. “We are seeing that clients who have focused on compliance are now beginning to look at how they can optimise the benefits of SEPA,” says Tony Richter, head of eurozone product delivery at HSBC. “These companies aren’t just looking at payment activity, but are looking at treasury transformation, with a focus on working capital management, more efficient liquidity and centralised supply chain solutions.”

Treasurers wishing to implement a second stage SEPA programme still have an opportunity to use SEPA to their advantage. Companies operating in Europe can use SEPA to reduce the number of bank accounts they hold, as well as simplifying their liquidity management structures. “This concentrates funding and liquidity, reduces the need for cash pooling, which in turn simplifies the liquidity management process and enhances operational risk management,” says Mr Young.

Adoption of XML (extensible markup language with a common internet information format) is one of the aspects of SEPA that corporations can use to their advantage. While some companies have adopted XML conversion services offered by third parties in order to meet the migration deadline, adopting XML at a later date could yield significant benefits.

Ad Van der Poel, head of payments and receivables, for Europe, the Middle East and Africa, at Bank of America Merrill Lynch, points out that under SEPA there is “essentially one standard XML file format in use across Europe, albeit with some local variations”. He says: “This consistency makes it easier to go back to first principles in cash management and ask what can be centralised, and what savings and benefits would result.”

For many companies, the task of achieving SEPA compliance has been too complex in itself to allow time to evaluate these possibilities. However, once migration is behind them, treasurers may finally be able to leverage SEPA to benefit their businesses.