Making EU payments faster

A new European payments system levies fresh demands on UK businesses, but promises to pay dividends, as Christian Doherty reports


There aren’t many EU regulations that promise to make life easier for businesses, but there is one, set to arrive in February 2014, that could reduce cost, simplify processes and improve visibility over cash flow. The arrival of the Single European Payments Area, or SEPA as it’s commonly known, heralds, according to its cheerleaders at least, a whole new world of paying third parties and settling accounts.

The experts tell us, with good reason, that SEPA compliance should be viewed more as an opportunity to cut costs and streamline processes, and not just another layer of red tape to be negotiated. And certainly there are real benefits to be gained by equipping your business for SEPA.

And it’s not just cost. Logic suggests that cleaning up old and outdated systems and mandates will inevitably improve efficiency. Finance and treasury teams may find genuine improvements to systems and processes once they have been through a SEPA conversion. Think of it as an overdue spring clean for your payment systems, and perhaps the chance to re-orient and evaluate your relationship with your bank.

“There is a compliance aspect, certainly,” says Micah Willbrand, director risk and payments for Europe, the Middle East and Africa (EMEA) at consultancy Bankers Accuity. “But the origin of SEPA is to unlock all the waste and inefficiency that goes into the payments system.”

Think of it as an overdue spring clean for your payment systems, and perhaps the chance to re-orient and evaluate your relationship with your bank

“Cross-border payments from France to Germany a year or two ago would cost €20 and take three or four days, whereas a domestic payment would cost 10 cents, instantly. So SEPA is aiming to make a real-time payment union, like the United States, where it doesn’t’ matter where you are moving money – it’s all the same time and cost, and we can unlock all the value we’re wasting at the moment.”

Which all sounds great. But for businesses and banks within the eurozone, this isn’t an optional extra – the deadline for compliance arrives in less than six months. And, says Andrew Reid, managing director and co-head corporate cash management, EMEA, at Deutsche Bank, SEPA has a deep impact on the fundamentals of a business’s operating model.

“It affects master data, IT systems – protocols, data-base structures and interfaces – AP/AR [accounts payable/accounts receivable] processes, as well as forms – paper, electronic and web. For most sizable businesses, the transition project will require cross-functional collaboration across finance, IT, sales, marketing, HR, IT, legal, compliance and general services, to name the most important.”

For businesses engaging in any payments within the eurozone, the process of paying suppliers and trading partners will change. But Mr Willbrand says even for smaller businesses, with little awareness of SEPA’s arrival, there’s no need to panic.

“The UK is outside the scheme until 2016. If they’re making payments into the euro/SEPA area, then they have to convert the account numbers they have to IBAN [international bank account numbers] with the paired bank – that’s the easy bit. That’s simply updating information. And we’ll see companies that used to do it electronically perhaps using a manual process. They can call the bank and give them instructions – here’s the IBAN and the associated BIC [business identifier code], please make this payment. They may not have their accounting systems up to speed electronically, but as a bare minimum, they should be able to get up to speed.”

But this isn’t necessarily a question of avoiding penalties. The situation with SEPA is different. “Banks will, for regulatory reasons, not process legacy mass euro transactions payments from February 1, 2014 onwards,” warns Deutsche Bank’s Mr Reid. “Corporates sending such transactions will find that banks cannot process them anymore as the legacy clearing will be shut down.

“For the SME [small and medium-sized enterprise] market, SEPA readiness is more a question of process efficiency than a question of dead or alive,” he says, adding that help is at hand. “We have scanned the market for third-party solution providers and found 50-plus vendors where clients can get help on short notice to convert payment files into SEPA. We do not believe in the threat that corporates will run into illiquidity due to a late start in their SEPA project.”