sepa

The majority of European companies are still in the early days of SEPA adoption. Although SEPA payment instruments have been in existence since 2008, very few large companies have adopted their use as replacements for domestic payments services. However the approach of the SEPA migration deadline (1st February 2014) and the rulings laid-out in Regulation Number 260/2012 will put an end to the co-existence of legacy and SEPA payments systems. After this date banks and companies will have no other option but to route their payments through SEPA-Enabled Pan-European Automated Clearing Houses.

Although SEPA take-up has so far been less than enthusiastic, it is very likely that over the next few months companies will start moving swiftly to upgrade their payments systems before the migration end-date. Below are listed three good reasons for organisations to start thinking about SEPA migration sooner rather than later.

1) Beat the bank-queue and avoid the confusion of January 2014

Most of the large European banks have started reaching out to business customers in order to encourage active dialog in the run-up to the migration deadline. Many of these are asking customers to work in tandem with their relationship manager to streamline their migration process and minimise disruption to payments. A company’s banking provider should be viewed as a key strategic ally in implementing organisational changes necessary for SEPA.

Your bank will be able to provide a number of value-adding services in this regard. An example of this might be the testing of XML files or the validation of SEPA account data. Companies should bear in mind that these services will be required by all business entities, both large and small. Consequently you should expect to see your bank working at full capacity to try and satisfy the needs of its customers before the migration end-date. This rush on services will inevitably result in a straining of resources.

The analogy of a crowd of people running for a single exit during an emergency is a useful one to employ here in describing the SEPA preparation environment of late 2013. Companies need to understand that although banks are well placed to provide migration assistance services, they simply won’t have the capacity to deal with all their customers as thoroughly as will be necessary.

One of the best ways to avoid this last-minute SEPA ‘crush’ is to start making organisational changes ASAP and arrange to liaise with your banking provider early in your migration schedule. This way your company will be able to ‘beat the queue’ so to speak, and enjoy a more comprehensive administration of services well in advance of the migration deadline. 

2) Move early and protect yourself with a margin for error

Another good reason to consider early adoption of SEPA is to allow your company a margin for error in advance of the deadline date. The rationale behind this is that if payment instructions are submitted incorrectly (which is highly probable given the confusion in the market today and the muddle of disinformation that is available online regarding the SEPA migration deadline) in a worst case scenario the payments will be either updated so that they can be routed through the SEPA clearing system, or failing this, doctored so that they can be processed using domestic legacy clearing. In either case the payment might be delayed but it will eventually reach its destination and the company will be informed of changes that will need to be made to payments files in the future.

Compare this to the post 1st February 2014 payments landscape, in which domestic clearing systems have been closed down and replaced by Pan-European Clearing. In this environment it is likely that when a payment file is submitted containing errors that go beyond the reach of the bank’s permission to administer changes, then the payment will be simply returned to the sender.

This situation would be very undesirable for companies attempting to make payment deadlines and could have serious implications for the companies’ credit-worthiness. In light of this it is highly recommended that companies start moving early and allow themselves ample time to move up the learning curve before 1st February 2014.

3) Comply now, optimise later

A final advantage of taking a forward-looking approach to SEPA migration is that it will allow you time to develop scope for payments rationalisation. The approach of the migration deadline will present large European companies with a good opportunity to review their payments and banking activity and explore opportunities to centralise some of these activities through SEPA.

This concept is easier to explain with an example. Take a large European company operating in several EU countries and making heavy use of domestic electronic payments instruments to both pay suppliers and collect receipts. Such a company will have to conduct a thorough review of their payments activities in advance of the SEPA deadline in order to gauge impact and identify areas where change will be needed. Such a review may bring to light areas of inefficiency in the company’s banking structure which could provide a platform for cost-savings in the future. An example might be that of a company maintaining a bank account that is used solely for the payment of salary in a small overseas subsidiary through a domestic clearing system. Such a bank account would incur all the traditional fees associated with transaction banking like account maintenance costs and transaction processing costs. Such a bank account will become redundant after the closure of domestic clearing systems as SEPA payment instruments will now allow the company to effect payments across Europe using a single bank account.

The opportunity to make savings like this will be attractive for any cost-conscious company. However before jumping to collect any low-hanging fruit, we would recommend that companies first aim to familiarise themselves with SEPA payment instruments and iron-out any possible errors in their systems before looking to reap the benefits of centralisation.

One must crawl before one learns how to walk and in this instance we would recommend doing the same. Make it a priority to build organisational awareness of SEPA but leave the optimisation until after you are comfortable that your systems are robust and scalable.