As the Single Euro Payments Area (SEPA) deadline looms, there is a sense of panic growing among organisations, many of which are not prepared for the significant changes that will be required for payment processes.
While corporates may be aware of the EU Directive and SEPA’s impending 2008 deadline, many have yet to devise a SEPA strategy and do not appreciate what will ensue in its wake. Those organisations that are not SEPA compliant may find that their payment transactions will be severely delayed or they will be unable to make payments at all. This could have huge ramifications for revenues and the European economy.
The directive requires organisations within the eurozone to print an International Bank Account Number (IBAN) and Bank Identifier Code (BIC) on all invoices. It is commonly accepted that the principles of SEPA relate only to these codes. However the scope of the directive is much larger. Generally, corporates still do not understand the full implications of what SEPA has in store for them.
Moreover, there are banks in Europe still without a BIC. There are as many as 3500 banks alone in Europe with non-Swift BICs, which are used for identification purposes, not routing. Any payment instructions to these institutions will require further routing information within these instructions. This will also be true for those institutions that have local sorting codes only.
This gives rise to the question, who is responsible for this information? It is expected that banks must have the ability to accept payments with an IBAN and BIC, but what if that data is being hard coded into systems? We now live in a world where this type of data is dynamic and changes at a considerably high rate.
Enterprises are understandably turning to their banks for assistance on how to restructure payments systems and comply with SEPA. However, few banks are actively providing support for their clients. This perhaps is not surprising – the directive will hit bank revenues with a double whammy. Banks are required to bring the cost structure of cross-border payments in line with domestic payments – meaning reduced transaction charges across the eurozone. At the same time banks have to invest in payment processes to ensure their systems comply with SEPA.
Organisations will have to gear up and invest in data sources and payment systems to validate and check data. This will be necessary to ensure that clean payment instructions are transmitted to their partner banks. Failure to do this with accurate and reliable data will result in higher charges and the rejection of payments. Additionally, it will become necessary for SEPA data to be fed into corporate systems directly. This ensures that the ever-dynamic data will update those same-system databases automatically.
The news for corporates, however, is not all doom and gloom. To improve payment processes and reduce transaction costs, enterprises should examine the opportunities SEPA will bring. Companies with multi-national sites and operations will be able to generate savings by consolidating payments into single payments factories with a common set of procedures for all EU payments. In such circumstances, a firm will be in the position to present a single payments file, generated by a single location, to a single bank, prepared to a single format. This provides the opportunity for corporates to significantly improve efficiency and achieve economies of scale.
We are likely to see the establishment of third party payment providers. Emerging providers will be able to hit the ground running as their payment systems are modern and fully compliant, giving them the competitive edge over traditional legacy systems. Research suggests that some companies may outsource payments management to shared service centres.
Given the time, complex nature and financial investment required to implement the necessary IT systems and data management processes required for SEPA, organisations need to act now if they are to meet the deadline. While some banks may brush SEPA under the carpet, there is an opportunity for corporates to take control of their payments strategy and create payments systems that realise its benefits. Perhaps this will influence reluctant banks to provide greater support for the directive. In any case, SEPA is unavoidable and it may just be the catalyst to bring about an enlightened era of payment fluency.
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