Published: October 07, 2014
Now that the SEPA end date has passed, and the additional transition periods that were allowed in some countries have come to an end, many treasurers are now reflecting on their migration experience and looking ahead with the question ‘what next’? The introduction of standardised payment and collection instruments, based on common formats, is a major step forward in pan-European payments harmonisation. However, with considerable changes in technology and payments culture since the SEPA instruments were first conceived, the issue now is how to move forward quickly in optimising the new European payments and collections landscape.
One of the most challenging elements of SEPA has been the introduction and migration to SEPA Direct Debits (SDD). There are a variety of reasons for this. The instrument definition and formats were not confirmed until November 2011, giving relatively little time for migration. As SDD replaced a variety of quite different direct debit instruments, the result was a compromise that was often less attractive than the legacy instruments it replaced. Finally, technology and payments culture evolved significantly between the original conception of SDD and its final delivery, so expectations on issues such as eMandates have changed.
As speakers in the “SEPA: What’s up? What’s next?” workshop emphasised, however, leading users of SDD have not allowed these challenges to become barriers to a successful migration project. Arkadin is one of the world’s fastest growing collaboration service providers, offering a complete range of integrated audio, web, video and unified communications solutions across 32 countries globally. Tarik Momni, Head of Internal Audit and Project Finance, described how the organisation has more than 1,000 customers paying by direct debit, with over two million direct debit collections each year. Direct debits are used in five countries today, with two more to follow shortly. It was therefore essential that the migration to SDD was conducted without interruption to cash flow or inconvenience for customers. Arkadin recognised that SEPA migration was an opportunity to implement a new collection strategy and organisation, specifically centralising SDD collections into a European collections shared service centre (SSC) in France.
Arkadin recognised that SEPA migration was an opportunity to implement a new collection strategy and organisation
The biggest hurdle that Arkadin experienced in the project was the limited timescale for its completion. All five countries needed to be migrated to SDD and a central SSC between October 2013 and the SEPA deadline of 1 February 2014. Furthermore, Arkadin’s existing accounting system did not support XML (the format on which SDD messages are based) either for input or output. Arkadin approached its cash management bank, BNP Paribas, to seek its help in implementing the project in order to meet its business objectives within the required timeframe. BNP Paribas committed the necessary expert personnel to the project, including a project co-ordinator and representatives from both the SEPA onboarding and cash management teams who worked with Arkadin’s project manager, treasury and technology teams to implement the project.
In addition to supporting SDD collections in each country across Arkadin’s European footprint and expert resources, a key element of BNP Paribas’ value proposition was its partnership with Worldline, an Atos company, provider of EasyCollect. Arkadin was able to implement EasyCollect quickly and easily to provide mandate management and convert accounting formats used by its accounting system to/ from XML. Not only have collection processes now been refined to take advantage of the automation and control that EasyCollect offers, but implementing the solution enabled Arkadin to complete a timely migration.
With the migration to SDD now complete, Tarik explained that there are various developments and improvements that Arkadin is now looking to make. Firstly, SDD will be offered as a collection method in two further countries. Secondly, the company is keen to take advantage of additional functionality available in EasyCollect, such as electronic pre-notifications, and wide industry initiatives such as the development of eMandates.
For the second panellist, treasurer of a large European telecoms company with the large majority of collections via direct debit, any service interruption resulting from errors or omissions during the SDD migration process could have had a serious impact both financially and reputationally. Following rapid growth over a decade, automation is a key priority to reduce costs and enhance the customer experience, using tools such as online subscription, electronic billing and automated notification of unpaid bills or rejected debits. The company took a phased approach to migration to ensure that mandate conversion, customer communication and collection processes were handled correctly, resulting in a highly successful migration project. Due to the deep analysis and follow-up of the new error codes, the reject rate is now, after the project, even lower than before!
Despite the success of the migration project, large SDD billers in particular, such as utilities and telecoms companies, still face considerable challenges. For example, rejection codes are not yet handled uniformly by banks, which makes it difficult to qualify rejections and to implement an automated processes for dealing with rejected debits and unpaid bills. Use of manual mandates is very labour- and storage-intensive and the process of setting up mandates can be time-consuming. Consequently, a priority in the coming months will be to automate this process as far as possible, including the use of eMandates and enabling customers to authorise mandates via online or mobile banking.[[[PAGE]]]
Leon Spithoven, Corporate Financial Services Manager, Q8 (the brand name of Kuwait Petroleum International) operates across 23 countries in Europe with 143 accounts in several currencies. All payments and collections are processed by BNP Paribas and partner banks, with SEPA Credit Transfers (SCT) centralised in the Netherlands, and SDD centralised in Belgium for all group companies in Europe. Q8 was an early adopter of SEPA, with the migration project commencing in March 2011. The ultimate goal of the project was to implement both SCT and SDD using Q8’s ERP system, including migrating to the SDD business to business (B2B) scheme wherever possible. Q8 aimed to complete migration within nine months (i.e., by end 2011) with full process automation in the ERP, which would also be used for mandate management. As the previous panellists had expressed, a key requirement was to avoid business interruption and disturbance to customers. Like Arkadin, Q8 recognised that SEPA presented the opportunity to optimise payments and collections processing. For example, payments were centralised to a limited number of accounts while SEPA collections were centralised into bank accounts in Belgium with a single (CODA) reporting format. SCT and SDD would be done daily to smooth the cash flow profile.
Looking first at SCT, there have undoubtedly been some advantages in its use at Q8. Fewer accounts are required and a single XML-based format can be used. This will make it easier and more cost-effective in the future to maintain internal systems as only one format needs to be managed. The cost of cross-border payments has also been reduced. However, Q8 has experienced some drawbacks of the new instrument. While same-day value (T+0) was possible in countries such as the Netherlands, SCT is based on T+1 which has an impact on liquidity, while earlier cut-off times put pressure on processes. While SEPA aims to promote harmonisation, there are inconsistencies between banks in their use of formats. Similarly, SDD has brought both advantages and challenges for Q8. For example, Leon emphasised the advantages of a single creditor ID per company, the use of uniform standards, mandates and XML-based formats, and the ability to centralise collections more easily across Eurozone countries. The B2B scheme also has the advantage of minimising credit risk as there is no right of refund.
While SEPA aims to promote harmonisation, there are inconsistencies between banks in their use of formats.
There are some challenges, however, which created implementation problems but also ongoing issues. As SDD definitions and formats were finalised very late (and indeed there is a revised version of the SDD Rule Book due), some ERP and other financial systems were not ready at the time when companies needed to migrate, and further modifications will be required to systems and processes in the future. There has been a considerable impact on business processes already, and the need to sign new mandates has created particular challenges for companies with large SDD volumes. As legacy direct debit schemes differed in their relative sophistication, there has inevitably been the issue that the new instrument is inferior to some legacy schemes. For example, the SDD mandate process is inefficient compared with previous schemes in the Netherlands and Belgium, and it is not possible to process SDD on a T+0 basis. It is time-consuming to set up a new mandate, with different messages for both first and recurrent mandates.
As a result of these limitations, and as an early adopter of SDD, Q8’s migration process was challenging. The ERP was not yet compliant with the SDD scheme, and functionalities such as mandate management was not yet available. Furthermore, the business partner used for mandate management lacked the adequate capacity to handle mandates, therefore causing disruption and inconvenience to both Q8 and its customers. Not all of Q8’s clients were SDD compliant, particularly in the B2B scheme. So the company had to use the regular SDD core scheme instead, which created, rather than minimised, the credit risk due to the extended right of refund.
Despite the challenges, Q8 achieved migration in good time in most cases, with the first entities live on both SCT and SDD by March 2012 with the final migration completed in April 2013, totalling more than 1.2 million SDD collections each year. Since then, there has been some migration to SDD B2B wherever possible, but customers in France are still on the regular SDD scheme, and customers in Italy are now migrating. Leon explained that a key factor in the ultimate success of the project was BNP Paribas’ support, co-operation and project management.
Leon highlighted some of the outstanding challenges that need to be addressed quickly to achieve the financial and operational efficiency that corporations in Europe require, and which were discussed by the panel, which included Francis De Roeck, Head of SEPA Offering, BNP Paribas Cash Management and Sylvie Calsacy, Online Banking, Product Manager, Worldline:
i) The Rule Books and implementation guidelines published by the European Payment Council (EPC) should be followed consistently by banks and banking associations in all countries if SEPA is to achieve its harmonisation objectives. This needs to be enforced at a European level to avoid national or bank-specific implementation guidelines or interpretations.
ii) Rapid progress needs to be made towards eMandates at a European level to benefit both corporations and consumers. The panel discussed some of the in-country initiatives that are under way, and the potential risks that these created in terms of further fragmentation, rather than harmonisation in Europe. However, it is possible that in-country initiatives could win more universal support and form the basis of a pan-European eMandate solution, and it may be quicker and easier to deliver a solution on this basis.
iii) Leon recommended that a central European system to verify mandate confirmation and verification would be an invaluable step in accelerating the mandate setup process, but it was difficult to agree what the process and driver for developing this would be.
iv) Technology and payments culture have moved on considerably since SEPA was first conceived. For example, 24/7 payment processing is now available in more than 10 countries globally, so Europe needs to ‘catch up’, firstly by shortening the clearing cycle for SCT and SDD, but also quickly moving towards a ‘real-time SEPA’. Similarly, substantial growth in the use of electronic banking and a variety of initiatives in mobile banking reflect changing consumer demand that SEPA instruments do not yet represent.
The panel concluded that 1 February 2014, and the subsequent additional transition periods that were permitted in some countries, represented the start date, not the end date for SEPA, and that SCT and SDD should be considered a basis for further innovation and harmonisation. Achieving consensus on priorities, clear definition of responsibilities, and a commitment to pan-European innovation will be key to achieving the original harmonisation objectives whilst reflecting a new technological and cultural landscape.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
