Published: October 10, 2014
Just over a year ago (TMI edition 218) we published an interview with Markus Straussfeld, Head of Cash Management International Sales, UniCredit Bank AG, who discussed the challenges and opportunities of SEPA with only eight months to go before the February 2014 end date. At that time, adoption rates still varied considerably between financial participants and European markets. Since then, a great deal has happened. While the February 2014 end date has been enforced in some countries, other countries, such as Germany, have allowed an additional transition period of varying lengths, the latest of which is 1 August 2014. With SEPA finally a reality, we talk to Markus once again about treasurers’ priorities in a post-migration European payments landscape.
Despite the additional transition periods that were allowed in some countries, most of our customers met the original February 2014 deadline. In some cases, however, such as in Italy, the transition period was a welcome addition to ensure compliance. The focus now is to achieve the same degree of process efficiency and automation as organisations were achieving before SEPA, such as improving straight-through processing (STP). This is work in progress for many companies, particularly as variations on the CGI XML standard impede genuine harmonisation. Even so, treasurers and finance managers are keen to leverage the benefits of standardisation wherever possible rather than treating migration simply as an IT project. For example, the opportunity for centralisation of cash management, payments and potentially collections by using common instruments is an important benefit of SEPA. Treasurers and finance managers are increasingly aiming to take advantage of this opportunity, either through physical centralisation of activities into a single location, but also through consistent channels, processes and reporting.
We are starting to see customers analysing their bank account structures and closing euro accounts outside their home markets to centralise cash, payments and collections. By simplifying account structures, however, and implementing techniques such as ‘payments and/or collections on behalf of’ group companies (POBO or COBO respectively), treasurers and finance managers need to find a way to achieve the same (or greater) level of automated reconciliation (STR – straight-through reconciliation), account posting and detailed reporting. Virtual account solutions are an effective and easy-to-implement means of achieving this. As healthcare provider B. Braun illustrated in their article in TMI’s Guide to Corporate Treasury in Germany supplement published in May 2014, virtual accounts offer the ability to identify and reconcile cash flows by the relevant entity or project, whilst still leveraging the benefits of simplified account structures and POBO or COBO models.
For example, looking at a COBO initiative, by implementing UniCredit’s virtual account solution, customers can rationalise accounts to one per currency. Each entity has a virtual account number for each of the required currency(-ies). The virtual account number is contained in the IBAN number that is given to suppliers and other counterparties. Collections are channelled to a single external account, but then allocated automatically to the relevant entity’s intercompany account for reconciliation and credit control. This offers a variety of benefits both for efficient collections and FX hedging.
Realistically, the number of exceptions across countries means that there is no true format standardisation at a European level, except that XML is used as a basis for both CGI formats and the formats that have been adopted in-country in certain cases (e.g., Germany, Austria, Spain, Portugal). Although it is tempting to think that these variations will be temporary, it is likely to take a long time and a great deal of collective will to achieve true harmonisation. This is difficult to envisage given that most work towards SEPA implementation takes place at an individual country level. Furthermore, there is still considerable uncertainty about the transition of niche products that still exist in some countries (such as recibos in Spain) and the products that will replace them, which further complicates harmonisation objectives.[[[PAGE]]]
Despite the challenges, however, there are new initiatives starting to materialise that leverage the new payments environment. While these are typically started in one country, successful projects may well be extended or replicated in other countries. For example, we have seen very little momentum towards EBPP (electronic bill presentment and payment) in recent years, despite initial discussions about the potential value. However, in Italy, the MyBank initiative has government support, a legal framework for electronic documents is now in place with a large number of banking players on board. Consequently, we see this continuing to gain traction; furthermore, as MyBank is now managed by EBA Clearing, there is the potential for it to expand more widely across Europe.
Commercial drivers will also encourage harmonisation and consistency. As we discussed earlier, we are increasingly working with companies that are seeking to rationalise accounts to reduce cost and complexity. This generally includes closing accounts in countries where payment costs are high, such as Spain and Portugal, and replacing them with non-resident accounts in lower-cost countries such as the Netherlands. Over time, commercial pressures are likely to encourage greater standardisation of fees across countries.
We have already come a long way with SEPA, even though we are not where we thought we would be. Having completed migration, one of the problems is that companies that were expecting a high level of standardisation as a result of harmonised formats have not experienced this. Consequently, the priority now is to manage the variations that exist in order to reach the levels of automation and efficiency as companies had achieved before SEPA, such as improving STP and STR rates.
SEPA hasn’t brought all the advantages that were expected, so treasurers and their banks need to work a little harder to achieve the efficiency, standardisation and centralisation that a single euro payments area implies. Within each country, SEPA payments are relatively straightforward and domestic banks can usually support this requirement. The difficulties emerge when managing cash in different locations, not least due to the variations that exist. Furthermore, few multinational businesses operate only in the Eurozone, so their need for efficient cash management extends beyond the Eurozone boundaries across all countries in which they operate. Consequently, treasurers and finance managers are seeking partner banks that can support their centralisation and harmonisation objectives both within the Eurozone and more widely across Europe.
At UniCredit, we are leveraging our investment in XML formats to bring cohesion within and beyond SEPA, such as in Central & Eastern Europe. By the beginning of 2015, all UniCredit accounts will be accessible via XML. This is a powerful tool in supporting customers to centralise cash, payments and collections, standardising processes and achieving better STP and STR rates. Somewhat counter-intuitively, as CGI standards are being adopted more widely than the Eurozone, it may be easier to achieve harmonisation across non-euro countries than in countries such as Spain where specific variations are in place. While limitations exist in some countries, such as those that use Cyrillic character sets, we are working to find solutions to address this.
Our commitment to leveraging technologies to achieve cohesive processes and accessible, integrated information is not limited to initiatives such as XML to harmonise processes and information flows. We are also an innovator in providing sophisticated electronic banking solutions through mobile devices such as smartphones and tablets. We offer full electronic banking functionality via tablets, so users do not need to use multiple devices. Data is updated in real-time, again increasing convenience and control for users. When launching our tablet-based electronic banking solution, we have also overcome the challenge of securing payments and access to sensitive information by introducing a highly-secure, token-free means of supporting electronic signatures. Our mobile electronic banking solution enables customers to access all UniCredit accounts globally and all accounts with third party banks in Germany through EBICS.
While 1 August 2014 was an important milestone in the SEPA journey, in many respects we are only at the beginning of a new era for euro payments and cash management. It is only now, with migration complete, that innovative banks, vendors, industry associations and corporations can start to create the solutions that will meet the payment and cash management needs of a fast-changing world.
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 […]
