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Home » Issues » 2014 » Issue 28 July / August 2014 » Zeroing in on the Euro Zone

Zeroing in on the Euro Zone

xcxSeveral financial institutions and corporates in Asia, the Middle East and North Africa – although not tied to the 2014 Single Euro Payments Area (SEPA) deadlines – have joined SEPA schemes, and are already ‘grabbing the operational benefits of optimised euro payments’, according to OLIVIER DENIS, product manager for SEPA compliance at EastNets


he single euro payments area (SEPA) migration is much more than a European affair.  From a strategic perspective, SEPA offers opportunities to credit unions and corporates outside Europe to achieve greater benefits by rationalising euro payment practices with their European counterparts, thereby enhancing processing quality and reducing risks.

The fundamental change that SEPA brings from an operational perspective is the standardisation of euro payments through the ISO20022 XML messaging standard and  payment schemes harmonising service conditions for credit transfer and direct debit execution across Europe.

Although SEPA was initially launched in 2008, since 2012 the European Commission has issued a SEPA migration roadmap with legal deadlines accelerating the migration of all payment market infrastructures in Europe to the new SEPA standards.

The Euro Zone, comprising those countries in Europe using the euro as their domestic currency, has to complete the migration this year. Those other countries that are either part of the European Union, or committed on a voluntary basis to adhere to the SEPA schemes, have to migrate by February 2016 at the latest.

All together, the SEPA market unifies more than 500 million citizens in 33 countries served by a community of more than 5000+ banks processing roughly more than 90 billion electronic euro payments per year (European Central Bank figures 2012).

The great benefit of the SEPA payments schemes is that all businesses that make euro payments, including euro businesses outside Europe, can do it using a single euro account processing all SEPA compliant payments with the Euro Zone.

Opportunities for those outside Europe

At first sight, those financial institutions and corporates headquartered outside Europe but with operations on the continent may simply view SEPA migration as an European compliance issue with limited relevance to them, leaving it up to their European affiliates  to deal with the compliance deadlines.

But, from a more strategic perspective, SEPA offers an opportunity for banks and corporates  to achieve greater benefits by rationalising payments practices, enhancing processes and reducing the cost and risk of euro payments processing.

One major reason for financial institutions’ ability to achieve these benefits is that SEPA will enable them to make all their euro payments out of one account, significantly reducing the number of bank accounts and simplifying the clearing and settlement structures and relationship with their European counterparts.

Credit unions and corporates can even use a payment-on-behalf-of (POBO) model for SEPA payment model to make payments for their entire group from one single euro account and go for a SEPA cloud processing model to minimise impact on IT infrastructure and resource.

In a nutshell, euro payments workflow compliance with SEPA means that euro payments and collections in the SEPA zone have to apply the SEPA operation rulebooks for credit transfer and direct debit, as issued by the European Payment Council (EPC

The SEPA operations rulebooks for credit transfer and direct debit are a common set of conditions and operation rules from a legal, formatting, processing and end-user service point of view. As one single account per legal entity is enough to reach and be reached by the entire SEPA financial community, financial institutions have the ability to simplify their account structures and operations, which means they can reduce their risk and further lower the cost of payments.

Today, SEPA migration is a reality for millions of customers and thousands of corporates and financial institutions and is progressing steadily.

According to the European Central Bank, which is monitoring on a monthly basis the volume of SEPA payments processed across Europe, more than 35 per cent of total volume of credit transfer in Europe is already SEPA compliant and in some countries the total volume of credit transfer is approaching 100 per cent (

Credit unions outside Europe that have multiple euro accounts and multiple European counterparts across the Euro Zone can gain significant benefits from streamlining their euro payments so that they use one account (per legal entity) to make and receive payments in the same manner.

Several financial institutions and corporates from Asia, the Middle East and North Africa, although not tied at all to the legal SEPA migration deadlines in 2014, have joined the SEPA schemes, implemented SEPA workflows for euro payments and are already enjoying the operational benefits of optimised euro payments.

Using one euro account concentrates funding and liquidity for euro payments, thereby reducing the need for physical and or notional forms of cash pooling, which simplifies the process of managing liquidity and enables better operational risk management.

Credit unions and corporates outside Europe can achieve further gains by analysing the cost of payments across the SEPA zone, and re-evaluating where it will be most cost-effective and efficient to make their euro payments.

For instance, a credit union that has a large payments volume in a specific European country where payment processing is expensive could shift payments to a lower-cost location in Europe and take full advantage of the single SEPA competitive market.

Along with replacing their current set of complex structures for euro payments with fewer accounts, credit unions and corporates outside Europe also have the opportunity to re-consider their business relationship with European counterparts and, potentially, establishing relationships with banking partners offering the best conditions for SEPA.

SEPA implementation: how it works

While it is not necessary to change banking relationships for SEPA as all the financial institutions in the SEPA schemes essentially have the same reach across the SEPA zone from a payment point of view, credit unions and corporates outside Europe can take advantage of a single SEPA partner to instruct and collect payments across the whole SEPA zone.

So rather than just leaving SEPA migration to European affiliates as an local operational and compliance issue, those outside Europe with operations of any size in Europe can benefit from focusing strategically on how best to rationalise their entire payments and collections process and practices during SEPA migration.

Once a credit union has decided to join SEPA and worked out a strategy for migration, the implementation process has to be defined. It will have to perform a technical analysis of its back-office and treasury systems to determine their ability to send/receive SEPA-compliant euro payments, as well as evaluate process improvements to streamline payments. It can then develop an implementation plan for any changes that are needed to rationalise bank accounts and banking relationships.

Any financial institution or corporate in MENA and Asia that initiates euro payments in SEPA markets needs to ensure that plans include all payments in all markets that need to be SEPA-compliant.

Whilst the time required to adapt euro payment workflow to SEPA may vary depending on the back office and ERP complexity and level of compliance (minimum requirements for inter-operability or full schemes options implementation) typically it can take six to nine months to become compliant using internal resources.

However, the duration of the migration can be significantly reduced when the bank outsources partially or totally that SEPA migration effort to a service provider and/or a technology provider. Going for a “SEPA POBO” or “SEPA in the cloud” service might help reduce migration time to a couple of months.

The cost of implementation and technology also varies depending on the level of sophistication and the size of the financial institution or corporate. The cost savings, however, will usually far outweigh the cost of implementation. Many financial institutions and corporates operating globally beyond Europe, being early adopters of SEPA since 2010, have already today exceeded the original break-even point of their business case to invest in SEPA compliant infrastructure.

Financial institutions and corporates outside Europe processing euro payments should  challenge their existing  banking partner at a strategic level to use SEPA as a key driver to assess their current structure of euro accounts in multiple countries and determine how best to rationalise their euro payments operations.

Their banking partners of choice for SEPA migration should be able to provide them with advice at a tactical and operational level on switching euro payment workflow and accounting practices to meet SEPA compliance requirements.

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