Do you SEPA?

There are plenty of sites that talk about what SEPA actually is.  SEPA is short for the single euro payments area (SEPA) and facilitates harmonized payments transactions between euro-currency countries and some non-euro countries (e.g., the United Kingdom, Sweden) at the same cost as a domestic transaction. Eurozone countries had to meet the SEPA migration deadline by August 2014, while non-euro countries have until 2016.

If you are in the States, you can think of SEPA like the U.S. domestic ACH network for debits and credits but being able to move money across borders.  Pretty cool and while any change like that is going to be painful (corporates need to adjust their back engines to comply with standards, banks need to build capabilities and products and also lose current revenue streams, and regulators in different countries need to be onboard with changes), there are obvious benefits.

Look, I am not a Treasury professional, but having an ability to do cross border payments and initiate credits from one hub account seems to have merit.  I can see several transformations that will occur because of SEPA :

Rationalize Bank Accounts -  Who needs all those accounts in different countries anymore?  Corporates no longer need to make a distinction between domestic and cross-border accounts and maintain a euro account in each country in which they operate.  While this is not good for banks (any revenue loss these days is painful), there are other services and products which will surely be developed by the financial institutions.

Set up and manage Payment Factories much easier - The harmonization of payment formats and standards delivers significant advantages here.  Combined with virtual accounting, and a single, centralized euro, a company's ledger account can be divided by profit center streams - enabling group treasurers to still view company accounts based on internal reporting requirements.

Expand Shared Service Centers role for Receivables Collections - Shared service centers (SSC) give companies the chance to centralize their receivables activities by bringing them under one roof.    I am not sure of all the benefits here of centralizing receivables collections, but at least from the pure matching and reconcilement process, cash application conducted at a hub should provide advantages.  Unmatched items can still be handled by the local businesses.  What's more, the use of XML formats for financial messaging offers additional information that is important for receivable reconciliation.

Offer Online Merchants an easier means of payment cross borders - by offering services such as electronic and mobile payments (e- and m-payments) and e-invoicing on top of any core SEPA products, businesses have an advantage to sell cross border much easier.

Banks have advantages too, as SEPA removes the cost burdens for banks operating across borders in Europe to operate and maintain a number of clearinghouse connections and correspondent banking relationships to clear those low-value  payments.

An interesting side angle to this discussion is Switzerland, which is one of the 34 member states of SEPA. As from 2016, Swiss companies that receive or make payments in euros will be obliged, under the SEPA regulation, to deploy the SEPA formats and provide international bank account numbers (IBAN) instead of legacy bank account numbers.

The European Central Bank monitors the usage of SEPA payment instruments here.  According to their site, it appears both SEPA Credits and Debits are growing fast relative to the old formats.

It'll be interesting who'll take a leadership position in adopting the standard.  These things don't happen overnight.  Standards development are measured in years/decade.   SEPA requirements can be a great excuse to kick off a project that does things like I cite above.  I.e., make SEPA a burning platform to fund some projects you know will create value.

I'd love to hear what you think about SEPA and it's rollout.

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