Executives and other leaders in procurement (and accounts payable) increasingly have roles with global responsibilities and implications. For this reason, I have taken a European focus with a few of our recent articles, eInvoicing in the EU: Five Things You Should Know and Payer Beware: The EU’s New Rules about Vendor Payments. Today we continue with our third in this series by shedding some light on SEPA – The Single Euro Payments Area and what it means for our readers.
SEPA is a payment integration initiative for simplification of bank transfers across the 32 European countries. Through SEPA, making electronic payments (e.g., credit/debit card, bank transfer, etc) across the Euro area will be as easy as making domestic payments within one country and will be treated as such, as opposed to being cross-border payments. Not only will this be more convenient, the hope is that it will also strengthen the individual markets, enhance competition, improve efficiency and contribute to economic prosperity. The deadline for switching over to SEPA is less than a year away – February 2014.
There three main objectives to SEPA
- SEPA is the natural next step in “harmonizing” the eurozone. It will integrate the multiple country-specific euro credit transfer and euro direct debit payment standards (and data formats) into a single set of European payment instruments with a set of rules and technical standards. This set of payment instruments includes SEPA Credit Transfers, SEPA Direct Debit, SEPA Cards, SEPA Cash.
- Creating a SEPA framework for debit and credit cards to which all parties will have to adapt:
- All SEPA debit and credit cards will be valid across all eurozone countries
- Merchants will be able to accept all SEPA cards from a single terminal
- Payment card processors will be able to operate in any eurozone country
- Credit/debit card fees will be the same in any eurozone country
- Last but not least, an important objective is to encourage a shift from cash to electronic payments.
In order for SEPA to work, there must be agreement on a common set of data to be exchanged in a common syntax. Therefore, the SEPA data formats are based on the global ISO 20022 message standards developed by the International Organization for Standardization (ISO).
What does this mean for businesses?
- Direct debits from anywhere in the euro area: At present, it is not possible to set up a cross-border direct debit. With SEPA this will change and it will become possible to set up cross-border direct debits in euro between any two bank accounts anywhere in the EU, enabling suppliers to bill customers regularly on a cross-border basis.
- All euro payments from a single bank account: Currently, cross-border trading (within the EU) requires bank accounts in each of the different countries that transactions are conducted. With SEPA, that will no longer be necessary as all Euro payments can be made from a single account in any EU country. This is will be beneficial for corporate Treasury and Accounts Payable groups who will no longer have to manage and operate multiple bank accounts and will certainly improve efficiency, accuracy of payments, processing costs and cash flow management.
- For small businesses: Faster settlement and simplified processing will improve cash flow and reduce costs (e.g., no need for multiple Euro bank accounts). It will enable them to receive or make euro payments anywhere within SEPA at no additional cost.
- More competition: With SEPA there is likely to be increased competition across the thousands of European banks for corporate accounts resulting in better pricing and more value-added offerings.
- More supplier competition: Procurement and AP groups will not have to worry about the cost of adding bank accounts in the countries of all new suppliers – this will lower the TCO of new supplier relationships and enable greater consideration of their bids.
The broader a company’s presence in the euro countries, the greater the benefits of SEPA, and the greater the possibilities of centralized management of cash flow. SEPA may even accelerate the current trend of payment factories and shared service centers. A “Payment Factory” is a term used to describe a centralized organization whose purpose is to consolidate and control all payments in order to optimize cash and improve processing efficiency. Some of the objectives of the organization are to minimize the number of transactions, currency exposure, fees and risk while improving visibility and control and maximizing the usage of available cash.
Overall, SEPA means common standards, more efficient settlement (quicker access to cash) and simplified and more cost effective processing. Although it has taken many years, SEPA is a huge step forward in further uniting the eurozone and making the process of doing business across this region easier and less costly.