SunGard and Sentenial: SEPA strategy - Andrew Owens and Sean Fitzgerald
Andrew Owens of SunGard AvantGard and Sentenial's Sean Fitzgerald explain how businesses will benefit from setting a SEPA solution in place as soon as possible, what the process will involve and the potential outcomes.
As the SEPA end date edges closer, corporates across the eurozone are starting to feel the pressure. "The schemes have been available for some time for corporates to implement," says Andrew Owens, senior vice-president of enterprise payments at Sungard AvantGard. "But since the deadline was put in place, awareness has been building and there's a growing sense of urgency."
The deadline in question - 1 February 2014 - was announced earlier this year. Whereas migration before that point had been discretionary, with the end date, it is now legally mandated, with all direct debit schemes and credit transfers required to comply. This will affect banks and corporates operating within the single European currency, rippling out to other EU countries as early as 2016.
Initially, it was hoped that migration to SEPA would be a natural market-driven movement, spurred on by acceptance of its advantages. Unfortunately, against the backdrop of the debt crisis and a lack of understanding of the business benefits, the project faced widespread ambivalence. With few stakeholders prepared to take the necessary steps towards migration, regulation with an end date became the inevitable corollary.
Even now, migration remains sluggish. In June 2012, just 0.5% of direct debit payments were compliant with SEPA, and while the proportion is rising - hitting 1% by July and 1.9% by August - compliance is still far short of the target of 100%. Credit transfer payments fare somewhat better, with migration standing at just under a third.
In both instances, corporates have a taxing time ahead. They must step into new and relatively uncharted territory, ensuring that a wide range of processes are set in motion within an unforgiving timeframe. With back office and front office applications, SEPA poses a challenge for the entire organisation. Clearly, businesses stand to gain from addressing the situation without delay.
"The scale of the project is now starting to be understood, and the difference in scale between direct debits and credit transfers is starting to be understood as well," says Sean Fitzgerald, CEO of Sentenial. "So we're seeing a lot of activity going on, including budgeting activity for corporates to figure out how much they're going to spend on this next year."
Sentenial, a specialist provider of SEPA solutions, is currently working with a number of strategic partners, among them SunGard AvantGard. The partnership - which combines Sentenial's reach and renown with SunGard's experience in bank connectivity and payments - is well poised to help clients address the challenges of migration. Providing integrated solutions that build on clients' present infrastructure, both sides offer longstanding expertise in the field.
"Within SunGard, we'd been helping our customers to become SEPA-compliant across their businesses for credit transfers," says Owens. "We started talking to them about whether we could also help with direct debits, so we decided to partner with Sentenial as they were one of the few companies really present in the market at this point. We have a pretty powerful proposition for clients."
"There was a great synergy and a common understanding that SEPA posed a serious challenge for corporates," Fitzgerald agrees. "We've been working together for a long time now, so our solutions are well established."
From a corporate standpoint, it certainly pays to be prepared. Businesses cannot simply decide to convert at the last minute, but rather must conduct a significant body of work beforehand. They need to take into account the procurement process, as well as selection, identification and implementation. Then there are the dimensions that lie outside their control, such as running the testing processes in parallel with their bank.
All things considered, a SEPA direct debit project may take around three to five quarters for a large multinational, two quarters for a mid-sized company, and for very small corporates a matter of weeks. But the longer this is left, the fewer options will be left available to them - and the more expensive the solutions that remain.
SDD vs SCT
Corporates should also bear in mind the differing challenges posed by SEPA direct debit (SDD) and SEPA credit transfer (SCT).
"The direct debit is a complex payment instrument, more complex than a credit card," explains Fitzgerald. "Because you're giving a company authority to take money from your account, a mandate needs to be established, and creating that mandate is complex. Then the mandates have to be migrated. That's a fairly complex process as well, because the mandates have to be identified, the information extracted, and the data set enriched."
Although SCT is simpler, its order of magnitude should not be underestimated. Since this is an outbound payment instrument, corporates need conversion-type abilities that lie outside their existing ERP systems, to enrich beneficiary data (using a BIC code as the bank/branch identifier and an IBAN instead of a domestic account number) and convert domestic payment formats to SEPA.
"The complexity is lower, but the work involved is still significant," says Owens. "Depending on how the organisation is structured from a payments perspective, credit transfers can be a headache as well."
SEPA: challenges and benefits
So what will happen if corporates don't comply? Although a lot of the larger multinationals see the value
of SEPA for cross-border transactions, they are inclined to retain their old formats for domestic payments. This
is ill-advised, as their transactions simply won't be processed after February 2014.
Here, there may be caveats. Banks may look to offer some conversion servicing and help with format changes, especially in the credit transfer space. Unfortunately, this is not strategically advisable and doesn't allow the corporate to capitalise on the additional functionality that SEPA provides. Worse, in the direct debit arena there would appear to be no easy way out.
"I don't see how a corporate is going to be able to collect from their customers after the start of February if they haven't got a SEPA-compliant solution in place," says Owens. "On the other hand, it's obvious that not everyone will be compliant in time. So what is going to happen? Are they going to still process domestic transactions for some period of time albeit with punitive measures in place? It's currently not clear to me. What seems to be clear, is that the date isn't going to be moved and for late adopters there may be some kind of penalty."
If these migration efforts sound like work with no reward, it is worth remembering why SEPA was developed in the first place. In terms of its macroeconomic impacts, it promises to bring clear benefits throughout the eurozone, with GDP estimated to rise by around 1-3%. Providing a support function to the single currency, the initiative should solidify the foundation of the monetary union and bolster its larger objectives.
Nor are these advantages confined to macro-trends. Individual corporates are poised to see benefits too, not least the ability to concentrate their payments and collection processes across Europe. Working across the eurozone will become easier, since a corporate wishing to move into a new country will no longer need to establish new banking relationships, and the barriers to doing business will be lowered.
"What SEPA does is most certainly to improve the business environment," explains Fitzgerald. "It makes it much more intertwined - all the economy and business practices and relationships - and a lot less reversible as well."
"If you consider it like the railway track, it's a common set of tracks over which many different carriages can run - payment, invoice, reconciliation information," continues Fitzgerald. "And that's what SEPA's establishing, the common railroad track for entire business ecosystems in Europe."
With this in mind, corporates preparing to migrate can afford to feel optimistic about the years ahead.