Logica: Now or never – Garry Young
As the SEPA deadline creeps ever closer, businesses are running out of time to make the leap and migrate their legacy systems. Garry Young, director of corporate services, Logica, now part of CGI, talks to FDE about what needs to be done to kick-start adoption rates, the importance of making the right decisions on IT strategies, and how finance directors need to step up to the plate.
To be or not to be? And if so, when? These are just some of the key questions facing European corporates, banks and service providers over the long-mooted migration to the Single Euro Payments Area (SEPA).
With an end date now established for February 2014 for eurozone states (non-eurozone states have until 2016), the clock is ticking. Yet, the uptake among parties remains disappointingly sluggish. According to the European Central Bank in September, the adoption rate of SEPA credit transfers (SCTs) currently stands at 30%, with SEPA direct debits (SDDs) at less than 2%.
"Given the latest figures, meeting the deadline is certainly not going to be easy," says Garry Young, director of corporate services at global IT and business process services provider Logica, now part of CGI. "Is it achievable? Absolutely. But only if corporates act now. In my experience, the majority of multinational corporates have well-established SEPA readiness programmes and see SEPA as a priority because it supports the core drivers of cash visibility, risk reduction and cost savings. It's the smaller, domestic organisations that may struggle most with the deadline."
As manifested by the statistics, SDDs represent the greatest headache for organisations across the board. Based on the creditor-driven mandate flow (CMF), by which the creditor is the biller, the corporate replaces the bank in terms of holding and managing the direct debit mandate, presenting a raft of new responsibilities.
"Typically, you find that most corporates don't have the processes and systems in place to support the CMF," says Young. "There is a lot they need to contemplate; how to upload mandate-related information, and assigning a unique mandate reference and creditor ID. If they do not have this information in an electronic format, then they should consider the likes of a scanning and OCR service, otherwise you need to key them in manually.
"Then there is the use of BIC and IBAN. To get hold of these, you might decide to contact counterparties directly or use a conversion service. This is a key area because if you have poor quality data it will mean errors and failed payments. The SEPA schemes also have different timings for collections, you need to distinguish between first, one-off and recurring, and factor in these new timelines to your business processes and systems."
Consequently, expert IT service providers such as Logica have risen to the fore of late in assisting companies with their SEPA programmes.
"In terms of what we can specifically bring to SEPA, I would say Logica is a key player. We helped write the SEPA rule books and provide a full range of SEPA services. Our solutions offer real scalability; for example our technology handles 15% of SDD volume today," says Young. "Being present in 43 countries across all industries also means that we have the strength, depth and local knowledge to support major corporates and banks [Logica's base includes the world's largest corporates and 22 of the top 25 European banks], which can be quite demanding clients."
However, according to Young, IT alone won't completely facilitate the migration of payment systems to SEPA compliance. For corporates looking to build or deploy such solutions in-house, there firstly needs to be a greater appreciation of the intricacies of SEPA and its ramifications on payment and business processes.
"SEPA is a lot more than just a technical challenge," he says. "It's a real risk if an organisation approaches it solely from this standpoint as it really underestimates the need for SEPA expertise and the impact SEPA can have on your business processes and customer relationships. It extends across the entire business including treasury, finance, IT and legal."
In response to such complexities, Logica - which was acquired by Canada's CGI Group in August - offers clients its flagship SEPA solution, Logica Mandate Management, a fully managed service able to convert legacy mandates and collection files into SEPA-compliant mandates and collections.
"The mandate management and credit transfer platform is designed to help corporates fast-track SEPA readiness and easily migrate from legacy to SEPA," says Young. "It's quick to connect to, which means corporates can focus effort on securing strategic advantage from, and de-risking, SEPA.
"For direct debit, in particular, it's designed to take away the pain of migration and enables an organisation to manage its collections in line with the SEPA rule books, meaning it doesn't need separate projects on, for example, BIC/IBAN conversion or to spend exorbitant amounts of time understanding and monitoring the rule books."
Notably, this year has also seen the group team up with Citi, the leading global bank, to provide the service to its institutional client base in Europe.
"In joining forces with Citi, it demonstrates that SEPA is very much on the agenda for banks," explains Young. "In this case, we have one of the world's largest banks wanting to be able to help their corporate client base with the challenges of SEPA."
As a result of the current instability surrounding SEPA - which, as Young mentions, has a direct impact on treasury, accounts receivable, accounts payable and payroll functions - finance directors also need to demonstrate greater resolve and initiative in ensuring that their organisations comply with and take advantage of SEPA.
"They definitely need to take the lead," he says. "For large corporates looking at SEPA, it is much more than a mere compliance issue. It needs to be approached strategically. Therefore, it really requires someone such as a CFO with seniority, authority and vision to challenge some of the cultural issues and internal barriers, and drive through change."
Such concerns were thrown into sharp relief when Logica conducted SEPA research with more than 50 European corporates. According to Young, 25% believed SEPA to carry scant relevance, which he admits "was quite scary".
"These companies really need to know the consequences of failing to act," he says. "Without implementing the right solution, companies will struggle to collect euros by direct debit, which, in turn, will have a negative impact on cash flow. There is also the danger that some banks will charge penalties for failed collections, or for reworking collections, which will hit your margins, ultimately leaving your competitors to gain advantage, solely through the benefits of SEPA, reducing the cost of payments and reaching new customers."
And what of the current eurozone crisis that continues to shake the continent? Are there fears that knock-on effects could hamper SEPA progress?
"That's a good question," answers Young. "However, in inhibiting the adoption of SEPA instruments, I don't believe it has been a huge factor, no. In terms of the eurozone, even if some countries ultimately withdraw from it, the euro will still be there, which still warrants standardisation around collections and payments."
But, in Young's eyes, the European Parliament's confirmation of an end date earlier this year has provided the desired jolt to the system. And while it would be an overstatement to say that a pervasive panic has set in across the corporate landscape, there is now a greater realisation that time is running out. This has already prompted an increase in competition for SEPA resources among businesses, banks and IT companies. In the months ahead, IT players such as Logica could have a considerable part to play in ensuring that they have all the tools necessary to make the leap.
"There just isn't time now for companies to embark on complex, in-house IT projects for SEPA," he says. "Using an outsourced service means you can be sure of SEPA compliance, and buy valuable time to revisit your medium- term SEPA technology strategy, without being locked in."