Demystifying the SEPA End Date Experian, London, 9 th of June 2011 - - PowerPoint PPT Presentation

Demystifying the SEPA End Date

Experian, London, 9th of June 2011 Ruth Wandhöfer Director GTS Head of Regulatory & Market Strategy, EMEA Global Transaction Services

Agenda

• 1. SEPA: The Journey so Far
• 2. SEPA End Date Regulation: what it will mean
• 3. Making SEPA a reality for your organization

SEPA: The Journey So Far

What is SEPA?

SEPA stands for Single Euro Payments Area: cross-border AND domestic

“SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location.”

(Source: European Payments Council Roadmap, December 2004)

“SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location.”

(Source: European Payments Council Roadmap, December 2004)

SEPA: The original scope and objective

Move from fragmented national Euro ACH transactions to harmonised pan-European schemes for CT and DD

European Union (10 non-Euro) European Economic Area (3) Switzerland European Union (17 Euro)

The Single Euro Payments Area currently spans 32 countries: – 27 EU Member States – 3 additional EEA Member States – Switzerland and Monaco SEPA governs Euro payments only – Payments in other currencies are not impacted SEPA is for payments within this geographical area – Payments to/from Europe are not impacted SEPA will impact domestic + cross-border Euro credit transfers and direct debits – No distinction between ‘national’ and ‘cross-border’ Euro payments within the 32 countries Standardised Schemes for CT and DD – Mandatory use of BIC and IBAN – Single legal framework: Payment Services Directive SEPA addresses non-urgent / retail / ACH payments – Urgent / same-day Euro Wire Transfers are already integrated across the Single Market

SEPA is trying to complete the Single Market for Euro Payments in Europe

SEPA – Facts & Figures

SEPA Credit Transfer Scheme – Since January 2008

Approx 4489 financial institutions (ie 99% of payment active banks in the SEPA zone) signed up to CT scheme (Source: ECB) 70% OF SEPA CT are cross border; this will change as more “legacy” domestic EUR clearings migrate to SEPA CT IBAN + BIC credit transfers with a max. execution cycle of D+2, moving to

• max. D+1 in January 2012

Continued interest from non-Euro countries, taking advantage of cheaper Euro payments for the first time – no ACH access previously

SEPA Direct Debit Scheme(s) – Since November 2009

• Common Schemes enable collections in Euro from Debtor Accounts

across 32 countries, using IBAN + BIC

• Core Scheme: Aimed primarily at C2B Flows

– 3884 financial institutions signed up Core Scheme

• Business to Business Scheme: Dedicated to B2B Flows

– 3364 financial institutions have signed up B2B Scheme

• Direct Debit adoption rate lower than CT – DD scheme finalised later than

CT

SEPA adoption is accelerating….slowly

Addressing the Market Challenges

• Concern is much reduced. The European Central Bank estimates that 99% of ‘payment banks’ in the SEPA area

are now able to support SEPA payment schemes

• Domestic SEPA Credit Transfers (regardless of value) and cross-border SEPA Credit Transfers (with value less than
• r equal to EUR 50,000, should now carry similar fees as their domestic low value payment equivalent
• Cross-border SEPA Credit Transfers with value above €50,000 can still carry a beneficiary fee as long as this is

disclosed to the beneficiary

• SEPA Regulation proposes to eliminate Interchange fees for both domestic and SEPA direct debit
• Lack of a fixed cycle time was initially a limiting factor for SEPA adoption in certain circumstances, such as for
• Payroll. Since November 2009 the maximum execution time for SEPA Credit Transfers has been limited to D+2.

This will reduce to a maximum cycle of D+1 from 1 January 2012 (Payment Services Directive)

• Discussions on agreeing a general “Sunset Clause” for CBR have commenced – potentially all removed by end 2014
• Italy abolished CBR as of 1 July 2010 (except for a small number of selected companies)
• Legal validity of existing EURO direct debit mandates of consumers accepted across the Euro zone (German issue

currently subject to court decision), Finland and Malta require a new mandate for SEPA DD Core & B2B

• Belgium, Cyprus, France, Ireland, Luxembourg, Portugal, Slovakia, Slovenia, Spain (and potentially Netherlands and

Austria) will require a new B2B mandate

• Obligation to issue new mandates in non-Eurozone countries
• SEPA continues to be combined with account rationalization strategies
• With POBO/ROBO capabilities, this should be simpler over time. Some residency issues remain in certain countries,

which have the potential to cause clients (or their counterparties) issues.

Reachability Fees (Post –PSD) Execution Cycle Time Account Rationalization Central Bank Reporting Mandate Migration

SEPA End Date Regulation: what it will mean

Increased Momentum at EU regulator level

Building Blocks now in place – SCT, SDD Core & B2B, SEPA Cards Framework (SCF) + PSD + Regulation 924/2009 Commission Communication on “Completing SEPA: a Roadmap for 2009-2012” EU Commission 2nd Annual Progress Report on SEPA Migration in 2009 (9/12/09) ECOFIN Conclusions: 2nd December 2009 EP Resolution: 10th March 2010 EU Commission drafts a SEPA migration law EU Commission public hearing on SEPA: 17th of November 2010 SEPA migration Regulation proposal issued on 16th December 2010 Negotiation ongoing in European Parliament and Council, with the objective of agreeing and ensuring entry into force of the Regulation before end 2011 Citi is deeply involved in shaping the SEPA Regulation; Ruth Wandhöfer chairs the Payment Regulatory Expert Group of the European Banking Federation and is an active participant in the EPC Plenary, SEPA Schemes Working Group and maintains regular dialog with the European Commission.

What end dates are proposed?

What is the meaning of the End Date? The end date indicates the date by which Euro credit transfers and direct debits will have to be executed in accordance with a set of “technical requirements”. What the end date is not 1) It is not an End Date for SEPA Migration. There is no mention of SEPA rulebooks! The lack of concretely mandating the already existent SEPA schemes could risk the emergence of SEPA scheme variants across Europe (acceleration of ‘Additional Optional Services’). 2) Also, it is not an end-date for local ACH systems to close down or at least stop servicing legacy standard based processing and clearing. The indirect approach of mandating CT and DD compliance with technical requirements + longer transition phase for ‘niche products’ could result in continued existence of local legacy ACH systems, schemes and formats. 3) The content of the end date could change: the proposal of delegated powers given to the EU Commission to administer change of ‘technical requirements’ is problematic as not future proof and not sufficiently taking into account industry (EPC is current scheme owner) and customers. The proposed date(s) EU Commission proposal: euro credit transfers to be compliant 12 months following the entry into force of the Regulation (possibly end 2012); euro direct debits to be compliant 24 months following the entry into force date (possibly by end 2013) European Parliament: one common end date proposed for February 2014 European Council: proposal of February 2013 for credit transfer and February 2014 for direct debits

Challenges of the Regulatory Proposal

In addition to the concerns with the end date meaning there are a number of additional issues in the text. Scope: could capture high value Euro traffic – not appropriate as already integrated; ECB now agrees to exclusion and European Parliament and Council are converging with this view Mandate for ISO 20022 XML standards: covers not only banks/PSPs but also customers that initiate or receive individual transfers of funds, which are bundled together for transmission

• Potential to result in corporate requirement to use ISO 20022 XML themselves, rather than benefiting from

bank connectivity options (XML mapping)

• Citi + EBF proposal to require banks/PSPs to accept client files in ISO 20022 XML as opposed to putting

the burden on customers directly. Interoperability: Commission suggests ‘scheme interoperability’, whilst in fact SEPA is all about ‘scheme harmonisation’ and system/infrastructure interoperability Reachability: Text does not clearly defining reachability for the ‘same’ payment scheme. The obligation could thus be limited to cross-border reachability, which is not sufficient in the context of integration and competition. Some Member States are apparently insisting on this limitation during the current negotiation

Making SEPA a Reality for your Organization

It is time to get SEPA ready...

Leveraging SEPA to Create Further Harmonization and Efficiencies

• Migrate from expensive same-day

payments to cheaper non-urgent SEPA

• Standardise format/country rules across

all non-urgent EUR payments

• Standardise accounts payable and

receivables processes

• Standardise vendor payments

across countries

• Drive higher reconciliation rates through

standardised remittance info

• Simpler cash forecasting given

consistency in value dating

• Rationalize connectivity
• Rationalise/centralise account structures
• Reduce number of banks in the

SEPA area

• Align around core SEPA instruments
• Streamlined liquidity

management structure

• Lower transaction fees
• Standardisation of

accounts payable and receivable processes

• Higher STP and

reconciliation rates

• Simpler cash forecasting
• Rationalisation/centralisation
• f account structures
• Reduce number of banks in

the SEPA area Structures Process/Approach Client Drivers and Goals Opportunity Horizon for Clients SEPA can help deliver these client goals Client Drivers and Goals Medium Term Long Term Short Term Shared Service Centres In House Bank Payment Factories

Tax Payment Centralised Payroll Netting POBO/ ROBO

What Should You do Now?

• Align SEPA market development with your cash management strategy

– Centralizations, account rationalisation, legal entity simplification, standardised reconciliation, liquidity management, working capital enhancement etc

• Align SEPA migration with other related initiatives

– E.g. ERP upgrade (consideration of ISO 20022 XML), centralization project, bank relationship review

• Understand the impact on your business of doing nothing

– Be aware of phasing out of national domestic EUR credit transfer and direct debit schemes (e.g. Finland by October 2011, likely to be followed by others + SEPA End Dates)

• Planning is critical

– Understand all your existing ACH flows and bank touch-points – Identify areas of your activities that could benefit from migration – Cross-border Wire Transfers, high-cost countries, low volume countries

• Identify the effort and cost of moving existing activities to SEPA

– Assess most appropriate time for migration – People, process, systems, sites

• Evaluate bank relationships

– Could this impact migration costs or improve return on investment

• Be ready with IBAN and BIC

– Continue with collection of BIC and IBAN for customers as well as vendors – Citi offers conversion services in collaboration with Experian

Understand the SEPA vision and how it adds value to your cash management strategy.

Aligning with Cash Management Strategy Planning and Effort Preparation Activities