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Hedging your Bets on Euro Payments

The decision must be taken whether to migrate to the new SEPA format or retain current local formats in the short term.

The decision must be taken whether to migrate to the new SEPA format or retain current local formats in the short term.


Despite the on-going euro zone turmoil, the European Parliament has given the Euro a strong vote of confidence by announcing the date for the mandatory transition to the new SEPA (Single Euro Payments Area) payment instruments. From February 1st 2014, all banks will have to use SEPA credit transfers and Direct Debits, rather than the traditional domestic payment instruments.

For the banks, while this announcement is not unexpected many have been surprised by the speed of change.

The announcement of a SEPA mandatory end date, putting an end to the use of legacy payment instruments and enforcing the use of the SEPA instruments, was intended to bring clarity and certainty to the rudderless position of previous years where the business case for corporate adoption of SEPA was not sufficiently compelling, especially during the on-going financial crisis.

However, the way the legislation (EU Regulation 260/2012) is written, with numerous potential “waivers” and optional periods of grace for full SEPA adoption, has failed to bring the clarity that the market was looking for.  The vast majority of banks are unable to accept data in the required ISO 20022 format and, as a result, are pushing hard for additional time.  As a result some of the inaction and uncertainty will continue, at least until member states announce whether they will opt for the waivers, which is not until 1st February 2013.

For corporate organisations across the Euro zone, the decision must now be taken whether to migrate to the new SEPA format or retain current local formats in the short term. Given the general lack of confidence in the Euro, some organisations will decide there is little point in making an investment today. Indeed, given the current lack of certainty on whether it will actually be February 2014 or 2016 when ISO 20022 will be required for corporate to bank transactions or whether banks will try to develop some kind of re-formatting capability, such investments are even harder to justify.

The best way to protect the business against uncertainty is to invest in software that is not tied to any specific bank or ERP platform. This approach enables organisations to attain the operational and financial benefits associated with centralising payment functions, whilst also future proofing against standards changes. The best route is to adopt the SWIFT bank agnostic messaging network and leveraging the multicurrency SWIFT Common Global Implementation (CGI) standards to overcome any differences in corporate to bank communication methods.

Critically, this model allows organisations to create a single, robust payments model for all domestic and international payments – a key consideration given the continued challenges in the Euro zone and the increasing interest in exploring new opportunities in the BRIC economies.

Furthermore, most experts believe that even if the Euro fails the new SEPA payment instruments will still have a role to play. There is a strong argument for a set of payment standards across Europe and the banks, having already made the investment, would be keen to adopt the new instruments. Indeed, it is quite possible that banks will accept payments in existing formats and themselves make the conversion to the ISO 20022 formats demanded by SEPA payment instruments.

However, uncertainty persists. And organisations with multiple bank relationships across Europe are likely to face diverse strategies and policies – with banks within the Eurozone likely to accept ISO 20022 formats sooner rather than later as the domestic payment schemes are also replaced.

Organisations cannot afford to miss this deadline; nor do they want to be tied into a format that is about to become obsolete. The key for organisations now is to understand the rules of the new SEPA scheme and, critically, to check whether or not the payment solution in use has the flexibility to deliver the output in the format required irrespective of the currency in use in 2014.



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