Wednesday, April 18, 2007

In the dark about SEPA

As the International Payments Conference in London heard from Jean-Michel Godeffroy, director-general, payment systems, European Central Bank, that banks needed to ensure their systems were SEPA (Single Euro Payment Area) compliant in time for the launch date of 1 January, 2008, on the other side of the Atlantic, US multinationals attending EuroFinance's cash management conference in Miami were somewhat confused as to what SEPA meant for them.

It appears that the banks have not done a very good job of explaining to US headquartered multinationals what SEPA means for them in terms of payments they make within the euro zone and the real opportunities it presents to rationalise the number of accounts they hold with banks in Europe, dependent on the liquidity and tax implications.

A common refrain at the EuroFinance conference in Miami was that SEPA will create one of the "most innovative economies" in the world. But it seems no one, has really bothered to tell corporates outside of Europe what this "innovative economy" really means for them when transacting or doing business within the eurozone.

Treasury consultants at the Miami conference were eager to impart to corporates that SEPA would eventually mean they could clear all eurozone payments through a single operating account, as well as encouraging the use of centralised payment factories and collection points. Yet, survey findings indicated that SEPA was a relatively low priority for US multinationals.

While European corporates have been vociferous about the lack of communication from their banks as to the business benefits of SEPA, it appears US corporates are even more in the dark.

The general lack of education on the banks' part around SEPA only serves to fuel cynical comments that perhaps it is intentional, given that SEPA will dramatically reduce banks' revenue streams, perhaps ignorance on the part of customers is bliss, some suggest.

This is particularly pertinent in the case of US-based companies sending payments to eurozone countries in formats that are not SEPA-compliant - for example euro credit transfers may not contain the correct BIC (Bank Identifier Code) or International Bank Account Number (IBAN) for straight-through processing (STP) of that payment.

As Stephen Wojciechowicz, regional solutions manager, North America, banking industry division, SWIFT, pointed out, non-compliant SEPA payments could either be rejected, held or there could be additional charges if they are non-STP.

There also appeared to be some confusion amongst US corporates about what payment transfers would be impacted by SEPA. Wojciechowicz pointed out that whilst SEPA in theory only applied to euro payments of up to EUR 50,000, that it made more sense for US corporates to ensure all euro payments were SEPA compliant. (The European Payments Council's rule books for SEPA Credit Transfers and SEPA Direct Debits do not impose a cap and the belief is that the EUR 50,000 cap will be relaxed).

Wojciechowicz said that US companies should also apply SEPA formatting for euro payments to non-euro countries which still maintained their local currency, but had signed up to the principles of SEPA as members of the EU or European Economic Area.

Some US corporates in the audience appeared bemused as to how SEPA could proceed from 1 January 2008 without the SEPA framework for direct debits in place. SEPA Direct Debits were delayed due to the EU's failure to pass the legal framework for SEPA, otherwise known as the Payment Services Directive, in time for their implementation by 1 January, 2008.

Good old BICs and IBANs, also appear to be creating confusion outside of Europe. Wojciechowicz said how one US bank had mistakenly removed the alpha numeric character within the IBAN which meant that additional repair charges were imposed on the corporate in question.

While banks may be gearing up for SEPA implementation, preparing their back end systems to offer SEPA compliant payment instruments from 1 January next year, there is no questions that more could be done to better educate end customers on both sides of the Atlantic as to what SEPA really means for them.

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