A truly single market - Edith Rigler, HSBC Bank plc

While the Single Euro Payments Area (SEPA) focuses on euro transactions, it will contribute towards achieving a truly single market in Europe and meeting the objectives of the Lisbon agenda. There are three main needs that SEPA addresses:

• Inefficiency: there is a need for the payments processes in Europe to become more efficient. The aggregated cost of the payment systems in Europe are estimated to be between 2-3% of GDP, expended on money transfer, collections, receivables, reconciliation and associated activities. The use of cash is a particular cost driver. These inefficiencies are seen as impacting businesses negatively. SEPA will create an efficient payments landscape.
• Fragmentation: Europe’s payment systems are significantly fragmented, having evolved within national borders, and each one having developed proprietary standards and operate under different rules. The result of this fragmentation is lack of technical interoperability between systems across Europe. It is therefore difficult and expensive for businesses and consumers to make cross-border transfers. A coherent, harmonised payments system across Europe will encourage greater cross-border trade and would lead to increased competition within the EU.
• Variance of payment costs: the fragmented payments landscape has led to a wide variance of payment processing costs and associated pricing. Creating standardised, electronic payments instruments throughout Europe will generate economies of scale for the clearing processes and therefore enable businesses and consumers to fully reap the benefits of the common currency and a single market within the boundaries of the European Union.

A tough timetable

Will the finance industry cope with SEPA’s demanding timetable? This will depend on whether payments are a core competency of a bank. Not all players will have the appetite to cope fully with the required investments and the tight timetable. Many will simply comply with the minimum standards rather than develop compelling customer propositions. In fact, smaller banks are deliberating whether they should outsource their euro payments traffic and SEPA compliance to the larger players – which may create more pressure, yet also represents an opportunity for the very large banks.

HSBC has dedicated the appropriate skills and resources to ensuring that its organisation has the tools and infrastructure to see millions of customer relationships through such change so that the intended benefits can be realised by all.

Positioning corporates

The benefits of SEPA will vary among corporates, depending on their size, their payments traffic, and their organisational structure in Europe. However, irrespective of size, they should become aware of the potential benefits and implications of SEPA.

Actions for corporates include: planning for and implementation of adjustments to their treasury and ERP systems and payments software, and; speaking to their vendors to understand their SEPA plans and readiness, communicating with business partners to implement IBAN and BIC, reviewing their mandate databases and direct debit administration.

BIC and IBAN identifier requirements

Each country has a well-accepted standard for making payments between bank accounts. BIC and IBAN is simply the standard that the EU has adopted to enhance high levels of straight-through processing (STP) to underpin the efficiency of the payment systems and to lead to the low-cost environment that the implementation of SEPA demands.

BIC and IBAN are part of the evolutionary process to drive towards payments harmonisation in Europe. Usage of BIC and IBAN is critical as it promotes automation, thereby resulting in lower pricing and faster payments processing.

Whilst usage of BIC/IBAN on cross-border euro payments has been mandatory within the EU/EEA area since the beginning of 2006 and charges may have been applied for non-use of BIC /IBAN, banks have been inconsistent in applying such charges. However, we believe that from January 2007 most banks will charge repair fees where payments do not contain the correct BIC/ IBAN, or even reject the payment.

We advise our corporate customers to engage with suppliers and customers. Specifically: ensure that your clients and vendors have up-to date BIC and IBAN details (i.e. print those on your invoices) so payments and collections can be STP, and; review vendors to potentially invest in validation databases – useful solutions are available and we can help guide our customers to the right ones.

Educating corporates

There are a number of ways corporates can learn about SEPA and the impact it has on them:

• Talk to their banks: we started our dialogue with corporates this summer. HSBC enjoys an excellent relationship with a very large corporate customer base in multiple markets in Europe, and as such our customers expect us to help them find the way through change and facilitate the realisation of all benefits on offer. We aim to put our customers in a position where they can draw up a plausible business case, understand the investments needed, and the benefits to be reaped of SEPA compliance.
• Review material on websites: we have partnered and/or sponsored a number of electronic publications and sites where a host of information is available. In addition, introductory material and technical guides are available on public websites. For example, the Rulebooks setting out the details of the new SEPA instruments are now publicly available.
• Engage with corporate associations (e.g. regional treasurer associations) and standards bodies and question your vendors.

The benefits

Multinational corporates are likely to be big winners from SEPA. They may: benefit from reduction in payment pricing (depending on the markets they are active in); improve euro liquidity management and operate with a reduced number of euro accounts; reduce cost as they consolidate payment operations; benefit from harmonised AP and AR processes, and; benefit from shorter clearing cycles.

SEPA may also be an incentive for setting up shared service centres and payment factories, thus enabling corporates to reap the benefit of streamlining and centralising their payments operations.

Mid-size companies have a significant portion of their payments business in the domestic environment. However, for some, SEPA may be an incentive to expand beyond national borders because payments handling across the European region will be so much easier.

But the benefits of SEPA are not only restricted to larger businesses. Smaller companies are likely to benefit from SEPA improvements in the card payments area – “one card, one terminal” is the SEPA vision. In addition, they will benefit from the fact that competition may reduce cost further: as SMEs typically have low payment volumes, they – unlike the large volume corporates – have not been able to negotiate volume discounts.

Long-term implications

Initiatives similar to SEPA are not new to the banking industry – we are implementing a number of large initiatives. Examples in Europe are Faster Payments (in the UK), MiFID, Basel 2, the Capital Requirements Directive, Financial Services Action Plan, etc. You could say that an avalanche of mandatory and regulatory projects is sweeping across the financial services industry. They may affect different areas of the Bank, but dealing with complexity, devising solutions, and creating innovative propositions is a way of life for a large, global bank like ourselves.

In terms of SEPA, we expect the payments market to consolidate as smaller bank providers react to the enormity of the development that SEPA requires and outsource to half a dozen major players. As the market continues its evolution we also expect the large payment volumes to gravitate to those organisations that exploit economies of scale on a global, not only a regional, basis. We expect a certain amount of confusion in the market as our banking partners may decide to change strategies, shift focus and re-orient themselves. We are confident that we can successfully guide our customers through the period of confusion and help them find their way.

Staying profitable

There are a number of ways to remain profitable, with or without SEPA. HSBC decided to streamline its architectural landscape some time ago and to centralise its payments processes onto one single, global platform. This will create economies of scale while enabling cost savings by retiring local, country-specific platforms. We also continue to develop new services and solutions for our customers, which will provide added value. These two components – reducing cost while creating value – will enable us to remain profitable in the new environment. And you have to keep in mind that while SEPA is, of course, important; it is just another regional environmental change among the very many environmental changes that HSBC is successfully dealing with across the globe.

Edith Rigler is Head of Product Market Management, Europe and Programme Director for SEPA at HSBC Bank plc in London. Edith has been in Cash Management for 25 years and has held a variety of senior positions at Chase Manhattan Bank, Citibank, and Deutsche Bank in New York, London, Zurich, and Frankfurt. Her responsibilities have spanned Sales and Marketing, Product Management and Development, Project Management, and Strategic Planning.

Edith holds a PhD in economic and social sciences from the University of Vienna, Austria, and a graduate business degree from NYU in New York.

“Multinational corporates are likely to be big winners from SEPA”