Eurozone

FST talks to Martin Runow about Deutsche Bank’s approach to the Single Euro Payments Area (SEPA).

FST. What kind of services does Deutsche Bank offer to corporate clients with regards to SEPA?
MR. Deutsche Bank already set out its SEPA strategy for its corporate clients in 2007. Firstly, we treat all payments with SEPA criteria in the same way as legacy domestic mass payments, irrespective of format and access channel. This approach delivers immediate and significant savings for clients. By effectively treating all payments, regardless of amount, as domestic transactions, Deutsche Bank goes far beyond the requirements of the current EU Regulated Payment pricing model applicable to payments below a threshold of €50 000.

Secondly, the bank insulates clients in their migration to SEPA through the enhancement of internationally popular payment formats such as IDOC, CSV and EDIFACT to alleviate the need for clients to have to immediately change their payment processes and infrastructure to provide and deliver the official SEPA format – XML.

In addition, we have developed a number of new product features aimed at helping clients with their transaction initiation and reconciliation processes. Examples include the re-conversion of IBAN/BICs (International Bank Account Number/ Bank Identifier Codes) into national account numbers and the completion of certain payment orders where BICs are not included in an original payment instruction. We will also manage reachability issues in case the beneficiary bank is not yet SEPA-ready

FST. How will corporates benefit from SEPA?
MR. Broadly speaking, SEPA will bring about benefits on the operational level: efficiency gains, centralisation and cost reduction. SEPA will allow corporates to further standardise and thus simplify their systems landscape as local formats are being eliminated and XML emerges as the new standard. There will be fewer interfaces to manage, fewer local formats to be mapped and the frequency of necessary systems adaptations will be greatly reduced.

We also think that SEPA allows corporates to streamline their existing accounts structures across Europe. While we realise that the vision of ‘One account for Europe’ may still not be easily achieved, SEPA is getting us closer to it. Fewer accounts means reduced overheads and it also simplifies liquidity management structures.

SEPA may also make it easier for companies to enter into new markets, e.g. businesses utilising the new SEPA direct debit instrument to expand into other European countries.

FST. How do your systems, products and services help corporates to achieve those benefits?
MR. Deutsche Bank is trying to make the transition to the new SEPA environment for our corporate clients as easy and painless as possible. This includes flexibility, e.g. around the account location. We do not ask our clients to open new SEPA accounts somewhere centrally, but have their existing accounts anywhere in the Eurozone and the UK seamlessly integrated into our SEPA engine. This makes our clients automatically SEPA-ready on the receiving side.

On the sending end, we have been very aggressive in our strategy: we have informed our corporate clients that SEPA payments are treated in the same way as legacy domestic payments. This includes all payments with SEPA criteria, even if they are not delivered in an XML format to the bank. This is quite important as it turns the medium-term SEPA benefits into an immediate reality for our clients.

Deutsche Bank also converts SEPA capable payments into SEPA XML, so that those clients who are not yet ready to produce the necessary formats would still benefit from SEPA today.

FST. What opportunities do you think SEPA offers corporates?
MR. Across the Eurozone, the complexity of clearing systems, accounting platforms, legal framework and the sheer number of payment instruments that have been in existence (along with their unique features that differ from country to country) will be reduced. The handling of payments will also be simplified, as all incoming and outgoing payments can use the same format. SEPA should even limit the need to maintain local bank accounts for payment purposes and it could eventually mean that corporates will be able to perform their local and cross-border transactions from just one bank connection in Europe. By consolidating their payment and liquidity management into one location, corporates will benefit from easier and faster transfer of funds, as well as a reduction in associated costs.

SEPA has also pushed the demand for greater automation and rationalisation. Corporates are looking for greater automation of interfaces, both internally and with third parties. They are seeking to maximise their use of IT systems and rationalise banking relationships and bank accounts. There is also a push towards standardisation, particularly in corporate-to-bank connectivity, through industry-wide XML formats and the use of SWIFT and SWIFTNet as a standard between corporates and banks. Here, the true end-to-end nature of SEPA reference data fields is expected to drive much needed efficiency gains in the automation of payments reconciliation. 

At the same time, the introduction of the pan-European SEPA direct debit scheme will bring about new business opportunities which will be highly beneficial for corporates in typical B2C industries like telecoms, insurance and utilities. Indeed, for the cross-border collection business, this scheme marks a significant development in the creation of a true domestic market in Europe. The SEPA direct debit is a real innovation as there is really no instrument available today that allows for pan-European collections with a ‘pull mechanism’.

FST. What challenges does SEPA create for corporates?
MR. The introduction of SEPA will require a certain amount of investment in infrastructure and processes. In particular, the setting up of the international bank account numbers, IBAN and BIC, has been a cause of some anxiety, due to the fact they will become the single identifier for both national and international payments within Europe. This means that corporates will have to add the relevant data of each counterparty in the financial supply chain. Consequently, corporates will be subject to penalty charges and delays in their payments if they do not supply the correct IBAN and BIC information in their payment messages. Also, due to the nature of the IBAN, certain legacy payment and/or ERP systems might need to be updated in order to be capable of holding IBAN information at all.

FST. How do you think these can be resolved?
MR. Corporates themselves should also be taking steps to ease the transition process. They should conduct analyses of the likely impact of SEPA on their accounts receivable/payable set up, as well as evaluate the potential rationalisation opportunities within these same processes.

Likewise, the impact of SEPA should be included in liquidity strategy planning. And treasurers should be wary that it may impact on other impending projects that do not seem directly related. On a purely practical note, IBAN and BIC information should be collected from business partners, or corporates should consider using the account number translation facilities that are offered by the larger banks and/or banking communities on a country level involved in the SEPA project.

In order to get this done in a coordinated fashion, we advise our clients to install a SEPA project manager. This person should be the main contact into the banking world talking to their relationship banks, assessing their readiness, keeping an eye on the market and generally coordinate all SEPA-related matters within the organisation. SEPA extends beyond just IT and accounting, and this person should be responsible for coordinating all relevant areas.

FST. What are the levels of SPEA awareness in the market?
MR. We are still seeing very mixed levels of preparedness or even awareness of SEPA in the corporate space. This will change as more traffic will be channelled into SEPA over the course of the year. But it still shows that the banking community needs to reach out more to corporates and make SEPA a key topic for them. We firmly believe, however, that SEPA carries many benefits for our corporate clients and that these typically outweigh the work necessary to become ready for transition.

Martin Runow, Senior Product Manager within Deutsche Bank’s Global Transaction Banking Product Management Group

The group is focusing on the bank’s global payments business for corporate clients. Based in Frankfurt, Martin is responsible for Deutsche Bank’s payments products for corporate clients in Europe especially in the context of SEPA.