Shared services and SEPA – reducing costs and increasing flexibility

This means that it’s time to change SEPA’s focus from the banks to those who’ll actually use it: companies, governments and individual consumers. But with this change in focus, a fundamentally different approach to SEPA is also needed. Until now, decisions concerning SEPA have been triggered by pressure from the EC based on the desire for a solution that will suit European banking as a whole. Companies, however, need to base their decisions on concrete business cases. And it is only when a genuine business scenario has been presented justifying investment in SEPA that organisations will be willing to adopt the new format.

Solving the cost/benefit equation

The main question for businesses is whether the difference in price and the difference in quality between the existing domestic products and the SEPA products can compensate for the required investments. This means taking account of the effect SEPA will have on the total cost of payments, including changes in the infrastructure and the impact on back-office systems for making payments and processing return information. This article considers how both the initial investment in SEPA and the total operational costs of money transfers can be reduced by using the facilities offered by service bureaus.

The role of ICT in money transfers

When we look at electronic money transfers, or actually at all non-cash money transfers, we can differentiate between the ‘message’ and the underlying value, i.e., the ‘money’ that the message represents.

The ‘message’ is the format in which information is exchanged between clients and their banks. Payment messages originate in client systems, whereby information from those systems is activated in a certain format and then sent to one or more banks. The production, transformation and dispatch of messages are quintessential ICT territory. The same applies to remittance and account information. Each bank supplies this information in its own format yet all the data has to be processed back into the original format and system.

Electronic message transfers between organisations are not exclusive to money transfers, but common practice in many areas. Due to their universal nature and the increasing standardisation resulting from SEPA, it would seem that the most logical means of handling SEPA message transfers is to upsize in the market. The cost of the necessary infrastructure and applications, and their management, are reasonably fixed components for which, with optimal use, the lowest possible price per unit can be achieved. This ties in perfectly with the concept of shared services in the ICT branch. It facilitates a win-win situation between the provider of the shared service and its clients which then results in the client enjoying significantly lower, often variable costs, over which they can exert some influence. Proof that this concept can be applied to money transfers, and work well, can be seen in the success of payment service bureaus, as provided by Getronics, the international ICT services and solutions company.

Service bureaus – providing know-how, facilitating implementation

Service bureaus are ideally suited to manage the specific, infrastructural complexity of payments and offer companies and governments the possibility of switching banks within the euro area without having to start complex ICT operations. Service bureaus, particularly those with an ICT background, are also in a good position to implement and manage the integration of the banking world with a company’s systems, as well as provide the necessary know-how.

In terms of the introduction of SEPA, service bureaus can facilitate the switch to the SEPA format and simplify the SEPA business scenario by:

• providing shared services and therefore sharing the costs
• eliminating the need for up-front investments
• providing intelligent routing – and choosing the cheapest route
• reducing complexity

Shared service, shared costs

Service bureaus’ shared service concept means that the total cost of the necessary infrastructure, applications, maintenance and management are shared by all those who use them. This means that the cost per client is significantly lower than if the client were to have the total cost of ownership of a dedicated solution.

No up-front costs

The service bureau concept enables the new SEPA instruments to be used without any (costly) up-front investment. The burden of the investment actually lies with the service bureau and the costs are calculated into the price per unit and spread across the service bureau’s clients. When transaction mechanisms are then based on actual consumption (e.g., the number of payments), the client’s individual investment in SEPA becomes a fixed and predictable cost per transfer.

Optimal service (and lower costs) with intelligent routing,

The flexibility offered by a service bureau can simplify the business scenario for companies and governments. By using the service bureau to convert the current formats to SEPA formats, there’s no need for clients to invest in their own systems. The service bureau can also provide intelligent routing for payment orders, making optimal use of the possible differences in bank tariffs between domestic and SEPA products. For example, domestic products may be cheaper than SEPA products in the Netherlands but more expensive than the SEPA products in Germany. The client can then opt to use Dutch products in the Netherlands and SEPA products in Germany.

Reducing the complexity of diverse connections

Banks have numerous customers and most companies have a number of banks. This means there are a large number of one-to-one relationships, all of which have to be managed and paid for. Service bureaus can be seen as a sort of bus, providing the classic ICT solution for one-to-one relationships. Companies need have only one connection, i.e., to a service bureau, in order to access multiple banks. Similarly, the banks need only one connection to the service bureau to serve many clients. This then means that the banks no longer need to provide technical support to each of their individual clients for proprietary banking solutions. In addition, the service bureau is specialised in the local market and can open up access to companies for international banks and provide the support. This allows the bank to concentrate on its core business without having to set up technical support and an implementation point in each of the regions it operates in.

As stated at the beginning of this article, it will be the companies and the governments who’ll make SEPA a success. Their use of service bureaus to simplify the implementation and use of SEPA means that service bureaus will also play an important role in making SEPA work.

Gerwin Brink is Solution Manager for Payment Services at Getronics in the Netherlands.