Why Asia’s CFOs Should Also Think About SEPA

Asia’s CFOs and corporate treasurers may have greeted with a wry smile the news that the European Commission has allowed a further six-month transaction period during which payments differing from the Single Euro Payments Area (SEPA) format can still be accepted. This means finance need not worry that non-SEPA format payments will be rejected by 1 February 2014, the original deadline. The new deadline is 1 August 2014.
Creating a single payments area on the scale envisioned by the European Commission was always going to involve significant hurdles. Prior to SEPA, Europe was a series of 27 payments systems, 17 of which happened to share a currency. So the six-month extension is hardly cause for concern – and perhaps, for outsiders, not a surprise (thus the wry smile).
That said, Asian CFOs should now take a second look at what is happening – not least because SEPA will have an impact on companies that have operations in Europe, as well as on those that do not.
The SEPA initiative is actually part of an ongoing process, rather than a finite, tick-box project. And it’s a process that could be applied beyond the SEPA zone to cover the globe. With its deep trading with the Eurozone, Asia seems particularly suited for SEPA-thinking.
For Asian corporates in Europe
Let’s start in Europe. For Asian companies operating in the continent, the potential benefits of SEPA are immediate – although reliant on viewing SEPA as a long-term goal, with the 2014 deadlines no more than milestones along the way.
For the European subsidiaries of Asian enterprises, compliance with the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) schemes – the subject of the February (now August) deadline – need not be the only goal.
The SCT and SDD, as well as the move to the XML payment format (the designated format for SEPA transactions), should be viewed more as the start of possible efficiency gains. Once fully compliant with these ‘base elements’ of SEPA, companies can shift their focus towards a future that involves the continued drive towards centralization of the payments process.
SEPA can serve as a foundation for the establishment of payments (and perhaps collections) factories, which are centralized units that execute payments on behalf of one or more subsidiaries. In so doing, companies enhance visibility and control over liquidity and cash management, as well as reduce transaction costs (and risks).
Payment factories are not new. Many leading companies operate payments factories on a regional basis. What SEPA can do is promote further efficiencies by providing the opportunity to rationalize the number of bank relationships, bank accounts and e-banking channels.
Once such a process has started, some corporates operating in the SEPA zone may conclude they need only a single euro account for the entire jurisdiction – the ultimate in regional payments efficiency.
However, even for the most forward-thinking, change-oriented companies, this is unlikely to happen immediately. Lengthy and complex processing challenges need to be overcome, although the largest barrier may be cultural and/or concerns over a lack of hands-on control. For example, the local-level subsidiary could resist such a change because it wants to maintain local granularity with respect to payment-related information.
For their part, CFOs and corporate treasurers part, may want to retain the ability – even if it is more labor-intensive and entails paperwork – to monitor each payment made and received from individual branches (or profit centers). They may to do so in order to ensure disparate operations are complying with budgeting constraints and sales targets.
Use of the XML payment format should go some way towards assuaging these centralization and automation vs. control concerns. XML files are larger than their domestic – and global – counterparts. They can thereby provide all of the payment-related information treasurers require and so enable the denotation of payments that would have become truncated in local clearing systems.
This makes XML a potentially powerful tool in any CFO’s armory when it comes to promoting further efficiencies – particularly when considered alongside SEPA’s centralization and rationalization benefits.
For Asian subsidiaries in Europe, the use of XML could be an even greater advantage because the cultural barriers to centralizing bank accounts are likely to be lower among their principals.
Many European companies will remain wedded to their home markets (seeing all subsidiaries beyond, say, France, as foreign and therefore to be treated differently). In contrast, Asian corporates are far more likely to treat the entire EU (or at least the Eurozone) as a whole entity.
SEPA-thinking in Asia
The same combination of factors that generated the initiative for a single payments area across the Eurozone can be applied elsewhere, including in Asia.
One major aspect of SEPA that (via some lateral thinking) is entirely currency-neutral is ‘virtual accounting.’ This takes SEPA to its logical conclusion: that a single payments area should ultimately result in a single bank account, while also dealing with the fact that – for many subsidiaries operating in local markets – this may not be desirable.
Virtual accounting takes local proclivities into account by stating that payments in and payments out can come into a single company banking hub, yet be divided into particular branch or profit-center streams. This means that branch managers and local group treasurers can view their accounts’ undertakings at a subsidiary level within one overall corporate account.
In SEPA countries today, payments can be handled from centralized hubs, with local accounts retained for national-specific payments, such as tax. The alternative is for both payments and receipts to be routed through a single account. This is a functionality that is capable of dealing with local reporting through the attachment of local identifiers, while providing the obvious advantages of a single account (including cash and working capital optimization).
This functionality can be the ultimate goal well beyond the SEPA zone. Already, at Unicredit, we have managed to add several Central and Eastern European countries and currencies to our clients’ transactions coverage before reconciling to their single euro account. There’s nothing (beyond exchange controls, perhaps) stopping more currencies also being added – taking virtual accounting efficiency-generation to its logical, but still functional, conclusion of global or regional payments hubs.
Virtual accounting is no more than Part One of SEPA’s potential beyond Europe – envisaging a system of seamless cross-border banking right across regions or even globally. This is possible via single banking ‘portals’ (internet-based platforms) that can authorize, validate, convert (into various payments formats and currencies) and route payments. As a result, payments become borderless – at least from the corporate treasurer’s perspective.
Such functionality has been engendered by those closest to the SEPA project, for obvious reasons. But these are the ripples that are likely to reach every shore at some point and revolutionize attitudes towards banking provision for multinational companies.
Complex jurisdictional legal and regulatory systems may hinder progress – as they are doing in the SEPA zone – but these are likely to be mere-hurdles along what appears to be a well-paved path towards seamless global banking.
Watch this space!
About the Author

Markus Straußfeld is Head of International Cash Management Sales at Milan-based European bank UniCredit. 



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