SEPA: Opportunity Knocks
publication date: May 16, 2008
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author/source: Drew Hillier (May 2008)
Shahrokh Moinian, Head of Corporate Cash Management Sales, Western Europe
Deutsche Bank, talks to Drew Hillier about SEPA uptake and the balancing of opportunity and compliance.
Shahrokh Moinian has worked for Deutsche Bank for eight years, prior to which he was a corporate treasurer with a French multi-national, an experience he describes as having been invaluable in the context of his current role as Deutsche’s Head of Corporate Cash Management Sales, Western Europe. “It was very enriching, and enabled me to bring across to the banking side a great deal of familiarity with the needs of corporates”, explained Shahrokh, who spoke to me in mid-April, from where he was stopping over in DB’s offices on the Avenue de Friedland, Paris – the city in which he used to live before moving to Frankfurt where he is now domiciled. We kicked off with an update of SEPA’s fist phase ‘go live’ stage back in January, involving the implementation of the SEPA Credit Transfer, (SCT). What, I asked Shahrokh, had been the uptake thus far?
“In general, the launch of SCT’s was very successful, especially when compared to other large pan-European projects, such as the euro,” responded Shahrokh, who went on to explain how over “four-thousand banks, representing some ninety-five percent of the total volume, went live, with between two- to three-hundred thousand transactions per day now being cleared through the systems.”
Is this what was broadly in line with anticipated volumes?
“I’d say yes it is, because – though obviously not the domestic side, which broadly remain outside the system for the time-being – these cross-border volumes that represent most of the transactions in euro are increasing steadily on a daily basis.”
And the payment format – how do you see the standard XML, a subset of the new technical payment kernel, supporting the new SWIFT XML MX940 / 942 messages that specifically cater for SEPA account information protocol shaping up?
“As far as that’s concerned right now, though the XML format is not mandatory in the corporate-to-bank space, the number of corporates using XML is extremely limited. Nonetheless, banks – such as Deutsche Bank – have invested significantly in technology which proactively converts free of charge an existing corporate’s format into XML in order to pass on the benefits of pricing and standards to the clients and their counterparts.”
Hence, despite some rumblings of discontent, the steadily increasing uptake in volumes, which as you’ve pointed out, measures up extremely favorably when compared to such pan-European initiatives such as the euro.
“Correct. And indeed, this is why all in all I’d describe the technical launch as successful; it’s a great achievement. Nevertheless, one needs to see how the corporates are viewing the current situation. In this regard, there’s been a significant divergence of opinions over the past few years, with one side of the spectrum seeing it as a compliance issue – related chiefly around IBAN and BIC – the other side viewed SEPA not as an end in itself, but rather as a facilitator for projects in finance and treasury.”
And therefore as an opportunity?
“Exactly. And we have noticed in recent meetings with corporates - especially following the launch of SEPA - that there is a greater understanding of what SEPA actually entails. Importantly, they have taken on board the fact that there are advantages to be gained. More strategically speaking, with SEPA creating a single payments market in Europe – something that was not previously achieved with the euro – a more standardized and harmonized environment in Europe will be at hand, which takes an enormous level of complexity out of the region. This, in turn, could favour or accelerate the centralisation of certain tasks and functions within finance and treasury across the region, resulting in the multiplication of Shared Service Centers and Payment-factory type structures. Hence, either directly or indirectly – you can conclude that SEPA leads to significant cost savings for corporates.”
Despite the seemingly obvious cost savings inherent in such initiatives, is this a difficult message to get across to corporates, whose principal focus by and large is not necessarily centered on that particular ‘indirect’ aspect of their core business activities?
“It can be, yes. There are a certain number of corporates adopting a more strategic view of SEPA, implementing project groups, pushing forward their centralisation projects and using SEPA as an accelerator.
“Nonetheless, there are a couple of obstacles which, in my view, need to be tackled in order to promote a more mass level of uptake from the corporate side. One such being that corporates - in order to get the medium-term strategic benefits of SEPA - will need to invest in time, resources and IT. Indeed, they need to obtain IBANs/BICs, potentially change their payment formats and therefore system configurations. However, it sometimes proves difficult to get management buy-in for investment in regard to projects that are based simply upon longer term benefits. The other consideration is that the time-lines are uncertain in there being no end date – compared, say, to the euro – none of which makes it an easier sell to a CFO.”
Nor, of course, is there any form of legal obligation currently levied in respect of corporates migrating to SEPA. Which begs the question as to whom it is incumbent upon to place the burden of tackling these obstacles?
“That’s right. The key players both in the banking community and European authorities have a role to play in order to limit, or indeed eliminate, as much as possible the short-term corporate investment for SEPA. For example, IBAN databases need to be generalised by the European authorities. The banks need to be more flexible in terms of formats; they shouldn’t pressure corporates to come to them with XML. Rather, they should accept any currently given used format and implement the necessary convergence themselves. Finally, banks need to insulate their corporate clients from timetable concerns, and indeed other uncertainties related to SEPA, by providing the required standardisation within their own systems prior to the realisation of the standards on the market. In my experience of attending treasury association meetings as well as individual meetings with corporates, this is the message corporates want to hear.”
There are also, as I understand it, some remaining challenges with SEPA yet to be resolved, notably in respect of critical corporate requirements. Perhaps you could give a few examples of these?
“One significant issue awaiting review is the standardization of corporate-to-bank connectivity. Today, this is outside the scope of SEPA; as you may be aware, if you take the local standard, multi-bank protocols – such as ETEBAC in France – they are all looking to become SEPA-compliant. This means we will continue to have different corporate-to-bank protocols rather than one standardized one, which is an issue that remains open. The other big issue that has to be resolved is central bank reporting, which continues to be a requirement from the European Central Bank. Lastly, and a matter of great concern to corporates processing large B-2-C volumes, is the interchange fees for direct debits between banks in certain countries. This, of course, not just adds to the price of a transaction, it also prevents some competition amongst banks – mainly non-domestic banks – across Europe, the ironing out of which remains work in progress. One final point I’d like to make in regard to critical corporate requirements issues is the putting in place of an official deadline for full transition to SEPA instruments.”
So Shahrokh, given these obstacles exist, the question now is how banks, Deutsche Bank especially in this instance, plan to tackled them?
“First and foremost, I firmly believe the key lies in concerted action by corporate banks and the European authorities; integral to this, banks must listen more carefully to, and push the interests and the needs of their corporates. For their part, corporates need to push forward their views independently by better organising and unifying themselves – adopting a single voice as it were.”
Is that something in which you would see corporates thus far as having fallen somewhat short of?
“Somewhat, though I think the EACT has put a lot of work into this and made things much easier. So, by and large, it’s a better situation now than historically, but the momentum does need to be continued and strengthened.”
And how does Deutsche Bank view SEPA?
“We believe the key success factors of banks within the SEPA environment are very much in line with Deutsche Bank’s strengths. This includes an existing large scale of operations, leading to a profitable, on-going business. The second factor centers on the ability to take the profits of today and invest in further SEPA capabilities and value-added services for the future. The third key element is positive branding. In the climate of consolidation among banks, we’re talking about increasing market share – which requires a positive name to attract new corporate clients. The final success factor for banks is maintaining a European vision. Clearly, for Deutsche Bank, Europe is our home market, where we are a market maker, shaping the future of the region within the payments industry. By having a strong seat at the table within various working groups, we are in a position to push the interests of our corporate clients and therefore accelerate the uptake of SEPA throughout the region.”
