Pioneers of electronic invoicing and users of highly automated banking solutions,
Frances Maguire looks at how Nordic corporate treasurers are streets ahead in preparations for SEPA.

Lower volumes in the Nordic and Baltic countries have both enabled and necessitated the development and use of cutting-edge banking technology to compete, both in Europe and on a global scale. As a result, the region has led the way in taking cheques out of the banking system and pioneering electronic invoicing. Despite remaining primarily outside the eurozone, and having to process multiple currencies, Scandinavian banks are already processing referenced payments and corporate treasurers are using efficient straight-through processing systems that are more advanced than the rest of Europe.

Berit Lund, Senior VP and SEPA programme manager at Nordea Bank says that the eurozone is the most important business area for all the Nordic countries. Hence, SEPA is welcomed by the corporates in the region. However, doing business from and with the Nordic region exposes corporates to the need to handle multiple currencies; consequently the additional risk associated with this.

Lund says: “This will be the reality for almost any Nordic-based group corporate treasurer in the future, even in Finland which is today the only EU member in the Nordic region. The introduction and the first deliveries of SEPA will not change this picture overnight.”

She adds that cash concentration, combined with pooling, is already widely adopted amongst corporates in the region, at least in terms of consolidation of euro accounts across the EU. Currently, the vast majority of corporates are consolidating their euro liquidity across borders.
Lund says: “The uncertainty about the overall transition period for SEPA and how it will impact the underlying business practices in the eurozone countries needs more time to mature before corporates can build their business case for further actions and justify their investment. SEPA is competing also with a lot of other ongoing tasks that maybe higher on a corporate treasurer’s mind right now.”

For this reason, Lund explains how many corporates are keeping their account structures more or less unchanged, and those that are changing had already made this decision as part of their overall cash management strategies. “For some time in the Nordic region, there has already been a clear drive towards further centralisation both on treasury activities and also within corporates payment operations,” she says.

However, Lund believes that progress on ISO 20022 is critical to achieving further centralisation of payment and cash management messages used in the corporate space. “Corporates have told their banks, loud and clear, that they don’t want much deviation amongst banks on these messages.”

In the Nordic banking industry’s preparation for SEPA, Nordic banks have been responsive to this. When preparing the new ISO 20022 messages for corporates, the banks in the Nordic region have delivered something that would have been completely unheard of in the past -- a single common Nordic Message Implementation Guide for the 20022 messages, that not only includes SEPA but also non-euro payment solutions in use across the entire region today. “I consider this to be a powerful contribution fostering true benefits to customers in this region,” says Lund.

The Structured Creditor Reference is coded information about a supplier's invoice, which will enable quicker and more reliable payments. It is hoped that the ISO RF Creditor Reference standard will be ready as soon as 2009, and will be incorporated into the SEPA Rulebook in 2010.

Seen in an overall European perspective, the Nordic region itself is not the biggest user of direct debit payment instruments. According to Lund, much of this demand is met by very efficient card solutions in the region, as well as a long history of electronic low-value giro payments, which contain structured remittance information to enable a high degree of straight through processing for the corporates.

Still, there are substantial variations amongst countries, with Denmark being the country where direct debit is most frequently used as a domestic payment instrument. For this reason, many corporates are adopting a wait and see attitude towards the pan-European direct debit and are still sceptical about its use across the fragmented eurozone.

Lund says: “Corporates are also interested in seeing if less complex alternatives could support their need for efficient collection solutions. In general, there is much interest in creditor-driven payment solutions in the region. The Nordic region has been amongst the early movers on e-invoicing, which, today, is used both in the wholesale business and in the retail space, for private investors. Therefore we also look forward to seeing how this evolves in a European perspective.”

But Juha Keski-Nisula, senior product manager at OpusCapita, says that much work still needs to be done in harmonising the different payment cultures across Europe. Although SEPA is enabling corporates to reduce the number of bank accounts they have, he says e-invoicing is used more in the region than direct debits and that the Nordic model leans more towards creditor-driven collection solutions.

“This is why corporate treasurers are not keen about adopting the SEPA Direct Debit. Using the credit reference they can process electronic invoices automatically through their ERP systems; direct debits would entail manual intervention. Only pan-European companies require direct debits,” he says.

Ruud Nijs, EVP, Financial Logistics, at Rabobank International says the Rabo Financial Logistics Portal (RFLP) already offers CFO’s, treasurers and cash managers one central and web based environment to streamline their financial logistic processes. “RFLP offers the unique advantage of being able to monitor your financial position realtime, around the world and around the clock, via PC, mobile or PDA,” he says.

It also unites a wide range of risk and liquidity tools in one portal so that cash management, treasury and trade transactions can be initiated from a single central environment, using just one PIN to access the different applications.

Says Nijs: “Organising your daily banking transactions, such as initiating payments or opening letters of credit, has never been easier. A unique module for cash flow and liquidity planning enables organisations to structure working capital with optimum efficiency.”

According to Alfred Schorno, managing director at 360 Treasury Systems, the uptake of FX electronic trading amongst corporate treasurers in the region is also on the rise. He says the latest statistics show that around 45-50 % of global corporate treasurers deal electronically today. While it still it varies from country to country, this proportion is assumed to grow to 75% for standard OTC products in the next 2-3 years, although more complex products, like structured products, continue to trade over the phone.

Schorno also adds that increasing numbers of corporate treasuries are looking to build shared service centres and the larger multinationals have already established centralised, or at least consolidated, regional treasury hubs.

He says: “360T’s intra group trading solution can help them to optimise the communication and execution. In Europe already more than 50 large treasuries rely on this service, which allows massive efficiency gains.”

However, Schorno believes that take up of corporate membership of Swift to date has been limited to only the very large corporate treasuries, due to the complexity of the legal framework it entails. Through a partnership with Misys, 360T is supporting customers using the confirmation matching service.

With the advancement of automation in the region – to the extent that some say the larger corporates are moving closer to building their own banks internally – this looks set to change sooner rather than later. However, being further ahead in terms of automating referenced payments does have a disadvantage is that not all banks in SEPA can currently process Nordic electronic invoices. While solutions from the Nordic and the Baltic countries are shaping SEPA, it may well not be until further down the road, and the end of the transition period, that that these countries get something back.