It’s only been about a year since the Single Euro Payments Area compliance deadline has passed, requiring companies in the Eurozone aimed at streamlining cross-border payments. Already, banks and businesses are seeing the benefits.
Treasury & Risk spoke with Deutsche Bank’s head of cash management corporate for the Americas, Martin Runow, to explore how multinational corporations have been positively effected by SEPA.
Among the most evident of these benefits, Runow said, stems from SEPA’s requirement that all payment systems use the XML file structure. “This helps reconciliations massively,” the executive said. With some payments systems structured and some unstructured, as it was before SEPA, some information was unattainable to companies depending on where their bank was located. Now, however, a standardized XML structure “helps tremendously in enabling companies to find the information they’re looking for as part of their reconciliation routines.”
SEPA has also led to consistent data recording. For example, Runow pointed out, different clearing systems had different character limits when corporations would enter in data – if 150 characters of information were entered into one field, only the first 20 characters of that information may have actually made it to the payment beneficiary. But with SEPA, banks are now barred from cutting or changing any of these data fields as the information makes its way from payer to the payment beneficiary, meaning invoice numbers and other crucial bits of payment information arrive intact.
Plus, Runow said, with SEPA’s International Bank Account Number format, banks can now issue account numbers to specific customers that are standardized across the Eurozone, and customers can pay using those IBANs on a virtual account structure, making the payment process easier as a payment lands into a virtual account within a supplier’s bank system.
“What the IBAN system adds to this environment,” Runow said, “is that it enables companies to receive payments across Europe with 100 percent automatic identification of the sender of the money.”
Runow pointed to PayPal as one Deutsche Bank customer currently using a virtual account in Europe. Whereas U.S. customers often use a credit card to transfer money into their PayPal account, in the EU, PayPal users can send a SEPA payment. Even if some data is missing from the payer, the payment lands directly into a virtual account.
This is just one benefit that has caused an influx in digital account usage thanks to SEPA. “We have never seen as much interest in virtual accounts as we’re seeing right now,” Runow said. “Virtual accounts can have such a big impact on reconciliations that the idea is gaining tremendous traction on the receivables side.”
As for the future of cross-boarder payments in the Eurozone in the wake of SEPA implementation, Runow said he predicts a new wave of on-behalf-of structures, POBO/COBO structures and even more virtual accounts popping up across Europe. Since many companies allotted IT resources and budget to ensure SEPA compliance, Runow said Deutsche Bank is encouraging companies to continue progressing toward efficient payments – especially as the Know Your Customer banking regulations gain stronger ground.
“Now we’re advising many large companies to take advantage of the compliance resources and budget that they may still have,” he said, “and to look to the future. If they’re implementing XML-based payment systems in Europe, maybe they should look at taking that global. Perhaps this is the time to use excess budget to create an in-house bank or an on-behalf-of structure.”