Dresdner Kleinwort: Has SEPA Started to Deliver? - Manfred Fleckenstein




The Single Euro Payments Area has been greatly anticipated and promises much but, according to a Dresdner Kleinwort survey, its worth depends greatly on how many companies sign up. Jim Banks spoke to Manfred Fleckenstein about the speed of uptake and who is benefiting.

At the start of the year, the arrival of the Single Euro Payments Area (SEPA) marked an important step in the harmonisation of the European Community and promised to bring in a newly integrated payments scheme that would cut the cost of cross-border credit transfers, direct debits and card payments. Yet it also came with some questions unanswered.

SEPA puts in place market rules and infrastructure that can make electronic payments cheaper and more efficient for companies in Europe, so should in theory be a very popular move.

In practice, however, while banks are preparing for SEPA to become mandatory, it seems that the majority of corporates have yet to respond to the new payment scheme.

The Dresdner Kleinwort SEPA Survey 2008 recently found that 74% of corporates are not yet using the new SEPA payments schemes. Furthermore, 22% are using such schemes only for incoming or outgoing payments. That leaves only 4% signed up for both.

‘We find many clients are understandably hesitant – for them the advantages the new process offers are not yet sufficiently clear,’ says Manfred Fleckenstein, head of global cash management at Dresdner Kleinwort.

For a large proportion of the business world there is no great hurry, as the survey found that half of the companies that responded are only willing to migrate payment systems to SEPA schemes when it becomes mandatory.

It might be expected that, of the companies putting off signing up to the new scheme, many are holding companies with worldwide responsibilities, and that often have subsidiaries operating in their domestic market – in contrast to treasury centres with pan-European operations. Companies with a turnover of up to €100 million, or fewer than 10,000 payment transactions per year, are also particularly cautious.

The reasons for reticence are numerous, but largely focus on two key issues – the cost of migrating to the SEPA payments schemes, and the complexity.

Dresdner’s survey found that the number of formats is making many companies hold back from migrating to SEPA. Over one third of the companies that have not yet migrated see the changes required to ERP systems as a challenge, while more than half see a greater problem with the large number of different formats in Europe and obtaining IBAN (international bank account number) and BIC (bank identifier code) information.

Those companies already using SEPA have certainly found that getting IBAN and BIC information is more difficult in practice than expected, though they have found fewer problems with adapting ERP systems or dealing with diverse formats.

Iron out the creases

Migrating to SEPA certainly involves making changes to a business, but there are signs that the potential for efficiency gains will cause more companies to follow in the wake of SEPA pioneers.

In the long-term, Fleckenstein says, SEPA will establish itself as the norm. ‘Once its full functionality is in place, companies will find they can use SEPA to consolidate their payment transaction accounts in Europe, make their liquidity planning more efficient and so optimise the whole of their cash management.'

‘The survey shows that SEPA still has a way to go to realise its goal of harmonised payments within Europe. The findings meet our expectations. As expected, many companies are still cautious about migrating to the new schemes. We think, unless all of the open issues are resolved, that it doesn’t make any sense and is too early to fix a deadline for a mandatory switch-over.’

If the remaining issues can be resolved, acceptance among companies will rise rapidly, as the long-term benefits of SEPA – enabling companies to consolidate their banking accounts across Europe, improve liquidity and optimise their cash management – become clear.

Manfred Fleckenstein, head of global cash management at Dresdner Kleinwort.