The value of SEPA beyond the SEPA-zone

Markus Straußfeld is head of international cash management sales at UniCredit

The work corporates are doing to streamline cash management processes should not end with SEPA implementation, says. Indeed, the principles and ideas underpinning SEPA can inform progress even in the most challenging markets, writes Markus Straußfeld.

After long-awaited Single Euro Payments Area reforms are completed this year, corporates will transition into a new era of harmonised payments in Europe. But the work to make cash and treasury management processes more efficient should not end there. Indeed, the SEPA Credit Transfer and SEPA Direct Debit schemes – as well as the shift to a SEPA-mandated XML payment format – provide a strong platform for further innovation.

This holds for corporates dealing within the SEPA-zone (the EU, EFTA and Monaco) and – crucially – outside it. SEPA gives ambitious corporates the opportunity to implement new, more efficient treasury management processes worldwide.

Until now, the all-consuming focus on implementation has denied many corporates the opportunity to look beyond SEPA compliance to its fuller potential. But now many businesses are fully prepared for the final deadline of 1 August, they can begin to look further ahead. Indeed, some may have already recognised the opportunities offered by the new harmonised payment environment – particularly when it comes to centralisation. One such opportunity involves the creation of payment and collection factories – handling incoming and outgoing payments for a number of subsidiaries and branches – which makes it possible to radically rationalise banking relationships. Taken to its logical conclusion, some companies could reach the point where a single euro account handles transactions for the entire jurisdiction.

Working to improve visibility and control of liquidity for treasurers – while reducing transaction cost and risk – a central, payment-executing unit provides a number of advantages. However, group treasurers and local managers may harbour valid concerns that such a system would result in a loss of payment-related information. It goes without saying that treasurers and subsidiaries will still want to monitor and oversee every payment made and received by individual branches and profit centres, if only to make certain that their firm’s various operations remain within budget while meeting profit projections. And, done manually, the process of unravelling the nature and purpose of each payment is time-consuming.

Here, virtual accounting is part of the solution. This innovative method of account management provides a virtual overlay, splitting the single account into separate streams which can correspond to clients’ existing accounts structures or tailored in different logic, following clients’ demand in order to provide more visibility and improve matching of account payables and account receivables. This enables full transparency to  group treasury to examine each virtual account’s comings and goings individually while every transaction takes place through one “physical” account only.

As such, the new streamlined system can maintain local reporting functions, including statements for each virtual account. These are the kind of developments that will define the next phase of treasury management. What’s more, virtual accounting lays the foundations for expansion outside the SEPA-zone by accepting foreign currency payments before automatically reconciling to the single euro account.

That is why we envisage a future where payments work seamlessly across borders throughout Europe, including the eastern and south-eastern hinterlands. From the corporate perspective, single banking “portals” have the potential to make cash pooling and payments systems truly borderless with the power to authorise, validate and convert payments in one place.

While some of the emerging markets of central and eastern Europe are already part of the EU and associated SEPA areas – like Poland and the Czech Republic – Russia and others are not likely to join them any time soon. This means that any improvements in cash management operations are hard-won, while the country’s sometimes opaque financial system creates strong demand for increased transparency and efficiency.

Establishing cash pooling services in Russia required quite a big effort in working through the country’s legal and regulatory regime while fulfilling all the stringent legal standards and audits necessary. But the outcome is the first local and cross-border pooling facility available to businesses operating in that country. The bank has also begun to handle request-for-transfer (MT101) messages – a significant development for the Russian market, where only domestic organisations could do so before.

And demand for development and expansion will not end with Russia – other challenging markets will be cracked. To this end, UniCredit has created pilot programmes in Bulgaria and Croatia. Ultimately, our approach gives clients the opportunity to work on a SEPA payments basis in western Europe while extending the same standards and systems on a country-by-country basis in eastern Europe.