Contents. Preface 2. III RBS SEPA Accelerator 58 Fast forward to SEPA 58 Managed file formats 60

Transcription

1 RBS SEPA Handbook

2 Contents Preface 2 I Your SEPA Roadmap 3 SEPA establishing single market 3 SEPA contributing to your business 8 SEPA making it work 10 SEPA the foundation for your future 18 II SEPA the complete picture 20 Geographic scope and timelines 20 Bank connectivity and XML 23 Making payments in Europe with SEPA Credit Transfer 27 Collecting in Europe using SEPA Direct Debit 37 Cash management reporting in Europe 55 III RBS SEPA Accelerator 58 Fast forward to SEPA 58 Managed file formats 60 June, 2013

3 Preface SEPA, the Single Euro Payments Area, was introduced in 2008 to streamline the processing of euro payments by replacing multiple, diverse national payment systems with one standard infrastructure. Since its inception as a self-regulatory initiative, the overall adoption rate has been low, with some countries eagerly embracing it but others showing more reluctance. Regulation (EC) No 260/2012 was therefore introduced on 31 March 2012 by the European Parliament to encourage transition, mandating various stakeholders in euro member states to migrate credit transfers and direct debits to SEPA standards by 1 February RBS recognises that the migration to SEPA is comprehensive and complex, and that it will have a significant impact not only on your IT architecture but also on your day-to-day business processes. We are therefore committed to being your trusted advisor throughout the SEPA journey, helping you to successfully overcome the challenges of migration, achieve a seamless transition and maximise the benefits SEPA offers. With less than a year to go before the February 2014 SEPA migration end-date, we believe that it s essential to equip our clients with clear and accurate information. We have developed this handbook, which covers the key focus areas of your SEPA project as well as providing detailed information on SEPA instruments, bank connectivity and reporting improvements. In addition, to accelerate your country migration projects, we have recently published the RBS SEPA Country Expertise document, which offers detailed information on migration plans in the core euro countries, in particular covering direct debit instruments transition and including country-specific mandate migration rules. RBS is deeply committed to ensuring that you can move confidently ahead during the most critical phase of your SEPA project, where detailed knowledge is essential to successful migration. Steve Everett Global Head of Cash Management International Banking Vanessa Manning EMEA Head of Payments and Cash Management Solutions Tino Kam SEPA Product Executive 2 Preface

4 I Your SEPA Roadmap With only a few months left to the migration end date, 1 February 2014, SEPA will benefit and impact businesses in different ways. Corporate or public authority, centralised or decentralised, RBS can assist you in achieving compliance and future strategic objectives. SEPA establishing single market Background and context The Single Euro Payments Area (SEPA) creates a common market for payment processing right across the European Union, making it as easy, quick and secure for businesses and consumers to move money across national borders as they can domestically. It is one of the initiatives arising from the 2001 Lisbon Agenda, designed to level the playing field for crossborder business, driving innovation and helping the EU to become the world s leading knowledge-based economy. It will replace a complex range of national systems with a standardised, consistent service across all EU member states, thereby breaking down national barriers, increasing operational efficiency and reducing the cost of moving capital around Europe. Intensive consultation with national authorities and the financial services industry has helped shape this new, integrated financial landscape, and the European Commission is now promoting competition and transparency among SEPA payment service providers (PSPs) such as RBS. Since its inception in 2008, national authorities, banks and corporates have responded in various ways to SEPA, with some countries eagerly embracing it, and others showing more reluctance. Regulation (EC) No 260/2012 was therefore introduced by the European 3 Your SEPA Roadmap

5 Parliament to encourage transition, mandating various stakeholders in euro member states to migrate credit transfers and direct debits to SEPA standards by 1 February The Regulation stipulates the SEPA technical and business requirements for euro credit transfers and direct debit transactions. It also introduces a set of common standards and sets a migration deadline, known as the end-date, by which all non-urgent domestic and cross-border credit transfers and direct debit transactions in euro must comply with the stipulated requirements. After the end-date, legacy non-urgent euro domestic products in the SEPA zone will cease to exist. The basics Single end-date for both SCT and SDD By 1 February 2014, all Eurozone countries must replace their national euro credit transfer and direct debit schemes with SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). For member states who do not use the euro as their national currency, the deadline is 31 October Businesses operating in both euro and non-euro countries can phase their implementation in line with these dates. Alternatively, they can opt to transition from legacy payment instruments to SEPA standards in one go all before 1 February We recommend the latter option, which is more cost and resource efficient. IBAN and BIC requirements The current SEPA Regulation mandates the use of both IBAN (International Bank Account Number) and BIC (Bank Identifier Code) by payers and recipients. Providing the BIC for national transactions will no longer be mandatory after the end-date, and for cross-border transactions after 1 February However, certain countries (Ireland, Greece, Cyprus, Malta and Portugal) have decided to align mandatory use of BIC for national transactions with the cross-border transactions, so that both will become optional after 1 February While it is possible to extrapolate BIC from an IBAN, in some cases the IBAN does not contain enough information to determine the bank branch, which is why RBS recommends that clients continue to collect and provide both BIC and IBAN details for all SEPA transactions. Corporates who cannot provide BIC and IBAN within the payment instructions may need to obtain account information enrichment solutions from vendors or, under certain conditions, banks. For instance, the RBS SEPA Accelerator meets this challenge by converting legacy account numbers into IBAN format. One single standard The ISO XML message format is to be adopted by corporates in the eurozone for all credit transfer and direct debit batch files by 1 February However, member 4 Your SEPA Roadmap

6 states can extend this timeline by two years; and Greece, Spain, Italy, Cyprus, Portugal and Slovakia have already confirmed they will be doing so. Estonia has opted for a one- year extension. Businesses that cannot meet this timeline will need conversion / enrichment solutions such as the RBS SEPA Accelerator. This solution accepts other global and local formats, as well as XML, for SEPA transactions, enriches them with relevant information and converts them to the right format. Lacking XML format compliancy (built in-house or provided by a third party), you may find yourself unable to make payments with an inevitable impact on your business. RBS has been closely involved in all aspects of the development of SEPA and is a leading member of Common Global Implementation (CGI), which aims to standardise and streamline corporate-to-bank connectivity. Having recognised the richness and flexibility of XML, we recommend clients to consider adopting it beyond SEPA, as a global messaging format for non- SEPA payment flows. Validity of legacy mandates Legacy direct debit mandates remain valid under the SDD Core scheme. However, additional data elements are needed to make them fully SEPA compliant. Business- to-business legacy mandates cannot automatically migrate to SEPA, unless countryspecific migration rules have been defined. We are advising businesses to start collecting missing mandatory information (such as mandate reference, creditor ID) on legacy mandates and to update their client database accordingly. This will enable funds to be collected from debtors, eliminating the risk of cash flow disruption and reparation costs. Our mandate management tool, as part of the RBS SEPA Accelerator, enables legacy direct debit mandates to be converted to SEPA and handles the full SDD mandate management lifecycle. Interoperability From 1 February 2014, all payment service providers (PSPs) offering domestic euro automated clearing house instruments must be fully reachable and interoperable with SCT and SDD Core schemes across member states. For PSPs in non-euro countries, this requirement comes into force from 31 October We have ensured RBS is already fully reachable and interoperable in all 18 (both Euro and non-euro) SEPA countries where RBS operates. 5 Your SEPA Roadmap

7 While banks technical systems may meet this requirement, this does not mean that all businesses payment flows can be facilitated via SEPA in the immediate future. In some countries, local requirements are embedded in domestic payment schemes covering certain payment flows. The translation of some specific local requirements into SEPA schemes has yet to be defined at national levels and RBS will provide guidance for our clients when countries announce their plans. Account location Under the new regulation, corporates can choose one of their European locations as the single base for SCTs and SDDs. This centralisation gives businesses an opportunity to review and optimise current financial structures, streamline payment operation processes and reduce costs. Removal of settlement-based reporting Often referred to as Central Bank Reporting, settlement-based reporting for all euro payments within the EEA region is due to be abolished under SEPA. Countries requiring settlement-based balance of payments reporting from banks relating to transactions of their customers will need to phase out these requirements by 1 February Some countries, however, will be looking for an alternative form of reporting to assure good-quality statistics and RBS is closely following developments in this area. Multilateral Interchange Fees The Regulation sees the phasing out of multilateral interchange fees (MIFs). MIFs on national payments are set to be phased out by 1 February 2017, crossborder payment MIFs having been prohibited from 1 November Only MIFs related to exception processing (R-transactions) are allowed and these must cover processing costs. Niche products Euro member states can have a two-year extension for products with a market share of less than 10%, also called niche products. Greece, Spain, Italy, Cyprus, France and Austria will be taking this step. Another specific product type, the card payment resulting in a direct debit, also falls within the niche category and has been granted an extended timeline until 1 February 2016 in order to become SEPA compliant. Germany and Austria have adopted this derogation. 6 Your SEPA Roadmap

8 An overview of currently known niche products: Country Austria Cyprus France Germany Greece Italy Niche products ATIB - credit transfer (where image of the customer 's paper instruction form is forwarded along with the payment order) ELV-Elektronisches Lastschriftverfahren Business continuity arrangements for electronic credit transfers Télérèglement Interbank TIP / Titre interbancaire de Paiement ELV-Elektronisches Lastschriftverfahren No official information available RID for financial transactions Fixed amount RID Spain Direct Debit Discounting ( Norma 58 ) Commercial Discounting ( Norma 32 ) Source: European Central Bank and in-country SEPA authorities 7 Your SEPA Roadmap

9 SEPA contributing to your business SEPA is much more than regulatory compliance, and offers larger organisations significant business benefits. Specifically, it can help the CFO or corporate treasurer reduce the costs of running the business, while improving cash flow and risk management. For instance, fewer accounts across different European countries can drive down administration costs; while complying with new regulations can reduce exposure to fraud. The Treasury Department is usually responsible for a wide range of business controls, as well as coordinating the multiple partnerships covering banking, technology and the company s value chain. Importantly, SEPA has the potential to enhance all these areas, while implementing shared service centres or a payment factory can also help corporates reach ambitious cash management targets, thereby achieving strategic objectives. Although current market focus is on achieving the minimum SEPA compliancy by the migration end date, RBS suggests there are many longer-term benefits that can be considered in your migration project. Some of these are listed below, divided into the four important areas of cost savings, better risk management, optimised cash flow management, and operational efficiency. Benefits of SEPA Implementation of a payment / collection factory, leveraging standardised rules, processes and formats across countries and on-behalf-of fields as part of payment / collection information Immediate Mediumterm Long-term Cost savings Simplified system configuration and maintenance. Local electronic banking formats will not need to be supported once migrated to one XML format suitable for payments / collections in all 32 countries Leveraging ISO XML format for non-sepa and/or non-euro payments, eliminating costs associated with the maintenance of other formats Domestic-level pricing for cross-border payments and direct debits across SEPA countries Payment methods review and rationalisation ending inefficient paper-based instruments 8 Your SEPA Roadmap

10 Benefits of SEPA Immediate Mediumterm Long-term Improved IT control and risk management through the standardisation and simplification of payment processes, formats and bank interfaces Risk management Improved operational risk framework through predictable, standardised processes, the reduction of manual exception handling and increased reconciliation STP through the use of new data elements, such as end-to-end reference By making fast, accurate decisions about customers creditworthiness, while complying with best practice and legislation, you can manage your exposure to fraud and risk Better and tighter control and transparency over crossborder payments within Europe supported by guaranteed next-day settlement Cash flow optimisation Improved visibility over and access to cash flows, specifically through the reduction / centralisation of euro bank accounts Simplified and optimised cash pooling structures, for example via centralisation of payment and / or collection accounts Optimised banking relationship structure through the reduction of local / regional bank accounts within Europe Operational efficiency Higher straight-through-processing (STP) rates of your cross-border SEPA payments / collections enabled by new data elements available in SEPA instruments Predictable and more automated exception management process based on standard reject / return codes, resulting in reduced rejection costs incurred from your bank Increased automation of the reconciliation process through availability of end-to-end references and extended payment detail data embedded in the whole payment chain Source: RBS RBS has a great deal of expertise in these areas, and offers a portfolio of market-leading technical solutions. This combination of skills and products will help you maximise the benefits from SEPA, both in the short and long term. 9 Your SEPA Roadmap

11 SEPA making it work Where to start The migration to SEPA is comprehensive and complex and will have a significant impact, not only on your IT architecture but also on your day-to-day business processes. Here, we consider where to start, and how to ensure your migration project delivers on time, across your entire organisation. Having worked on a vast number of SEPA implementation projects with blue chip clients, RBS has defined the three critical success factors in meeting the migration end-date: 1. Right project governance: Clear and quick project decision- making process Key internal stakeholder buy-in at all levels, including the management board Multi-disciplinary project team 2. Budget and resources: Sufficient budget allocation to cover end-to-end migration Continuity of SEPA resources for the entire project Specific (XML) expertise and knowledge availability 3. Working with partners: Working closely with your bank throughout your SEPA migration project and using your bank s intelligence, SEPA expertise and relevant country-specific advice Managing third party system vendors to deliver on time Ensuring business continuity through outsourcing to third parties for contingency or late delivery SEPA Awareness Before starting a project, it is important to build awareness about SEPA across your organisation. Key stakeholders and business areas in various European geographies will need to be involved from the start, so it s essential to engage them fully in the discussions. 10 Your SEPA Roadmap

12 RBS has a wealth of experience in building awareness and understanding of SEPA within organisations and continuously stages educational events that include roadshows, roundtables, and webinars on SEPA hot topics. Company-wide impact With the main stakeholders on board, you need to start planning the migration and assessing the company-wide impact, because SEPA affects every business, whether it has a decentralised or centralised structure, domestic or international operations. But of course, the level of impact will depend on the size and complexity of your company, your IT architecture, the geographies in which you operate and your specific payment flows. Firstly, you need a clear picture of your current euro collection flows, account structures, bank relationships and technology. Drawing a company-specific radar chart across six key areas helps visualising the level of impact on your organisation. Geographical scope (i.e. number of SEPA countries in which business is paying / receiving funds) Number of banking relationships Complexity of operations & finance organisation (e.g. decentralised, many hand-over points etc.) Range of client / vendor segments (e.g. consumer vs corporate) Complexity of IT infrastructure landscape (e.g. ERP, CRM, EB, contract admin, etc.) Range of products (e.g. credit transfers, direct debits) Example: Organisation 1 High impact on the business due to a wide range of products used including direct debits, multiple geographies and different segments of clients and vendors for which different activties will be required. Example: Organisation 2 Medium impact on the business with primary focus on country specific migration rules and internal processes and organisation. 11 Your SEPA Roadmap

13 Here, we look at these six areas in more detail: Range of client / vendor segments Who are your clients: consumers and/ or businesses? How many are on your books? As SEPA requires all your counterparties account numbers to be in IBAN format, you need to decide how best to enrich legacy (BBAN) account numbers to fulfil this requirement. For example, will you contact all of your counterparties directly and obtain IBAN information from them? Or will you use automated tools to provide the data? RBS recommends different approaches to fit different client expectations, with a mass solution for consumers and an individual approach for your business clients. And if consumers represent the bulk of your cash flows, it makes sense to migrate this segment first. Range of products What payment instruments are you using now, and what is their composition? As all non-urgent legacy payment instruments will be replaced by the European credit transfer and direct debit, you need to have a complete overview of your legacy instruments and then decide how to migrate them to SEPA. Note that urgent payments or cheques are officially outside the SEPA scope, although some countries have decided to apply SEPA principles for these payment types, in order to maintain consistency and simplicity. Our recommendation is to start with direct debits, as their impact on your organisation will be greater than with credit transfers. This is because your current mandate administration will need to change to comply with SEPA and local migration rules in the countries where you use legacy direct debits. You might take the opportunity to end some of the rarely-used or inefficient payment instruments, such as cheques and other labour- intensive instruments. Geographical scope Which countries are you conducting business in? Although the benefits of SEPA increase through pan-european uniformity, implementation requires a country-bycountry approach, because EU countries are making different migration choices. For example, some have applied for a two-year delay for niche products and other SEPA requirements. Our recommendation is to start with quick-win countries where SEPA acceptance and adoption are already high (see our RBS SEPA Country Expertise on SEPA adoption rates) Legacy mandate migration rules are clear (see our RBS SEPA Country Expertise on SEPA adoption rates) You have high volume of flows 12 Your SEPA Roadmap

14 Complexity of IT infrastructure What does your IT architecture look like and what is the lifecycle of your current systems? As SEPA has a substantial impact on the data managed within your client and financial systems, it is crucial to map your system architecture in order to measure the impact of migration. With third party providers especially, SEPA migration-related activities will need to be coordinated and aligned. You also need to understand the capability of your ERP system(s), and how to ensure they are SEPA compliant. This includes checking whether your ERP system can generate ISO XML payment initiation files. We recommend including all IT systems in your impact analysis, including those outsourced to third parties, and use this checkpoint as an opportunity to decommission old, end-of-cycle systems. This will cut maintenance costs and save time and money being spent on making them compliant. Complexity of operations & finance organisation / processes What do your business processes look like? SEPA is not just a technical migration: it has a direct bearing on your day-today business processes. Most of your order-to-cash, contracting and purchasing processes will be impacted to some extent, as SEPA imposes a new set of rules of engagement, especially with your consumer client base. For instance, you will need to revisit your payment terms, contractual provisions, and timelines of client debit notifications. Our recommendations here include gaining a clear view of R-messages and building them into your (ERP) workflow. Also, we suggest mapping your core processes and then flagging all the changes resulting from SEPA implementation. Number of banking relationships Most large companies have relationships with several banks, so you need to check the various relationships you have and understand what services you expect from each of them. Will you choose your SEPA bank partners based on the capabilities of their SEPA product sets and their experience in SEPA implementations? Does your SEPA bank offer AOS (additional optional services) and optional schemes such as COR1 ( next day service for direct debits) or a business-to-business programme? As SEPA supports a bank-agnostic approach in bank connectivity terms, your SEPA migration provides an opportunity to review and rationalise your account structures and simplify the communication channels you have with your banking partners. 13 Your SEPA Roadmap

15 Migration choices There are two approaches to SEPA migration. The first is tactical, and its objective is to achieve the minimum compliance within the set timeframe. The second is more strategic, and sets out to maximise the potential savings, efficiency boosts and improved risk management that SEPA implementation can deliver in the longer term. The two tables below look at the activities included in both and show departmental responsibilities. The tactical approach ensures SEPA compliance by the migration end-date. SEPA Tactical quadrant towards compliancy Low Opportunity High Review receivable process BIC & IBAN mass conversion Change timing direct debit runs New Direct Debit mandate form Update payment method Extra client / vendor master data Direct Debit revocation measures ERP upgrade for SCT Review payment process Change timing payment runs ebanking setup for SEPA Update booking rules SDD Mandate Migration ERP upgrade for SDD File format in ISO XML Client communication Receivables risk analysis Adjust cash forecasting process Low Responsibilities Technology Accounts Receivable Complexity Accounts Payable Treasury & Cash Manager High 14 Your SEPA Roadmap

16 The tactical approach means that businesses can continue to operate with existing account and process structures, but they will still need to complete several essential steps. They must obtain/ enrich BIC and IBAN information. ERP systems will need to be set up with new payment types and fields for SCT/SDD and mandate management processing must be administered in-house or outsourced to a third party. Companies will need to consider connectivity and communications between their various banking partners, and the file formats used. The strategic approach uses SEPA implementation as a driver to transform and rationalise the business, as shown below. SEPA Strategic quadrant towards centralisation Low Opportunity High Cash flow visibility improvements Centralisation of AP Cash forecasting improvements Review bank relationships Optimise cash pooling Bank account rationalisation ISO 2022 XML for non SEPA flows Bank rationalisation Centralisation of AR Review digital signature policy SWIFT connectivity Service Bureau implementation 3SKey Security In-house Banking Payment Factory Low Complexity High Responsibilities Technology Accounts Receivable Accounts Payable Treasury & Cash Manager 15 Your SEPA Roadmap

17 The strategic approach offers several opportunities to centralise, rationalise and consolidate operations, including Accounts Payable/ Accounts Receivable for example, and to evaluate existing banking relationships. The implementation of a payment / collection factory could be set as a long-term goal for the project, after minimum SEPA compliance has been achieved. However, as with the tactical approach, businesses will still need to complete several steps, including obtaining BIC/IBAN information, implementing ISO XML, setting up new payment types and fields within existing ERP systems, administering (or outsourcing) mandate management processing and reviewing bank connectivity. Whichever approach you decide best suits your business needs and fits your project timelines, RBS is committed to work with you to deliver a smooth SEPA implementation. Enterprise-wide commitment 1. Treasury - ERP systems impact - cash flow and forecasting optimisation - risk management review 2. Finance, SSC - invoices enrichment with IBAN - AR / AP / reconciliation review and centralisation - R-messages handling 3. IT, Operations - data model enrichment - ERP upgrade - bank connectivity and XML format - mandate management support 4. Legal and Tax - update terms and conditions - new SDD mandate template - SEPA bank agreement set-up 5. Client and Vendor Management - client SEPA communication program - IBAN collection from business partners - Internal SEPA training 6. Human Recourses - IBAN collection from employees - HR systems upgrade - SEPA salary payment initiation 16 Your SEPA Roadmap

18 Having understood the impact of SEPA implementation across your organisation, and decided whether to take the tactical or strategic path, you need to design a project plan that clarifies the roles and responsibilities of every internal stakeholder. The deep knowledge and experience we have built up, while leading SEPA migration projects for multi-national corporate clients, suggests that the most successful project plans align the migration activities to the various disciplines of internal stakeholders. Our diagram highlights the six areas you need to focus on. RBS has been a major participant in all stages of SEPA development, and the bank has a senior role in the European Payments Council. We have worked with many multinational clients on SEPA implementations and we have developed a range of solutions to ensure a smooth migration to SEPA. Our sound product expertise, along with our client-centric focus, makes us the ideal partner in this important transition. 17 Your SEPA Roadmap

19 SEPA the foundation for your future SEPA does not end in 2014 or even in It will serve as a robust foundation for change and will help drive a new era of innovation across Europe. One example is the move towards pan- European e-services, an initiative that is gathering pace and already proving cost-effective for smart organisations. As a leading member of the European Banking Association clearing working group on e-services, RBS is an important player in the implementation of pan-european e-services and is already helping many clients to future-proof their businesses. With SEPA implemented, along with new systems and XML standards, businesses can tackle the massive enterprise-wide inefficiencies that relate to paper and manual processing. Once you have moved beyond the minimum SEPA compliance, you can improve and streamline account management, account payables, account receivables and reconciliation processes, and maximise the potential of the new breed of e-solutions, such as electronic bank account management (ebam), einvoicing, estatements, emandates and eidentity. With bank-agnostic connectivity via SWIFT, you can also achieve wider benefits through the setting up of a payment factory. An overview of key e-solutions ebam - Electronic bank account management increases levels of self-service and eliminates the paper trails traditionally found within banking administration arrangements. ebam standardises and automates account opening, account maintenance, account closing and signatory management by using global, bank-agnostic ISO XML messages. It enables nonfinancial messages to be transferred through secure communications channels, such as SWIFT and EBICS, linking the back office systems of banks and corporates to enable straight-throughprocessing (STP) of BAM activities. ebam is a completely electronic process that uses digital signatures to authorise client requests. einvoicing Electronic invoicing boosts on-time payments, shorter approval cycle times, early payment discount capture and the maintenance or improvement of days payable outstanding (DPO) and days sales outstanding (DSO). It ensures the secure exchange of documents between you and your clients and specifically enables invoices and trade-related documents, such as purchase orders, to be issued, received, approved, reconciled and digitally archived. E-invoicing is a secure, managed service which removes paper from the invoice process and provides instant and compliant delivery. RBS s e-invoicing service will integrate seamlessly into your back office environment, helping you cut costs while improving efficiency and reducing errors. 18 Your SEPA Roadmap

20 estatement is a digital file of a bank account s final period end statement, transmitted to the account owner electronically. From one central system, your internal stakeholders from audit, compliance and accounting departments will be able to access, view or print the statement for audit and compliance reporting. The automation and centralisation of bank account statements process enables faster turn-around times, giving your employees more time to focus on valueadded activities. You can also control user access to specific documents or information, and the retention period for documents. eidentifier is a single mechanism that can identify, initiate and authorise banking instructions for example, SWIFT s bank-agnostic 3SKey initiative. This should be seen as part of a wider move to harmonise infrastructure for e-commerce within Europe, and the core focus is enabling individuals, corporates, public sector and banks to identify themselves securely. emandate projects for SDD are well underway and will offer great benefits in terms of eliminating paper- based mandates, including all related processing costs, such as issuing, storage and archiving. As a keen participant in a number of European emandate initiatives, RBS is helping to embed corporate clients requirements in the end-state solution. Fit for the future These workflow solutions will give the corporate treasurer or CFO greater visibility across the financial supply chain which is critically important in today s multi-channel, always-connected business world. They offer transparency across the entire transaction flow, providing a complete end-to-end audit trail. Automated account management, mandate management, transactions and reconciliation processes will also enhance internal controls and regulatory compliance. Many large enterprises are now looking for ways to harness the power of technology to make all their commercial activities fit for the future. They also want to ensure portability and connectivity between banking partners, while adopting the latest industry standards. RBS has the right balance of expertise, proven implementation skills and thought leadership to help you find the right solutions for your business, and we will work with you to achieve your longer-term ambitions. 19 Your SEPA Roadmap

21 II SEPA the complete picture SEPA and ISO XML provides the impetus to review current technology, bank connectivity and cash management procedures, and assess centralisation and optimisation opportunities. Our experience can help you to use SEPA as an opportunity to prepare your treasury for the future. Geographic scope and timelines SEPA was introduced in 2008 to streamline the processing of euro payments. It aims to do this by replacing multiple, diverse national payment systems with one standard infrastructure. SEPA covers the 27 EU countries as well as Iceland, Liechtenstein, Monaco, Norway and Switzerland. RBS SEPA footprint RBS SEPA footprint Other SEPA Countries Thirty-two countries in Europe participate in SEPA, including those outside the euro area who have adopted SEPA standards and practices for their euro payments/collections. Some have also chosen to use SEPA standards for their domestic currency payment schemes. Source: RBS 20 SEPA the complete picture

22 EU Euro Currencies Austria* Belgium* Cyprus Estonia Finland EU non-euro countries Bulgaria Czech Republic* Denmark* France* Germany* Greece* Ireland* Italy* Hungary Latvia Lithuania Luxembourg* Malta Netherlands* Portugal Slovenia Poland* Romania* Sweden* European Economic Area (EEA), non-eu countries/ Non-EEA countries Iceland Liechtenstein Norway Monaco Switzerland* Slovakia* Spain* United Kingdom* RBS operates in 18 of the countries listed above* and has partner bank agreements to cover other key countries within the SEPA area. This has enabled us to develop a comprehensive and fully harmonised SEPA proposition for RBS clients across Europe. Key dates relating to SEPA migration Already effective Reachability for SEPA credit transfers and SEPA direct debits in euro member states Prohibition of per-transaction MIFs on cross-border direct debits 1 February 2013 Member states publish country migration plans Member states confirm their position on the use of available temporary waivers Member states lay down rules on the penalties applicable to violation of the SEPA Regulation 21 SEPA the complete picture

23 1 February 2014 Migration end-date for SEPA credit transfers and SEPA direct debits in euro member states End-date for issuing legacy direct debit mandates Interoperability in euro member states Removal of the obligation for users to provide the BIC for national SEPA payments and collections 1 February 2016 Removal of the obligation for users to provide the BIC for cross-border SEPA payments and collections Expiry of transitional arrangements for niche products Expiry of member state option to allow banks to provide consumers IBAN conversion services Expiry of member state option to allow continued use of legacy file formats for SEPA payments and collections 31 October 2016 Migration end-date for SEPA credit transfers and SEPA direct debits in non-euro member states (or, if earlier, one year after joining the euro) Reachability for SEPA credit transfers and SEPA direct debits in noneuro member states (or, if earlier, one year after joining the euro) Interoperability in non-euro member states (or, if earlier, one year after joining the euro) 1 February 2017 Prohibition of per-transaction MIFs on national direct debits 22 SEPA the complete picture

24 Bank connectivity and XML SEPA and bank connectivity SEPA creates a single, transparent payments market throughout Europe, and will replace complex and fragmented payments system landscape. One of its key objectives is to harmonise and rationalise current domestic file formats and converge them into a single format ISO XML. This will enable businesses to communicate electronically with their banks, through a single set of newly-designed financial messages, across 32 SEPA countries. If your business operates across different European countries, SEPA and ISO XML provide the catalyst for you to review your existing technology, bank connectivity and cash management procedures, and to consider where centralisation can bring benefits to the business. As the ISO XML standard underpinned by SEPA is being adopted globally for transaction processing and account administration, reporting, electronic invoicing, FX and letter of credit confirmations, there is a strong case for companies to review their entire bank connectivity model and to accelerate a move towards payment factories. Having a global, bank-agnostic format with inter-bank connectivity will support moves towards a fully integrated, streamlined organisation; and, of course, the technical infrastructure behind banking connectivity is crucial for successful centralisation. SEPA is already fully integrated into the RBS payments infrastructure, and we provide several options for businesses to interact with us and send ISO XML files. These are: Access Online Access Direct SWIFT Corporate Access EBICS MultiCash ISABEL As we set out in Chapter I, by 1 February 2014 the ISO XML message format must be used by businesses operating in the euro zone for all credit transfer and direct debit batch files. There is an option for member states to extend the deadline by two years, and Estonia, Greece, Spain, Italy, Cyprus, Portugal and Slovakia have chosen this route. 23 SEPA the complete picture

25 Businesses that cannot meet this timeline will need to obtain conversion/enrichment services such as the solution mentioned previously, RBS SEPA Accelerator. The new standard It s worth looking at the background to this new standard the ISO It is based on a universal format : XML (extendible Markup Language), referring to the marking up of specific business elements and fields. The number confirms that this is the nd international standard the ISO has defined and published. The ISO technical committee used a business model as the foundation for the new standard, defining five financial business domains Payments, Securities, Trade Services, Cards and FX. Within Payments, the model then identified and described 11 relevant financial business activities, for example the initiation of a payment. The standard then aligns financial XML messages to business functions such as PAymentINitiation PAIN and CAshManagemenT CAMT (covering account reporting, among other things). You can see the five business domains in the diagram on the next page, and the functions within Payments as an example. It illustrates how the Payment Initiation function covers four business process definitions, and these are each then linked to a set of financial XML messages. 24 SEPA the complete picture

26 Five business domains Payments Services Trade Services Cards FX Functions The business domains payments Payment Initiation Account Management Payment Clearing & Settlement Cash Management FX The business function of payment initiation Four Business Processes Customer to bank payment initiation Creditor payment activation Customer to bank payment cancellation/modicification Mandates Business process of Customer to bank payment initiation Customer Credit Transfer Initiation Customer Payment Status Report Customer Payment Reversal Domains Processes Customer Direct Debit Initiation Messages Customer-to-bank Payment Initiation ( pain ) Message Definition Report (MDR) Customer Credit Transfer Initiation Customer Payment Status Report Customer Payment Reversal Customer Direct Debit Initiation Pain x XML Message Pain x XML Message Pain x XML Message Pain x XML Message This diagram also visualises how ISO XML messages are defined (in detail) by Message Definition Reports. These are integral to the standard, but are relatively independent. Enhancing ISO XML messages does not require the underlying business model to be re-engineered, making the process more straightforward and less expensive. More information on ISO XML standards can be found on Going Global The Common Global Implementation (CGI) initiative is a worldwide forum for banks, large corporations, associations, vendors and markets. Its objective is to simplify ISO XML 25 SEPA the complete picture

27 implementation for corporates, thereby promoting wider acceptance of the standard as the single communication method used between businesses and banks. CGI is driven by corporate demand for bank-agnostic implementations, and is intended specifically for global businesses that operate across multiple countries, using many banks and many different instruments. The objective is to standardise and streamline corporate-to-bank connectivity, and optimise the benefits of XML beyond SEPA. RBS is a keen member of this initiative and is encouraging corporates and institutional clients to consider using XML as a global message format for payment factories. Naturally, large businesses are eager to hear about collaborative initiatives such as this, as well as low-cost, low-maintenance solutions to support activities beyond the EU landscape. Our vast experience in XML and technology, along with our long-term commitment to develop bankagnostic, less complex and transparent solutions in cooperation with ERP providers, will enable you to maximise the potential of XML for all your transactions and workflow solutions. 26 SEPA the complete picture

28 Making payments in Europe with SEPA Credit Transfer Characteristics and benefits The SEPA Credit Transfer (SCT) is the simplest of the SEPA schemes. It supports the transfer of funds from one payment account (the originator account) to another payment account (the beneficiary account). The basic usage criteria and characteristics of SCT are: Same rules and conditions apply to both domestic and cross-border transfers Originator and beneficiary account must be within the SEPA zone and identified by IBAN The amount transferred is always in euro with a maximum of 1 billion euro ; The full amount is always transferred to the beneficiary bank (with no deductions by originator bank or intermediary bank) The beneficiary account is credited no later than the next banking business day Processing is always according to the shared (SHA) charges principle Originator-supplied remittance information is forwarded to the beneficiary bank in full and without alteration The SCT scheme will effectively replace all legacy (non-urgent) domestic and cross-border transfer schemes within the SEPA zone. The main, immediate benefits for corporates and financial institutions using SCT are: Full reachability of all beneficiary accounts within the SEPA zone with one single scheme A short maximum execution time with the benefit of predictability The same business rules and standards across all countries in the SEPA zone: Standard file format (ISO XML) for bulk payment submission End-to-end from initiation to transaction reporting transport of main payment attributes, as well as customer remittance data (either structured or unstructured) Standardised exception handling, such as for rejects and returns These benefits will enable further consolidation and efficiency-improving initiatives, such as: Account and/or bank relationship consolidation 27 SEPA the complete picture

29 Centralisation of payment processing in a payment hub or payment factory Centralisation of exception handling (accounts payable/accounts receivable) Value chain in the context of credit transfer Supply Chain Ordering Delivering Invoicing Buyer/ Originator Supplier/ Benefiiary Reconcilliation Beneficiary credited Originator debited Invoice review & payment initiation Financial Supply Chain Source: RBS Requirements and rules Introduction The SCT scheme applies equally to all users, whether they are banks, businesses or consumers. It regulates interactions and organises in stages which are both logical and transparent. The SCT scheme is maintained by the European Payment Council (EPC) and is described in the SCT Rulebooks, which along with Implementation Guidelines form the starting point and knowledge base for all users. The current and future SCT Rulebooks and Implementation Guidelines can be found on the EPC website 28 SEPA the complete picture

30 SCT regular flow The execution of an SCT payment involves four main players a) the originator, b) the originator bank, c) the beneficiary bank and d) the beneficiary. The regular or happy flow (shown below) describes the successful execution of an SCT. SCT regular flow in a Four Corner Model 1 Initiate SCT Originator 2 Debit account Clearing and Settlement Beneficiary 4 Credit account 3 Interbank message 3 Interbank message Originator bank Beneficiary bank Source: RBS 1. The originator initiates and signs the SCT order via his originator bank channel. The originator bank validates the SCT order and checks the account balance and status. If the originator wants to initiate multiple SCTs at once (bulk payments) the use of the ISO XML PAIN.001 format is mandatory. If you cannot meet the ISO XML by 1 February 2014 as required by EU 260 regulation, your RBS representative will be able to tell you about the RBS SEPA Accelerator. 2 If the validations are successful, the originator account is debited. 29 SEPA the complete picture

31 3 The Originator bank sends the SCT to the selected clearing and settlement mechanism (CSM). The CSM validates the SCT and, when successful, forwards the SCT to the beneficiary bank. 4 The beneficiary bank validates the SCT and the beneficiary account status and, when successful, credits the beneficiary account. Under the scheme, and the EU Payment Service Directive, the beneficiary bank must credit the beneficiary account the same day it receives those funds. Overview of SCT exceptions The exception flows shown below - describe irregular executions of an SCT. SCT exceptions Request for recall Originator Clearing and Settlement Beneficiary Approve or deny recall Request for recall Request for recall Originator bank Reject / Return Return Beneficiary bank Source: RBS Reject/return When an exception occurs after debiting the originator account, the funds are to be credited back to the originator account as soon as possible. The SCT scheme describes the rules for such exception handling and refers to the related transactions as R-transactions. Unsuccessful execution before settlement results in a reject transaction. If it is after settlement, the result is a return transaction. A return transaction must be sent by the beneficiary bank within three banking business days after settlement. 30 SEPA the complete picture

32 Reject and return transactions contain a reason code identifying why the exception occurred, such as incorrect account number or account closed. The possible reasons for R-transactions are described in the SCT Rulebook and are translated into a standardised (ISO) reason code in the SCT Implementation Guidelines. The reason for the R-transaction will usually be reported to the originator, along with the reference number of the original SCT, enabling easy reconciliation. Recall Another exception flow is the recall. The recall procedure can be initiated only by the originator bank, which undertakes it at the request of its customer. The originator bank may initiate a recall for the following reasons only: Duplicate sending Technical problems resulting in erroneous SCT(s) Fraudulent originated credit transfer A recall request can take place up to ten banking business days after execution of the SCT. If the SCT has not yet been settled, the recall request will trigger a reject transaction. If the SCT has been settled already, it is up to the beneficiary bank whether it will return the funds. As a general rule, the beneficiary bank will not return the funds without permission of the beneficiary. The beneficiary bank must answer a recall request within ten banking business days of receiving the request. If the recall is granted, then a return transaction is sent by the beneficiary bank to the originator bank, who will then credit the originator account. For reconciliation details, please refer to the Cash management reporting in Europe chapter of this document. Keeping up to date The EPC releases a new version of the Rulebook annually in November, with new or updated rules normally taking effect in November of the following year. Exceptionally, the Rulebook published in November 2012 will take effect only as of 1 February If necessary the EPC can issue an interim release between the annual editions. This schedule links changes in the Rulebook with the coming into effect of EU Regulation 260/2012 ( The SEPA Regulation ) that mandates the SEPA schemes. The Rulebook release management schedule, along with the latest versions of the SCT Rulebook, can be found on the EPC site 31 SEPA the complete picture