Questions About SEPA

Transcription

1 Questions About SEPA

2 Your questions about the benefits of SEPA If I am just beginning to implement a B2B cross border payment strategy for the EU, would you recommend I implement SEPA DD Cross Border for the greatest adoption? Whilst I believe that B2B direct debit is a great opportunity for businesses, its acceptance by debtors and local experience is not widespread. I d therefore suggest that invoices and SEPA CT will get the widest adoption. Coupled with an e-invoicing solution you can achieve almost a SEPA DD level of efficiency. Your questions about the data conversion service for Continental you say you increased the amount of valid data by 8% how did you do that? What specific type of SEPA payment method does Continental use to pay their EU B2B suppliers? What was the ROI for Continentals SEPA conversion? Our team of data experts have significant experience of how payments information is stored in databases and ERP systems and can therefore manually recognise process failures resulting in poor quality data. By applying this knowledge they can address a number of basic formatting and storage errors, allowing the data to be further analysed and converted. Continental used a mix of credit transfer and SEPA cross-border payments to pay their suppliers. By addressing the data quality and standards Continental now uses predominantly SEPA Credit Transfer to make its A/P payments. The SEPA data conversion exercise was a key part of a larger project which generated significant return on investment. In comparison with the manual alternative, the automated conversion saved Continental months of elapsed time and over 80% of the cost of the migration. Your Questions About Future of the Eurozone With the Euro crisis and if Greece were to exit Euro, how would it affect SEPA? SEPA is applicable for euro payments only, so any country that decided not to use the euro as its main currency would experience an impact, but it is likely that euro payments would still be important within that country and therefore SEPA would still apply to those euro payments. Even if it were decided to unravel the euro, it would take a number of years and the work done on standardised payment systems would be unlikely to have been wasted, it would be possible to simply make SEPA compatible with more than one currency. A possible scenario is that, over time, SEPA might become the set of payments mechanisms of Northern Europe alone. Your Questions about Current Euro Payments What is the most heavily adopted B2B payment method for EU cross border payments today? Is this the BIC/SWIFT cross border direct debit?...and will this be replaced by the B2B SEPA Direct Debit cross border payment method post Feb 1, 2016? Will there by other prevalent non-sepa B2B payment methods used for domestic intra country payments or cross border? The vast majority of B2B payments in euro cross-border are SEPA credit transfers, however the bulk of the value of B2B transactions occurs via RTGS systems.this is also the case if you widen the criteria to include domestic B2B payments, however there are pockets of greater use of B2B direct debit or alternative solutions such as in Finland. The use of direct debit (pull) versus credit transfer (push) is embedded in business culture, much like use of cheques, and it is likely that until there is a sea-change in the practices of accounts payable and receivable across Europe, this is not going to change. International direct debits based on SWIFT standards is a vanishingly small percentage of all B2B transactions. 2 - Your questions about SEPA

3 Your questions about IBAN and BIC requirements How can banks identify the required BIC from an IBAN and confirm it s reachable via SEPA? The obligation is for originating banks to enrich the IBAN details provided by their customer with the BIC related to the bank code within the IBAN. The bank should also check that the destination bank is reachable for the type of payment type requested. This information should be as up to date as possible. Experian provides an automated software component or service, Bank Wizard, which can check the validity of the IBAN, decompose it into the national format and perform a full validation of components of the IBAN, including format, bank codes and local integrity rules and establish the required SEPA BIC using multiple data sources and rules for the highest accuracy. In which countries or cases can a BIC not be derived from the IBAN? The derivation of BIC from IBAN is straightforward in the majority of cases, based on the bank information embedded in the IBAN. For example in the Netherlands the SEPA BIC can be derived from the Bank Identifier (positions 5-8 of the NL IBAN). In other countries this is dependent upon either bank or branch codes within the IBAN and to establish these, it is necessary to perform a country-specific decomposition. In either case it is necessary to check against reference data such as those published by EPC, national banking associations or payments groups or by SWIFT. There are a small number of cases where a single bank code refers to accounts domiciled in different jurisdictions, for example accounts which could be either in Jersey or London. In these cases the receiving bank should re-route the payments to the correct branch, but this is not guaranteed. What is the role of SWIFT in SEPA, if any? SWIFT plays a number of roles supporting SEPA. It is one the key bodies supporting the ISO20022 standard on which SEPA Credit Transfer and SEPA Direct Debit are based. SWIFT also publishes SEPA connectivity data for services such as EBA STEP2 and BICs which are used by banks to route payments in the inter-bank space. It also provides services for banks around connectivity and SEPA testing. Corporates also have the opportunity to send SEPA payment files to their bank(s) using SWIFT for Corporates connectivity, although they may also use a system such as EBICS if supported by their banks. Some banks base their OFAC filtering systems on BICs. When these go away, how can banks continue to keep their their filtering systems up-to-date and valid? about the BIC : after the date on which it is no longer required, what are the consequences of including it in the payment instruction anyway? Will IBANs (and/or BICs) be required for credit card/p-card B2B payments as well or other EFT/Direct Debit payments? Bank Identifier Codes (used to route payments in a similar manner to postcodes routing letters) are not disappearing from use in the inter-bank space and therefore banks will need to either look-up or store BICs for their customers recurring payments. This implies that BIC lookup, or enrichment, should be done in the bank as close to the originating customer as possible. There is no consequence of supplying it, but the bank will route the payment based on the IBAN and may ignore, overwrite or use the BIC. It is likely that, in many cases banks will validate the BIC associated with the IBAN, but the SEPA Regulation makes it clear that IBAN is the data used for specifying the destination of the payment. The Regulation 260/2012 applies only to credit transfers and direct debits, so where these are used to pay credit card bills, the appropriate IBAN must be used. Schemes like ELV in Germany rely on direct debit and therefore must use IBAN (and BIC in the interim, up to 2016). IBANs will not be required for credit card transactions as it would require significant work by the global schemes, Visa, MasterCard et al, and the SEPA framework allows for this standard set of card numbers for these types of payment. There may be additional payment mechanisms which require IBAN in future, but currently the scope of the Regulation is limited to SEPA CT and SEPA DD. 3 - Your questions about SEPA

4 Your questions about IBAN and BIC requirements - continued... What entity issues the correct IBAN? Each individual bank is responsible for issuing their IBANs, inline with the recognised ISO standard - there is no central organisation that issues IBANs, although forming an IBAN from validated data is possible and was supported by the EPC. what is a bban? BBAN stands for Basic Bank Account Number and is the term used to describe a bank account number in the national format e.g. Bankleitzahl and Kontonummer in Germany and code banque, code guichet, numero de compte and clé RIB in France. What numbers in total of account are we talking about? Annually there are 34 billion transactions in euro, and, conservatively, relate to around 3.4 billion entries in customer and payments databases (this could be up to 3 times larger). So a reasonable estimate would be 3-9 billion database entries. In terms of actual accounts, there are around 1.2 accounts per person, the estimate is therefore around 1.2 times the population of the SEPA zone. To avoid BIC error in SCT, pick up the code from the bank EFT systetm. Why can t this service be provided to update the changed/merged bank branches? Can the PSPs provide format conversion services for the corporates that are not able to become compliant within the end date? We are intending to make a mass update of IBAN on our employees from the existing MD. Are there legal restrictions on doing this, we heard that for tax in Germany unions need to be involved, are there any other country specific legal requirements? Banks EFT systems are based upon bank reference directories and may be used to extract the relevant BIC code for payment routing based upon a given domestic bank code within the IBAN. For those IBANs which have out-of-date branch information the BIC cannot easily be deduced and therefore validation up-front is important. Banks payment systems also translate between generic BICs and BICs which are specific to payment instruments such as TARGET2, Faster Payments and CHAPS. The main issue with the reference data contained within EFT systems is that it details those banks that are currently shown in live directories, it does not detail if a bank was live and has since merged or closed or re-directed. The EFT system does not detail the history of a bank code - so unfortunately this can not be used to automatically provide details of bank mergers or closures. Payment Service Providers are obliged to provide a transparent conversion service from domestic account numbers to IBAN for their existing consumers/micro-enterprise customers and this may relate to transactions outside their existing area of operations (i.e. German domestic accounts for a French retail customer of a French bank). Whilst this is not currently clear, a position is in draft from one of the bank working groups which has been put forward is that banks can provide the service through a entity technically separate from the bank; this could be a wholly-owned subsidiary. or a third party The position is not clear for other PSPs such as Payment Institutions. This issue is likley to be a difference in interpretation of EU Directive on Data Protection 95/46/EC which in Germany, France and the Netherlands is more stringent than in some other countries. Best practive is always to confirm the new payment details with staff members or consumers, however these restrictions do not apply when dealing with other businesses. In the event of a failed payment, based on incorrectly formatted or invalid data, the business may be liable and would certainly been seen to be responsible for that payment, even if the individual had provided incorrect data in the first place. The issue in Germany of identifying missing sub-account numbers (Unterkontonummern) makes this further confused as it is common practice to omit these digits if they are 0 or 00 and can lead to faulty conversion. 4 - Your questions about SEPA

5 Your questions about mandate requirements How can a Corporate client (creditor) reuse legacy mandates in a country where that legacy mandates sits with the Debtor Bank? (e.g. France) Ultimately, it is the responsibility of the creditor (originator) to be able to produce adequate evidence of a mandate; this can be actual paper, scanned paperwork or electronically signed documents where acceptable. The PSD and regulation set the accepatbility of transferring existing mandates to SEPA, however each business must satisfy itself that it has sufficient evidence of the legacy mandate (and any changes to it, if made) to meet the requirements of a SEPA mandate. For a full service, Direct Debit Mandate Management services exist and your bank(s) may be able to help introduce you to vendors. Your questions about migration dates Is the deadline of 1st Feb 2014 the same for all countries. Are any countries going to implement more aggressive target dates? Many countries have already started the migration, for example Finland and Italy. Other countries have been using IBANs only for a number of years including Luxembourg and Belgium who have both also migrated to SEPA payment instruments for national transactions. SEPA went live in 2008 for credit transfers and 2009 for direct debits. Countries therefore have the option to implement SEPA mechanisms before the 1st February 2014 deadline and switch off national clearing systems earlier. It appears that all other eurozone countries will not fully switch to SEPA only payments before the deadline of 1st February Your questions about adoption in non euro zone non SEPA territories By domestic payments do you mean those that are purely in UK sterling with transactions to/from local UK firms? So these are exempt from the requirement to include BIC/IBAN requirement wef 1/2/2014? Slide 5: does "local clearing" mean on a national level? Does SEPA only apply to the 27 EU member states? Domestic payments refers to national in country payments across the eurozone. UK sterling accounts are not covered by SEPA, as they do not relate to euro currency payments - there are no plans to enforce the use of IBAN and BIC for national UK sterling transactions. Yes - local clearing in the context of the webinar and white-paper refers to automated clearinghouses which operate only within one or a few countries. A good example is Swiss interbank clearing which also covers Lichtenstein. It applies to the 27 EU members and also Iceland, Norway, Lichtenstein and Switzerland (the European Free Trade Area and Eurpoean Economic Area territories), so 31 nations in total. (32 countries if you include Monaco as a separate country). It also includes the 10 Treaty of Rome territories including the Vatican and San Marino. Your Questions about Alternative Optional Services how many AOS are known - are they usuful for all? There are surprisingly few Additional Optional Services and most are to cope with a local practice not covered by the core SEPA Schemes. Whilst these AOS may be helpful if transferring out of a territory with the AOS, for ease of continuity, it is unlikey to be helpful to adopt them if they are not in use. It is also not mandatory for an AOS to be supported by a given bank in the SEPA zone and therefore breadth of support for each AOS is not clear. 5 - Your questions about SEPA

6 Your Questions About Preparation for Adoption for SEPA I have a mix of IBAN and national account numbers in my database - what should I be doing now ready for 2014? Do you need to open separate SEPA accounts or can SEPA be applied within existing European current accounts? The best advice is to ensure you have available both domestic and IBAN and BIC bank account information. There are two approaches: maintain both or choose one and use a validation and conversion tool to simply reformat as necessary. IBAN is a better defined standard than the domestic formats and you should therefore be planning to convert to IBAN any national account numbers that you hold for eurozone countries too. You should also be both checking and validating any new IBANs in your systems - ideally at the point of data capture and input to ensure only good quality data is collected and errors are rectified immediately. Where you have existing IBANs these should also be validated periodically as bank codes change and certainly the associated BICs get updated following mergers and acquisitions. A single account, ideally in euros, in a single SEPA zone country is all that is required to take advantage of SEPA transactions. No new specific SEPA accounts are necessary - your existing euro accounts will be sufficient your transactions will automatically migration to SEPA standards and processes. If payments aren't failing now,why do I need to validate the data? Has the UK developed a national SEPA migration plan? If so, where can one find it? How does SEPA impact a U.S. based corporate in making or receiving payments to/from the EU? My experience is that the message is that 3rd party providers can solve all. But it does require a lot of input from inhouse resources and in ERP ledger. The total cost of transformation including inhouse resource is difficult to understand. has KPMG any numbers - general - calculation on estimates to a "normal " SEPA migration? Question for Liz. Is there anything that a US bank must prepare for regarding SEPA? In cases where they have to process Euro payments? Research findings identify that typically 12.7% of account details held within today's payments databases contain at least one error, such as an inactive bank or branch code. Businesses aren't experiencing these as rejection indicating that many of these errors are being rectified by banks and national clearing systems. In a SEPA environment, with Pan-European ACHs the local knowledge to make these corrections and route them to the correct recipient bank is missing. When these are made as SEPA payments, banks will not have the ability to rectify these errors. Simply because a payment or collection is successful today does not guarantee its success when migrated to SEPA based on a simple IBAN conversion. The UK has no formal SEPA migration plan on the grounds that it is not a Eurozone country, however many UK domiciled businesses originate euro payments from UK accounts. Euro payments within the UK are, however, still SEPA payments The issue of transactions which start outside the EU has been a topic of discussion for a number of years and the current position is not clear. If the US corporate's euro account is domiciled outside the EU, then theoretically SEPA does not strictly apply, however it is good practice to ensure that the payment instruction is in the same format as an intra-eu transaction: IBAN (and BIC) and ISO Euro transactions through and to accounts which are domicilied within the SEPA zone will be SEPA transactions. Internal costs depend on a number of factors including the number of products, business systems, volume and type of payments and to some dregree the number and interfaces with banks US banks should ensure that they are capturing IBAN and BIC for payments into and within europe, they should ensure that their US customers are assisted in getting this data right. finally, by forming the right partnerships with bank operating european payment services, US banks can offer services to their customers cost-effectively. 6 - Your questions about SEPA

7 Your Questions About Preparation for Adoption for SEPA - continued... What do you think banks need to do in order to provide the best of SEPA? wouldn t it be more efficient for corporates to set up a project for gathering IBANs from their customers and suppliers? As Treasurer of a US-based company with a relatively small number of European payments and even fewer receipts, am I in the minority thinking that the conversion to SEPA is not a big deal, or am I guilty of "sticking my head in the sand"? to be "SEPA ready" for electronic payments, is it merely a case of using IBAN instead of BBAN, or must a corporate also provide the SEPA end-to-end ref,and the SALA indicator, and the " sharing" of costs (instead of BENE/OUR) etc? What do corporates need to ask their banks in term of banking services, in order to make best use of SEPA? Which key issues are there to consider in migrating to SEPA DIrect Debits from existing national direct debit schemes (IT, internal processes)? How can I learn about domestic banking products (RID, Riba, pagares, giros) and their replacement? For instance, I didn't know there are various types of SEPA direct debit. SEPA is an investment for both banks and corporates. To make an easy transition, banks should a) advise their customers on how SEPA will affect their payments, especially niche uses such as tax b) help their corporates adopt IBAN and BIC and ISO20022 by providing or recommending reliable validation and conversion services c) help their customers take advantage of account consolidation and centralisation as medium term projects whilst complying with the short-term technical requirements The issue around collecting valid information is the cost of communications - typically 5-10 per record. The project would be time-consuming and costly and many businesses do not have the resource to spare. Typically this approach could take months to complete and then at the point of updating the legacy systems with the new IBAN details these should be validated for accuracy, as relying upon customers and suppliers to provide unfamiliar information is likely to increase the risk of error. Many banks, such as JP Morgan, Citibank Crédit Agricole and RBS, recommend a third party conversion service such as that provided by Experian for this. Our customers find it quicker and delivers higher quality more cost-effectively. The implications of SEPA are relevant to you for any payments and collections in euro into, from, and within the eurozone. With small volumes, the impact is likely to be small in terms of repair and rejection costs, however there may be an impact on reputation or customer service which you might consider. A small project may not take long but ensuring your payments data is of good quality is a real benefit. If your transactions are initiated from euro accounts within the SEPA zone your transactions will be SEPA, if not there may be opportunities for you to use SEPA mechanisms in order to reduce the cost of your euro transactions. You should discuss this with your bank(s). Although the size of project may be small, you should be planning as soon as possible to collect and convert existing euro account details into IBAN and BIC, in order to reduce your banking charges. The mandatory requirements are for account information to be in IBAN format (with BIC in the interim) and for payment initiation in bulk to be done via ISO If there is an end-toend identifier it should be supplied, as normal, but this is not part of the regulation. Any other indicators must be supplied by the Payment Service Provider. Corporates should be talking to their banks in order to establish what SEPA services and interfaces their banks offer now and in the near future. Businesses should also discuss data formats such as ISO20022 and IBAN and what services they can provide or recommend to enable compliance with SEPA technical standards. The key issues to consider are a) data accuracy and hygiene on captuting systems, b) migration of existing mandates and initiation of new ones c) domestic support for SEPA DD in consumer accounts. This relates to internal processes around customer acquiisition, interface to PSP, direct debit mandate management and capability to generate and process the ISO20022 files required There are only two SEPA Direct Debits: core and B2B. In addition there are Additional Optional Services which facilitate the introduction of SEPA in some communities, but these are, as the name suggests, optional. Businesses should consult each national community who will help customers with their domestic variants and the key changes under SEPA 7 - Your questions about SEPA

8 Your Questions About Preparation for Adoption for SEPA - continued... Do you suggest to manage the migration to SEPA of all entities simultaneously or rather step-by-step (maybe make it even independent local projects)? The best advice is to scope the whole project and then approach either on an application by application, product by product, bank by bank or country by country basis as makes most sense. Migrating supplier payments and payroll first may give good experience. Learning the lessons of migration using an early mover application is sensible and phasing migration is also sensible but consider the impact of changing a German website to accept and handle IBANs before changing the related one in France or for product A, not product B. Measurement of data accuracy is important as errors in data capture will be perpetuated without any validation and the best place is up-front. It is possible to change the front-end customer interface without changing the back end-payments interface, or vice-versa, but to do this an automated conversion utility will be required. To sum up, each business will be different and must decide based on its own operations but planning to learn lessons now from a pilot will reap dividends for the major migration. Your Questions About Reachability for SEPA Do all SEPA transactions pass through SWIFT? Not all transactions pass through SWIFT although many shall do at various points: Corporate to bank, bank to bank and bank to ACH. Transactions which are domestic only may only pass through local interfaces such as EBICS. Your Questions about SEPA Regulations Apart from the IBAN requirement, the SEPA regulation also touches upon other areas such as ISO XML for Payment Service Users. What does this mean for corporates? What is the right move on this in order to be SEPA compliant? Where can one find out which Member State options have been selected by the UK? The SEPA Regulation 260/2012 means that corporates should initiate bulk payments and receive advices in the ISO20022 XML format. This is the format used for SEPA and will be expected to be received by your bank before the migration date. You should update your application software to generate these files and discuss how you can deliver them to your bank. Some Payment Service Providers may provide conversion services in the short to medium term. There are two sets of options which the UK has had choice over: transposition of the Directive on Payment Services (PSD) and the extension options incorporated in the SEPA Regulation 260/2012. The PSD transposition is clearly set out in the Payment Services Regulations (2009) and is currently under review at an EU level. The UK options around timings, for example the mandatory use of IBAN-only for euro payments, will become clear at the end of the year as each member state makes its formal decision. Since many of these requirements relate to IBAN, BIC and ISO20022 usage, businesses should be well-advised to store information with IBAN, BBAN and BIC which offers the most flexible options in the short and medium terms. 8 - Your questions about SEPA

9 Your Questions about SEPA Regulations - continued... How would SEPA handle Clearing Paper Cheques? Can you elaborate on Bank value date practice after feb 2014 on SEPA transactions? What recourse do corporates have with banks that seem to be ignoring SEPA by assessing higher fees on certain transfers that have met the sepa data requirements? (other than finding a new bank) Is there some other governing body or arbitor that could be used, Is that country specific? Paper cheque handling and clearing is specifically excluded from SEPA as a dying and legacy payment instrument. It would be possible to pass truncated cheque payments as debits through SEPA instruments with minor change but there are no scheme rules and this is not currently explicitly supported by implementations of the Payment Service Directive. The Directive of Payment Services (PSD) mandates that from Jan 2012 the value date is one day after recepit of payment instruction If you are currently making euro SEPA payments via your bank - the costs for these tranasctions are regulate to cost no more cross-border than domestically. In many cases this has led businesses to review out of which banks and countries they initiate payments and led banks to review their euro transaction fees. In some cases these additional fees contravene the Payment Services Directive and are therefore illegal. In general corporates expect the transaction costs to be less for the SEPA payment, but, while banks are still paying for both domestic and SEPA systems this is unlikely to be the case. Banks are allowed to impose charges for any SEPA transactions that fail as result of invalid payments data being provided by corporates or insufficient information being provided. These charges do vary from bank to bank and country by country, however, most banks are reasonably consistent in these levels. There is no real recourse if you feel you are being over charged unless it breaches regulation 924/2009 or the Payment Services Directive - I would talk to your bank about the level of charge and establish why it is and ask them if they have help available in order to reduce these costs. In any case reviewing where you initiate your SEPA transactions may be a worthwhile exercise. Your Questions About SEPA Standards What is the maximum EURO amount payable under a SEPA transfer (EUR 50,000?)? In theory unlimited, but clearing systems normallly impose a limit of 999,999,999,99 What's the threshold for a "high-value transaction"? Under the regulation, there is now no distinction of SEPA transactions based on price, however RTGS payments such as TARGET2 and EURO1 are exempted from the SEPA regulation 260/ Your questions about SEPA