A Steria Report SEPA: will European businesses be ready for the transformation? Prepared in collaboration with. è www.steria.com

A Steria Report SEPA: will European businesses be ready for the transformation? Prepared in collaboration with è www.steria.com

02 SEPA : will European businesses be ready for the transformation? è www.steria.com Contents Introduction 05 Methodology 07 Executive Summary 09 Who is affected by SEPA? 14 Do European corporates understand SEPA Direct Debit? 21 Impact of the migration to SEPA Direct Debit 30 How will European corporates migrate to SEPA Direct Debit? 39 Next steps for the migration 45 Conclusion 47 Appendix 48 Company profiles 50

è www.steria.com SEPA : will European businesses be ready for the transformation? 03 Introduction Payments are undergoing major changes in Europe Following the creation of the euro currency, the European Union initiated the Single Euro Payments Area (SEPA) initiative in the Lisbon Agenda in 2000 to create a single payments market in the euro zone. SEPA encompasses card payments with the SEPA Card Framework, as well as direct debit and credit transfer transactions by creating the SEPA Direct Debit and SEPA Credit Transfer schemes. SEPA currently includes the 27 EU Member States plus Iceland, Norway, Liechtenstein, Switzerland and Monaco. Within SEPA, bank customers can make electronic euro payments across 32 countries under the same basic rights and obligations. On 14th February 2012, the European Parliament voted Regulation 260/2012 that introduced key changes including end dates of 1st February 2014: existing domestic euro credit transfers and direct debits will have to be replaced by SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD). SEPA is part of a broader regulatory trend to harmonise payments in Europe and remove any hurdles limiting payments integration. Alongside SEPA, the Payment Services Directive (PSD) was transposed into national laws in late 2009 in order to provide a common legal framework for payment services. Another key initiative is the Green Paper of the European Commission titled Towards an integrated European market for card, internet and mobile payments that might involve additional regulatory changes. Countries included in SEPA

04 SEPA : will European businesses be ready for the transformation? è www.steria.com SEPA is changing how businesses will collect payments from their customers SEPA encompasses a very large market with 32 countries, 500 million consumers, 71.5 billion electronic B2C and B2B payment transactions annually. In order to maximize this large market opportunity, it is important for businesses to optimize how they collect payments from their customers. This is currently fairly challenging as there are a lot of disparities in payment methods and payment preferences across Europe (e.g., high level of cheque usage in France, of cash in Germany, of credit cards in the UK, etc.). The SEPA initiative is in the process of creating a single market for payments and this provides new opportunities (and new challenges) for businesses. As of September 2012, 30% of credit transfers have migrated to the SEPA Credit Transfer scheme and 2% of direct debits used the SEPA Direct Debit scheme. As European businesses will need to migrate before the 1st of February 2014 end date, understanding SEPA s implications is key to plan a smooth migration and seize market opportunities. This report is focused on SEPA Direct Debit because the migration is more complex and less advanced to provide an overview of the migration to SEPA by answering five questions: Who is affected by SEPA? Do European businesses understand SEPA Direct Debit and what is the status of the migration to SEPA Direct Debit? What is the impact of the migration to SEPA Direct Debit for European businesses? How will European businesses migrate to SEPA Direct Debit? What are the next steps to migrate to SEPA Direct Debit? Volume of SEPA Credit Transfers regularly increases while volume of SEPA Direct Debits is still very low 180 160 140 120 100 80 30% 25% 20% 15% 12 10 8 6 2,0% 1,5% 1,0% 60 40 20 10% 5% 4 2 0,5% 0 0% 0 0,0% Volume of SCT transactions (in million) % SCT transactions / Total transactions Volume of SDD transactions (in million) % SDD transactions / Total transactions Source: European Central Bank

è www.steria.com SEPA : will European businesses be ready for the transformation? 05 Methodology Steria, a leading provider of IT-driven business services, in partnership with Edgar, Dunn & Company (EDC), an international strategy consultancy specialised in payments, have published an independent report about SEPA This report is based on a phone survey conducted by market research company CSA among 300 businesses with 250 to 5,000 employees in France, Germany and the UK. All quantitative data used in this report are based on the results of this survey (unless stated otherwise) and the term European businesses refer to the businesses surveyed in France, Germany and the UK. This report is focused on SEPA Direct Debit because the migration is more complex and less advanced. As there are few or no direct debits in retail face-to-face transactions, the survey has not taken into account face-to-face retail businesses and specific sectors have been targeted to be representative of sectors issuing direct debits with a focus on B2B activities. Businesses have been grouped in three sectors: Commerce (focussing on B2B trade), Services (including administration) and Manufacturing & Construction. EDC has also conducted more than 15 in-depth face-to-face or phone interviews among large corporates and payments experts in Europe to provide a qualitative perspective and take into account viewpoints of major stakeholders in payments in Europe.

06 SEPA : will European businesses be ready for the transformation? è www.steria.com

è www.steria.com SEPA : will European businesses be ready for the transformation? 07 Executive Summary Following the creation of the euro currency, the European Union initiated the Single Euro Payments Area (SEPA) initiative in the Lisbon Agenda in 2000 to create a single payments market in the euro zone. SEPA encompasses card payments with the SEPA Card Framework, as well as direct debit and credit transfer transactions by creating the SEPA Direct Debit and SEPA Credit Transfer schemes. SEPA currently includes the 27 EU Member States plus Iceland, Norway, Liechtenstein, Switzerland and Monaco. Within SEPA, bank customers can make electronic euro payments across 32 countries under the same basic rights and obligations. Steria, a leading provider of IT-driven business services, in partnership with Edgar, Dunn & Company (EDC), an international strategy consultancy specialised in payments, have published a report about SEPA. The report, mainly focused on SEPA Direct Debit, is based on a phone survey of 300 businesses in France, Germany and the UK completed by market research company CSA. EDC has also completed more than 15 in-depth interviews among large corporates and payments experts in Europe. Steria and EDC have structured this paper to provide stakeholders with a better understanding of key aspects related to SEPA Direct Debit: the awareness of SEPA, the impact of and the migration status to SEPA Direct Debit, and the way businesses will migrate to SEPA Direct Debit.

08 SEPA : will European businesses be ready for the transformation? è www.steria.com Who is affected by SEPA? 1.SEPA encompasses a very large market and affects a majority of European businesses SEPA s objective is to turn the Euro area into a single payments market for credit transfers and direct debits by migrating these payment methods into SEPA Credit Transfer and SEPA Direct Debit. The majority of surveyed businesses are affected by SEPA (i.e., businesses using credit transfer or direct debit): 96% of businesses in France and Germany and 65% of British businesses (with European cross-border sales activities). More than 9 European businesses out of 10 use credit transfers and half issue direct debits to receive payments from their customers. All businesses that use credit transfers or direct debits in Euros will need to migrate to SEPA by February 2014.

è www.steria.com SEPA : will European businesses be ready for the transformation? 09 2. Do European businesses understand SEPA Direct Debit and what is the status of the migration to SEPA Direct Debit? A majority of surveyed businesses are aware of SEPA, but most do not have a full understanding of SEPA and its consequences. More than one business out of five issuing direct debits are not even aware of SEPA Direct Debit Almost 70% of European businesses are aware of SEPA in general, and more than 80% of businesses have heard about SEPA Direct Debit in France and Germany. However, only 26% of British businesses are aware of SEPA Direct Debit and a large majority of European businesses fail to understand how SEPA Direct Debit is different. SEPA s vision might face significant difficulty as more than one business out of five issuing direct debits are not even aware of SEPA. Have you heard about SEPA Direct Debit? Base: businesses issuing direct debit Have you heard about SEPA Direct Debit? Base: businesses issuing direct debit 21% 79% Yes No

10 SEPA : will European businesses be ready for the transformation? è www.steria.com Only few surveyed businesses in France, Germany and the UK have migrated or are in the process of migrating to SEPA Direct Debit All French businesses issuing direct debits and a large majority of German businesses issuing direct debits (85%) claim that they will be SEPA compliant on time for the end date. But only few European businesses issuing direct debit (31%) have migrated or are in the process of migrating to SEPA Direct Debit (42% in Germany, 35% in France and only 3% in the UK). The migration could become a significant issue as 30% of French and German businesses have not started to work on migration to SEPA at all, and 62% of British businesses issuing direct debits will not be ready or do not know if they will be SEPA compliant before February 2014. Status of migration to SEPA Direct Debit - by country Status of migration to SEPA Direct Debit - by country Has migrated or is in the process of migrating You have fully migrated 35% 3% 42% 6% 3% - 9% 15% You are in the process of migrating 29% 33% You are assessing the migration 35% 59% 25% You have not started to migrate Doesn't know 31% - 24% 30% 3%

è www.steria.com SEPA : will European businesses be ready for the transformation? 11 3. for European businesses? What is the impact of the migration to SEPA Direct Debit SEPA can be a double-edged sword and proper migration is key to ensure that benefits exceed costs. SEPA Direct Debit is considered as bringing more benefits by half of European businesses. Larger businesses consider that SEPA Direct Debit brings more benefits and makes the payment process easier. However, SEPA Direct Debit is not widely considered as a way to simplify direct debit payments: 40% of European businesses think that SEPA Direct Debit simplifies payments, while 33% consider that SEPA direct debit scheme makes the payment process more complex. SEPA Direct Debit will have a significant impact on multiple business activities More than 70% of European businesses are not worried by migration costs to SEPA Direct Debit. But SEPA Direct Debit will have a significant impact on multiple business activities with accounting, billing and IT being the most impacted activities. European businesses expect a positive impact of SEPA Direct Debit on bank fees, fraud and bad debt. This will contribute to an increase of direct debits: 11% of European businesses currently not issuing direct debit plan to issue SEPA Direct Debits in the future, and 37% of European businesses currently issuing direct debits plan to increase the number of SEPA Direct Debits. Which Which are the are activities the activities that are that most are most affected affected by SEPA by direct the SEPA debit direct scheme? debit scheme? 60% Your accounting / finance activity 50% 83% 34% Your billing activity 38% 44% F Your activities linked to IT systems 21% 34% 45% UK G Your litigation activity 6% 15% 20% Your sales / marketing activity 14% 12% 11%

12 SEPA : will European businesses be ready for the transformation? è www.steria.com How will European businesses migrate to SEPA Direct Debit? 4.Businesses are considering different ways to implement SEPA and a quarter of European businesses consider working with external payment partners Almost a quarter of European businesses currently plan to develop a specific technical solution externally for their SEPA Direct Debit activities: 12% intend to use a hybrid solution (internal and external) and 12% plan to use an external solution. More specifically, 26% of large businesses (more than 1,000 employees) plan to develop part of or all of SEPA Direct Debit activities externally, while 36% will develop an internal solution. Three processes are more likely to be outsourced by European businesses: turning paper documents into electronic documents (38%), the conversion of national direct debits into SEPA direct debits (20%) and the management of mandate (19%).

è www.steria.com SEPA : will European businesses be ready for the transformation? 13 5. What are the next steps to migrate to SEPA Direct Debit? Planning now for a SEPA transformation project focused on IT and on cash management optimisation A thorough assessment of SEPA Direct Debit s impact should not only identify required IT changes but also help to re-design cash management processes. SEPA is indeed an opportunity to consider the consolidation of banking relationships across multiple countries, create synergies (e.g. through the creation of a European structure to collect payments across multiple countries) and optimise cash management systems and processes.

14 SEPA : will European businesses be ready for the transformation? è www.steria.com Part 1 Who is affected by SEPA? SEPA encompasses a very large market and affects a majority of European businesses

è www.steria.com SEPA : will European businesses be ready for the transformation? 15 SEPA s objective is to turn the Euro area into a single payments market for credit transfers and direct debits by migrating these payment methods into SEPA Credit Transfer and SEPA Direct Debit 2014 There is currently a significant diversity in usage of payment methods within Europe and SEPA aims to create an integrated euro payments market. The three largest economies in Europe (France, Germany and the United Kingdom) have all a different payments mix, mainly due to the historical development of payments in each country: The high usage of cheques by both consumers and businesses sets apart the French market. Cheques account for 17% of non-cash payments, equivalent to close to 3bn transactions per year. Card usage is significant in France accounting for 45% of non-cash payments, mainly driven by consumers Germany is characterised by a high usage of cash, direct debit (accounting for 49% of non-cash payments) and direct credit (34% of non-cash payments). By comparison, card payments only account for 17% of non-cash payments, as opposed to 45% for France and 56% for the UK. It should be noted that the German-specific ELV payment method uses card as a physical support but direct debit as the underlying payment method. The usage of ELV, meaning literally electronic direct debit in German, partly explains the significant difference of direct debit and card usage compared to France and the UK The UK is the most developed card market of the three countries with card payments, accounting for more than half of non-cash payments. Both direct debit and direct credit are commonly used, accounting approximately for 20% of non-cash transactions. Cheque is continuously decreasing, being replaced by electronic payment methods and accounts for only 5% of non-cash payments. Distribution of non-cash payments in France, Germany and the UK Distribution of non-cash payments in France, Germany and the UK February, 2014: SEPA end-date 71.5 billion transactions per year encompassed by SEPA 500 100% 17% 17% 5% 80% 60% 45% 49% 56% million consumers encompassed by SEPA 40% 20% 19% 20% 34% 17% 20% 0% Direct credit Direct debit Card Cheque Source: European Central Bank - 2011 data

16 SEPA : will European businesses be ready for the transformation? è www.steria.com The majority of businesses are affected by SEPA: 96% of businesses in France and Germany, and 65% of British businesses (with European cross-border sales activities) The survey reveals that a majority of businesses are affected by SEPA: credit transfer also referred to as direct credit is used by more than 9 businesses out of 10 to accept payments from their customers : 97% for France, 94% for Germany and 92% for the UK. When considering credit transfer, 96% of French and German businesses are affected by SEPA. Credit transfer can be described as a push payment method whereby the initiation of the payment is controlled by the payer. direct debit is used by fewer businesses as direct debit is most of the time linked with recurrent payments and requires a certain degree of trust between the biller and the payer (the payer can either be a consumer or a business). Direct debit can be described as a pull payment method whereby the biller pulls funds from their customer s bank account. Almost half of French businesses issue direct debits to collect payments from their customers. This is lower than in Germany (66% of businesses issue direct debits) but significantly higher than in the UK (34% of businesses issue direct debits). Direct debit is mainly used by consumers to pay utility and telecommunication companies and direct debit in the UK is indeed mainly used by businesses such as billers and government to collect payments from consumers. SEPA is particularly relevant for businesses with sales activities in the euro zone. In the case of the UK, SEPA is only relevant for businesses with European sales as the UK is outside the Euro zone, and this is the case for 65% of UK businesses. By comparison, 73% of French businesses have cross-border activities in Europe and 65% in Germany. These businesses will benefit from SEPA by being able to collect payments in a similar manner across Europe, knowing that all direct debits and credit transfers in euro will need to be SEPA compliant. Overall, when considering the situation of the three countries, almost all businesses in France (97% of businesses are being paid by direct credit) and Germany (94% of businesses are being paid by direct credit) are affected by SEPA, while the proportion is lower in the UK with 65% of businesses (that engaged in cross-border sales activities) impacted by SEPA. These results might differ slightly compared to statistics from European central banks because the survey does not take into account businesses with face-to-face retail transactions (e.g., ELV transactions in Germany would not be captured in the survey). Payment methods used by businesses to Payment methods used by businesses to be paid be paid by their by clients - by - country by country 100% 97% 94% 92% 80% 66% 60% 49% 40% 34% 20% 0% Businesses being paid by direct credit Businesses being paid by direct debit

è www.steria.com SEPA : will European businesses be ready for the transformation? 17 Credit transfer is used by almost all businesses regardless of their size, while the usage of direct debit increases with the size of businesses According to the survey, direct credit is used by all businesses surveyed with 250-499 employees and by more than 9 businesses out of 10 for businesses with more than 500 employees. This confirms that direct credit is a well-spread payment method and is used significantly by all businesses to accept payments from their customers regardless of their size. The situation is different regarding direct debit where there is a correlation between the size of businesses and the usage of direct debit. The usage of direct debit increases with the size of businesses, ranging from 30% of businesses with 250-499 employees issuing direct debit to 57% of businesses with 1,000-5,000 employees. This reflects the fact that large businesses are more likely to set up (or, in some cases, request) recurring payments to be paid by their customers for cash flow reasons for instance. 100% 80% 60% 40% 100% Payment Payment methods methods used used by by businesses to to be paid by their clients - by business size be paid by their clients - by business size 30% 91% 50% 95% 57% Compared to existing domestic bank transfers, SEPA Credit Transfer keeps key features of domestic bank transfers such as the irrevocability of payments. Significant changes (mainly IT-related) need however to be taken into account: Different bank identifiers with the use of the BIC (Bank Identifier Code) and IBAN (International Bank Account Number) to identify each bank and each bank account A new message format with the use of XML and the ISO 20022 format A field of 140 characters to transfer information from the payer to the biller Settlement is at day + 1 Understanding these changes are key for businesses to be able to send and receive credit transfers in Europe. SEPA Credit Transfer mainly impacts businesses at two levels: At an IT level with the use of a new message format and specifications At a client and supplier level, businesses need to update their account payables systems with the correct bank identifiers BIC and IBAN Overall, the migration to SEPA Credit Transfer involves mainly a technical / IT update to create a Euro bank transfer across the 32 SEPA countries. 20% 0% 250 to 499 employees 500 to 999 employees 1,000 to 5,000 employees Businesses being paid by direct credit Businesses being paid by direct debit What is SEPA Credit Transfer? The SEPA Credit Transfer will allow European consumers and businesses to transfer funds in euro from one bank account to another in the same conditions as in their respective home country. The objective of SEPA Credit Transfer is to facilitate payments and to decrease barriers to exchange goods and services within the 32 SEPA countries.

18 SEPA : will European businesses be ready for the transformation? è www.steria.com A smooth transition for SEPA Credit Transfer in Germany Monika Sirp, SEPA Program manager at Vattenfall, confirms that implementing SEPA Credit Transfer has mainly an IT impact. The biggest change related to SEPA Credit Transfers for this European utility company is the need to use new bank account details (BIC and IBAN). Thanks to a close co-operation with German banks, the transition to BIC and IBAN has been smooth in Germany and Vattenfall considers that SEPA Credit Transfer will not impact its cost structure besides the potential small incremental fee if they use a third-party provider to validate BIC and IBAN details. What is the SEPA Direct Debit Core scheme? SEPA Direct Debit includes two schemes: the Core scheme and the B2B scheme. The Core scheme proves to be overall more popular compared to the B2B scheme and this is the reason why the information below provides a high level description of the Core scheme. More information are included in the appendix to gain a better understanding of the impact of the core version of SEPA Direct Debit on European businesses. The appendix also includes a high level description of the impact of SEPA Direct Debit B2B scheme on businesses. The objective of SEPA Direct Debit is to enable businesses in the 32 SEPA countries to receive payments in euro from their clients by direct debit with the same conditions as in their home country. Similar to SEPA Credit Transfer, the migration to SEPA Direct Debit needs to take into account IT-related aspects: Different bank identifiers with the use of the IBAN and BIC to identify each bank and each bank account A new message format with the use of XML and the ISO 20022 format A field of 140 characters to transfer information from the payer to the biller However, the Core version of SEPA Direct Debit impacts businesses beyond IT and encompasses operational changes with regards to three key aspects: a requirement for businesses to set up and maintain a mandate with their customers, i.e. the contract whereby the payer gives authorisation to the biller to collect money from the payer s account changes in due date or settlement date changes in the period when payers can dispute payments The Core version of SEPA Direct Debit includes two types of transactions: for recurrent SEPA Direct Debits, businesses need to distinguish the first direct debit collection from subsequent collections to be compliant with SEPA regulations. Recurrent SEPA Direct Debits are often used for utilities and B2B payments one-off SEPA Direct Debit allows billers to issue a one-time payment direct debit collection. This version of the SEPA Direct Debit targets specific use cases Besides the IT migration to SEPA, one of the challenges that businesses will face is how to handle R (refund, return, reject) transactions*. As new processes need to be defined, merchants, banks and other stakeholders will go through a learning curve to process R transactions and it is expected that stakeholders might experience issues at the beginning. In terms of commercial arrangements, it is also worth noting that multi-lateral interchange fees are to be phased out for SEPA Direct Debits, except for on R-transactions (which will be allowed under certain conditions). * R transactions encompasses SEPA Direct Debit s exceptions like Rejects, Returns, Reversals, Refunds, Refusals, Requests for cancellation and Revocations.

è www.steria.com SEPA : will European businesses be ready for the transformation? 19 SEPA Direct Debit: not only an IT impact Olivier Bornecque, honorary president of the association of French corporate treasurers and member of the French SEPA committee, considers that SEPA Direct Debit will significantly impact European businesses. SEPA Direct Debit involves an IT impact but businesses need to understand that this SEPA Direct Debit migration will have consequences beyond IT with, for instance, the management of a SEPA Direct Debit mandate. In France, there is a transfer of responsibility from banks to businesses, which need to manage the whole lifecycle of the SEPA Direct Debit mandate. Other changes such as the processing of R (refunds, rejects, returns) transactions might create operational issues when SEPA comes into force, but these issues are expected to be resolved over time as different stakeholders learn to work together efficiently to solve potential issues.

20 SEPA : will European businesses be ready for the transformation? è www.steria.com Direct credit and direct debit are used similarly in different sectors Credit transfer is one of the most used payment methods in the B2B segment and this applies to sectors analysed in our survey. 90% of businesses within the Commerce sector are paid by direct credit by their customers versus 97% in Manufacturing & Construction and 93% in Services. More surprisingly, results are similar regarding direct debit in the three sectors: 55% of businesses in the Commerce sector issue direct debit to accept payments from their customers, compared to 47% in Manufacturing & Construction and 52% in Services. While some would expect a high usage of direct debit only for utility companies, this survey shows that direct debit is a well-spread payment method across sectors and meets the needs of businesses. Payment methods used by businesses to Payment methods used by businesses be paid by their clients - by sectors be paid by their clients - by industry sector 38% of European businesses do not issue direct debit mostly because of reluctance among their customers, internal unwillingness to use direct debit or lack of recurrent payments Direct debit is a pull payment with the biller taking funds from the payer and both biller and payer need to agree to set up direct debit payments. The reluctance of one of the two parties is the primary reason why direct debit is not used. According to the survey, 38% of European businesses indicate that their customers do not want to use direct debits: for instance, customers might not be willing to enter into a direct debit arrangement if they do not have a long-term relationship with a given supplier. And 33% of European businesses do not want to issue direct debits: for instance, some suppliers are concerned about the risk of not collecting payments if there are not sufficient funds in their customer s bank account. The 3rd main reason (33% of businesses) lies in the lack of recurring payments, which is one of the most frequent use cases for direct debit. Key reasons why businesses do not issue direct debit to be paid by their clients Key reasons why businesses do not issue direct debit to be paid by their clients 100% 90% 97% 93% Clients do not want to use direct debit 38% 80% Our business does not want to use direct debit 33% 60% 55% 47% 52% No recurring revenues 33% 40% Direct debit is not adapted to our industry sector 9% 20% Lack of simplicity 9% 0% Commerce Manufacturing & construction Services 0% 20% 40% 60% 80% Businesses being paid by direct credit Businesses being paid by direct debit

è www.steria.com SEPA : will European businesses be ready for the transformation? 21 Part 2 Do European corporates understand SEPA and what is the status of the migration to SEPA? A majority of businesses are aware of SEPA, but most do not have a full understanding of SEPA and its consequences

22 SEPA : will European businesses be ready for the transformation? è www.steria.com The deadline for the migration to SEPA is getting closer and closer, and some stakeholders within the payments industry wonder whether corporates have a good understanding of SEPA and will be ready to migrate to SEPA. This survey provides clear answers and provides an accurate picture of the situation among businesses in France, Germany and the UK. According to the survey, 70% of businesses indicate that they have heard about SEPA Direct Debit and this is confirmed when reviewing responses related to three specific aspects of the SEPA migration. Have you heard about SEPA Direct Debit? Base: businesses issuing direct debit Have you heard about SEPA Direct Debit? Base: businesses issuing direct debit Almost 70% of European businesses are aware of SEPA in general. SEPA end date set to February 2014: almost 80% of businesses know that the migration of SEPA needs to completed by 2014. 47% of businesses quoted the accurate year for the migration and 30% indicated that the SEPA end date was before 2014. There are significant differences by country: more than 75% of UK businesses do not know the deadline to migrate while more than 85% of French and German businesses know that they need to migrate by 2014 New bank details with BIC and IBAN: 70% of businesses know that they will need to use new bank identifiers for direct debits and credit transfers in the first stage of SEPA. When the IBAN-only rule comes into force, businesses will only need to take into account the IBAN New ISO20022 message format: almost half of businesses were aware of the need to implement a new message format for SEPA transactions A majority of businesses are aware of SEPA and it is positive to note that 7 businesses out of 10 are aware of SEPA. However, it remains a matter of concern that 3 businesses out of 10 do not know about SEPA and its potential implications on their business. Even more worryingly, 21% of corporate direct debit users have never heard of SEPA. This confirms that there is still a need to educate businesses about SEPA. In some countries like France, there are efforts by the likes of central banks and of associations of corporate treasurers to undertake local workshops about SEPA. 21% 79% Yes No Need for flexibility among banks outside of the Euro zone Janet Oulds, International Operations Manager at the Co-Operative Banking Group in the UK provided an overview of their approach regarding SEPA Credit Transfers: As the Co-Operative Banking Group currently processes a relatively small number of SEPA Credit Transfers, we took a view there was no business rationale to become a direct participant in SEPA and decided to reduce complexity and cost. We use the services of a direct participant bank in SEPA, to convert all inbound and outbound SEPA credit transfers. This provides the Co-Operative Banking Group with the required flexibility for both inbound and outbound SEPA credit transfers without any immediate system changes.

è www.steria.com SEPA : will European businesses be ready for the transformation? 23 Key indicators highlighting awareness of SEPA Key indicators highlighting awareness of SEPA Have you ever heard of SEPA Direct Debit? What is the end date to migrate to SEPA? 1% 2% 22% 31% 68% Doesn't know No Yes 47% Doesn't know Before 2014 2014 After 2014 30% What are the new bank details do you need to use with SEPA? Do you know the new format message to use with SEPA transactions? 29% Doesn't know BIC 4% 45% 2% IBAN BIC + IBAN or SWIFT + IBAN 48% 48% Doesn't know No Yes 23%

24 SEPA : will European businesses be ready for the transformation? è www.steria.com 73% 87% of French businesses and 75% of German businesses have heard about SEPA Direct Debit but this is only the case for 26% of UK businesses Percentage of businesses in the Commerce sector fully understanding SEPA Direct Debit over 75% France is the country where the understanding of SEPA Direct Debit is the highest with 47% of businesses stating that they fully understand SEPA Direct Debit and 40% saying that they partly understand SEPA Direct Debit. By comparison, only 28% of German businesses have a full understanding of SEPA Direct Debit and almost half of businesses in Germany have a partial understanding. Less than 10% of businesses in the UK have a full understanding of SEPA Direct Debit and almost 70% of UK businesses have never heard about SEPA Direct Debit. This could be explained by the fact that 65% of British businesses have activities in Europe and only 34% of British businesses use direct debit to accept payments from their customers versus 49% for France and 66% for Germany. Another reason would be that only 25% of businesses with cross-border sales activities in Europe issue direct debits to collect payments from their customers. It is thought that direct debit in the UK is mainly used for domestic transactions. If businesses issuing cross-border direct debits in Europe lack knowledge on SEPA, this could lead to potential issues when SEPA comes into force. Percentage of French and German businesses having heard about SEPA Direct Debit Awareness of SEPA Direct Debit - by country Awareness of SEPA Direct Debit - by country Has heard about SEPA Direct Debit 87% 26% 75% Has heard about SEPA Direct Debit and fully understands it 47% 9% 17% 28% Has heard about SEPA Direct Debit and partly knows about it 47% 67% Don't know about SEPA Direct Debit 40% 18% Doesn't know 9% 4% 7% 7%

è www.steria.com SEPA : will European businesses be ready for the transformation? 25 Not surprisingly, the awareness of SEPA Direct Debit increases with the size of businesses from 48% for businesses with 250-499 employees to 70% for businesses with 1,000-5,000 employees Large businesses (with 1,000-5,000 employees) are more likely to follow closely European regulations due to their organisational structure (i.e., with a fully dedicated finance director or treasurer that can focus on payments-related issues) or a higher volume of payments. It comes therefore as no surprise that large businesses have a higher awareness (70%) of SEPA Direct Debit than smaller businesses. The awareness of SEPA Direct Debit actually increases with the size of businesses from 48% for businesses with 250-499 employees, 61%for businesses with 500-999 employees and 70% for large businesses with 1,000-5,000 employees. This correlation is confirmed when analysing if businesses have a full understanding of SEPA Direct Debit: only 14% of businesses with 250-499 employees fully understand SEPA Direct versus 32% for large businesses with 1,000-5,000 employees. When looking at sectors, differences are less marked. 73% of businesses in Commerce fully understand SEPA Direct Debit versus 62% in Services and 61% in Manufacturing & Construction. However, the Services sector comes first regarding the full understanding of SEPA with 35% vs. 28% for Commerce and 23% for Manufacturing & Construction. This survey highlights that businesses do not have a full understanding of SEPA Direct Debit s details and of its implications. European businesses would need to increase their understanding either by developing knowledge internally or working with partners to ensure that all consequences can be forecast and dealt with. Has heard about SEPA Direct Debit Has heard about SEPA Direct Debit and fully understands it Has heard about SEPA Direct Debit and partly knows about it Don't know about SEPA Direct Debit Doesn't know Has heard about SEPA Direct Debit Has heard about SEPA Direct Debit and fully understands it Has heard about SEPA Direct Debit and partly knows about it Don't know about SEPA Direct Debit Doesn't know Awareness of SEPA Direct Debit - by business size 14% 34% 48% Awareness of SEPA Direct Debit - by business size 48% 61% 70% 30% 32% 31% 30% 38% 26% 4% 9% 4% 250 to 499 employees 500 to 999 employees 1000 to 5000 employees Awareness of SEPA Direct Debit - by sector 28% 45% 27% 20% Awareness of SEPA Direct Debit - by industry sector 73% 62% 61% 35% 23% 38% 31% 34% 8% 6% 5% Commerce Services Manufacturing & contruction

26 SEPA : will European businesses be ready for the transformation? è www.steria.com However, 21% of corporate direct debit users have not heard of SEPA Direct Debit, and a large majority of businesses fail to understand how SEPA Direct Debit is different Among businesses currently issuing direct debits in France, Germany and the UK, 21% have not heard about SEPA Direct Debit. This is surprising and shows that there is a significant need to educate businesses given that one business out of 5 currently using direct debit has not heard about SEPA Direct Debit. According to the survey, almost 85% of businesses consider that SEPA Direct Debit is different from the direct debit payment method they currently use. 22% think that it is completely different while 62% believe that the European direct debit is only partly different. This perception is true regardless of country (France, Germany or the UK), business size or sector (Commerce, Services, Manufacturing & Construction). However, there are significant differences when it comes to understanding the actual changes involved by SEPA Direct Debit. More than 75% of French and German businesses understand changes implied by the migration to SEPA Direct Debit while almost 75% of British businesses do not. This confirms the fact that a majority of businesses in the UK do not have a full understanding of SEPA and its implications. The mandate, the contract between the biller and the payer, is at the core of the new SEPA Direct Debit and may prove to be a good indicator of the level of understanding of SEPA Direct Debit. 60% of businesses issuing direct debit are aware of a new contract but only a quarter were able to say that it was the mandate, versus 65% of businesses who were unable to do so. This result highlights that a majority of businesses are aware of SEPA and of high-level impacts, but do not grasp the details involved in SEPA Direct Debit as well as its consequences. It is important to note that European businesses will not be required to sign a new mandate if they already have a valid authorisation with the payer to collect recurring direct debits. This is positive for European businesses as it decreases the cost of migration to SEPA Direct Debit, allowing existing mandates within current domestic direct debits to be used within one of the SEPA Direct Debit schemes. Some stakeholders have indicated that there are initial issues when SEPA comes into application. For instance, businesses could not make the difference between a first direct debit and subsequent direct debits or use incorrect BIC and IBAN details. This is likely to lead initially to a higher proportion of R transactions (reject, return, refund) than it is the case now. It is expected to be solved over time as all stakeholders learn to deal with all aspects of SEPA Direct Debit. Key indicators highlighting the changes related to SEPA Direct Debit Key indicators highlighting the changes related to SEPA Direct Debit Is SEPA Direct Debit different from your current direct debit? Are you aware of changes related to SEPA Direct Debit? Do you know the new type of contract for a SEPA Direct Debit between the biller and the payer? 22% 5% 11% 30% 24% 70% 11% 65% 62% Doesn't know Yes, partly No Yes, completely Yes No Doesn't know Other Mandate

è www.steria.com SEPA : will European businesses be ready for the transformation? 27 Only few businesses issuing direct debit (31%) have migrated or are in the process of migrating to SEPA Direct Debit (42% in Germany, 35% in France and only 3% in the UK), and 30% of French and German businesses have not started to work on migration to SEPA at all One of the reasons explaining the fairly low level of understanding of SEPA Direct Debit s implications is the low numbers of businesses who have migrated or are in the process of migrating to SEPA Direct Debit. 35% of French businesses and 42% of German businesses have fully migrated or are in the process of migrating, but this is the case for only 3% of British businesses. These results differ significantly from the low proportion of SEPA Direct Debits. As of September 2012, only 2% of direct debits have migrated to the SEPA Direct Debit schemes. Businesses who have fully migrated may not be yet issuing SEPA Direct Debits. Some businesses could be in a testing phase in order to identify potential issues like database problems with BIC and IBAN. Other businesses could adopt a careful approach and start to issue SEPA Direct Debits progressively, first to specific customers before widening to a larger number of customers. Interviews have revealed that companies are concerned about potential issues with the migration to SEPA Direct Debit and would like to avoid any negative impact on customer relationships. It may be a matter of concern to note that 30% of French and German businesses have not started to migrate, or have not even assessed the impact of SEPA. This is even higher in the case of the UK with 6 businesses out of 10. This confirms that there is a need to inform and educate businesses about SEPA and the need to migrate prior to 2014. Some stakeholders shared their perception that European banks could play a greater role by providing more / better education (e.g., providing check-list about systems and processes that might be impacted by SEPA) to their corporate customers and by providing migration support services. Status of migration to SEPA Direct Debit - by country Status of migration to SEPA Direct Debit - by country Has migrated or is in the process of migrating You have fully migrated 35% 3% 42% 6% 3% - 9% 15% You are in the process of migrating 29% 33% You are assessing the migration 35% 59% 25% You have not started to migrate Doesn't know 31% - 24% 30% 3%

28 SEPA : will European businesses be ready for the transformation? è www.steria.com 30% Percentage of European businesses indicating they have started their migration process 62% Share of British businesses stating the 2014 deadline for SEPA Direct Debit will not be met The migration process to SEPA Direct Debit is overall more advanced for larger businesses when including the assessment phase and the migration, but half of businesses with less than 1,000 employees have not even started to assess the impact of SEPA Direct Debit According to the survey, 30% of European businesses indicate that they have fully migrated or are in the process of migrating regardless of their size. However, when including all three stages in the migration process ( assessment, in process of migrating, and already migrated ), the migration process is more advanced as the size of businesses increases, from 48% of businesses with 250-999 employees to 65% of businesses with 1,000-5,000 employees. Medium-sized businesses might need less time to migrate to SEPA Direct Debit as the migration may be less complex than larger businesses. However, as 52% of businesses with 250-999 employees have not even started to assess the impact of SEPA Direct Debit, it is to be expected that some businesses may struggle to become SEPA compliant. Some might not even become SEPA compliant by 1st February 2014 and be negatively impacted when collecting payments from their customers after this deadline. There are no significant differences between sectors with 32% of businesses in the Commerce sector having not started to migrate versus 35% in Manufacturing & Construction and 41% in Services. Status of migration to SEPA Direct Debit - by business size Status of migration to SEPA Direct Debit - by business size Has migrated or is in the process of migrating You have fully migrated 30% 31% 5% 8% 25% 23% You are in the process of migrating You are assessing the migration 18% 34% You have not started to migrate 44% 30% Doesn't know 8% 5% 250 to 999 employees 1000 to 5000 employees

è www.steria.com SEPA : will European businesses be ready for the transformation? 29 All French businesses issuing direct debits and a large majority of German businesses issuing direct debits (85%) claim that they will be SEPA compliant on time for the end date, unlike British businesses (62% will not be ready or do not know if they will be SEPA compliant before February 2014) The current situation could a matter of concern as a relatively high proportion of businesses have not started to migrate. However, businesses in France and Germany adopt a rather positive attitude, with almost all businesses in France (98%) and a majority of businesses in Germany (85%) claiming that they will have fully migrated to SEPA Direct Debit by February 2014. 12% of German businesses may face significant issues as they state that they will not be SEPA compliant by February 2014. It remains to be seen if this positive attitude is followed by timely implementations to SEPA Direct Debit. If the numbers above are correct, this would mean that all of the 31% of French businesses and more than half of the 30% of German businesses that have not yet started to assess the impact of SEPA Direct Debit, will begin very soon the process to migrate to SEPA Direct Debit. Some large businesses indicated that it will be a very tight timeline for them to be ready by February 2014, and the number of businesses sharing this concern appears to be increasing as the deadline gets closer. This would tend to indicate that the above results are potentially on the optimistic side and that there is a risk that a large minority of businesses in France and in Germany will not be ready by February 2014. A quarter of British businesses state that they will not meet the 2014 deadline for SEPA Direct Debit and almost 40% do not know whether they will be SEPA compliant. This would mean that potentially 65% of UK businesses will not be able to issue SEPA Direct Debit in February 2014. This analysis, somehow concerning, could be counterbalanced because not all of these businesses may use direct debit for crossborder collections as SEPA is not relevant if direct debits are only issued in the UK. This migration is heavily dependent on the ability of banks to process SEPA Direct Debit. Among businesses who have not yet issued SEPA Direct Debits, more than half state that they have not received pricing information related to SEPA Direct Debit. Discussions with industry players indicate that there are still some initial bugs related to the processing of SEPA Direct Debit by some of the large banks in Europe. For instance, reject rates appear to be higher among specific banks and reason codes are not always filled in properly. Potential issues related to SEPA compliance could lead to negative press coverage, highlighting potential risks for consumers. For instance, some stakeholders in France are concerned about a nightmare scenario that would involve a decrease in the usage of direct debit and an increase of cheque volume if the SEPA migration does not take place smoothly. Status of SEPA compliance in 2014 - by country Status of SEPA compliance in 2014 - by country Will be SEPA compliant by 2014 You have fully migrated 6% 3% 35% 9% Has not migrated but will be ready for the 2014 deadline 92% 24% 76% Has not migrated will not be ready for the 2014 deadline 38% Doesn't know 2% - 12% 3%

30 SEPA : will European businesses be ready for the transformation? è www.steria.com Part 3 What is the impact of the migration to SEPA for European corporates? SEPA can be a double edged sword and proper migration is key to ensure that benefits exceed costs

è www.steria.com SEPA : will European businesses be ready for the transformation? 31 32 SEPA Direct Debit is considered as bringing more benefits by half of European businesses Number of European countries impacted by SEPA 54% Percentage of European businesses considering that the SEPA Direct Debit scheme will have a positive issue According to the survey, 54% of European businesses consider that the SEPA Direct Debit scheme will generate more benefits than disadvantages. This positive perception is the highest in Germany with 64% compared to 49% in France and the UK. However, a third of French businesses, 21% of German businesses and 11% of British businesses indicate that SEPA involves more disadvantages than benefits. This perception is certainly linked to the changes needed to migrate from domestic direct debits to SEPA and manage the different aspects of SEPA Direct Debit like the requirement for business to set up and manage a mandate. As there are more changes required for French businesses, this would explain why a higher proportion of French businesses (33%) do not consider SEPA positively. The actual benefits of SEPA Direct Debit will also depend on the implementation of SEPA Direct Debit in each of the 32 SEPA countries. Discussions with some stakeholders have indicated that some countries are reluctant to fully implement SEPA Direct Debit and could keep the current version of the domestic mandate. SEPA Direct Debit will bring full benefits to European businesses if all European countries implement SEPA Direct Debit in a consistent manner, and if the migration effort is coordinated between all the countries. With regards to the SEPA direct debit scheme, do you think the scheme has more advantages or With regards to the SEPA direct more debit disadvantages? scheme, do you think the scheme has more advantages or more disadvantages? 6% More advantages 49% 49% 64% More disadvantages Percentage of French, British and German businesses considering that the SEPA Direct Debit scheme won t change the current situation Same situation Doesn't know 32% 6% 13% 11% 4% 36% 21% 9% 6%

32 SEPA : will European businesses be ready for the transformation? è www.steria.com SEPA Direct Debit is not widely considered as a way to simplify direct debit payments: 40% of businesses think that SEPA Direct Debit simplifies payments, while 33% consider that the SEPA direct debit scheme makes the payment process more complex SEPA has been conceived as a way to simplify payments in Europe and 40% of European businesses agree with this principle while 33% disagree. The situation varies by country: 41% of French businesses think that the payment process is more complicated with SEPA Direct Debit while a third find it simpler. This comes as no surprise as SEPA Direct Debit creates a transfer of responsibility from banks to businesses, which need to handle a significant part of SEPA Direct Debit s activities compared to the current situation almost half of German businesses think that the payment process is easier with SEPA Direct Debit, while almost 40% find it more complex in the UK, 40% of businesses consider that SEPA Direct Debit simplifies the payment process compared to 20% of businesses finding it more complex. SEPA is indeed beneficial for British businesses, which can standardise processes to issue direct debits in euro. However, more than a third of British businesses do not have an opinion whether SEPA Direct Debit simplifies the payment process. This high proportion is certainly to be related with the high share of businesses in the UK that have not heard of SEPA Direct Debit (67%) and have not started to migrate to SEPA Direct Debit (59%). Do you think that the SEPA direct debit scheme makes the payment process easier or more complex? Do you think that the SEPA direct debit scheme makes the payment process easier or more complex? Easier 33% 40% 48% More complex Same situation 41% 20% 6% 37% Doesn't know 12% 14% 34% 7% 9%

è www.steria.com SEPA : will European businesses be ready for the transformation? 33 A higher proportion of larger businesses consider that SEPA Direct Debit has more benefits than disadvantages and larger businesses tend to think that SEPA Direct Debit makes the payment process easier The perception of SEPA Direct Debit improves with the size of businesses from 48% for businesses to 250-499 employees to 55% for larger businesses (1,000-5,000 employees). With regards to the SEPA direct debit scheme, do you think the scheme has more more advantages or more disadvantages? by by business size size With regards to the SEPA direct debit scheme, do you think the scheme has More advantages 48% 56% 55% More disadvantages 18% Same situation 6% 19% 24% Doesn't know 28% 8% 5% 17% 15% 250 to 499 employees 500 to 999 employees 1000 to 5000 employees 46% of businesses with 1,000-5,000 employees consider that SEPA Direct Debit makes the payment process easier, a significantly higher proportion than businesses with 250-499 employees (32%). As larger businesses tend to have increased operational complexities due to their involvement in cross-border activities, it makes sense that the positive perception related to SEPA Direct Debit increases with the size of businesses. Considering their size and their volume of payments, larger businesses are indeed more likely to benefit from SEPA Direct Debit to collect payments. Easier More complex Same situation Doesn't know Do you think that the SEPA direct debit scheme makes the payment process more easier complex? or more complex? Do you think that the SEPA direct debit scheme makes the payment process easier or 32% 37% 46% 28% 35% 32% 14% 10% 5% 26% 18% 17% 250 to 499 employees 500 to 999 employees 1000 to 5000 employees

34 SEPA : will European businesses be ready for the transformation? è www.steria.com Overall, more than 70% of European businesses are not worried by migration costs to SEPA Direct Debit. However, 30% of businesses in Germany are worried compared to 18% in France and 13% in the UK Overall, 70% of businesses indicate that they are not worried by migration costs to SEPA Direct Debit. German businesses are more worried (30%) compared to their French (18%) and British (13%) counterparts. This result could be seen as slightly surprising as some stakeholders indicated their concern about the level of migration-driven IT expenses: respondents might have offset these IT expenses against future SEPA-driven cost reductions when responding to this question. The migration to SEPA Direct Debit is complex and has significant impacts on European businesses. A European insurance company shared some estimates regarding the migration effort related to IT: For large insurance companies with at least 3 to 5 subsidiaries, the migration effort is estimated to be around 25,000 man-days in the IT area For medium-sized insurance companies with one central IT location, the migration effort is estimated to be around 15,000 to 20,000 man-days in IT resources For smaller insurance companies, it would be estimated between 1,000 and 5,000 man-days. These numbers highlight that there is considerable effort for the migration to SEPA Direct Debit and it explains why larger businesses tend to be more worried about migration costs. Almost a quarter of businesses with 1,000-5,000 employees express concerns about migration costs compared to only 10% of businesses with 250-499 employees. However, this is a one-time effort to migrate and once it is completed, only little incremental effort is expected to operate SEPA Direct Debit. When considering migrations costs to SEPA Direct Debit, potential errors like incorrect IBAN or BIC also need to be taken into account. Some stakeholders think that banks might currently correct errors in the case of a branch closure for instance to decrease the number of errors. When SEPA comes into force, these errors might generate a high number of R transactions. Experian 2 has analysed more than half a million bank account records held by businesses around Europe and found out that 12% of electronic payments made to and from businesses in euro currently contain data errors. SEPA-related payment data errors could prove to be significantly expensive and European businesses would need to check their bank account database to assess the relevance of using a third-party provider to validate BIC and IBAN details. Are you worried about migration costs to SEPA Direct Debit? by country Are you worried about migration costs to SEPA Direct Debit? by country Yes 18% 13% 30% No 77% 73% 64% Doesn't know 5% 14% 6% 2 Experian s white-paper on Counting the hidden costs of SEPA migration http://www.experian.co.uk/assets/payments/brochures/counting-the-hidden-cost-of-sepa-migration.pdf

è www.steria.com SEPA : will European businesses be ready for the transformation? 35 A major European telecommunication operator commented on costs related to migration to SEPA Direct Debit: Costs related to migration to SEPA Direct Debit are a potential concern. We have just started a scoping exercise to gain a better understanding of the workload, the complexity and costs related to the migration to SEPA Direct Debit.

36 SEPA : will European businesses be ready for the transformation? è www.steria.com Accounting, billing and IT are the three activities most impacted by SEPA Direct Debit in France, Germany and the UK SEPA Direct Debit s impact goes beyond IT and has significant impacts across the different business functions. Despite differences between France, Germany and the UK, three activities appear to be the most impacted by SEPA Direct Debit: 1. Accounting / finance for 64% of European businesses (the highest is Germany with 83% compared to 60% of French businesses and half of British businesses) 2. Billing for almost 40% of European businesses (the highest is again Germany with 44% compared to 34% in France and 38% in the UK) 3. IT comes only in third position with a third of European businesses thinking that it is one of the activities the most impacted by SEPA Direct Debit (45% of German businesses versus 34% of French businesses and only 21% of British businesses) Stakeholders indicated that they will need to develop internal expertise and experience or leverage external resources to fully benefit from SEPA. In particular, this includes building up IT capabilities to implement and maintain SEPA message formats, as well as how to play within the new SEPA rules. Discussion with industry players confirmed that businesses might experience issues to deal with specificities implied by SEPA like XML. It will also be key to develop a specific know-how related to SEPA such as understanding when to send direct debits (e.g. which timing between a first and a subsequent direct debit) or how to manage R transactions depending on the type of direct debit (Core or B2B). This expertise also involves gaining a good understanding of how different banks handle such exceptions. SEPA Direct Debit may have a major impact on the relationship between businesses and their customers, and this shows that businesses need to carefully plan their migration to mitigate risks and ensure a smooth transition. Discussions with industry players highlight potential risks related to customer relationship. Negative press coverage or potential issues in the migration to SEPA Direct Debit could affect customers perception (and in particular consumers perception) and damage customer relationship. If some customers change their payment habits and turn away from direct debit (e.g., starting to use cheques again), this could create a bottleneck and significant pain for businesses to collect payments from their customers. Which are the activities that are most affected by the SEPA direct debit scheme? Which are the activities that are most affected by the SEPA direct debit scheme? 60% Your accounting / finance activity 50% 83% 34% 38% 44% Your billing activity Your activities linked to IT systems 21% 34% 45% F UK G Your litigation activity 6% 15% 20% Your sales / marketing activity 14% 12% 11%

è www.steria.com SEPA : will European businesses be ready for the transformation? 37 European businesses expect a positive impact of SEPA Direct Debit on bank fees, fraud and bad debt SEPA Direct Debit could impact businesses at different levels. At first, when looking at bank fees, 46% of businesses consider that SEPA Direct Debit will have a positive influence. Businesses can generate cost savings because SEPA eliminates multi-lateral interchange fees and provides the opportunity for businesses to consolidate the number of banking relationships across the euro area. As a consequence, the impact is seen as positive in countries where businesses had to pay fees to issue direct debits like in France. 55% of French businesses consider that SEPA Direct Debit will have a positive impact on bank fees compared to 9% of businesses perceiving a negative impact. The situation is more balanced in Germany with 36% of businesses thinking that SEPA will have a positive impact on bank fees compared to 22% considering a negative impact. Almost half of British businesses either do not know or think that SEPA will not have any impact on bank fees compared to 34% of businesses perceiving a positive impact and 18% a negative impact. Secondly, the fraud risk has been put forward by some stakeholders as one of the key threats created by SEPA Direct Debit, using the example of fraudulent foreign businesses collecting money from consumers and businesses alike without valid SEPA Direct Debit mandates. However, European businesses do not share this perception as 40% consider that SEPA Direct Debit will have a positive impact on the fraud risk and 37% indicate that it will not have any impact. Regarding bad debt, 29% of French businesses indicate that SEPA Direct Debit will have a negative impact compared to 24% who believe it will have a positive impact. More businesses in the UK (41%) and Germany (31%) think that SEPA Direct Debit will be beneficial. This could be related with a higher proportion of R (reject, refund, return) transactions that some stakeholders have seen at this early stage in France. European businesses do not have a common perception of the impact of SEPA Direct Debit on IT system infrastructure. While 44% of French businesses believe that it will have a positive impact, 41% of British businesses and 40% of German businesses consider that SEPA Direct Debit will not have any impact at all on IT systems. Overall, IT system infrastructure is the criteria scored the most negatively across the three countries. What is the impact of SEPA Direct Debit? What is the impact of SEPA Direct Debit? Positive impact Positive impact Positive impact Bank fees 13% 42% 7% 2% 24% 13% 55% 9% 25% 16% 2% 14% 34% 34% 10% 35% 19% 3% 24% 9% 36% Risk of fraud 6% 40% 13% 36% 6% 46% 2% 32% 5% 5% 27% 30% 34% 3% 40% 4% 2% 43% 9% 43% IT system infrastructure 2% 42% 20% 9% 20% 7% 44% 16% - 7% 41% 36% 16% 6% 19% 22% 6% 40% 7% 25% Bad debt 6% 18% 18% 11% 40% 7% 24% 14% 27% 39% 20% 41% 10% 21% 15% 49% 6% 31% Doesn t know No impact Very negative impact Negative impact Positive impact Very positive impact

38 SEPA : will European businesses be ready for the transformation? è www.steria.com 37% Percentage of European businesses planning to increase the number of direct debits issued 11% Percentage of European businesses planning to issue direct debits among businesses currently not issuing any The number of direct debits issued will increase: 11% of European businesses currently not issuing direct debit plan to issue SEPA Direct Debits in the future, and 37% of European businesses currently issuing direct debits plan to increase the number of SEPA Direct Debits issued The impact of SEPA Direct Debit can be measured in the change of business behaviour regarding direct debit. Among businesses that currently do not issue direct debits to collect payments from their customers, 11% plan to issue direct debits in the future. There are significant differences between countries, with 15% of British businesses planning to issue direct debits compared to 12% in France and only 3% in Germany. There is also a strong variation across sectors, with 22% of businesses in Commerce planning to issue direct debits in the future versus 10% in Manufacturing & Construction and 10% in Services Among businesses currently issuing direct debits, 37% of European businesses plan to increase the number of direct debits issued, compared to 7% planning to decrease the number of direct debits issued and 53% intending not to change their current behaviour These results show that SEPA contributes to a favourable ground for businesses to increase the usage of direct debit across Europe and facilitate financial exchanges in the 32 SEPA countries. For instance, it appears that an increasing number of e-commerce merchants are considering the implementation of SEPA Direct Debit as a way to collect payments in addition to payment cards and/or as a way to support a change in their business model (e.g., a consumer electronics company is considering renting its products to consumers via monthly rental fees instead of pursuing one-off sales).

è www.steria.com SEPA : will European businesses be ready for the transformation? 39 Part 4 How will European corporates migrate to SEPA? Businesses are considering different ways to implement SEPA, including working with payment partners

40 SEPA : will European businesses be ready for the transformation? è www.steria.com 61% of French businesses issuing direct debits have received an offer to migrate to SEPA Direct Debit from their bank or an external service provider compared to 45% in Germany and only 12% in the UK 43% of European businesses issuing direct debits have received an offer to migrate to SEPA Direct Debit from their bank or an external service provider according to the survey. Considering the complexity of the migration to SEPA for businesses, it comes as no surprise that businesses may need assistance to understand SEPA Direct Debit s impacts and ensure a smooth migration. Changes are more significant in France with a transfer of responsibility from banks to businesses and this is likely to explain why a high proportion of French businesses issuing direct debits (61%) have been contacted by banks or external service providers for proposals. By comparison, 45% of German businesses issuing direct debits have received an offer to migrate to SEPA Direct Debit and this is the case for only 12% of British businesses. Have you already received an offer to migrate to the SEPA direct debit scheme from an external an external service service provider or or your your bank (e.g.: mandate management tool)? tool)? Have you already received an offer to migrate to the SEPA direct debit scheme from 12% Yes 45% 61% 62% No 48% Doesn't know 33% 27% 6% 8%

è www.steria.com SEPA : will European businesses be ready for the transformation? 41 Almost a quarter of European businesses consider working with external payment partners to manage SEPA Direct Debit activities: 12% intend to use a hybrid solution (internal and external) and 12% plan to use an external solution 57% of European businesses have appreciated the complexity of SEPA Direct Debit and intend to create a specific technical solution for SEPA Direct Debit. A third plan to migrate to SEPA Direct Debit by developing an internal solution and almost a quarter intend to use an external solution to manage part of or all of SEPA Direct Debit activities. 12% of businesses across the three countries (France, Germany and the UK) indicate that they will use a hybrid solution, dealing internally with some activities and using an external solutions for others, while 12% plan to use external providers for all activities related to SEPA Direct Debit to ensure a smooth migration to SEPA Direct Debit. More businesses in France (41%) intend to migrate internally to SEPA Direct Debit compared to Germany (36%) and the UK (18%). Among the remainder 43% of European businesses, 14% do not know if they will develop a specific technical solution and 29% of businesses will not develop a specific technical solution and will integrate SEPA Direct Debit to current applications, considering that the new European direct debit is an update of their current systems. This can appear relatively surprising given the complexity of SEPA Direct Debit. It remains to be seen if all businesses will develop internal expertise on SEPA and manage to migrate to SEPA Direct Debit. Some businesses might increasingly consider using external providers for all of or part of SEPA Direct Debit management if they face significant hurdles to migrate, or run out of time or internal resources. It might indeed be difficult to develop the IT expertise or the know-how related to SEPA like handling exceptions and R transactions given the tight timeframe before February 2014. Internal implementation to control the migration to SEPA Direct Debit but potential for outsourcing Hans-Gerd Lindlahr, Administration Director at Canada Life Assurances Europe, considers that the migration to SEPA Direct Debit is more complex than the migration to SEPA Credit Transfer with significant IT costs. Canada Life in Germany has decided to manage the whole 12 to 18 month transition process in-house, considering that there was a significant reputational risk for the insurance firm and it was of prime importance to have full oversight of the migration. Canada Life is considering outsourcing the development of an SEPA Direct Debit mandate management system. In order to benefit from opportunities related to the SEPA direct debit scheme, do you plan to develop a specific technical solution? by country In order to benefit from opportunities related to the SEPA direct debit scheme, do you plan to develop a specific technical solution? by country Yes internally 18% Yes externally 41% 12% 9% 36% Yes, by using a hybrid solution (internal and external) 12% 10% 35% 12% 15% No 22% 30% Doesn't know 14% 26% 7%

42 SEPA : will European businesses be ready for the transformation? è www.steria.com SEPA Direct Debit: assessing the opportunity to outsource Raffi Basmadjian, Head of Group Cash Management & Treasury IT at Orange- France Telecom, indicates that Orange- France Telecom has started assessing the opportunity to outsource part of or all of the management of SEPA Direct Debit to third-party providers. Orange - France Telecom is one of the largest issuers of direct debits in France and is considering to adopt an on-us strategy to mitigate risks when transitioning to SEPA Direct Debit. Orange - France Telecom will work with large French banks to have as many on-us arrangements as possible (direct debits related to customers of bank X will be sent directly to bank X)... 26% of large businesses plan to manage part of or all of SEPA Direct Debit activities externally, while 36% will develop a specific internal solution When comparing businesses of different sizes, the internal migration to SEPA Direct Debit is the solution favoured by larger businesses with 36% of opinions across France, Germany and the UK. Large businesses are likely to have more internal IT capabilities. Internalising the migration to SEPA Direct Debit is the solution chosen by 36% of businesses with 1,000-5,000 employees compared to 33% of businesses with 500-999 employees and 20% of businesses with 250-499 employees. However, as large businesses have more complex IT infrastructure and systems, there is also a higher proportion of large businesses planning to use external providers, either to choose a hybrid solution with a mix of internal and external development (13% of businesses with 1,000-5,000 employees) or a fully external solution (13% of large businesses). Choosing the appropriate solution is indeed a major decision to ensure a smooth migration to SEPA Direct Debit. All interviews with European corporates have revealed that the scoping exercise is key to thoroughly assess SEPA Direct Debit s impacts and estimate the workload for the migration. This scoping exercise assists businesses in making their decision whether they should develop an internal solution or require the assistance of external third-party providers. In order to benefit from opportunities related to the SEPA direct debit scheme, do you plan to develop a specific technical solution? by business size In order to benefit from opportunities related to the SEPA direct debit scheme, do you plan to develop a specific technical solution? by business size Yes internally Yes externally Yes, by using a hybrid solution (internal and external) 20% 7% 13% 40% 33% 36% 12% 13% 10% 13% No 29% 26% Doesn't know 20% 16% 12% 250 to 499 employees 500 to 999 employees 1000 to 5000 employees

è www.steria.com SEPA : will European businesses be ready for the transformation? 43 Strategies differ across sectors: 29% of businesses in the Services sector and 27% in Commerce plan to use external solutions for part of or all of SEPA Direct Debit activities compared to 19% in Manufacturing & Construction When it comes to SEPA migration, businesses within Commerce, Services and Manufacturing & Construction sectors have different plans. In the Services sector, there are as many businesses planning to use third-party providers to migrate to SEPA Direct Debit (29%) as businesses intending to develop a specific internal solution (29%). In the Commerce sector, a majority of businesses (45%) plan to develop an internal solution to migrate to SEPA Direct Debit compared to 27% intending to use external providers. This compares to a third of businesses planning to develop an internal solution in the Manufacturing & Construction versus 19% intending to use third-party providers. Yes internally Yes externally In order to benefit from opportunities related to the SEPA direct debit scheme, do you plan to develop a specific technical solution? by industry sector Yes, by using a hybrid solution (internal and external) No Doesn't know In order to benefit from opportunities related to the SEPA direct debit scheme, do you plan to develop a specific technical solution? by industry sector 45% 18% 9% 18% 9% 33% 11% 8% 18% 29% 18% 29% 11% 32% 11% Commerce Manufacturing & construction Services 23% of European businesses would consider outsourcing the full management of SEPA Direct Debits In terms of outsourcing, businesses make strategic decisions and choose first whether they want to outsource and, if they decide to outsource, which activities they will externalise. 23% of European businesses would consider outsourcing the full management of SEPA Direct Debits, with a higher proportion in Germany (31%) compared to the UK (18%) and France (14%). A quarter of medium-sized businesses (250-999 employees) indicate that they would consider externalising the full management of SEPA Direct Debits versus 21% of larger businesses (1,000-5,000). There is little difference between sectors with 25% of businesses in Services, 23% in Commerce and 21% in Manufacturing & Construction considering to outsource the full management of SEPA Direct Debit. This shows that businesses regardless of their size or their sector consider outsourcing the full management of SEPA Direct Debits to benefit from the expertise of partners, who have developed specific solutions to migrate to SEPA Direct Debit.

44 SEPA : will European businesses be ready for the transformation? è www.steria.com Turning paper documents into electronic documents is the activity the most likely to be outsourced (38%), before the conversion of national direct debits into SEPA direct debits (20%) and the management of mandate (19%) Among the activities the most likely to be outsourced, turning paper documents into electronic documents is the activity the most likely to be outsourced with 38% of businesses considering this option. Almost half of German businesses (48%) would consider outsourcing this activity compared to 35% of French businesses and 24% of British businesses. There are no differences across business sizes but sectors tend to take difference stances: 41% of businesses in Services indicate they would outsource the process of turning paper documents into electronic documents compared to 39% in Manufacturing & Construction and 27% in Commerce. Externalising this activity is not directly related to the management of SEPA Direct Debit and may require a specific expertise in terms of scanning a large number of mandates and storing electronic documents. Some businesses might prefer to manage core activities of SEPA Direct Debit and externalise activities deemed as less strategic. Turning paper documents into electronic documents The second activity the most likely to be outsourced is the conversion of national direct debits into SEPA Direct Debits with 20% of European businesses considering this option: This option appears to be more popular in France and the UK as almost a quarter of businesses indicating likely to outsource the conversion of direct debits compared to only 15% in Germany There are also significant differences across sectors with 29% of businesses in Services thinking of outsourcing the conversion of national direct debits into SEPA Direct Debits compared to 17% in Manufacturing & Construction and 9% in Commerce. Outsourcing the conversion may decrease the IT complexity for some businesses but all the aspects related to SEPA Direct Debit need to be taken into account. For instance, the unique reference of mandate has to be integrated in SEPA Direct Debit messages and updated when bank account details are changed or if the mandate is amended. Would you consider outsourcing the following processes linked Would you consider outsourcing the following processes linked to the SEPA direct debit scheme? by country Potential for outsourcing 18% 16% 33% to the SEPA direct debit scheme? by country 29% 4% 35% 3% 21% 29% Potential for outsourcing 29% 18% 24% Potential for outsourcing 22% 25% 19% 28% 5% 48% The third activity the most likely to be outsourced is the management of mandate with 19% of European businesses thinking of externalising this activity. Outsourcing the management of mandate is the most considered in France with 24% of businesses compared to 18% in Germany and 15% in the UK. Differences need to be taken into account when considering: business size, with 23% of businesses with 1,000-5,000 thinking of externalising the management of mandate compared to 17% of businesses with 250-999 employees, and sectors, with 29% of businesses considering outsourcing the management of mandate in the Services sector versus 17% in Manufacturing & Construction and only 9% in Commerce The SEPA Direct Debit mandate is a new European contract between billers and payers and businesses need to handle all aspects of this new contract including managing the whole lifecycle of the mandate. Face with this increased complexity, some businesses may decide to externalise the management of mandate to ensure a smooth transition to SEPA Direct Debit and may analyse at a later stage whether they would like to internalise this activity. Mandate management 4% 20% 43% 27% 6% 25% - 15% 38% 29% 18% 15% 6% 12% 30% 48% 5% 18% Conversion of national direct 6% 18% 31% debits into SEPA direct debits 41% 4% 25% 6% 18% 32% 24% 21% 24% 9% 6% 34% 46% 5% 15% Full management of SEPA 4% 10% 33% direct debits 49% 4% 14% - 18% 29% 32% 21% 18% 18% 13% 25% 40% 3% 31% Doesn t know Definitely not Probably not Probably Definitely

è www.steria.com SEPA : will European businesses be ready for the transformation? 45 Part 5 Which next steps for European corporates? Planning now for a SEPA transformation project focused on IT, and on cash management optimisation

46 SEPA : will European businesses be ready for the transformation? è www.steria.com A thorough assessment of SEPA Direct Debit s impact should not only identify required IT changes but also opportunities to re-design cash management processes This is also an opportunity to consider the consolidation of banking relationships across multiple countries or using BPO partners SEPA creates new European payment methods and implies significant changes for European businesses. In particular, SEPA Direct Debit s impact goes beyond IT and affects many business functions. Businesses need to assess thoroughly SEPA Direct Debit s consequences to plan for their migration. This thorough assessment is an opportunity for businesses to rethink and optimise their cash management. One of SEPA s indirect opportunities is to analyse the different processes from a European perspective, optimise current processes to fully benefit from SEPA and generate significant cost savings in the long term. Interviews revealed that many stakeholders plan to redesign current cash management processes and generate synergies. An example of synergy would be cash flow optimisation with the creation of a European structure to collect payments from European customers across multiple countries. When redesigning cash management processes, European businesses are likely to review the number of banking relationships across the euro area and may decide to consolidate banking relationships. This could make processes easier and generate cost savings. As multilateral interbank fees are in the process of being removed (except for R transactions), businesses are likely to generate additional cost savings and benefit from synergies with a consolidation of banking relationships. In terms of cost efficiency, Business Process Outsourcing (BPO) can be the solution to use the experience of partners and benefit from effectiveness and efficiency in an environment with tight deadlines and significant complexity.