The transformation of the European payments landscape is now firmly into the next phase with the launch of the Single Euro Payments Area Direct Debit programme on November 2nd 2009. How are banks and treasurers to take advantage of the new products?

Much of the SEPA focus to date has been on bank compliance and the effect of the new rules on bank and payment processors. The industry has been less focused on delivering the value proposition to corporate clients (although it certainly affects treasuries in some areas, for example return or refund time limits). After all, the over-arching Payments Services Directive is primarily aimed at regulating the banks and processors in the payments industry.  However, one also must question the basic business case of SEPA because the initial stages did not include all affected participants in the payment value chain. 

By the summer of 2009, some 18 months after the SEPA Credit Transfer start date, only about 4% of payments within the SEPA region were SCT transactions. The low use of SCT appears to be a result of a disconnection between the technical compliance with SEPA for processing, and the delivery of SEPA products to clients (who are not mandated to use SEPA solutions). After all, SCT is yet another form of "payment push." This is a significant issue for a corporate treasury. Large domestic and multinational corporations have already invested significantly in automating treasury processes and integration with banking partners using industry standards such as Swift FIN messages and EDIfact. Who has provided treasuries with the business case to adopt new products? Furthermore, the effect of a slow uptake in SCT will no doubt affect the enthusiasm for the new SDD products and projects.  November 2nd has come and gone, resulting in a mixed level of readiness and a level of uncertainty about how to proceed. Having no final compliance date further muddies the waters.

Although the PSD is forcing regulatory change, the ability of banks and national payments associations to define and implement the required business and technology models has been challenging. In part this is clearly due to the shifting sands of processing rules, standards and fee structures (as evidenced by the French decision to postpone implementation). But such fluidity also creates a knock-on effect as it presents challenges for the industry's banks and software application providers to deliver fully functioning SEPA products while the target is continually moving.

From the bank perspective, there can be a temptation to sit back and wait to see how SDD develops before investing time and funds in the required system changes. But the lesson to take from SCT is to consider the treasury benefit rather than purely a bank compliance strategy. Unlike SCT which is effectively another product for pushing payments out, SDD has the potential to simplify collections and enhance cash positioning for any treasury with pan-European operations. The ability to manage this through centralised mandate management and a single bank account structure is very appealing. That is business case worth exploring for treasuries and banks. As competition for transaction banking services becomes more intense, the banks that move forward and offer the innovative products and tools that a treasurer needs will be best positioned to increase transaction volumes and market share. SDD may just be the next wave of change in the treasury product landscape.

SEPA product and settlement initiatives are also an opportunity for some spring cleaning in bank payments technology environments. Banks still face a myriad of internal payment instruments and systems spread across different technology platforms developed over several decades. Each of those systems processes payments data in different ways (real time or batch), using different formats. Add in the complexity of mergers and acquisitions, and different payment schemes, and a cost-effective method for service delivery becomes extremely daunting. An approach gaining industry momentum is to create a modern, consistent architecture framework to surround legacy systems with new processes and services and enabling the gradual replacement of legacy formats and systems. This framework should support interoperability with multiple platforms, and the new standards being developed for payments and banking. Initiatives from bodies such as ISO with the ISO 20022 models, and the Banking Industry Architecture Network (www.bian.org) are firmly aimed at supporting interoperability to streamline processing.

So what does SDD mean for a treasury based in the United States? Essentially this comes down the level of control exercised over treasury and accounts payable transactions processed in banks located in Europe. Whether managing European bank accounts from a global treasury in the US, or working through a European subsidiary, US companies stand to gain from SEPA Direct Debits within the Euro region. The opportunity to consolidate bank relationships and centrally manage mandates is an opportunity to increase efficiency, lower costs, and benefit from simpler cash positioning. Treasurers will also need to understand the changes in return and refund periods at a European level rather than country by country basis.

In conclusion, implementing SDD is an ongoing challenge, particularly with the current spending restrictions enforced by the economic climate. Although change has primarily been driven by regulation, true transformation in the European payments landscape also requires collaboration with other participants in the value chain. Banks have an opportunity to discuss treasury efficiencies with their corporate clients to ensure that the right products are delivered.

Colin Kerr is industry manager for payments and core banking at Microsoft