Get Ready for SEPA by 1 February 2014 and Get Inspired: Early Movers o...

Get Ready for SEPA by 1 February 2014 and Get Inspired: Early Movers on the Demand Side Identify Best Practice – Part II (SEPA Direct Debit)

25 October 13

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This two part Blog series highlights best practice identified by early movers on the demand side handling major payment volumes and who reported on their successfully completed Single Euro Payments Area ( ) migration projects in the Newsletter (see link to ' Case Studies' below). Payment service users ( ) now working towards achieving compliance with the European Union ( ) 'Regulation ( ) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the Regulation), are invited to take advantage of the advice shared by their peers. The Regulation effectively mandates migration to Credit Transfer ( ) and Direct Debit ( ) in the euro area by 1 February 2014. This blog focuses on lessons learnt by who have pioneered implementation.

Electrabel GDF Suez:

"We are delighted to offer our customers services!"

In Belgium, the energy company Electrabel GDF Suez provides energy solutions to 3.3 million residential, professional and industrial customers. The company is the biggest creditor in Belgium; it generates some 18 million direct debit payments annually. Electrabel GDF Suez implemented in a step-by-step process, which was concluded in 2012. It migrated to in 2011. When Electrabel GDF Suez and other early movers started collecting SDDs in December 2011, the Belgian migration rate spiked from 2.6 to 19 percent. This peak reflects the fact that a high number of payments due quarterly, bi-annually or annually are collected in that month. As of June 2012, the Belgian migration rate amounted to 15 percent. Electrabel GDF Suez represented 12 percent of these total 15 percent (i.e. about 80 percent of all SDDs).

Luc Waterlot, Financial Systems and Interfaces Manager at Electrabel GDF Suez Market & Sales and responsible for implementation, comments:

Upgrade the existing IT architecture and enterprise resource planning (ERP) systems: "We implemented a new IT application with the pilot, which started in January 2011, to migrate direct debit payments of business customers. Mass migration of all payments processed with our retail customers to the payments schemes and technical standards required, in addition, updating the existing ERP system."

The timelines: "We had to specifically program our systems to ensure that the timelines mandated with the Scheme are respected; i.e. to avoid that a recurrent collection is executed prior to the first collection. Based on the timelines, the payer's bank must receive the request for a first direct debit collection or for a one-off direct debit collection at least five business days prior to the due date. For subsequent direct debit collections, the payer's bank must receive such a request at least two business days prior to the due date." (For more information on the timelines, refer to the links below.)

The mandate reference: "In the Belgian legacy direct debit system, we were able to assign the same mandate reference when collecting direct debit payments resulting from several contracts with the same payer. Following migration to , we use the existing mandate reference for direct debit collections related to one underlying contract with a business partner. We had to create new and additional mandate references for direct debit collections from the same business partner resulting from separate contractual agreements."

Transitioning to the 'creditor-driven mandate flow' model underlying : In Belgium - and some other European countries - migration to involves transitioning from a legacy national direct debit model based on the 'debtor-driven mandate flow' (DMF) to the 'creditor-driven mandate flow' (CMF). A mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer's bank to pay those collections. In the CMF model, the biller is responsible for storing the original mandate, together with any information regarding amendments relating to the mandate or its cancellation. In the DMF model however, the payer used to send the mandate to its bank. (For detailed information on CMF, refer to the links below). Consequently, legacy mandates issued by Electrabel GDF Suez customers had to be transferred from customers' banks to Electrabel GDF Suez so that the company could create a mandate database in-house.

Luc Waterlot, comments: "The transfer of data took place via a central mandate migration database held at the National Bank of Belgium. Obtaining accurate information with regard to 'historical' mandates held by banks throughout 20 or more years of mergers and acquisitions in the Belgian banking landscape proved particularly complex. The fact that Electrabel GDF Suez was the first major Belgian creditor to manage this exercise also meant that we could not take advantage of any experience by others." He emphasises: "Having mastered the mandate migration, I really would like to share this advice with every organisation that currently collects direct debits based on the DMF model and which has yet to implement : they must plan for the extra effort of transferring mandate data from customers' banks and storing these. Billers in migrating to who have traditionally stored the mandates issued by their customers will be spared this effort."

Luc Waterlot, concludes: "The fact that we are now managing mandates ourselves allows us to implement collection of payments based on new mandates faster. We have also received a very positive response from our customers who reside in Belgium but hold bank accounts in their country of origin. These customers are often affiliated with the many international organisations including the institutions headquartered in Brussels. We specifically approached these customers to alert them of the opportunity now provided with to have their payments debited from their 'home' accounts. Likewise, Belgians residing abroad for a great part of the year such as retirees, for example, are able to make payments in Belgium from the bank account they hold abroad. Many of these customers actually make use of this option. We are therefore delighted to offer them services."

Billers migrating to : mind the impact of the Regulation with regards to mandate management

The Regulation (Article 7) states that any "valid payee authorisation to collect recurring direct debits in a legacy scheme prior to 1 February 2014 shall continue to remain valid after that date and shall be considered as representing the consent to the payer's [payment service provider] to execute the recurring direct debits collected by that payee in compliance with this Regulation in the absence of national law or customer agreements continuing the validity of direct debit mandates." This provision therefore ensures that existing mandates under the Scheme continue to remain legally valid, thereby greatly contributing to facilitating the migration by bank customers to the Scheme.

Article 5 (3) (d) of the Regulation empowers a payer to be able to instruct its to take the following actions in respect of direct debit collections:

  • To limit a direct debit collection to a certain amount or periodicity or both.
  • To verify each direct debit transaction and to check whether the amount and periodicity of the submitted direct debit transaction is equal to the amount and periodicity agreed in the mandate (where the mandate under the relevant payment scheme does not provide for the right to a refund) before debiting their payment account, based on the mandate-related information.
  • To block any direct debits to the payer's payment account, or to block or authorise any direct debits initiated by one or more specified payees.

Although these mandate checking obligations do not apply where neither the payer nor the payee are consumers, they may nevertheless impact on . A consumer may instruct its to block all direct debits to its account or to 'black list' a specified biller by blocking direct debits initiated by it. Similarly, under Article 5 (3) (d) a payer may instruct its to only allow collections from a biller identified in a 'white list'. In the event that the biller is included on the 'black list', or excluded from the 'white list', the payment will fail. Billers should proactively advise customers paying by direct debit to unblock accounts. Customers, who make use of the option to specify creditors (billers) authorised to collect payments from their account, should ensure that all properly authorised creditors are included on this 'white list'. Customers who chose to create a 'black list' naming creditors not authorised to collect payments from their account should ensure that those creditors authorised to collect payments are not erroneously included on such a 'black list'.

TUI Travel PLC:

"With Business to Business in place, there are now plenty of opportunities for TUI Travel A&D to further enhance its treasury management."

UK based TUI Travel PLC is one of the world's leading leisure travel companies, employing approximately 53,000 people and operating in over 180 countries with more than 30 million customers. Its business is grouped into four sectors, Mainstream, Accommodation & Destinations, Specialist & Activity and Emerging Markets. As a part of TUI Travel, the Accommodation & Destinations (A&D) sector has a Finance Service Centre (FSC) providing back office services based in Mallorca, Spain. The FSC trades with over 24,000 customers and 25,000 suppliers in over 80 countries. The TUI Travel A&D's FSC wanted to rationalise its banking relationships globally and fully automate its treasury and ERP integration in order to standardise internal processes and improve working capital liquidity. Migration to the and Business to Business (B2B) Schemes was an important part of this project. The company completed migration to in 2010 and migration to in February 2012.

TUI Travel A&D opted for the Scheme using a banking solution for File SAP iDOC with a collection account held in London. This went live in February 2012. The collections are made into the Spanish entity TUI Travel A&D's FSC's account held in London which is linked to the company's centralised liquidity structure. TUI Travel A&D chose the Scheme (see links below) because of its ability to manage customer disputes. The scheme states that payers can claim back funds collected up to 13 months if done without a mandate and that payers have no entitlement to a refund of an authorised transaction. TUI Travel A&D worked closely together with its banking partner to ensure that the technical requirements for SDDs were followed, legal aspects were covered and that there was a shared understanding of the technical and business imperatives.

The creditor identifier: During implementation, TUI Travel A&D was able to obtain its unique creditor identifier with a 48 hour turnaround. This provided a huge time saving for TUI Travel A&D. Billers collecting payments under the Schemes are obliged to obtain a creditor identifier which relates to a legal entity, or an association that is not a legal entity, or a person assuming the role of the biller. The Rulebooks refer to the biller as the 'creditor'. The creditor identifier, in connection with the mandate reference, allows the payer and the payer's bank to verify each payment and to process or reject the direct debit according to the payer's instructions. Billers have to request this identifier according to local practice. Normally, billers receive their creditor identifier from their bank once the biller starts collecting payments under the Scheme. (For more information on the creditor identifier, refer to the links below).

Jordan Castellarnau, Treasury Manager in the FSC within TUI Travel A&D, confirms: "With in place, there are now plenty of opportunities for TUI Travel A&D to further enhance its treasury management."

UNIQA Group Austria:

" is an excellent and necessary idea. It should be kept in mind however that the dimensions of the migration project are comparable to those associated with the transition to the euro currency a decade ago."

UNIQA Group Austria, which is one of the leading insurance groups in Central and Eastern Europe, services some 7.5 million customers in 21 regional markets. In Austria alone, the group processes approximately five million credit transfers with a volume of some 3,500 million euros and 20 million direct debits with a volume of some 4,200 million euros annually. The company started its migration project at the beginning of 2008. The project covered transition to both the and the Schemes. Thomas Weissmann, Project Manager with the group, comments: "There are two main benefits for UNIQA Group Austria associated with implementation: firstly, migrating to the harmonised payment schemes allows for more efficient account reconciliation; secondly, being able to collect direct debits throughout Europe using the harmonised Schemes is also a principal advantage for us. In our opinion, implementation is an excellent and necessary idea to harmonise and simplify the extremely different payment systems existing throughout Europe today. The initiators of the process and the professionals involved in realising this initiative deserve our respect and our great compliments."

The UNIQA Group Austria migration experience also reflects the most important lesson learnt by all businesses, government agencies and public administrations who reported on their migration projects in the Newsletter since April 2011: the scope of the changes is substantial. In the October 2011 edition of the Newsletter, Thomas Weissmann pointed out: "From a project management perspective, the transition to is comparable to the introduction of the euro." Consequently, these pioneers unanimously recommended that organisations which still have to achieve compliance become active as soon as possible. Since October 2012, the has alerted market participants that this is no longer a recommendation but an imperative; i.e. there is no time to procrastinate further. In the January 2013 edition of the Newsletter, Luc Waterlot of Electrabel GDF Suez stated: "Migration to and is feasible, manageable and beneficial. Preparation, however, is everything and time is of the essence. Any organisation which still needs to adapt systems and operations in line with the payment schemes and standards must act now at the very latest or risks missing the 1 February 2014 deadline."

There is only Plan A: market participants in the euro area are under the legal obligation to achieve compliance with the Regulation by February 2014.

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