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 I

25 October 13

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In April 2011, the Newsletter launched the series reporting on the Single Euro Payments Area () migration experience of individual businesses, public administrations and government agencies, which have successfully implemented Credit Transfer () and Direct Debit (SDD) (see link to ' Case Studies' below). At the start of 2012 we published the first Blog series summarising lessons learnt by these pioneers (see link below). Payment service users () handling major payment volumes now working towards achieving compliance with the European Union (EU) 'Regulation (EU) 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 and SDD in the euro area by 1 February 2014. This and the next Blog deliver a 'best of best practice' identified by early movers on the demand side.

Late movers: act now at the very latest!

The January 2013 edition of the Newsletter features a report on the migration experience of the Belgian energy company Electrabel GDF Suez. The company processes some 1.8 million credit transfers with an approximate volume of 360 million euros annually. Electrabel GDF Suez is also the biggest creditor in Belgium collecting some 18 million direct debits with a volume of approximately 2,600 million euros annually. This company implemented in a step-by-step process, which was concluded in 2012. It migrated to in 2011. Luc Waterlot, Financial Systems and Interfaces Manager at Electrabel GDF Suez Market & Sales and responsible for SDD implementation, comments: "Migration to and SDD is feasible, manageable and beneficial. Preparation, however, is everything and time is of the essence. The scope of the changes is extensive. At this point, it also needs to be taken into consideration that the migration approach adopted by Electrabel GDF Suez, i.e. migration to first followed by migration to SDD, is no longer an option." Organisations that use credit transfers and direct debits and that are only now launching the migration project, will have to manage migration to both and SDD in parallel within the next twelve months. Luc Waterlot states: "Any organisation which still needs to achieve compliance should act now at the very latest or risks missing the 1 February 2014 deadline." Market participants in the euro area should note that failure to comply with the core provisions of the Regulation by this deadline risks infringing on EU law.

Appoint a dedicated implementation team

Anneli Seppälä, the Payment Processing Manager of Kela, the Social Insurance Institution of Finland, recalls: "In October 2007, we set up a dedicated work team of our payment experts to analyse which changes would be required within the organisation in order to migrate to . This research also identified the staff to be appointed to the Kela implementation team. Based on this analysis, we developed a very specific project plan which led to the start of the actual Kela project in May 2008." Kela disburses payments to the majority of the Finnish population. The institution manages more than one hundred different types of benefits and compensation schemes. The annual value of benefits and compensations amounted to approximately 12.2 billion euros in 2010. Kela makes some 33.3 million payments annually, which include 250,000 cross-border payments. The organisation sent its first payments in May 2009. In 2010, Kela disbursed some 21.6 million SCTs and concluded its migration project at the end of this year. Anneli Seppälä stresses that to ensure efficient project management, "it proved very important to have a full time project coordinator."

Luc Waterlot of Electrabel GDF Suez adds: "We set up a dedicated implementation team including members of our business and IT as well as the marketing, sales, legal, and finance and treasury departments. It is really important to understand that implementation impacts an organisation at all these levels. Successful project management therefore requires appointing a team to coordinate the process. The Electrabel GDF Suez team included some thirty members. The project required one year of full time work by ten team members and part time contribution from an additional twenty team members subject to area of expertise."

Get ready for the International Bank Account Number (IBAN) and the Business Identifier Code (BIC)

The Regulation includes detailed provisions on the use of both IBAN and BIC by payers and payees. project managers unanimously stress the need for careful planning when preparing the transition to IBAN and BIC. They also highlight the importance of thorough testing prior to making the move in the live environment. To give an example: Deutsche Post Pension Service Business Division disburses 25 million pension payments per month on behalf of the public German retirement scheme, to retirees residing in Germany and abroad. The division started its migration project in early 2009 and essentially completed the process in June 2011. Stefan Scheidgen, Head of Cash Management and Accounting at Deutsche Post Pension Service Business Division, comments: "We managed the conversion of the account information in two steps: firstly, in the fall of 2009, all bank account related data was automatically converted and validated using tools developed by the German banking industry and recommended by Bundesbank [central bank of the Federal Republic of Germany], such as the 'IBAN-Service-Portal' and the ' Account Converter'. In a second step, we verified and tested the converted data with every bank and group of banks with whom we cooperate. In fact, prior to migration in the live environment, each future payment was run through multiple test phases. Thanks to the great performance of our migration team and the support of cooperating banks, we were able to ensure a very high level of quality (about 99.99 percent) in the process of converting account data to IBAN and BIC."

Adapt to the usage of the ISO 20022 XML message standards

The Regulation states that payment service providers () must ensure that where a "that is not a consumer or a micro-enterprise, initiates or receives individual credit transfers or individual direct debits which are not transmitted individually, but are bundled together for transmission, the message formats specified in point (1)(b) of the Annex are used". Point (1)(b) of the Annex to the Regulation clarifies that the message formats referred to are the ISO 20022 XML message standards. Article 16 (5) of the Regulation, however, allows Member States to waive the requirement to use the ISO 20022 message formats for until 1 February 2016. will therefore have to make arrangements to adapt to the usage of ISO 20022 XML message standards in the customer-to-bank space in relation to files of payment transactions. Luc Waterlot of Electrabel GDF Suez points out: "Migration to and SDD included aligning the tool used to communicate with our banking partner with the ISO 20022 XML file formats. This was done using software programs developed by our enterprise resource planning (ERP) software provider. These programs are based on the implementation guidelines related to the and SDD Schemes made available by the . In the testing phase, one must consider the inter-dependency of systems on both sides in the customer-to-bank communication."

Migration to pays off

Early movers on the customer side who reported on their migration experience in the Newsletter concur that migration to pays off. To give an example: the ceramics manufacturing company Villeroy & Boch headquartered in Germany and represented in 125 countries around the world, decided in 2007 to implement as the first step in the process. This project was concluded in 2008. The group implemented the and the SDD Business to Business Schemes in the second stage. This project was launched in 2010 and was completed in 2011. Villeroy & Boch processes approximately 175,000 credit transfers with a volume of 310 million euros and 25,000 direct debits with a volume of 75 million euros annually. Dr Markus Warncke, Group Financial Controller at Villeroy & Boch, comments: "The and SDD Schemes work very well for us. Our figures demonstrate that the benefits resulting from migration to the Schemes and standards exceeded the investment in the first year alone. In line with our expectations, we were able to streamline internal processes, lower IT costs, reduce costs based on bank charges and consolidate the number of bank accounts and cash management systems. In addition, we could further centralise our cash management. The fact that there is now one harmonised SDD Scheme, which allows collecting payments throughout Europe, is also a major advantage. We realised significant efficiency gains from the implementation of the ISO 20022 message standards. The reality is that the benefits of an integrated euro payments market outweigh the short-term efforts to get there."

The steps described above are the same with regards to the implementation of both the and SDD Schemes. Some of the specific requirements to be observed with regard to SDD implementation relate to, for example, mandate management, the time cycle and exception handling. Best practice identified by early movers on the demand side who completed migration to and SDD Business to Business will be highlighted in the next Blog. Detailed information is already available with 'The Migration Tool Kit' (see links below).

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