Villeroy & Boch: "The Long Term Benefits of SEPA Exceed the Short Term...

Villeroy & Boch: "The Long Term Benefits of SEPA Exceed the Short Term Efforts to Get There."

The group completed migration to SEPA Credit Transfer in 2008 and migration to SEPA Direct Debit in 2011

29 January 13

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Villeroy & Boch: 260 years of commitment to innovation

Founded in 1748, the ceramics manufacturing company Villeroy & Boch, is headquartered in Mettlach, Germany. The group, which currently employs a workforce of around 8,000, has been listed on the stock exchange since 1990. Its business activities focus on: 'Bathroom and Wellness' and 'Tableware'. The product portfolio includes ceramic bathroom collections in a variety of styles, high-class bathroom furniture, coordinated fittings and accessories as well as innovative shower, bath and whirlpool systems. In addition, the company offers top-quality dinner and crystal-ware, cutlery, products for food preparation and gift items. The products are designed to combine maximum user friendliness with a strong aesthetic appeal. A further defining feature of the company is its commitment to innovation and sustainability. The focus is on continuously optimising ceramic material, product functionality, product design and production processes. As a result, Villeroy & Boch has developed into an international lifestyle brand.

Strongly rooted in Europe, Villeroy & Boch is however, a global player and is represented in 125 countries around the world. The percentage of sales generated outside Germany has risen from 46 to 72 percent in the course of the last fifteen years. Consolidated sales for 2011 reached 743 million euros; 462 million of which were generated by the Bathroom and Wellness Division and 281 million euros by the Tableware Division. Villeroy & Boch processes some 175,000 credit transfers with a volume of 310 million euros and 25,000 direct debits with a volume of 75 million euros annually.

The company is a true Single Euro Payments Area ( ) pioneer: it completed migration to Credit Transfer ( ) in 2008 and migrated to Direct Debit ( ) in 2011.

The Villeroy & Boch project - questions and answers

Newsletter: When did Villeroy & Boch decide to set up the implementation project and did you opt to implement both and ?

Markus Warncke: In 2007, we decided to implement as the first step in the migration process. This project was concluded in 2008. As direct debit is a payment method for our clients, we implemented in the second stage. This project was launched in 2010 and was completed in 2011. We implemented both the Direct Debit ( ) Core Scheme and the Business to Business (B2B) Scheme, however the volumes are much higher for .

Newsletter: What motivated Villeroy & Boch to set up a implementation project so early in the process, despite the fact that at the time there was no legal obligation to implement payment schemes and standards?

Markus Warncke: We were fully aware that early movers have the most to gain, and therefore wanted to realise the benefits resulting from the harmonisation of the euro payments market as soon as possible. These benefits include: centralisation of accounts and liquidity, standardisation of data formats and reduction in the number of electronic banking systems, as well as reduced bank charges.

Newsletter: Did you set up a implementation team? If so, which departments of your company were involved in the project?

Markus Warncke: Yes, we set up a dedicated implementation team including members of our treasury, accounting and IT departments.

Newsletter: Was implementation viewed as a stand-alone project or was it part of a review of processes and applications beyond payments?

Markus Warncke: The implementation project in 2007 and 2008 was carried out in combination with the set up of Villeroy & Boch as a SWIFT Score member. We implemented a single way of communicating with banks as well as a single format for euro payments at once. At the same time we broadened the payment factory using the Schemes. Centralisation of euro payments was realised by transferring all accounts payable to the company headquarters. The implementation in 2010 and 2011 was a stand alone project.

Newsletter: Did you decide to upgrade the existing IT architecture or to implement new IT applications and enterprise resource planning (ERP) systems?

Markus Warncke: With regard to the implementation, no significant adaptation of our IT architecture was necessary. There was however, a challenge for our IT systems: our ERP provider, SAP, had in 2009 a -payment template for accounts payable but not for payroll payments, which had to be installed subsequently. In 2011, the implementation of required the update of our ERP system to comply with mandate management requirements.

Newsletter: What were the main challenges in the implementation project?

Markus Warncke: One of the main challenges was the conversion of customer account data to the International Bank Account Number (IBAN) and the Business Identifier Code (BIC). Fortunately, banks and other service providers have developed tools to facilitate this conversion.

With regard to the migration to , we encountered difficulties due to the fact that in some countries, specific remittance information must be provided with a credit transfer. In Finland for example, the so-called 'KID' number must be included with the remittance information. It enables the receiver of the payment to automatically identify and book the incoming amount. The KID number however, is not a mandatory element of the remittance information according to the Scheme. If and when such 'extra' elements are required at country level to process SCTs, it means that we have to make an extra effort to research and provide this information.

Newsletter: What were the main challenges in the implementation project?

Markus Warncke: Concerning migration to , our main challenge was converting legacy mandates to mandates1. Contrary to other countries, at the time when we implemented , Germany had no legislative solution or other agreement in place which would have ensured the continued legal validity of existing mandates. As a consequence, we had to contact our clients and ask them to sign a new mandate. For , we receive the signed form from the client and then inform the client about the mandate number. Usually no further steps are necessary to collect SDDs. To be able to process B2B direct debits, the client needs to inform its bank about the mandate number and ask the bank to activate the account for B2B transactions. The activation of the B2B Scheme is beyond our control.  

Migration to also required adapting processes and operations to the specific timelines set out in the Schemes to initiate a one-off direct debit collection or recurrent collections. These timelines differ from those established with legacy direct debit schemes.

As mentioned above, direct debit is a preferred payment method of our clients and we do appreciate the opportunity provided with to collect direct debits based on harmonised schemes and standards throughout the countries. We notice however, that it is still almost impossible to collect SDDs in Italy as they are rejected by our clients' banks in Italy in very significant numbers. At the moment, we are therefore forced to go back to the Italian legacy direct debit scheme (RID) to be able to collect direct debits in Italy when they are due2.

Newsletter: Dr Warncke, you are a leading expert in ISO 20022 message standards, i.e. the data formats. Accordingly, the project of Villeroy & Boch included migration to these message standards. In your experience, what are the main benefits of implementing the ISO 20022 message standards?

Markus Warncke: The implementation of the ISO 20022 message standards reduces the complexities and application development times required to manage our payment architecture. Adapting to this global standard also allowed us to increase security and improve internal processes. To be specific, implementation of the ISO 20022 message standards allowed us to achieve the following:

  • A wider set of structured and enhanced message information with the transaction, thereby raising the efficiency in end-to-end automation.
  • Reduced application development times.
  • Decreased number and complexity of interfaces.
  • Reduced support and maintenance costs, by avoiding customised or proprietary formats.
  • Increased security.
  • Improved internal processes.

Consequently, we could cut down the costs associated with the maintenance of different national data formats and related IT standards.

We executed our first ISO 20022 FileAct payments in August 2008. In the fall of 2008, 90 percent of our supplier payments were done through SWIFT using the data format. It is also very important to keep in mind that the ISO 20022 message standards are a global standard. Taking into account that Villeroy & Boch is a globally active company, we certainly aim to further harmonise our payment business, based on the ISO 20022 message standards.

Newsletter: Based on your experience, where do you see room for improvement with regard to the payment schemes and technical standards?

Markus Warncke: The and Schemes work very well for us. I do see room for improvement in the application of ISO 20022 message standards. ISO 20022 is the new language in payments. We notice however, that there are quite a lot of different dialects of this language used across . Ideally, we would like to see fewer dialects and further harmonisation regarding the use of this standard. This would allow us to achieve even more efficiency gains with ISO 20022. To this end, we support the approach pursued by the Common Global Implementation (CGI) initiative, a global industry forum which brings together representatives of both the demand and supply sides. The CGI has recently published implementation guidelines covering payments, collections and reporting based on the ISO 20022 message standards.

Newsletter: Is it possible to quantify the investment necessary to implement the payment schemes and standards?

Markus Warncke: In our case, the investment is reflected mainly in the allocation of internal resources within treasury, accounting and IT which were required to achieve compliance.

Newsletter: You mentioned that advantages expected to materialise with migration to the Schemes and standards were the driving force behind the decision of Villeroy & Boch to implement early. Does your experience in the live environment confirm these expectations?

Markus Warncke: Absolutely. 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 Scheme which allows collecting payments throughout Europe is also a major advantage. As mentioned above, 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 earlier you start the better.

Newsletter: In February 2012, the European legislator adopted the 'Regulation ( ) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the Regulation), which defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by and . The representatives of corporates, public administrations and government agencies, who reported on their successfully completed migration projects in previous issues of this newsletter, unanimously recommended that organisations which still have to achieve compliance become active immediately. Do you share this recommendation?

Markus Warncke: I could not agree more with this recommendation. Any organisation which still needs to adapt systems and operations in line with the Schemes and standards should act now.

Newsletter: Dr Warncke, thank you very much.

Dr Markus Warncke is Group Financial Controller at Villeroy & Boch.

Related links:

Villeroy & Boch

SEPA Regulation published in Official Journal of the European Union. This Regulation Effectively Mandates Migration to SEPA by 1 February 2014 in the Euro Area

EPC Blog Series: Get Ready for SEPA by February 2014. Early Movers on the Customer Side Share Lessons Learnt

EPC Video 'SEPA for Billers': This Film Highlights Aspects Relevant for Businesses and Public Entities Transitioning to SEPA. Extended and Short Versions Available

EPC Publication: Shortcut to Business - the Ten Best Reasons to Practice SEPA

Related articles in this issue:

Step Up to the Challenge: SWIFT White Paper Sets out Steps to Build a SEPA Migration Plan. A strategy to achieve SEPA compliance by 1 February 2014

The Time to Act is Now: Impact of the SEPA Regulation on Payment Service Users. The SEPA Regulation includes provisions relevant for both the demand and supply sides of the payments market

Early Movers Confirm: ISO 20022 Message Standards Generate Tangible Benefits. A guide for payment service users on the impact of provisions in the SEPA Regulation regarding the use of the ISO 20022 message standards

SEPA Direct Debit for Billers: Exception Handling. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes

EPC Scheme Change Management: Annual Public Consultation Starts in May 2012. All stakeholders are invited to provide feedback on possible changes to the SEPA payment schemes

Related articles in previous issues:

ISO 20022 Message Standards: Too Many Flavours? Domestic specifications of the SEPA data formats risk preventing market harmonisation ( Newsletter, Issue 12, October 2011)

Newsletter articles published in the section 'SEPA Case Studies' highlighting successful migration projects of bank customers

Newsletter articles published in the section 'Focus: ISO 20022 in the SEPA Context'

SEPA Direct Debit for Billers: the SDD Business To Business Scheme Timelines. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 13, January 2012)

SEPA Direct Debit for Billers: the SDD Core Scheme Timelines. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 12, October 2011)

SEPA Direct Debit for Billers: the Creditor Identifier (Go Get It!). EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 11, July 2011)

SEPA Direct Debit for Billers: The SDD Mandate. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 10, April 2011)

Facing Up to the IT Challenge. Choosing the right IT strategy for SEPA compliance ( Newsletter, Issue 8, October 2010)

SEPA Survey 2009: Corporate Readiness on the Rise. The findings confirm that early movers have everything to gain ( Newsletter, Issue 5, January 2010)

1The Schemes allow a creditor (biller) to collect funds from a debtor's (payer's) account, provided that a signed mandate has been granted by the payer to the biller. A mandate is signed by the debtor to authorise the creditor to collect a payment and to instruct the debtor's bank to pay those collections.

2The Italian banking community states: 'According to the data, Italy has a percentage of "cross border R-messages sent" in line with other countries and in some cases even better. The point is that countries used to the debtor mandate flow model (as Italy) need to implement a higher level of protection at debtor bank level in order to keep the same level of protection of the accounts. Furthermore, the Italian community has been working on the implementation of an additional optional service (called Electronic Database Alignment) in order to exchange the mandate-related information before the first direct debit so that additional checks can be performed by the debtor bank.'

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