On February 1, 2014, the transition period for the new Single Euro Payments Area (SEPA) format for European bank transfers and direct debits comes to an end. Many German companies however are not on track to comply with the new payment processing requirements of SEPA. Requiring much more than a simple software upgrade, SEPA compliance has proven to be both involved and costly for those companies that have kept pace with the demands of the new regulations.
Deutsche Telekom, having instituted a major program comprising 24 individual projects, is in the minority of German companies that can say it is fully prepared for the final introduction of the SEPA payment system. “We were very quick to set up a comprehensive program to manage SEPA, and already began converting our systems as early as last year,” according to Niels Johannsen, IT program manager for the SEPA introduction at Deutsche Telekom.
Johannsen is responsible for the IT systems, but there’s a lot more involved than just IT: “Anyone who thinks converting to SEPA payments is simply a matter of importing a software update is sorely mistaken,” he says. SEPA does not just affect IT systems, but also financial accounting and any other areas that deal with customers. At Deutsche Telekom, with its 83 million customer contacts a year, virtually all areas of the company are affected – and the same goes for many other service providers.
Joint Project of IT and Finance
The SEPA direct debit process, which must be installed by February 1 next year, requires particularly extensive changes that do not just affect payment systems: “From the start, we decided to approach the subject as a joint project between IT and finance, and defined the process and roadmap together,” says Johannsen. The entire conversion should be complete by Fall this year, when the company will be fully prepared for SEPA.
SEPA is not the standard system in the German corporate landscape. Although SEPA transfers have been possible since 2009, they so far comprise less than 7% of bank transfers made by German companies. Clearly SAP software isn’t to blame: SEPA functions have been included in the software manufacturer’s programs since 2006. Mid-2012, SAP end-user companies and the German-speaking SAP user group (DSAG) got together with SAP to form a committee to discuss which software enhancements were still required for SEPA from a practical point of view. Since then, all modifications are either already available in the ERP software or will very soon be delivered, ready to be imported into existing systems. “After a period of apparent inactivity, we were astonished at how quickly and accurately SAP implemented our requirements,” says Johannsen. The SAP systems at Deutsche Telekom now have the SEPA enhancements installed and are mostly functioning perfectly.
For companies that use their own software developed in-house or who have made significant modifications to standard ERP software, the complexity of the SEPA integration is even greater. Although the software itself has to be adapted, it only solves part of the problem: This is because, rather than affecting only the payment systems, SEPA also affects several elements of the process landscape. Pre-notifications, which inform debtors of a pending debit, pose a particular challenge, and entirely new processes are required. In the past, such notifications were not necessary, but are now strict requirements under SEPA.
“Not only are new processes or process enhancements required, but employees also need to be informed about the changes and trained,” says Johannsen. Beyond the installation of SEPA enhancements and changes to input screens, he notes there are also other aspects on the technical side: “Thanks to the XML format required under SEPA, network traffic has increased three- to fivefold. Problems like this need to be taken into account in capacity and network planning.”
Johannsen is reluctant to discuss the costs incurred by Deutsche Telekom for the project, but believes they far exceed the benefit. “Because we tend to be organized into national subsidiaries, we hardly profit from the admittedly simpler and more cost-effective processing of international payments,” according to Johannsen. As such, despite the huge figure of more than 180 million cell, fixed-line, and broadband customers in over 50 countries, domestic payments in the respective countries make up the vast majority of payment transactions at Deutsche Telekom. And in this respect, in terms of the resources required to implement it, SEPA offers little benefit.
Possible Liquidity Bottlenecks and Default Payments
Furthermore, not all legal issues have been fully resolved: For example, it has still not been decided what form the electronic mandate will take to replace the former automatic debit authorization, and how this will be granted. “When it comes to adopting the European regulations, there are still some discrepancies in the German credit sector, which is why the SEPA committee will continue to operate,” says Johannsen.
Unfortunately, postponement or exceptions are not to be expected. Any change to an EU directive – which is what a deadline extension would require – has a minimum waiting period of one year, and would therefore not be possible before February next year. Which means there is no escaping SEPA. Anyone who has not converted their systems by then will run into problems: “Many companies have not familiarized themselves with the consequences,” says Johannsen. If they wait until February to find out that their customers are no longer able to make direct debits, this could lead to liquidity problems and even default payments. “Large sections of the German economy are on course to miss the SEPA deadline.”
Next page: Tips from Deutsche Telekom’s SEPA program
TIPS from Niels Johannsen, SEPA IT Program Manager, Deutsche Telekom:
- Don’t waste any more time – set up a SEPA project immediately. In the worst cases, your company could experience liquidity bottlenecks or default payments.
- For a SEPA project to be successful, finance and IT need to plan and implement measures together with all the affected departments.
- SEPA is often underestimated: In addition to IT and accounting systems, SEPA impacts several business areas such as customer care, support, sales, and reporting, through to planning of IT capacities.
- Mandatory pre-notifications pose a particular challenge and may even require entirely new processes.
- All the affected areas and departments need to be informed well in advance, familiarized with the new processes, and trained if necessary.