Special Report: Sepa


By Denise Bedell

Upcoming end-dates for Sepa migration prompt companies to begin planning projects.


Corporates in Europe are facing the inevitability of Sepa compliance in or around 2014—when end-dates for migration from domestic legacy direct debit systems set by the European Commission are reached. But the prospect is not a cheery one, as most companies continue to struggle to understand what they need to do and how it will be of benefit.

Garry Young, director of corporate services for Logica’s Global Products Business, noted at SWIFT’s Sibos conference in Toronto in October: “There is an awful lot of Sepa fatigue.” He said that banks are often giving companies conflicting advice. Young added: “Corporate treasurers need help from their banks in articulating the business benefits.”

Sepa is only now beginning to have a real effect within the corporate community. “Few corporates would voluntarily migrate to Sepa without a mandatory end date,” says Brian Hanrahan, executive vice president at Sentenial. “In reality, the end date is the most important driver and it appears we are looking at February 2014. That is just starting to trickle down into the corporate ecosystem.”

Although a number of market-leading companies have already migrated to Sepa-compliant solutions, most are just beginning to look at what a migration project will involve. A Sepa migration project can be quite complex—requiring changes to a variety of different systems and operations—from sales and service to treasury and finance. Because it touches on data from all of the areas, it requires a solution that can pull, make use of, and manipulate data from across the organization.

“Although the majority of companies are not yet migrating, they are doing impact assessments,” says Hanrahan. “They are assessing required system changes, and planning projects and budgets for their Sepa migration.” This is a big advance from just a few months ago—before end-dates were set.


For most of those companies that are using Sepa solutions, there was a specific business reason for so doing. At the Carphone Warehouse/Best Buy Europe, it was the disposal of the retail operations of subsidiary Wireless Technologies BVBA to Belgacom that prompted a Sepa migration project. Wireless Technologies BVBA managed direct debit insurance premium collections for Best Buy Europe customers.


Young, Logica: Treasurers need help from their banks in building a business case

The company faced a unique challenge—how to move direct debit collections to a new system within a single collection cycle—when internal development would take up to six months—and do so without causing collection delays. Neill King, group treasurer at The Carphone Warehouse, notes: “Sepa Direct Debit migration is a reasonably complex exercise.”

The company asked its bank, ING for help. ING recommended going forward with a Sepa-compliant offering, and suggested a solution from a vendor with whom ING already had dealings—Sentenial. The Sentenial Sepa Mandate Manager solution acts as an overlay system—taking direct debit collections requests from Best Buy Europe in their original format and enriching them to be Sepa DD compliant, then sending them on to the company’s banking partner, ING. Hanrahan notes: “Sentenial Mandate Manager is a hosted SaaS service, so it is just a matter of plugging in to us rather than a full implementation. Corporates can keep submitting payments in their legacy domestic formats to Sentenial, and we output Sepa-compliant data via XML (eXtensible Markup Language) — shielding the corporate from managing that complexity.”

“Few corporates would voluntarily migrate to Sepa without a mandatory end date”

Brian Hanrahan, Sentenial

The Carphone Warehouse/Best Buy Europe went live in the past few weeks. King adds: “We are now processing live Sepa Direct Debits on a daily basis.”

Payment Services Hubs
One outcome of the drive to Sepa, which has much broader-reaching consequences, is the development of payment services hubs at some banks.

These hubs completely change the way that those banks think about and manage their payments infrastructure—moving away from the old-school silo approach based on the particular payment network, with its own data format, connections, and so on, to a more holistic approach to payments.

Gareth Lodge, analyst at consultancy Celent, notes in a recent report: “A number of banks, including Deutsche Bank, HSBC, and JPMorgan, have invested significant sums in rebuilding their core payment platforms.” He explains that a PSH is capable of processing any payment on a single platform, regardless of instrument type, value of payment, customer, channel, or transaction type; and functionality is delivered as a service to different parts of the bank.

Because they are offered as a service, this is changing the way that a broad spectrum of banks are managing payments. These services can, and are, also being offered on an outsourced basis to smaller banks—which then can provide their clients with best-of-breed payments solutions without heavy investment. Lodge notes: “As a result, most of the small banks that are outsourcing payments are not outsourcing to specialist outsourcers or technology vendors—as is the case in the United States—but to large banks.”

The advantage for banks providing the service is not only that it creates a new income stream, but also it reduces per transaction charges by increasing volumes.

Lodge notes: “This means that the very big banks no longer want market consolidation necessarily. Acquisition is a risky, costly, and time consuming business. The environment being created no longer requires them to have to acquire other banks to enter markets. They are seeking to cherry-pick the volumes or the most profitable business in the form of the corporate market.”

This could completely change the consolidation trend that has been driving global banking markets for years. However, it also comes with its own risks, not least the need to clarify the “remit and reach of regulation,” notes Lodge. “Regulation exists for outsourcing, but it seems to be failing to keep pace with technology, the markets, and even other regulations creating these scenarios,” he says. “Sepa has wide-ranging impacts that are already being seen, not just in payments and not just in Europe.”