What SEPA means for banks in Asia

The increased trade between Asia and Europe is driving payment activities between banks within these two markets. To alleviate the security issue while at the same time to increase pan-European competition in the payment industry, the Payment Services Directive (PSD) has been introduced as law across the European Union (EU) since 1 November 2009.

Banking is now truly global and yet security risks for fraudulent financial activities and hacking to cull personal and private corporate information are at an all-time high. All financial institutions that participate in international trade need to be aware of the proper security standards and global compliance regulations.

In a nutshell, the PSD constitutes the legal framework basis for the Single Euro Payments Area (SEPA) that regulates payment services and payment service providers throughout the EU and European Economic Area (EEA). It defines the harmonisation of payment products, infrastructures and technical standards. In the long-term, the uniform SEPA payment instruments are expected to replace national Euro payment systems now being operated in Europe.

SEPA aims to provide for a level playing field by harmonising consumer protection, and the rights and obligations for payment providers and users; and is an area where citizens, companies and other economic participants make and receive payments in Euro, whether between or within national boundaries, under the same basic conditions, rights and obligations.

Indeed, the SEPA Credit Transfers (SCT’s) are already being adopted and used amongst the payments community in the Eurozone widely. In the other hand, as we are aware of, today’s usage of SEPA Direct Debits (SDD’s) are boosting up quickly as well as to ensure the compliance with the previsions of the SDD Core scheme is ready by 1 Feb 2014 for countries in the Eurozone.

Subsequently, all bank entities and payment service providers in non-Euro countries, including the Asia region, who wish to both make and receive payments of the Eurozone, are required to comply with SDD Core compliances by latest 31 Oct 2016.

At a basic level, global treasurers headquartered in Asia and with operations in Europe may simply see SEPA migration as a European issue with limited relevance to them, thus leaving it up to their European operations to deal with the migration burden.

However, from a more strategic perspective, SEPA indeed offers a very unique and real opportunity for treasurers in Asia to achieve greater benefits by rationalizing payments practices, enhancing processes and reducing the cost of payments and banking fees.

Through the single account integration method, SEPA enables financial services provider to make all their Euro payments out of one account, which significantly reducing the number of bank accounts and simplifying the liquidity structures. Companies can even use a ‘Payment On Behalf Of’ model to make payments for their entire group from one single euro account.

Asian banks need to comply with SEPA

SEPA payments (both the Credit Transfers and Direct Debits) must comply with the respective SEPA core rulebooks as published by the European Payments Council. In order to meet the requirements of SEPA, Asian bankers will need to perform a technical analysis of their systems to determine their ability to send SEPA compliant Euro payments, as well as evaluate process improvements to streamline payments. They can then develop an implementation plan for any changes that are needed to rationalize the bank accounts and banking relationships.

Based on the common practices, on average, Asian banks will need 12-24 months to fully adhere to the new PSD or SEPA requirements. However, compliance hinges on financial institutions’ individual IT capabilities and business processes, and how easy it is to amend the operating environment required to become PSD / SEPA compliant.

In the market, in fact, there are vast technology solutions available that allow banks to rapidly add SEPA capability and compliance by a reduction factor of three times on average. This can be achieved by allowing the bank’s back-end payment systems to remain untouched, and adding a secure and highly performing ‘presentation’ layer that understands and transforms payments to / from SEPA.

If the bank itself doesn’t have the resources to track global trends and compliance guidelines, a strategic technology partner can be employed to provide the expertise needed to ensure the bank is both safe from a security stand point and internationally trade compliant.

An excellent example is the recent Technology Risk Management guidelines issued under the Monetary Authority of Singapore, taking a lead position in Asia by defining security standards for institutions that trade in Singapore. These guidelines are mandatory; financial institutions must now review, align and document management processes, implement compliant technology and ensure they have auditable oversight in place.

Banking has never been simple. To compete in the global market, every bank needs to ensure they have a compliance team (internal or outsourced) tracking and proactively working to meet national and international standards.

*James Hatcher is managing director of Seeburger Asia Pacific. He has over 25 years Asia Pacific experience and since 1996 has been an evangelist of leveraging the Internet for supply chain management, business collaboration and operational efficiency. Hatcher has lectured extensively on this topic both in the United States and Asia. Prior to this he was director of marketing, eBusiness and supply chain Asia Pacific with QAD.