Somewhat back-burned in February and March, Europe is back rattling markets; SEPA a way to mitigate the risks?
After a relatively quiet, eurozone-crisis free first quarter, the crisis has slowly inched its way back on to radar screens for Q2. This of course continues to cause headaches and sleepless nights for company risk managers everywhere. The latest tender area is Spain. The country today saw better-than-expected demand for its bond auction but with borrowing costs skyrocketing, it remains a concern. Still, investors breathed a sigh of relief the country found buyers for 3.18bn euros of its short-term debt.
And while many treasurers and risk managers have been thinking about mitigating risks like this across Europe for some time – at least since the fall of 2011 – one tool they might not have thought about is SEPA. At a recent NeuGroup Global Cash and Banking Group meeting, members were shown how SEPA’s adoption could help to mitigate risks across Europe.
SEPA, or the Single Euro Payments Area program, was initially rolled out as an approach for risk mitigation for commercial payment transactions in EUR. But early SEPA adopters among NeuGroup peer group members have found that SEPA has actually provided a more efficient way to transfer funds and bypass cumbersome paper mandates. This should be incentive enough for resource-strapped treasuries looking to adopt best practices such centralization, automation and standardization to get started. Unfortunately, SEPA adoption rates are still low for both banks and corporations. Adding to the complexity for corporate adoption is the Catch 22 of being resource strapped: being short of resources, time and budget prevents treasury from adopting things like SEPA that will free up resources, time and budget. Also for some companies, the new adoption of February 1, 2014 is looking increasingly ambitious given the lack of official guidance and the uncertainty about the future of the eurozone in light of the PIIGS debt crisis (now and in the future).
But others feel that with the new date for SEPA migration now in sight, companies might be more motivated to either continue their adoption process or get started on the initiative; both of which still will require investment in time and technology. Perhaps a known end date will help to re-align corporate focus and project priorities as companies work to map out an implementation strategy for the next two years. “Using the SEPA payment instruments, companies can make all euro-denominated payments centrally, from a single account, using the same format. This opens up the possibility of consolidated payments, of liquidity management in one location and of optimising the cash flow,” said Benoît Cœuré, a member of the executive board of the European Central Bank in a recent speech touting SEPA’s merits. He added that establishing a single market for retail cashless euro payments helps overcome technical, legal and market barriers, “so that people can make euro payments throughout Europe as easily, securely and efficiently as within their own countries.” Easy, secure and efficient, three things treasurers love.