From the November 2010 issue of Treasury & Risk magazine

Gold AHA Winner in Cash Management

Saving with SEPA Credit Transfers: Google

When Single Euro Payments Area (SEPA) credit transfers were introduced, Google was quick to see their value and used them to convert 98% of its 15,000 monthly euro wires to ACH-like credit transfers, slashing its banking fees for the transfers by 98% and saving 50,000 euros ($69,237) a month.

"It's our goal to maximize standardization and efficiency in our cash management," says Ronni Horrillo, assistant treasurer, "and we could see that SEPA credit transfers would help us do this." With more than half its non-U.S. revenue coming from Europe, Google had the scale to capitalize in a big way.

The before-and-after contrast is striking. "Our payment processes had been people-intensive, inefficient and costly," Horrillo notes. "The wires required manual input into our electronic banking system and verification of each transaction." Now automated payments are originated in Google's Oracle ERP system, sent to Citigroup and distributed as credit transfers to European suppliers.

The file exchange works this way: Google sends payment files to Citi through File Xchange, which serves as Google's global gateway for file transmission and translation, using the Citi Preferred file format. The SEPA CT payment type has been applied to the Oracle AP files and integrated with File Xchange. The acknowledgement, acceptance and rejection response files have also been integrated, using the same format and channel, so responses feed directly into Oracle. Technical work flow generates remittance advices so that payments in Oracle are cancelled automatically on receipt of an acceptance or rejection. Fraud management occurs by matching bank account numbers, names, amounts and currencies to ensure that the correct party received the right amount.

It helped that Google's primary banking interface was with Citigroup, which was one of the global banks launching the credit transfers. It also helped that Google simultaneously implemented Citi's File Xchange service. "That meant we didn't have to go through a technical migration process," Horrillo notes.

Efficiency and risk management gains, she explains, came from adopting a forward-looking vendor payment instrument for euros; replacing multiple national euro payment instruments with a single payment type and reducing the number of payment types from at least one per country to one per region; reducing set-up costs and lead time since only one payment type is used; reducing bank fees by moving cross-border funds transfers from costly wires to inexpensive credit transfers; and adopting a standard Oracle data set and consistent file layout for all SEPA countries. Treasury worked with accounts payable on the project to make sure AP understood the new payment type and signed off on communication with vendors to explain the changes.

Being quick to adopt a new payments system has some disadvantages, Horrillo concedes. Banks and payment systems in the 28 European countries that have adopted the Payment Services Directive (PSD), obliging them to support the credit transfers, are not all as well prepared as Google and Citi. Not every country that has adopted the PSD is actually PSD-ready, and even some that are PSD-ready are not following the mandated two-day maximum execution time, Horrillo reports.

In the meantime, Citi protects Google from the pain of inconsistent compliance by giving Google the same statement visibility, the same value dating and the same payment fees for transactions that have to be rerouted to a non-SEPA payment method. "Working with Citi, we have achieved a single payments window and a consistent, scalable solution in SEPA countries that has benefited both Google and its suppliers," Horrillo says.