The ChallengeWhen the banking industry began planning the Single Euro Payments Area (SEPA), KLM decided it wanted to be an early adopter. SEPA creates a Europe where payments in euro — domestic and cross-border — are made using common payment instruments and infrastructures, and take place according to the same business rules, pricing structures and technical standards.

The first phase came into effect in January 2008, with the SEPA Cards Framework (SCF) and SEPA Credit Transfers (SCTs). By the end of 2013, the vast majority of euro transactions will have migrated from national schemes to SEPA standards.

“We wanted to start using SEPA payment instruments as soon as they became available, as they are more efficient than national ones,”

says David van Mechelen, a Senior Manager in KLM’s Treasury and Corporate Finance department.

“The fact that KLM is active in so many European countries made it obvious there were big benefits to be had from harmonizing payments and collections.”

This objective presented two key challenges: first, for KLM’s global payment factory to adopt the SCT as soon as it became available in January 2008; second, to change the payment format to the XML standard used by SEPA.

The SolutionKLM was already a long-standing Citi client, and the two had worked together to create the global payment factory several years earlier, which had brought with it significant efficiencies.

It was therefore a relatively straightforward matter for the two organisations to cooperate to make all the changes necessary for KLM’s payment factory to operate to SEPA standards, but it required thorough preparation.

“For a company, implementing SEPA is heavily IT-driven, so you need to work closely with the internal people responsible for the software in the payment factory and the IT team in the transaction bank,” says van Mechelen. The work involved creating new security standards, new connectivity checks, implementing procedures for SEPA collecting and validating BICs (Bank Identifier Codes) and IBANs (International Bank Account Numbers) from payees, and much more.

As for switching to the XML standard, the two organisations’ IT teams

Transaction Services

KLM: SSC fast-tracks efficiency gains from SEPAKLM Royal Dutch Airlines is a worldwide company based in the Netherlands.

Transaction Servicestransactionservices.citi.com

© 2013 Citibank, N.A. All rights reserved. Citi and Arc Design is a service mark of Citigroup Inc., used and registered throughout the world. The information and materials contained in these pages, and the terms, conditions, and descriptions that appear, are subject to change. Not all products and services are available in all geographic areas. Your eligibility for particular products and services is subject to final determination by Citi and/or its affiliates. Any unauthorised use, duplication or disclosure is prohibited by law and may result in prosecution. Citibank, N.A. is incorporated with limited liability under the National Bank Act of the U.S.A. and has its head office at 399 Park Avenue,New York, NY 10043, U.S.A. Citibank, N.A. London branch is registered in the UK at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, under No.BR001018, and is authorised and regulated by the Financial Services Authority. VAT No. GB 429 6256 29. Ultimately owned by Citi Inc., New York, U.S.A..

GRA23544 02/13

Transaction Services

created a workable format and then ran a small pilot to test it. Once that proved a success, they rolled out the XML format and the SCT in all 22 SEPA countries where Citi provided KLM with transaction services.

The ResultKLM has made significant external and internal cost savings in its euro payments. The external savings have come from the fact that SCT rates are lower than domestic ACH credit transfer rates, and from the ability that SEPA offers to reduce the number of bank accounts it holds.

The internal savings are even greater and come in several areas.

“First, thanks to the SEPA pilot, which forced us to review all the processes from receiving the invoice to making the payment in each country, we identified and acted on a number of inefficiencies,” says van Mechelen. “Second, we now get a better insight into the volumes and costs of the transactional services we use. As one of the consequences of this, KLM replaced more expensive payment types with cheaper ones where possible.”

A third internal cost saving has come through standardization, especially the XML messaging standard that the SCT uses and that KLM now uses with its three

cash-management banks. It’s an easy standard to use and it gives better control in routing payments.

A fourth internal cost saving has been made in back-office administration. With the reduction in the number of bank accounts, there has been a corresponding reduction in the need for monitoring, reporting and reconciliation.

This case study was written shortly after the SCT introduction.