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Part IV: Get Ready for SEPA by February 2014 – Early Movers on the Customer Side Share Lessons Learnt. ISO 20022 is the New Language of Payments! Viewed 9682 times
This series of EPC Blogs highlights best practice identified by bank customers who have successfully completed migration to the Single Euro Payments Area (SEPA). Part IV focuses on the implementation of the ISO 20022 message standards. The complete series reflects the experience of early movers on the demand side who have shared their lessons learnt in the EPC Newsletter and in the EPC Video ‘SEPA for Billers' (see links below).
The European Union (EU) ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009' (the SEPA Regulation, see link below), defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). Article 5 (1)(d) of the SEPA Regulation states that payment service providers must ensure that where a payment service user "that is not a consumer or a micro-enterprise, initiates or receives individual credit transfers or individual direct debits which are not transmitted individually, but are bundled together for transmission, the message formats specified in point (1)(b) of the Annex are used". Point (1)(b) of the Annex to the SEPA Regulation clarifies that the message formats referred to in Article 5 are the ISO 20022 XML message standards. Article 16 (5) of the SEPA Regulation, however, allows EU Member States to waive the requirement to use the ISO 20022 message formats for payment service users until 1 February 2016.
ISO 20022 is not only a suite of message standards but a procedure proposed by the International Organization for Standardization (ISO) to develop message standards for all domains of the financial industry. ISO 20022 is a standard to develop standards, so to speak. The most innovative characteristic of ISO 20022 is its modeling methodology which decouples the business rules from the physical message formats. The models evolve with the business, while the formats evolve with the technology to benefit from the latest innovations. This results in the highest possible degree of automation, ease of implementation, openness and cost-efficiency. The ISO 20022 approach, therefore, offers a more efficient and faster way of developing and implementing message standards that serve as the basis for long term financial services solutions. For more information, visit the ISO 20022 Website (see link below). Make sure to watch the video posted on the ISO 20022 Homepage which nails the concept in less than two fun minutes!
The ceramics manufacturing company Villeroy & Boch, headquartered in Germany and represented in 125 countries around the world, is a true SEPA pioneer. Villeroy & Boch embraced the SEPA vision early and moved swiftly. Dr Warncke, Group Financial Controller at Villeroy & Boch, comments: "We were fully aware that early movers have the most to gain, and therefore wanted to realise the benefits resulting from the harmonisation of the euro payments market as soon as possible." The group completed migration to SCT in 2008 and migration to both SDD Core and SDD Business to Business in 2011. Villeroy & Boch processes some 175,000 credit transfers with a volume of 310 million euros and 25,000 direct debits with a volume of 75 million euros annually.
This player also anticipated the advantages of implementing the ISO 20022 message standards. Dr Warncke adds: "We executed our first ISO 20022 FileAct payments in August 2008. In the fall of 2008, 90 percent of our supplier payments were done through SWIFT using ISO 20022. The implementation of the ISO 20022 message standards reduces the complexities and application development times required to manage our payment architecture. Adapting to this global standard also allowed us to increase security and improve internal processes." To be specific, Dr Warncke outlines that the implementation of the ISO 20022 message standards has enabled Villeroy & Boch to achieve the following:
- A wider set of structured and enhanced message information with the transaction, thereby raising the efficiency in end-to-end automation.
- Reduced application development times.
- Decreased number and complexity of interfaces.
- Reduced support and maintenance costs, by avoiding customised or proprietary formats.
- Increased security.
- Improved internal processes.
He continues: "Consequently, we could cut down the costs associated with the maintenance of different national data formats and related IT standards." Last but not least, Dr Warncke points out; it is "also very important to keep in mind that the ISO 20022 message standards are a global standard. Taking into account that Villeroy & Boch is a globally active company, we certainly aim to further harmonise our payment business, based on the ISO 20022 message standards." He concludes: "The SCT and SDD Schemes work very well for us. I do however see room for improvement in the application of ISO 20022 message standards. ISO 20022 is the new language in payments. Nevertheless, we notice that there are quite a lot of different dialects of this language used across SEPA. Ideally, we would like to see fewer dialects and further harmonisation regarding the use of this standard. This would allow us to achieve even more efficiency gains with ISO 20022." (See also link to the EPC Newsletter article ‘ISO 20022 Message Standards: Too Many Flavours?' below).
Article 2 (17) of the SEPA Regulation specifies that the message standard referenced in Article 5 and in point 1(b) of the Annex to the Regulation refers to the ISO 20022 message standard, "in accordance with business rules and implementation guidelines of Union-wide schemes for payment transactions falling within the scope of this Regulation." Union-wide schemes are, for example, SCT and SDD. The guidelines referred to are, for example, the implementation guidelines published by the EPC with regard to the SCT and SDD Schemes. In the ISO process, business requirements are defined for all global markets. Different markets have different data needs. Thus, they may need to define their own version within the global standard, specific to its own situation. In this respect, the ISO messages have been adjusted to meet the SEPA requirements. The SEPA data formats as set out in the EPC implementation guidelines are a subset of the global ISO 20022 standards. The role of the EPC in defining the SEPA data formats therefore consists in identifying all necessary data elements for making SEPA payments as defined in the SCT and SDD Rulebooks within the global standard. These SCT and SDD implementation guidelines are available for download on the EPC Website (see links to ‘SEPA Credit Transfer' and ‘SEPA Direct Debit' below).
Dr Warncke of Villeroy & Boch confirms: "Our figures demonstrate that the benefits resulting from migration to the SEPA Schemes and standards exceeded the investment in the first year alone. In line with our expectations, we were able to streamline internal processes, lower IT costs, reduce costs based on bank charges and consolidate the number of bank accounts and cash management systems. In addition, we could further centralise our cash management. The fact that there is now one harmonised SDD Scheme which allows collecting payments throughout Europe is also a major advantage. As mentioned above, we realised significant efficiency gains from the implementation of the ISO 20022 message standards. The reality is that the benefits of an integrated euro payments market outweigh the short term efforts to get there. The earlier you start the better." The April 2012 edition of the EPC Newsletter features a detailed article on the Villeroy & Boch SEPA migration project (see 'EPC Newsletter Series: SEPA Case Studies' under links below).
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06.05.14Join the Debate on the Further Evolution of the SEPA Credit Transfer and SEPA Direct Debit Schemes: Less Flexibility, More Harmonisation? An Overview of the Options, Variations, Exceptions and Exemptions Possible in SEPA Today
15.04.14PSD2: The New Article 67, (‘Refunds for Payment Transactions Initiated By or Through a Payee’), Proposed by the European Commission Risks Undermining Consumer’s Unconditional Refund Right for Direct Debits Included with the SEPA Direct Debit Core Scheme
25.03.14PSD2: EPC Identifies Considerable Scope for Amendments of the Proposed New Set of Rules Related to the Activity of Third Party Payment Service Providers Offering Payment Initiation or Payment Account Information Services
20.02.14Don't Count on 1 August 2014: Different SEPA Migration Deadlines Apply Across the Euro Area During the “Additional Transition Period” Agreed by the European Commission, the European Parliament and EU Governments