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EPC Newsletter
Issue 1 - January 2009

SEPA Standards

Less is more: one Standard for Customer-to-Bank CommunicationEPC approves updated Implementation Guidelines for the initiation of SEPA payments

22.01.09 By Bettina Schönfeld, Esther Uyehara and Ingo Beyritz

INTRODUCTION AND SUMMARY

The availability of standardised SEPA Implementation Guidelines (SIGL) for the customer-to-bank(C2B) communication marks an important step towards the realisation of end-to-end SEPA payment solutions. Standardised end-to-end processes (customer to bank, bank to bank, bank to customer) allow for cost-efficient straight-through-processing of billions of electronic payment transactions. Implementation of the SEPA C2B Guidelines by banks is not mandatory but strongly recommended by the EPC. Ultimately, market demand will determine whether one standard in the SEPA customer-to-bank communication will prevail.

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For an introduction to the concept of the SEPA Data Formats and the related SEPA Implementation Guidelines see the information provided in box below

Consultations of bank customers carried out regularly to identify their SEPA requirements have revealed the pronounced need - voiced in particular by the corporate community - for standardised means of customer-to-bank communication. EPC now provides a common set of data to be exchanged between bank customers and banks when initiating a SEPA transaction. This is a requirement of bank customers such as businesses and public administrations executing mass payments. The EPC recently approved enhanced SEPA Implementation Guidelines applying to the customer-to-bank messages (C2B Implementation Guidelines). Harmonised C2B specifications based on the SEPA Data Format are now available with respect to the SEPA Credit Transfer Scheme and the SEPA Direct Schemes.

Ultimately, standardisation of the customer-to-bank domain will be determined by the market

The use of the SEPA Data Format is mandatory for the exchange of SEPA payments between banks. However, taking into consideration differing market practices in the SEPA countries today, the use of the SEPA Data Formats in the customer-to-bank communication is recommended by the EPC, yet not mandated. Banks may continue to accept other formats from customers for the instruction of SEPA payments. The introduction of harmonised message standards to initiate SEPA payments based on the SEPA Data Formats provides an opportunity for customers to reach any bank in SEPA. Such a development would allow for rationalisation which in turn would significantly reduce the costs associated today with the maintenance of a multitude of payment platforms in different SEPA countries. Ultimately, customer demand will determine whether the SEPA Data Formats will be established as the standard way of instructing SEPA payments.

Going all the way: harmonised bank-to-customer messages

Ultimately, the "outcome" of a payment transaction must be communicated by a bank to the customer. This information takes place via electronic or paper-based reporting messages (reports, notifications and account statements) which inform a bank customer about payment transactions which affect his account. The benefits of fully automated end-to-end-processes for banks and their customers will be realised to their greatest extent with the provision of ISO 20022-based bank-to-customer messages applicable to SEPA payment transactions. The ISO standards necessary to allow for uniform mapping of SEPA transactions in the account statement are currently under further development by ISO itself. The opportunity of giving guidance (i.e. to create Implementation Guidelines) for the use of these ISO 20022 Cash Management messages in the SEPA area is under consideration by the EPC. Individual SEPA communities have already set up projects on how to use those messages in the bank-to-customer domain.

Bettina Schönfeld is an advisor with the Retail Banking, Banking Technology department of the Association of German Banks; Esther Uyehara is staff member at the EPC Secretariat and secretary of the EPC Standards Support Group; Ingo Beyritz is a director with the Retail Banking, Banking Technology department of the Association of German Banks, he also serves as a member of the EPC Standards Support Group and chairs the EPC Task Force responsible for the development of the SEPA Implementation Guidelines.

An introduction to the SEPA Data Formats and the SEPA Implementation Guidelines

In the world of payments processing, the role of the data format used to exchange information can be compared to the role of language in communication between people. The realisation of SEPA therefore requires agreement on common data to be exchanged in a common way between all parties involved in a payment transaction: between the payer initiating a payment and his bank, between the payer's bank and the payee's bank and eventually between the payee's bank and the payee receiving the payment. The SEPA Data Formats as specified by the EPC with respect to the SEPA Credit Transfer Scheme and the SEPA Direct Debit Schemes represent such a set of common data for the exchange of SEPA payments, respectively.

The SEPA Data Formats are based on the international ISO 20022 XML message standards. ISO, the International Organisation for Standardisation, is the world's developer of global standards. The ISO standard 20022 (see www.iso20022.org) provides a methodology for defining business processes and the related data. In the ISO process, business requirements are defined for all global markets based on the expertise provided by all concerned stakeholder communities. Different markets have different data needs. This means that each community may need to define its own version respecting the global standard, specific to its own situation. As such, the ISO messages have been adjusted to meet the SEPA requirements. The role of EPC in defining the SEPA Data Formats therefore consists in identifying within the global ISO standard all necessary data for making SEPA payments.

The SEPA Implementation Guidelines selects data provided by the ISO standard which are required by the SEPA Schemes. For example: The ISO standard allows several ways to identify the accounts to be credited or debited. SEPA Schemes, however, require the use of the IBAN. Therefore, the SEPA Implementation Guidelines specify the IBAN as the only permissible account identifier in SEPA whilst still being a valid subset of the global ISO 20022 XML message standard.

The EPC has provided a set of inter-bank and customer-to-bank Guidelines for each of the three SEPA schemes: the SEPA Credit Transfer, the Core Direct Debit and the Business-2-Business Direct Debit. The main audience of these guidelines is the community of service providers developing payment solutions for banks and their customers. The Guidelines were prepared with a view to facilitating the migration of mass payments currently being processed using national data formats with varying functionalities to the SEPA instruments.

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