Austrian Federal Ministry of Finance: "We Were Determined to Lead SEPA...

Austrian Federal Ministry of Finance: "We Were Determined to Lead SEPA Migration by Example"

This early mover in the public sector boasts an 87 percent SEPA Credit Transfer migration rate in May 2012

29 January 13

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The Austrian Ministry of Finance coordinates migration of the federal administration

The Austrian Ministry of Finance is the country's highest financial authority. The Ministry's responsibilities include budgetary planning and surveillance, economic policy and financial services to customs and taxation. Divided into six directorates and with approximately 12,000 employees including tax offices, the Ministry of Finance is a modern service provider, continuously adapting its services to the needs, and for the welfare, of Austrian citizens. Most activities of the Federal Ministry of Finance contribute to the design of the Austrian economic policy. These range from the central political-economic instrument of the public budget (budget, control) to the granting of federal subsidies (such as the support of exports), up to the creation of efficient framework conditions for the Austrian finance sector and capital market.

The Ministry also manages all payments executed by the federal administration on behalf of the Republic of Austria. This entails the implementation of IT requirements impacting payment processing, the definition of relevant framework conditions and concluding related agreements with payment service providers.

The Austrian Ministry of Finance processes some 23.3 million credit transfers with a volume of approximately 95 billion euros annually (2011). In 2011, about 65 percent of these credit transfers were processed as Credit Transfers (SCTs). As of May 2012, the rate of SCTs compared to all credit transfers executed by the Ministry increased to 87 percent. The Ministry processes some 2.7 million direct debits with a volume of approximately 272 million euros annually (2011). The Ministry started collecting Direct Debit (SDD) Core payments in 2012. In the first five months of 2012, the Ministry collected about one million direct debit payments with a total volume of 117 million euro. As of May 2012, about 3 percent of these direct debit collections were SDDs.

In February 2012, the European legislator adopted the 'Regulation establishing technical and business requirements for credit transfers and direct debits in euro' (the Regulation), which 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 and SDD. Project managers, who have already concluded the migration exercise unanimously recommend that organisations which have yet to adapt systems and operations to the Schemes and technical standards become active immediately.

The Austrian Federal Ministry of Finance project - questions and answers

Newsletter: When did the Austrian Federal Ministry of Finance decide to set up the implementation project?

Manfred Hochhold: Migration to and SDD took place in separate phases. We started the implementation project in 2007 and the SDD implementation project in 2011. The Austrian Federal Ministry of Finance implemented the Scheme, not, however, the SDD Business to Business Scheme.

Newsletter: According to the European Commission Services' fifth survey published in November 2011, entitled 'Public Administrations' Preparedness and Migration to ', migration to SDD in the public sector remains close to zero percent due to the fact that direct debits are generally used by public administrations only to a very limited extent or not at all. The Austrian Federal Ministry of Finance nonetheless does use this payment instrument. Which type of payments does the Austrian Federal Ministry of Finance collect by direct debit?

Manfred Hochhold: In the area of sovereign functions that would typically be court fees. An example for non-sovereign payments would be the contributions which parents make for their children in schools.

Newsletter: What motivated the Austrian Ministry of Finance to set up a implementation project so early in the process, despite the fact that at the time there was no legal obligation to implement payment schemes and standards?

Manfred Hochhold: The Ministry is responsible for the management of all payments executed by the federal administration on behalf of the Republic of Austria. In this capacity, it was clear that the Ministry would lead by example as regards implementation. Since 2008, credit transfers on behalf of the Federal Republic have been migrated to . To date, more than 80 percent of all credit transfers executed by the federal administration are SCTs. Following implementation of the Scheme in 2011, we started collecting SDD payments in 2012. As of May 2012, we processed some 18,000 SDDs.

Newsletter: Did you set up a implementation team? If so, which departments of the federal administrations were involved in the project?

Manfred Hochhold: We set up several projects to realise implementation. The individual project teams included members of the Federal Ministry of Finance, the federal IT service provider and staff of external providers.

Newsletter: Was implementation viewed as a stand-alone project or was it part of a review of processes and applications beyond payments?

Manfred Hochhold: implementation in the framework of the federal administration was - and continues to be - a complex project. The main challenges were more at an organisational, rather than technical, level. Considering the impact on all aspects related to payment management, implementation could not be viewed as a stand-alone project. Rather, the project provided the additional opportunity to review all existing payment processes and to optimise these, if necessary.

Newsletter: Did you decide to upgrade the existing IT architecture or to implement new IT applications and enterprise resource planning (ERP) systems?

Manfred Hochhold: As far as payment processing on behalf of the federal administration is concerned, implementation required both adapting the existing IT architecture as well as building new IT systems. Specifically, existing payment systems were aligned with the technical requirements of the ISO 20022 message standards and the and SDD Rulebooks. New IT systems had to be designed and implemented to comply with requirements of the Schemes, which are not part of Austrian legacy payment schemes. To give an example, we had to build new systems to comply with SDD mandate1 management requirements.

Newsletter: What were the main challenges in the implementation project?

Manfred Hochhold: As mentioned above, we started the implementation project at the level of the federal administration in 2008. At that time, citizens were essentially unfamiliar with the International Bank Account Number (IBAN), which is required to make payments. Payment service providers at the time did not yet see a need to implement marketing measures aimed at raising awareness among consumers on the use of IBAN instead of the national bank account number. In the past, the IBAN was only printed on account statements, but consumers might not always have an account statement at hand when making a payment. This problem was eventually solved; in Austria the IBAN is now printed on the bank card which consumers normally carry with them.

Newsletter: What were the main challenges in the SDD implementation project?

Manfred Hochhold: New IT systems had to be created to comply with the mandate management requirements. The Austrian federal administration only handles SDD collections based on newly obtained SDD mandates. Gathering these new mandates including the physical signature of the payer constitutes a significant effort. It was another challenge to adapt processes to the rules and timelines established with the Scheme as regards refunds, returns and rejects of direct debits; i.e. exception handling. These rules and timelines concerning exception handling differ from those defined in the Austrian legacy direct debit scheme. Also, we do not yet have any experience of collecting SDDs from payment accounts located in other countries.

Newsletter: Article 7 (1) of the Regulation, states: "A valid payee authorisation to collect recurring direct debits in a legacy scheme prior to 1 February 2014 shall continue to remain valid after that date and shall be considered as representing the consent to the payer's to execute the recurring direct debits collected by that payee in compliance with this Regulation in the absence of national law or customer agreements continuing the validity of direct debit mandates." In essence, this provision is designed to ensure the continued legal validity of existing direct debit mandates under the SDD Scheme which should facilitate migration to SDD.

You mention that the Austrian Finance Ministry does not, however, plan to migrate existing direct debit mandates to . Does this mean the Austrian Finance Ministry will eventually replace all existing direct debit mandates it currently holds by new mandates?

Manfred Hochhold: Yes, as it is a good opportunity to obtain all the mandates and have them centrally stored in a secure manner.

Newsletter: Based on your experience, where do you see room for improvement with regard to the payment schemes and technical standards?

Manfred Hochhold: As regards the scheme rulebooks released by the , we would greatly appreciate the possibility to provide more characters with the remittance information which can be transported with an payment. The Scheme only allows for 140 characters while - from our point of view - it should be possible to provide up to 980 characters. This should be offered at least as an additional optional service2. It should also be possible to include the payment reference and the reason for the payment with each payment order, in addition to and separately from the limited remittance information. This information should be carried through the entire process chain.

While this is outside the scope of the , we also believe that payment service providers should be obliged to include all characters sent with the remittance information on the account statements which are made available to bank customers.

Newsletter: Thank you for this feedback, we really appreciate it. This edition of the Newsletter features a dedicated article covering the number of characters included with the remittance information of a payment, the link to this article is included under 'related articles in this issue' below. This article also highlights the 's rationale underlying provisions in the and SDD Schemes which ensure that up to 140 characters in the remittance information are transported unaltered end to end. The article on remittance information in this newsletter invites readers to join the debate and participate in this year's annual public consultation on the evolution of the and SDD Schemes. Are there other aspects of the and SDD Schemes and related technical standards which should be addressed in your view?

Manfred Hochhold: We would also like to see a binding Europe-wide IBAN and Business Identifier Code (BIC) routing service.

The payment schemes rely on the ISO 20022 message standards developed by the International Organization for Standardization. It should be ensured that all payment orders - not only credit transfers and direct debits - can be processed based on the ISO 20022 message standards.

The has released implementation guidelines based on the ISO 20022 message standards with regard to the and SDD Schemes3. These implementation guidelines constitute the data formats. There are, however, multiple interpretations of these implementation guidelines based on the ISO 20022 message standards, including domestic variations of the data formats. In our view, these national interpretations of the ISO 20022 standards should be abolished to facilitate the change of payment service providers by bank customers. With regard to the use of the ISO 20022 message standards, we would also like to see further harmonisation of the data included with ISO 20022 cash management messages in the case of a returned payment.

On a more general note, we would like to see increased marketing activities with regard to .

Newsletter: In your view, what are the main benefits of implementation?

Manfred Hochhold: Migration to allows IT systems to be streamlined, and ultimately consolidated, which results in cost reductions. Following implementation of the payment schemes and standards, we are able to save about 15 million euros annually thanks to improved cash flow. We are also potentially able to save about one million euros annually in foreign country bank fees.

Implementation of the Schemes facilitates improved management of execution times and thus predictability when payments will be debited or credited. We also noticed increased quality of payment related data. Using the IBAN enables us to verify the correctness of the account identifier. On a more general note, the implementation of the European Union (EU) Payment Services Directive - which applies not only to transactions - in most EU Member States by November 2009 has increased legal certainty in the area of payments. All things considered, migration to is a positive development.

Newsletter: Dr Hochhold, thank you very much.

Dr Manfred Hochhold is Project Manager at the Austrian Federal Ministry of Finance.


Related links:

English Website of the Ministry of Finance of the Republic of Austria

SEPA Regulation published in Official Journal of the European Union. This Regulation Effectively Mandates Migration to SEPA by 1 February 2014 in the Euro Area

EPC Video 'SEPA for Billers': This Film Highlights Aspects Relevant for Businesses and Public Entities Transitioning to SEPA. Extended and Short Versions with Subtitles in the EU Languages Available

EPC Blog: Part II: Get Ready for SEPA by February 2014 - Early Movers on the Customer Side Share Lessons Learnt. Why IBAN and BIC Remain Important for Bank Customers

EPC Blog (Link to Five Part Series): Get Ready for SEPA by February 2014 - Early Movers on the Customer Side Share Lessons Learnt


Related articles in this issue:

Help is Here: Payments Regulatory Expert Group (PREG) Publishes Guidance Document on SEPA Regulation. Readers are also invited to share questions on the SEPA Regulation to be addressed in 'FAQ' being developed by the PREG

SEPA Schemes: 2012 Public Consultation is Ongoing. Effective Date of Next Rulebook Versions is 1 February 2014! Stakeholders are encouraged to provide feedback on the evolution of the scheme rulebooks by 13 August 2012

Join the Debate: European Association of Corporate Treasurers' Proposals Regarding Remittance Information. Corporates expect that migration to SEPA will improve automatic payment reconciliation


Related articles in previous issues:

EPC Newsletter articles published in the section 'SEPA Case Studies' highlighting successful migration projects of bank customers

The Time to Act is Now: Impact of the SEPA Regulation on Payment Service Users. The SEPA Regulation includes provisions relevant for both the demand and supply sides of the payments market ( Newsletter, Issue 14, April 2012)

Early Movers Confirm: ISO 20022 Message Standards Generate Tangible Benefits. A guide for payment service users on the impact of provisions in the SEPA Regulation regarding the use of the ISO 20022 message standards ( Newsletter, Issue 14, April 2012)

SEPA Direct Debit for Billers: Exception Handling. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 14, April 2012)

SEPA Direct Debit for Billers: the SDD Business To Business Scheme Timelines. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 13, January 2012)

SEPA Direct Debit for Billers: the SDD Core Scheme Timelines. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 12, October 2011)

SEPA Direct Debit for Billers: the Creditor Identifier (Go Get It!). EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 11, July 2011)

SEPA Direct Debit for Billers: The SDD Mandate. EPC Newsletter series provides support for billers preparing migration to the SDD Schemes ( Newsletter, Issue 10, April 2011)

Facing Up to the IT Challenge. Choosing the right IT strategy for SEPA compliance ( Newsletter, Issue 8, October 2010)

 


1 A mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer's bank to pay those collections.

2 The Schemes recognise that individual scheme participants and communities of participants will provide complementary services based on the schemes so as to meet further specific customer expectations. These are described as Additional Optional Services (AOS). Scheme participants are payment service providers that have formally adhered to the Scheme(s). For more information, visit, for example, this dedicated page on the EPC Website: SCT Additional Optional Services (AOS).

3 The data formats as set out in the implementation guidelines by the with regard to the and SDD Schemes are based on the global ISO 20022 message standards. 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 requirements. The role of the in defining these implementation guidelines, i.e. the data formats, is therefore to identify all necessary data elements for making payments as defined in the and SDD Rulebooks within the global ISO 20022 standard. For more information, visit this dedicated page on the EPC Website: ISO 20022 message standards (SEPA Data Formats).



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