A Single Euro Payments Area () Scheme is a set of rules, practices and (crucially) standards to achieve interoperability for the provision and operation of a payment instrument agreed at interbank level.
It is no secret that standards play an important role in the payments schemes which are selected by the European Payments Council () in close dialogue with the stakeholder community and are defined in the Credit Transfer () and Direct Debit () Rulebooks.
The rulebooks contain sets of rules and standards for the execution of payment transactions that have to be followed by adhering payment service providers (). These rulebooks can be regarded as instruction manuals which provide a common understanding on how to move funds from account A to account B within . The schemes are based on technical standards defined by standards bodies such as the International Organization for Standardization (ISO). More specifically, the data formats specified in the Implementation Guidelines which accompany the and Rulebooks are based on the global ISO 20022 message standards.
Moreover, with the launch of the Scheme in 2008, European banks were actually the first in the world to deploy the ISO 20022 message standards for mass payment transactions.
Data Formats based on ISO 20022
In the world of payments processing, the role of the data format used to exchange information between can be compared to the role of language in communication between people. In the pre- euro payment market, dozens of different data formats were in place to process payments across different national, and European, schemes and clearing systems in the European Union (EU). The realisation of therefore required agreement on a common set of data to be exchanged in a common syntax.
The data formats, as specified by the , for the exchange of direct debits and credit transfers, represent such a common data set. The data formats are detailed in the implementation guidelines released by the with regard to the and Rulebooks.
It is important to note that the data formats are based on the global ISO 20022 message standards developed by ISO. For more details, refer to the publication 'Shortcut to the Data Format' (see ‘related links’ below).
The ISO 20022 Message Standard
The ISO 20022 website provides the following definition: “ISO 20022 - Universal financial industry message scheme (which used to be also called "UNIFI") is the international standard that defines the ISO platform for the development of financial message standards” (see ‘related links’ below).
ISO 20022 is not only a suite of message standards but a recipe proposed by 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 modelling 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 recipe 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.
The ISO 20022 website further states: “the ISO 20022 standard offers a common way of using Extensible Mark-up Language (XML) and a way to shield investments from future syntax changes by proposing a common business modelling methodology to capture, analyse and syntax-independently describe the business processes of potential users and their information needs. The 2013 edition of the ISO 20022 standard included the possibility to use ASN.1 in addition to the XML syntax.”
The growing catalogue of ISO 20022 standards covers a host of messages for the financial supply chain, designed to enable communication between players across all financial markets.
ISO 20022 reflects the global nature of the financial services industry, bringing together diverse commercial and financial needs. ISO 20022 creates a level playing field empowering a broad group of stakeholders including end-users, suppliers and IT service providers to express their interests in a common work product whilst ensuring maximum transparency in the process. Furthermore, this cooperative and inclusive approach avoids a situation where multiple standards are developed by different groups in response to the same business need that may materialise in different areas or domains across the globe. At the same time, ISO 20022 supports multiple languages and character sets.
Re-engineering financial services based on the global ISO 20022 message standards, drives forward standardisation, automation and dematerialisation. Upgrading the payment architecture to comply with ISO 20022 also allows and their customers, such as businesses and public administrations, to realise the efficiency gains resulting from the implementation of the and Schemes.
Although the is actively applying standards in its schemes, it should be stressed that it does not develop standards itself.
Standards are, in fact, developed by global standardisation organisations such as ISO or European Standards Organisations (ESOs) such as the European Committee for Standardisation (CEN), European Committee for Electrotechnical Standardisation (CENELEC) and the European Telecommunications Standards Institute (ETSI) (see ‘related links’ below):
- CEN Website: “CEN is an association that brings together the National Standardization Bodies of 33 European countries. It supports standardization activities in relation to a wide range of fields and sectors including: air and space, chemicals, construction, consumer products, defence and security, energy, the environment, food and feed, health and safety, healthcare, ICT, machinery, materials, pressure equipment, services, smart living, transport and packaging.”
- CENELEC website: “CENELEC is responsible for standardization in the electrotechnical engineering field, reflecting the economic and social interests of 33 CENELEC Member countries channelled through their National Electrotechnical Committees (NCs). Most standards are initiated by industry but can also come from consumers, Small and Medium-sized Enterprises (SMEs), associations, or in some cases European legislators.”
- ETSI website: “ETSI: produces globally-applicable standards for Information and Communications Technologies (ICT), including fixed, mobile, radio, converged, broadcast and Internet technologies. It is composed of more than 800 member organizations worldwide, drawn from 64 countries and five continents. Members include the world’s leading companies and innovative R&D organizations.”
Some activities of these ESOs have an impact on the payment area e.g. smart cards, mobile payments, etc.
The ESOs are officially recognised by the European Commission (The Commission) and provide a platform through which European Standards can be developed. For a standard to be recognised as a European Standard it “will have to be ratified by one of the three ESOs, recognised as competent in the area of voluntary technical standardization and listed in Annex I of EU Directive 98/34/EC”.
Furthermore, a European Standard will be considered a ‘harmonised standard’ if it was developed by an ESO on the request of the EC and if it provides solutions for compliance with legal provisions. In its request, the Commission will include specific guidelines with which the European Standard should comply to satisfy essential requirements of relevant European Union (EU) harmonisation legislation.
The European Standards are usually voluntary and as such there is no direct legal obligation to effectively apply them. However, sometimes laws or regulations will directly refer to standards or even make it compulsory to comply with standards. This was, in particular, the case with '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 Regulation), which was adopted by the European Legislator in 2012 and which details, among other things, the use of the ISO 20022 message standards by and payment service users () (see ‘related links’ below).
Although the operational focus is on Europe, the ESOs also promote the international harmonisation of standards via cooperation agreements with international organisations such as ISO.
Relationship with standardisation bodies
The is a category ‘A’ liaison organisation to ISO Technical Committee 68 – Financial Services (TC68) which focuses on standardisation in the field of banking, securities and other financial services. Liaison relationships have also been established with underlying technical subcommittees (SC) such as SC7 – Core Banking and SC2 – Security. In addition, specific ad hoc work groups can also be established under these SCs e.g. ISO/TC 68/SC 7/WG 10 - Mobile Banking / Payments which works on ISO 12812 ‘Mobile Financial Services’ and to which the has been contributing.
Moreover, the is an active member (‘A’ liaison) of the ISO 20022 Registration Management Group (RMG) which is, according to the ISO 20022 website, “the highest ISO 20022 registration body that monitors the overall registration process and reports directly to ISO TC68. The role of the RMG is to promote and support the involvement of financial service actors to facilitate the registration and maintenance of high quality globally relevant ISO 20022 compliant business models for exchange of information for financial services. The mission of the RMG is to ensure that ISO 20022 is a trusted standard providing high quality business models for exchange of information for financial services.”
The above mentioned bodies can also decide to create temporary groups in which the will participate if the topic is relevant. A recent example would be the decision of the RMG to set up an ad hoc ISO 20022 Real Time Payments Group (RTPG) to harmonise the usage of existing payments messages in a real time payments context.
The involvement in ISO 20022 RMG is of particular interest to the as changes impacting the standard could potentially impact the Implementation Guidelines. An important distinction should, however, be made between changes that result from the development of new ISO 20022 messages, and from updating existing messages.
The registration process of new messages is initiated via the creation of a business justification by the submitting organisation. A standard template is available on the ISO 20022 website in which submitters are invited to provide a detailed overview of the business case. As an RMG member, the has the opportunity to provide comments and ultimately to cast its vote concerning the approval of business justifications.
An annual maintenance cycle is also foreseen by ISO to update existing ISO 20022 messages. In this case, the submitting organisation will have to create a maintenance change request (the template can be downloaded from the ISO 20022 website). Furthermore, there is also the possibility to request, on a quarterly basis, updates to external code sets such as, for example, return reason codes. “Unlike other ISO 20022 code sets, external codes are not included in the message schema with the message element they type. The purpose of externalising these codes is to be able to update the code sets (for example, add new codes) without impacting the messages themselves and, hence, without requiring the development of a new version of the messages that use these code sets.” The has already used this option several times in the past.
A detailed description of the registration and maintenance process can be found on the ISO 20022 website (see ‘related links’ below).
Examples of technical standards defined in a payment scheme
The following list includes examples of technical standards that are typically relied upon in a payment scheme:
- ISO 13616: International Bank Account Number (IBAN).
- ISO 9362: Business Identifier Code (BIC).
- ISO 3166: the International Standard for country codes.
- ISO 4217: the International Standard for currency codes.
- ISO 11649: the International Standard for Structured Creditor Reference to remittance information.
Given that there are some 36 billion euro credit transfers and direct debits processed annually by thousands of in the EU, an optimally efficient and integrated euro payments market will rely on payment scheme rules and technical standards that are adhered to by all European . This ensures the efficient straight-through processing of payments and supports the integration and harmonisation objectives of .
Christophe Godefroi is a business analyst for the
website: ISO 20022 Message Standards
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Related articles in previous issues:
SEPA 2.0: an Overview of Regulatory Action Now in the Pipeline Impacting the European Payments Market Going Forward - The European authorities have clarified that migration to harmonised SEPA payment schemes and technical standards does not conclude this EU integration project ( Newsletter, Issue 23, July 2014)
ISO 20022 is the New Language of Payments! The Standards Forum Launched the 'ISO 20022 Adoption mApp' Featuring Information on More than 60 ISO 20022 Initiatives Globally - New adoption initiatives are encouraged to showcase their project with this mobile application ( Newsletter, Issue 20, October 2013)
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