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SEPA, ISO20022, Interoperability and more …

I was involved in a tweminar yesterday organised by Karen Hsu of Informatica, and in conversation with Nancy Atkinson of Aite Group.  This conversation was all about payments and specifically SEPA, ISO20022, interoperability and more.

It is also the second tweminar I've participated in – the first was with First Direct's CEO - and they are incredibly difficult to summarise afterwards as the conversation is fragmented.  It's easy to follow via twitter but, afterwards, trying to pin the flow together is not so easy.

Anyways, I've given it a go as this one is quite interesting for those who like everything payments focused.

Karen Hsu, Informatica: How important are payments to banks? Why?

Chris Skinner, the Financial Services Club: payments are a critical function for some banks that have transaction services as focus. For others it is also key, as it's their perception that this keeps the customer. But the combination of internal capability, economies of scale, op efficiency is a killer combo

Nancy Atkinson, Aite Group: It keeps the customer, but also provides opportunities for offering value added services. And, yes, value add doesn't mean the bank has to do it all in-house.

Chris Skinner: i think that reflects some banks have a hard time at letting go though. Unless you can monitor and monetise and value the real revenue, is payments core? Some think it's real value when it's actually perfunctory

Nancy Atkinson: LOL. Could be. But, the fee revenues were very helpful during the economic crisis when lending wasn't going so well.

Chris Skinner: SEPA is putting squeeze on this, especially for those not big enough to get economies of scale.

Karen Hsu: let's start with the impact of SEPA and what it means for payments.

Chris Skinner: SEPA splits EU banks into three – those big enough to do it, those small enough not to, and those in between who have no clue

Nancy Atkinson: SEPA has been a big topic for some years now. Why has it been so long and difficult?

Chris Skinner: because there is no business case for SEPA, and cost of program vs benefits questionable.

Nancy Atkinson: Okay, then the initial focus was off.

Chris Skinner: yes, it is just a political agenda with no real customer need, although the end game is to have true cross-border payments across EU like USA.

Nancy Atkinson: Do you think there is no real customer need for consumers, or just for businesses?

Chris Skinner: there is no real consumer need although there's a need for businesses with x-border/pan-EU ops.

Nancy Atkinson: Exactly. Isn't that why SEPA is really focused on retail payments?

Chris Skinner: yes, although the end game is what they see as the market driven need

Nancy Atkinson: isn't there also an issue of the cultural and political turmoil among some countries in the EU?

Chris Skinner: yes, but that's been more recent. in fact, we wonder if the EU and euro will hold

Nancy Atkinson: I wondered that too.

Chris Skinner: the answer is yes (the euro) will (survive), regardless of turmoil, as SEPA and Euro is commercial program, not political

Nancy Atkinson: So, when do you expect critical mass to be achieved and what will it take to get it there?

Chris Skinner: Critical mass is coming – already >10% of credit transfers in SEPA. But the motivation and complexity of direct debits is a block.

Karen Hsu: how has the SEPA end date changed the banks' migration efforts?

Chris Skinner: the end-date dialogue helps – with SCTs prob by end 2012 and SDD end 2013, but migration is slow and not focused without business case and some force

Nancy Atkinson: Banks and corporates have been waiting to see what happens, it seems to me. As a result, their migration efforts are slow, although the largest banks that Chris defined as really embracing and owning payments have been active in migrating.

Chris Skinner: Yes Nancy – the global transaction banks all see SEPA as an opportunity. After all they can insource the x-border payments that smaller banks now can't support

Nancy Atkinson: But that is only a small number of the total banks that could be involved.

Chris Skinner: Nancy – yes, i can count the proactive SEPA banks on my hands (no toes needed) lol

Karen Hsu: how about the corporates? are they prepared for the new SEPA changes?

Chris Skinner: Most corporates don't care Karen as it’s not on core radar, unless large pan-EU biz

Nancy Atkinson: Corporates will care when they have to manage mandates for debit transfers.

Chris Skinner: Yes, but debit mandates big issues for many, esp Germany, and there are too many variations between DD mandates and country ops to make it common practice now. so issue is how to force the hand

Nancy Atkinson: In your opinion, Chris, should the issue be forced, and if so, how?

Chris Skinner: issue should be forced Nancy . The method is to get all Public Authorities migrated first and Public Authorities should state they won't take non-SEPA format payments. Bank fee structures should encourage movement too

Nancy Atkinson: When do you think that will happen?

Chris Skinner: Real SEPA critical mass? between 2018 and 2020 dependent on regulatory authorities effectiveness and EU willingness to join in

Karen Hsu: To back up a bit, how many different formats do banks have to deal with (including international and domestic)?

Nancy Atkinson: There are multiple payments and payments related standards.

Chris Skinner: It’s a melting pot Karen – IBAN and BIC, SEPA SCT, SDD and SDD-B2B, SWIFT MX and ISO20022 – all are new and required for SEPA

Nancy Atkinson: Within the standards, there are many versions still being supported.

http://twitter.com/glowsglam: @Chris_Skinner Will this require a change in IBAN? Use only BIC (as not all countries recognize it)

Chris Skinner: IBAN and BIC now mandatory to be quoted in all payments – but depends where you sit – corporate or bank, and IBAN and BICs all different anyway

Nancy Atkinson: And although IBANs only apply to EU payments, they are being requested for payments from non-EU countries, where they do not exist.

Karen Hsu: and how are the banks addressing these formats? through internal solutions? outsourcing?

Nancy Atkinson: With regard to addressing the multitude of data formats, banks use internally developed solutions and external ones.

Chris Skinner: Big banks on top of it, small banks outsource it and others stuck

Karen Hsu: Should the banks provide specific IBAN services, or is there too much in doing this?

Nancy Atkinson: Some banks do provide IBAN services, but IBANs don't exist in some countries (e.g., the USA).

Chris Skinner: What about UPIC or other identifiers Nancy ?

Nancy Atkinson: UPIC is a solution offered to help in the U.S. with changing corporate accounts and with the desire not to share bank account info.

Chris Skinner: On UPIC , some corporates over here think better than IBAN and BIC

Nancy Atkinson: The UPIC is aligned with the company and an account of the company. If the company changes banks, only the UPIC has to be changed.

Karen Hsu: How about payment tracking services– is there a gap in providing this for corporates (end to end)?

Chris Skinner: little out there to track all that today, just look at issues of cover payments SWIFT, and tracking is clearly not working well in the past. And tracking means end-to-end (e2e) which means customer to bank to clearing to bank to customer. What you end up with is myriad of services, some vendor and some bank to handle format variations

Karen Hsu: So the payment tracking is important – what type of analysis is important for corporates?

Nancy Atkinson: Analysis around procure-to-pay . When do they make their payments? Can they make them sooner and take discounts?

Chris Skinner: Key for corporates is procure-to-pay cycle and providing information abundance and analysis around that

Nancy Atkinson: Once the customer is using a bank, customer service needs to be multi-channel and enterprise-wide.

Chris Skinner: Issue is fragmentation of accounts and information today

Karen Hsu: What about customer onboarding?

Nancy Atkinson: Customer onboarding is part of it, but certainly not everything. It’s more about what is the activity coming up? Seeing trends in the "rear view mirror" is less helpful than knowing approved outstanding invoices. Further, banks have data that can assist corporates in making decisions regarding their payments.

Karen Hsu: lack of standardisation appears to be a big issue– with most of the banks still working on interoperability

Nancy Atkinson: Banks are working on interoperability with other banks, industry utilities (like SWIFT), and with their customers.

Chris Skinner: Big word 'interoperability' … still working out what that one means … as are most banks. I think it means working together on plumbing … but my spanner's not standard size

Nancy Atkinson: Unfortunately for banks, they are caught in the middle of that one–customers and SWIFT have the power.

Chris Skinner: SWIFT has power, but not to force interop Nancy

Nancy Atkinson: Oh, I agree with you, Chris. But, SWIFT has the power to establish formats that banks must follow to communicate with them. It means working together on standards, but also providing translations between and among standards.

Karen Hsu: Is China using SWIFT or is their critical mass on another standard?

Chris Skinner: China still considering options as they could be biggest payments hub by end of decade. China could take own route, and decide to build new standards and infrastructures , but I don't think they will although you never know

Karen Hsu: Is ISO 20022 widely adopted or becoming widely adopted?

Chris Skinner: ISO 20022 seen as solution, but it is not – just part of getting there. It will help, but has become too much of a panacea – also needs focus

Karen Hsu: Regarding making corporate customers happy, is the differentiating service around customer onboarding?

Nancy Atkinson: Banks want to make their corporate customers happy by making it easy to work with them.

Chris Skinner: Put another way: banks want to keep corporate by making them think they're making it easiest

Karen Hsu: do the banks realize integration is critical to providing that consolidated cash view

Chris Skinner: Yes banks know this, and are starting to compete on information value add analytics

Nancy Atkinson: Banks know it, but winning as the single source provider for their customers is challenging. Being able to provide aggregated account data across multiple banks is what is desired.

Chris Skinner: Nancy is right, and which banks want to be disintermediated by the aggregators is big issue

Nancy Atkinson: None of the banks want to be disintermediated, but some would have to be.

Karen Hsu: would the bank differentiate by integrating aggregated info with the corporates back office systems?

Nancy Atkinson: That is one way for banks to add value. Still, if they only have their own account info, the value is limited.

Chris Skinner: More that they will provide gateways to allow and equally getting close to SAP|ERP by, for example, providing real-time treasury dashboards with global analytics and reach. Real-time is a game changer if a bank can use capability to give corporate more control to sweat working capital

Karen Hsu: what about the treasury workstations at the corporates? are they being replaced in some way by SAP?

Nancy Atkinson: SAP and other ERP providers offer treasury workstation modules, but those modules frequently weren't implemented when ERP was installed.

Chris Skinner: Treasury workstation and SAP go hand-in-hand surely, and banks see SAP as future easy way into the corporate back office so the key is to get SAP and ORACLE integrated

Karen Hsu: Getting SAP and Oracle integrated is what we do 🙂

Chris Skinner: Ya don't say!

Karen Hsu: Do you see eBAM becoming an area of investment for banks?

Nancy Atkinson: I see corporates demanding eBAM from their banks.

Chris Skinner: Yes Karen, eBAM is getting buzz but it’s not a real force in my domain yet …. lot's of talk though.

Karen Hsu: what's holding eBAM back?

Nancy Atkinson: Can banks charge for eBAM? If not, it is a cost without a payback. Corporates need to make it a requirement.

Chris Skinner: Hold up is whether corporates really see value from these activities, and corporate CFO's are still to be convinced in many cases

Karen Hsu: if not eBAM what processes are CFO's looking to automate

Chris Skinner: CFO's more interested in supply chain automation – eBAM can help but other areas of interest

Nancy Atkinson: CFOs want to improve their knowledge of financial supply chain to match physical supply chain.

Chris Skinner: And liquidity management is #1

Karen Hsu: Wow! We've covered a lot today. We're officially at the end, but please keep sharing your comments. Thank you for joining us.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • lichterowicz

    “yes, it is just a political agenda with no real customer need”, ? Some doubts…
    Have you ever been in countries like Luxembourg (EU main town) ?
    Have you ever seen the “white train” leaving Zuid station in Brussels ?
    Do you know that EU tourists/year in Portugal are more numerous than Portuguese citizens ? Have you ever face the situation of immigrant workers in EU sending money to his remote non-EU family (in order to understand SEPA potential retail value)?
    Not too sure to understand the underlyng rationale of such assumption ?

  • Cui bono?
    Can you elaborate on the differences between “real-time”, SEPA and Informatica’s Complex Event Processing solution which is used for BAM?

  • Chris Skinner

    This is not an ad Peter … so not sure what you’re getting at here?

  • Chris, i wasn’t implying that. What i mean to say is that there is very little difference as far as these three trends are concerned. All are based on near-instantaneous transaction processing.
    As a consultant working on international basis trying to set up a business dealing with all the border issues are an ordeal, and eventhough there may not be a business case, for banks, to implement SEPA i do guess it is obvious that it is a vital step in actualizing the Euro. Large companies make as much use of buffering up the payment delays as banks seem to do, so the added value is to be seen in the SME segment which makes up about 60% of Europe’s economy. Not hurrying up with SEPA is just ‘easy money’ for banks.
    As you say, “some think it’s real value”..
    and i see this hollowing out on a daily basis here in Italy. Who says you can’t fill a hole with another hole?
    Anyway, with BAM comes end-to-end visibility, and from that comes a demand for increased transparancy, which will gradually force payments to be processed in real-time, which includes SEPA.