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Bob Lyddon,IBOS Association Limited


The paper investigates the interconnection of the Single Euro Payments Area (SEPA) with ISO 20022, and the objective of migrating the payments market off SWIFT MT globally, and off-legacy national data formats in Europe, onto the ISO 20022 ‘standard’. Readers need to appreciate the reasons for the slow take-up of ISO 20022 and for the slow progress towards SEPA, and how an acceleration of the process via the setting of a mandatory end date for migration could backfire. The SEPA frameworks contain many safety valves through which national variations can persist. The environment is becoming increasingly complex and nuanced, with reducing income and new competition. Readers will be able to see the European Commission’s long-term aims in the context of these developments and all the better appreciate the disconnects in the process — disconnects that will complicate the achievement of operational excellence in the payments business.

Keywords: SEPA, SWIFT MX, ISO 20022, SWIFT Migration, SMED


The amount of regulation on the payments industry in Europe is continuing to increase, rendering difficult the achievement of business and operational excellence. The payments business is not on a genuine convergence trend: the policy objective is certainly harmonisation and convergence, but within the European Union (EU) and the European economic area, the two tracks of convergence — the adoption of ISO 20022 XML and the Single Euro Payments Area (SEPA) — have run into significant difficulties.

On the one hand, there are the politicians — the European Commission — with their stated aim of cutting about 2 per cent of EU gross domestic product off the cost of payments. That would be achieved by ensuring many more direct payments, the use of fewer intermediaries and certainly fewer banks between the start point and the end point, and the introduction of what is known as a layered market.

This layered market substitutes a horizontally integrated model for the current vertically integrated one — in which banks own or control virtually the entire supply chain, and collaborate only where it makes economic sense for them to share a utility, such as a low-value payments clearing infrastructure. This reorientation is visible in the European Payments Council’s (EPC) market models for both cards and payments.

On the other hand, the actual status in the marketplace is that a migration of only 6 per cent of total volumes onto SEPA schemes has been achieved instead of the critical mass that should have made migration irreversible by the end of 2010 (as quoted in the SEPA Roadmap of 2004).

A figure of 8 per cent is sometimes quoted, but this is misleading because Slovenia, which now uses the SEPA instruments for its domestic payments, did not have a pre-existing national low-value clearing, so the adoption was not a migration.


The commission’s response to the lack of self-fulfilling migration is to discuss setting a mandatory end date for migration to SEPA — a so-called SMED. The contents of that discussion, however, currently contain definitions and conditions which could cause the project to unravel.

It also appears now that the other track of convergence, the migration onto the ISO 20022 XML standards, has also stalled. XML should have become a universal — or at least unifying — standard, either replacing MT, national standards, Edifact etc., or at least representing a central mapping template., ie it would be possible to map any other standard into or out of it, such that a user of one standard would only have to deal with its mapping to/from XML, and by dint of that be able to interface to users of the other standards.

The SEPA Data Model dictates that bank-to-bank physical transmissions of SEPA schemes must be conducted in XML as defined under ISO 20022.

While SWIFT has for some time foreseen a period of coexistence between XML messages and their MT predecessors, the nature and timing of such a migration has been re-shaped by a change of position at SWIFT in 2010. SWIFT’s position paper IR 535 has delinked physical messaging in XML from both ISO 20022 and — by extension — from SEPA. The result is that there is still room not only for national flavours of the SEPA payment messages and — by inference — of ISO 20022, but also for the continued use of national data formats and indeed payment schemes, in contradiction of the aim of harmonisation. The implication is that Maxi-SEPA and the universal use of XML are not as imminent as thought.

For a bank that wants to achieve operational excellence at low cost by centralising its processing into a hub, this environment is the opposite of what is desired:

  • ISO 20022 XML becoming ‘just another standard’ to add to the ones that already exist
  • national schemes and data formats persisting
  • SEPA schemes being added, with national flavours, with varying degrees of interoperability between them and legacy schemes in which most activity is conducted in the legacy data format.

A number of regulations have been added over the last few years, such as EU Regulation 924/2009, which involved principally the obligatory reachability for the SEPA Core Direct Debit Scheme for all banks in euro-in countries, an abolition of all multilateral balancing payments or interchange fees within the scope of any Direct Debit Scheme as from 2012, and the partial abolition of central bank reporting…….

Link to full article in Journal of Payments Strategy & Systems, January 2013