ISO 20022 and Centralisation: Going Beyond SEPA Payments in Europe

At first sight the ISO 20022 standard and centralisation
might not appear a natural match. The first is a financial industry standard,
the second a workflow organisation scheme within corporates. This following
will attempt to illustrate how this norm can generate significant gains for
users when accompanied by an evolution of payment management.

Benefits of Using ISO 20022

The ISO 20022 standard
provides a method to develop well-structured financial messages in the five
areas of cards, foreign exchange (FX), payments, securities and trade
services. More than 300 ISO referenced messages exist which help unify all
existing standards. ISO 20022 uses the extensible markup language (XML)
standard, which allows easy reading by a large number of softwares – not only
in a financial environment – and quick upgrades.

Several messages
exist; they are called business areas, such as:

  • Securities
    trades (setr).
  • Securities settlement (sese).
  • Trade services
    management (tmst).

In the payments industry four such messages
are used; the first three of them between banks and their customers:

  • Payment  initiation (pain).
  • Cash management (camt).
  • Account management (acmt).
  • Payment  clearing and settlement

Heading Towards Payment

We now have in our hands a unified
international standard, as the first step towards homogenous use beyond
purely domestic corporate operations. The first use that comes to mind is
obviously for SEPA payment services – it allows a first level of
centralisation as, theoretically, any third party payment in the SEPA zone
can be issued from a single account.

A further three major stages
of centralisation can be introduced within organisations:

  • Placing common resources within a shared service centre (SSC): Other
    departments in addition to accounting or treasury may then be
  • Centralising payment flows: Payment files are created
    locally but go through a payment hub, controlled by central treasury before
    payments are initiated on local accounts (some already call this a payment
  • Centralising payments via a payment factory, where
    everything is managed centrally: This would include files creation, payment
    workflows, orders sent to banks to initiate payments on accounts held by
    the bank in for paying-on-behalf-of (POBO) the group’s other entities.

There are many advantages to such organisations:

  • A
    homogeneous way of working at group level, which lowers risks linked to the
    use of various payment and signature means in each structure or
  • Better management of workflows.
  • Improved management
    of payment dates and reduction of working capital.
  • Harmonised and
    reduced banking fees.
  • Better liquidity management at group

Such centralisation is only achievable through the use
of ISO 20022 messages (possibly an honourable mention should also go to the
Electronic Data Interchange for Administration, Commerce and Transport
(EDIFACT) but that standard was never adopted by enough companies and
payment factories to become a common service).  ISO 20022 messaging allows
the initiation from a central and unique point ‘on behalf of…’ messages
such as SEPA credit transfers (SCTs), cross-border payments, intra-company
payments or even domestic specific ones such as for Virement Commercial in
France. Collections can also be considered, thanks to SEPA direct debit
(SDD). Some banks already offer such services, or are preparing to launch a
major offering.

Offering Quality Reporting

This is an important issue – initiating and sending payment orders
remain ‘simple’ operations to process, insofar as any international bank
should eventually be able to offer such services. Major challenges lie,
however, in offering quality reporting that will allow easy and automated

Central treasury must receive, without delay,
detailed and reliable information on:

  • How their order is being
    handled, via payment status reports.
  • Rejected and/or unpaid
  • Account reporting;

Nevertheless, there is a
genuine risk that a reporting message may be truncated at some point by a bank
when going through its information systems, so the integrity of the
information is then no longer assured. This issue certainly occurs in case of
POBOs as the payment factory must impact the current accounts of the group
companies and cannot afford time-consuming manual reconciliation.

In such cases, banks should already offer payment system risk PSR policy
(pain.002) or unpaid items files (camt.054); although relatively few have yet
developed camt.053 account reporting (camt.052 for intraday account
reporting). To take France as an example, local Comité Français
d’Organisation et de Normalisation Bancaires (CFONB) format was adapted to
suit SEPA reporting needs on domestic accounts, SWIFT MT940 (or MT942 for
Intraday) being used for reporting on the other accounts. When using SWIFT
messaging it will be necessary to check if the account holding bank enriches
the messages and correctly transmits useful information.

Future Benefits

Obviously setting up such
services and processes is not without its risks.

First, it appears
very complicated to bridge between a unique international standard and a
completely homogeneous format accepted by thousands of banks. Indeed, if we
take the SCT as an example, several steps occur between the ISO standard and
the format accepted by the banks, among which are:

  • European
    Payments Council (EPC) rulebooks.
  • National banking communities’
    implementation guides.

In addition, each bank’s processing
organisation may potentially alter the information integrity and then not
answer its customer needs, for example on the processing aspect : a cross
border bulk payment request in XML pain format is split into MT101 messages
at back office level and can only be reported per payment and not as

We can now not only imagine but actually perceive the
looming benefits for organizations that centrally initiate their payments.
The combination of multi-banking communication protocols such as SWIFTNet
for Corporates and an international ISO 20022 standard represent true steps
ahead for a more efficient workflow management and convert the constraints
of moving to SEPA into opportunities. However, only deep and lasting
cooperation between corporates and their banks will ensure the success of
such projects.


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