HSBC: Achieving STP with or without SEPA - Mark Sutton
Although corporates are currently lukewarm about migrating to the Single Euro Payment Area (SEPA), Mark Sutton, HSBC Global Transaction Banking, tells FDE's Steve Dunkerley how the XML standard that underpins SEPA can actually be leveraged in payment factories and shared service centres independently of SEPA in order to improve straight through processing (STP).
The latest figures from December 2009 show that only 6.2% of current euro payments are processed via SEPA. This represents a large increase on the 3.9% reported in May 2009, but is still below what people probably expected, given that it is now over two years old. While these figures confirm that SEPA uptake remains low, according to Mark Sutton, HSBC's global product manager of delivery services, the underlying XML standard has not been fully exploited as it is perceived as a standard that is tied to SEPA.
"It is unfortunate that some still consider ISO 20022 XML a SEPA-only format. Adoption of this standard globally will provide the opportunity to standardise and rationalise both the message formatting and the underlying business processes. This in turn will lead to financial and operational efficiencies, as cost layers are removed, monitoring and controls improved and liquidity management optimised."
To Sutton the beauty of ISO 20022 XML is the value it can deliver by speeding up transaction processing, whilst retaining process quality.
"With the technology available today, a corporate now has the opportunity to operate on open standards, with ISO 20022 XML providing a generic multi-banking multi-clearing file format combined with a single highly secure network interface to the banking network. Adoption of both solutions will allow a single, simple cash management architecture that ultimately achieves greater STP through a combination of speed of connection to your banking partners and the overall quality and integrity of the underlying payments data as it is sourced directly from your back office system without the need for any manual intervention."
Whilst highlighting the importance of ISO 20022 XML to improve processing payments and transactions, Sutton is also quick to emphasise the contribution that SWIFT connectivity can also provide when corporates are looking to achieve STP. According to Sutton, there are three core components in the customer to bank space, which cover the following aspects:
- Connectivity. This covers the physical connection to your banking partners, which could be browser or host-to-host based.
- Security. This covers the physical security around the file transfer process. It is a key requirement to protect the integrity, authenticity, confidentiality and non-repudiation of the underlying file.
- File format. This covers the message structure that is used to support the transfer of the payment initiation data.
To Sutton, the wider business case benefits for SEPA will only really come when both SCT and SDD are widely available, thereby providing a truly low-cost simplified Eurozone infrastructure.
"Only when you move to the bigger picture will the true financial benefits be achieved. Adoption of the ISO 20022 XML standard globally will provide the opportunity to standardise and rationalise both the message formatting and the underlying business processes. This in turn will lead to financial and operational efficiencies, as cost layers are removed, monitoring and controls improved and liquidity management optimised."
The final piece of the STP puzzle in terms of maximising the benefits, according to Sutton, is to consider process centralisation.
"Companies that look to merge the above activities as part of an SSC (shared service centre) or payment factory, will achieve a greater return than a company that remains decentralised. It's all about economies of scale."
With over 4,500 banks able to make SEPA payments, Sutton concludes that there is a real business case around the adoption of SEPA but believes that the real volume migration onto SEPA will only come once a sunset date is published around the demise of the national payment schemes.
The plethora of national schemes means customers that operate on a pan-European basis need to support each of the required individual domestic file formats in order to process payments. The adoption of ISO 20022XML provides the opportunity to simplify through standardisation. This global format has been designed to support not only SEPA payments, but cross-border and local transactions around the world.