Preparing for SEPA

By Mats Wikström

Mats Wikström offers an insight SEPA and outlines how the challenges for the financial industry.

“SEPA will encourage systems rationalisation and consolidation, helping banks to slash costs, improve flexibility and deliver a better payments service.”
-Mats Wikström

What are the key challenges of SEPA for the financial industry?

Mats Wikström. SEPA gets to the heart of how business operates, affecting everything from database structures and user interfaces to message formats and business rules. By 1 November 2010, institutions must have systems in place to cope with the new SEPA Direct Debit (DD) and SEPA Credit Transfer (CT) requirements.

Banks need to adjust the existing payment systems they use to process their cross-border SEPA CT transactions or implement a new SEPA process to ensure they comply with the Payment Services Directive (PSD).

Another key challenge is migrating domestic DD and CT payments to SEPA. Legislation is in the pipeline that will set the deadline by which all Euro countries will have to migrate. Some are well on the way to full compliance, but Europe as a whole needs to keep up the momentum. So over the next few years banks in the euro zone face a large-scale migration of domestic payment processing from systems based on national schemes to SEPA-compliant ones.

What new services will customers demand?

MW. Customer requirements under SEPA will impact every part of the banking business. They include providing eMandate services; initiating SEPA CTs and DDs via a range of message formats; providing real-time payment status updates; and enabling R-transactions such as request for cancellation, revocation, reversal and refund via file/message exchange as well as internet banking channels.

Customers also want account statements and credit/debit advice that complies with relevant ISO standards. This enables corporate customers to benefit from the ‘new’ data elements now available under SEPA, such as enhanced referencing and remittance information and exchange rates that have been applied by the bank. They’re also demanding conversion services to help migration from national to SEPA payment instruments for domestic payments.

How can banks improve their services in response to these demands?

MW. SEPA will encourage systems rationalisation and consolidation, helping banks to slash costs, improve flexibility and deliver a better payments service. It could also lead to more outsourcing as they focus on the cost effectiveness of their core payments business.

Many will implement a centralised middle office component offering payment and data functions to all channels via a service-oriented interface, which will cut costs and improve back office processing feedback to the customer. Banks could also replace existing cross-border and domestic payments systems as soon as a country migrates to SEPA and implement a centralised back office system to consolidate the processing of SEPA payments.

How can the challenge of meeting customer demands be made easier as national borders disappear?

MW. Convergence of national payment instruments will enable corporates to initiate and receive CTs and DDs in all SEPA countries by using a single account held in one country. This will simplify processes and cut the costs associated with supporting multiple country-specific payment formats.

Most banks involved in multiple SEPA countries use different systems in each to comply with the specific payment instruments and infrastructures. Convergence means banks can start using one consolidated platform to process all their SEPA payments.

What do you offer to help financial services customers compete better under SEPA?

MW. Tieto’s integrated modular payment solution enables banks to rationalise and consolidate their end-to-end payment processes and related operations. It offers a wide range of flexible features that enable payment processing consolidation and permit many different configurations per bank, payment product, processing flows and so on. 

Its middle office module eliminates the duplication of payment-related functionality and data currently embedded in the various channels. And its payment back office processing modules include out-of-the-box interfaces to multiple Clearing and Settlement Mechanisms (CSMs).

Biorgaphy

Mats Wikström currently holds the position of Director of Transaction Banking in Tieto Financial Services unit. He has been in several managerial positions within Tieto and its predecessors for about 15 years. He has been heavily involved in the digitalisation of customer core business processes with a strong focus on financial industry and transaction banking.

Tieto’s expertise in the payment industry also allows the company to provide a number of professional services, including:
•    Management and business consultancy
•    Business and IT analysis
•    System integration
•    Testing
•    Programme/project management