Nordic banks lead the way in adoption of the ISO 20022 payments automation standard. How is this helping banks in the region drive payment innovation forward?

Finland's prompt actions in the adoption of the single european payments area (SEPA) has driven forward the standardisation of banking in the other Nordic countries. SEPA is founded on the XML-based ISO 20022 standard, which allows automation, and is therefore becoming an increasingly global payment traffic standard.

In December's 2010 statistics, Finland was in first place in SEPA payments that were routed through the EBA clearing centre. Finland accounted for 33% of all payments, followed by France at 17%.

There are several reasons for Finland's first place performance. Firstly, Finland is one of the countries where the national SEPA transition plan specifies an end-date for payment materials. Under the plan, national standards expired in Finland at the end of 2010, although banks will continue to offer payment transactions based on them as an additional service until the end of October 2011. Payments within the country are made as SEPA Credit Transfers (SCT) and routed via EBA clearing instead of local clearing. In several other countries, only cross-border euro payments are handled as SEPA payments and national payment types are used internally.

In Finland, ISO 20022 XML will be implemented in credit transfer and direct debiting services, and in account reporting. Naturally, the changes required in payment materials also apply to the subsidiaries of international corporations operating in Finland.

These international corporations have launched several projects in Finland first, before replicating the operating model in other Nordic countries. This means the XML ISO 20022 standard has been implemented for other payment materials in addition to SEPA payments.

Nordic banks deserve praise for their decision to support payment materials based on the ISO 20022 standard in addition to SCTs in using the national payment types of their operating countries. They are thus contributing to the introduction of an entirely new level of international coverage in the automation of corporate financial processes.

Enterprise application interface (EAI) developers are an important part of this development. Companies have numerous payment-related source systems and modifying all of them to generate ISO 20022-compliant material is not practical. A significant benefit of the ISO 20022 standard is that other material formats can be mapped to comply with it using a middleware integration hub that maps the material to a common format.

Payment Factories: Picking up Speed

For companies, managing the big picture is what really matters, rather than the technical modifications made to systems. When the focus is solely on payment formats, the change looks excessively technical.

The new ISO 20022 standard-compliant XML technology is a major leap forward because of the opportunities for cross-border payment process harmonisation it offers. The technology allows all structured data included in payment materials to be put to optimum use in corporate systems.

As businesses have started working on the changes required in order for their source systems to produce XML material, they have also taken the opportunity to assess their financial processes more extensively. Companies expect to receive maximum benefits from system investments. Why not, therefore, use the same XML format for payment traffic in all Nordic countries in addition to the eurozone?

Combining SEPA projects with the setting up of a corporate shared service centre (SSC) or payment factory is a clear trend. The ISO 20022 standard will also make this much easier than before. Concentrating payments and liquidity management will save companies time and money.

In the Nordic countries - and, increasingly, elsewhere in Europe - payment factory projects are another obvious trend. With SEPA projects, companies also seek to reduce costs by centralising and streamlining their processes. Costs can be cut by managing payment traffic from a single point, using a single payment material format and using banks with a proven track record.

The changes also affect competition between financial institutions. Banks have already improved the handling of cross-border payments and cut prices. In the future, transaction prices alone will no longer be decisive and the level of service offered by banks and their expert services on global payments will play a bigger role.

Companies are taking a closer look at which banks in their operating area offer the best options. The decisive factors are the way in which a bank distinguishes itself from other banks, the payment types and additional services it offers and how it can help in the automation of payment processes.

SEPA also enables companies to reduce the number of banks and accounts they use within the eurozone. Nordic companies have traditionally used fewer banks, but Finland has been the exception, however, because its payment culture and system environment have promoted efficient multi-bank operations. Today, companies and banks in Scandinavian countries are also increasingly favouring direct bank connections.

Harmonised Account Reporting

When outgoing payment materials are harmonised, new benefits emerge from XML format account and transaction reporting. Some Nordic banks are already offering account transaction reporting under the new ISO 20022 standard in the CAMT format. Other banks are currently in the process of setting up these services. Because of SEPA, this has proceeded in the same way as in the case of credit transfers: Nordic banks have started the process in Finland.

ISO 20022-based account reporting is gradually gaining ground. This means that harmonisation and centralisation of financial processes is becoming possible on an increasingly global scale.

In the Nordic countries in general, and in Finland especially, corporate payment traffic has for a long time followed a model that allows extensive automation of the entire financial process. Invoices include a reference number that allows automatic matching in the accounts receivable (A/R) ledger. Moreover, thanks to the extensive data provided, credit transfers can also be matched and posted automatically.

Business practices and the degree of payment traffic automation vary between the Nordic countries, as do the formats of both outgoing and incoming materials. However, all Nordic countries have some form of structured reference number in use.

Implementing the international RF Creditor Reference standard, standardised by the International Organization for Standardization (ISO), also brings the benefits of the reference to cross-border payments, especially in the case of SEPA. The RF Creditor Reference can be used globally in invoicing and it also allows the automatic matching of cross-border payments in the A/R ledger.

An Alternative to SEPA Direct Debit

The introduction of SEPA Direct Debit (SDD) also opens up new opportunities. Since November 2010, all payer banks in the eurozone have been required to support the SDD service. The Finnish national direct debit system will remain in place unchanged alongside this for another couple of years.

Central to Nordic payment traffic is electronic invoicing (e-invoicing), in which the Nordic countries are well ahead of the rest of Europe. In Finland, e-invoicing is linked to the progress of SDD.

Being an e-invoice pioneer, Finland has the opportunity to adopt a substitute service. Banks operating in Finland recommend that the national direct debit should be replaced in time with an automatic payment service based on the e-invoice system and SCT. For payers this would be just as easy and simple as direct debit. Payers would order their bank to pay the invoices automatically from their accounts as SCTs.

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