1. ISO 20022 based Straight through
Processing
SEPA as a driver
SEPA infrastructure (Bank-to-Bank clearing messages) is the first one in the world
and in payment processing history that is using ISO 20022 standard framework as a
transaction information delivery mechanism. This is a huge step forward compared
to existing national local clearing mechanisms or SWIFT MT-message based
international payment clearing based on fragmented and not so structured and
universal standards. ISO 20022 (www.iso20022.org) is mandatory for the Bank-to-
Bank messages in SEPA but it can be (and is highly recommended) used by the end-
corporate customers also when exchanging payment initiation messages and their
reporting with the banks.
STP model
I illustrate here the Straight through Processing of Credit Transfer using ISO 20022
messages with the traditional four-corner model flow-chart with descriptions of each
step.
1. Debtor buying services or goods
2. Invoice / remittance
- Creditor delivering the invoice for the goods and/or services purchased

2. - Invoice is included with remittance information that can be invoice number,
local creditor’s reference (KID, OCR etc) or later 2010 international creditor’s
reference (ISO 11649)
3. Payment initiation / pain.001
- Debtor pays the invoice as a payment to its bank using ISO 20022 XML
pain.001 payment initiation message
- Debtor includes into the message its own Accounts Payable (A/P)
identification to make later the reconciliation on debit side
- Debtor also includes the remittance information that Creditor wanted to have
into its Accounts Receivable (A/R) reconciliation
- In SEPA-transactions the EndToEndId is debtor initiated transaction level
unique id that will follow the transaction through the whole chain. It is not still
used for reconciliation but tracking the transaction in possible investigations.
- Debtor bank immediately acknowledges the received pain.001 payment
initiation message with pain.002 status report to inform Debtor of
successful/unsuccessful payment processing.
4. Payment clearing and settlement
- This part of the payment delivery and used standard varies per clearing
system / country not all end-corporate critical payment info cannot be
delivered through clearing
- In SEPA-clearing the standard is also ISO 20022 and the message is
pacs.008 bank-to-bank credit transfer
- Remittance information wanted by Creditor is delivered further to Creditor’s
bank (if clearing system is capable to do that fully).
5. Reporting from debtor and creditor bank
- Using ISO 20022 XML camt.053 statement message of camt.054 debit/credit
notification message (also camt.052 account report message will be available
for intra-day reporting in liquidity visibility purposes)
- Debtor is interested to have back its A/P payment id to be able to reconcile
paid payments (also other transactions are reported with valid statement /
transaction ids like account statement number and transaction archiving
codes given by the bank)
- Creditor is interested to have its remittance id to be able to do A/R
reconciliation (also other transactions are reported with valid statement /
transaction ids like account statement number and transaction archiving
codes given by the bank).
6. Ultimate Parties (ultimate debtor and ultimate creditor)
- In SEPA clearing mechanism from February 2009 (SEPA Credit Transfer
Rulebook 3.2) it has been possible to deliver also on behalf payment
information identifying the ultimate parties by both name and unambiguous
organisation id
- This enables Shared Service Centre and/or Financing services to be used
and therefore is one further step to optimise bank account structure and
liquidity positioning by using less bank accounts in corporate groups.
Ongoing SEPA-transition and corporate opportunity
After SEPA-transition period will be over (I hope too to have clear European level
SEPA end-date for all three SEPA-instruments) this infrastructure will be available in

3. 16 EUR-countries locally and for all EUR-transactions in other SEPA-countries. It will
replace EUR-countries’ local clearing systems and give all benefits to end-customers
adapted to the new standards. The transition enables corporates to start using same
accurate reconciliation processes to vast amount of originally cross-border
transactions that are run according to SEPA-schemes. Some banks also provide
Corporate-to-Bank and Bank-to-Corporate messaging for other than SEPA-
transactions that again gives opportunity to corporates to start implementing more
harmonised payment processing and reconciliation.
It is easy to predict the future
The ISO 20022 standard model has raised interest in many non-SEPA countries too
as it is totally universal and adaptable to whatever credit transfer transactions in the
world. SEPA will push Europe to apply to the new infrastructure and standard faster
but as international corporate customers with their Shared Service Centre setups are
active also in non-SEPA areas, this push will continue further. There will be
interesting initiatives on various local clearing mechanism development when the
idea of ISO 20022 will be spreading.
Common Global Implementation support for today and future
SWIFT has acted as a driver for a Common Global Implementation (CGI) group to
start making international implementation guidelines for ISO 20022 messages. The
group consist out of large international and regional banks, ERP-vendors and
corporate customers. The work has started and practically finalised for payment
initiation and their status report messages. Work is still ongoing for direct debit
collection and Bank-to-Customer account reporting messages that also will have
common implementation guidelines ready during year 2010. By doing this important
part of the standardisation work the group ensures as standard interpretations of the
messages as possible to avoid standard fragmentation in its practical usage.
Harri Rantanen, Harri.rantanen@seb.fi
Manager, Formats & Standards,
SEB Merchant Banking