Banks prepare for far-reaching changes in the European payments landscape

20 March 2019
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The transformation of the European payments landscape

SWIFT white paper examines the drivers of payments transformation in Europe and looks at the challenges...

After the successful launch of instant payments systems TIPS and RT1, the European payments industry prepares for TARGET2-T2S consolidation, EURO 1 modernisation and the adoption of ISO 20022 for cross-border payments and reporting. A series of SWIFT events on changes in the European payments landscape have attracted more than 500 participants.

SWIFT has intensified its efforts to raise awareness among its customers about the wave of mandatory market infrastructure changes coming up in the European payments landscape and the industry migration of payments to ISO 20022. At a series of events taking place in the first half of 2019, SWIFT is offering an update on current developments by leading experts from the Eurosystem, EBA Clearing, banks and SWIFT. “There is a huge need in our community to get a better grip on the practical implications of the changes ahead and for banks to think strategically about the impact that both these and other market infrastructure migrations will have on their operational efficiency and risk,” explains Saskia Devolder, Head of Western and Central Europe, SWIFT.

Saskia Devolder, Head of Western and Central Europe, SWIFT

Financial institutions (FIs) are preparing for extensive infrastructure change in Europe and elsewhere. Adapting systems and processes for the migration of TARGET2 to ISO 20022, the move to EBA CLEARING’s new EURO1/STEP1, and the introduction of the Eurosystem Single Market Infrastructure Gateway (ESMIG) will be critical.

The enhancements planned by the Eurosystem to its services are intended to further push the integration of financial and capital markets across the EU. As part of this, the introduction of a single gateway to connect to all TARGET services will provide FIs with a simpler and more efficient means to access the key market infrastructures – TARGET Instant Payment Settlement (TIPS) for instant payments, TARGET2 (T2) for high value payments, TARGET2-Securities (T2S) for securities settlement  – and a centralised, flexible way to manage their liquidity.

Matthias Schmudde, Head of the Payments and Securities Clearing and Settlement Division, Deutsche Bundesbank, who gave delegates in Frankfurt an overview on the ambitious Eurosystem roadmap stated:  “The payments landscape is transforming rapidly and fundamentally.  For smaller market participants, this means that they cannot operate payment services as a sideshow anymore. We highly recommend that they accept consulting and support offers.”

The payments landscape is transforming rapidly and fundamentally.  For smaller market participants, this means that they cannot operate payment services as a sideshow anymore. We highly recommend that they accept consulting and support offers.

Matthias Schmudde, Head of the Payments and Securities Clearing and Settlement Division, Deutsche Bundesbank

EBA CLEARING also plans to migrate EURO1 to ISO 20022 in 2021, which matches the Eurosystem timeframe, to allow its users full business interoperability between EURO1 and TARGET2. This is in line with the company’s programme for the future positioning and evolution of the EURO1 system, which aims to develop and position the system in a large-value payments environment that is increasingly impacted by the ramp-up of real-time euro payment instruments, the industry-wide migration to ISO 20022 standards as well as evolving regulatory and oversight requirements affecting many relevant areas, including liquidity management and payment system operation.

“We are also working closely with our customers to determine all the products and services that we can build to help them understand the impact on their back-office systems, guarantee continued high STP rates and ensure that they pass on the benefits of ISO 20022 to their clients,” states Isabelle Olivier, Head of Securities Initiatives & Payment MIs, SWIFT

Also at the end 2021, SWIFT will begin migrating all cross-border and many-to-many payments onto ISO 20022. This decision comes after large scale community consultation that took in feedback from a wide variety of stakeholders. The start date for the migration has been aligned with the migration to ISO 20022 of the Eurozone’s high value payments systems. A four-year co-existence phase will allow all members of the SWIFT community to make the switch. This migration completes the picture, providing a rich common data model for cross-border payments end-to-end, leading to improved customer services, more accurate compliance processes and better straight-through-processing (STP). Further efficiency benefits will be achieved, as a result of a consistent end-to-end process across different payment infrastructures and flows.

SWIFT is committed to helping the industry manage all of these changes and is offering its customers a wide range of services to help them manage the impacts of all the upcoming changes, including consulting modules along the full payments value chain and on all relevant topics.

For more information about how SWIFT can help your institution prepare for the upcoming changes, please contact your SWIFT relationship manager or send an email to EU.payment.evolution@swift.com.

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