SEPA: The importance of high quality reference data
Getting back-office systems ready for SEPA (the Single European Payments Area) is proving to be a challenge for many banks and corporates. The European regulation (EC 260/2012) set a target date of 1 February 2014 to complete the migration of domestic credit transfers and direct debits into SEPA formats, but it's clear that many in the financial community are behind schedule. The European Commission has responded by offering an extra 6-month transition period during which time non-SEPA payment formats will still be accepted, easing the pressure on those who were struggling to make it on time.
Dealing with SEPA migration challenges
In order to initiate a SEPA payment, ready to be routed to the correct beneficiary bank, the financial institution sending the payment must derive the appropriate bank BIC from the IBAN. And this is where it all comes down to the detail.
Due to the constantly changing nature of bank data, and the increased frequency of bank mergers, payment service providers often struggle to identify the exact beneficiary bank and more specifically the appropriate BIC. Since many IBANs are also 'self-created ', the bank identifiers (bank IDs) integrated in the IBAN may actually refer to bank branches which are now closed or run the risk of being mixed up with local clearing numbers, which can cause payment failures.
In addition, a large number of corporates and financial institutions appear unaware of the fact that only a limited set of bank BICs (approx. half of all BICs available in SEPA countries) have been selected by their owner banks for usage in SEPA payments, making it even more challenging for payment service providers to identify a valid BIC.
The critical importance of high quality reference data
To tackle this challenge, it's key for financial institutions and corporates alike to be able to rely on a very high quality reference data source.
As the ISO Registration Authority for BIC, Swift has been a key provider of up-to-date and worldwide BIC data since 1983. In 2012, after also being appointed as the ISO Registration Authority for the IBAN format, Swift launched a worldwide reference data platform, SwiftRef, with a strong focus on SEPA. Sourced directly by central banks, Swift member-banks and code-issuers, the SwiftRef portfolio has grown rapidly over the last two years, and now also includes IBAN validation, BIC-from-IBAN derivation, SEPA routing tables, IBAN structures per country, BBAN-to-IBAN conversion, bank addresses, contact details and much more.
The IBAN Plus directory, which is directly sourced from our SwiftRef utility, has been highly instrumental in supporting our community of financial institutions and corporates impacted by the SEPA migration.
"The IBAN Plus directory, which is directly sourced from our SwiftRef utility, has been highly instrumental in supporting our community of financial institutions and corporates impacted by the SEPA migration. As the directory allows a smooth BIC-from-IBAN derivation for all 33 SEPA countries, it responds directly to the main SEPA migration pain point. In addition, the directory also covers 30 non-SEPA countries, which have also adopted the IBAN" says Patrik Neutjens, Head of Reference Data, Swift.
To guarantee the highest standards of quality in the IBAN Plus directory, a rigorous and on-going data maintenance process underscores the SwiftRef utility. The two main elements driving this process are Data Completeness and Data Quality.
To meet the objective of Data Completeness:
- National bank IDs, which are the key source for BIC derivation from IBAN, are sourced directly from Central banks and Banking Associations in Europe (and beyond).
- Following Swift Board approval and on a monthly basis, a random sample of 10 million BIC-IBAN combinations from Swift payment messages are subject to internal quality tests with the sole purpose of challenging date completeness in IBAN Plus. To date the exercise has ensured a 99.8% completeness rate for IBAN Plus.
- Thorough testing was carried out on a sample of 960,000 successful live payments provided by three major European and American financial institutions. Here again the exercise confirmed a completeness rate of all bank IDs and BICs provided in IBAN Plus of over 98%. The majority of the remaining 2% of data proves to be invalid bank data used in incorrect IBANs.
- A weekly feed of bank IDs that are not listed in IBAN Plus are reported to the SwiftRef data collection team by a number of key European banks. After in-depth research and validation with the ’possible’ originators, the ’missing’ code, if valid, is included in the directory or, if invalid, placed in the Exclusion List*. To date, less than one code a week is still being reported ’missing’.
To assure and permanently monitor Data Quality:
- The Exclusion list (*) is a part of the IBAN Plus directory. It provides a listing of all invalid bank IDs that should not be used in IBANs. It is directly sourced by central banks and IBAN-issuing banks. The Exclusion List allows users to check the validity of a bank ID and therefore of the IBAN that contains this bank ID. Today 3% of all bank IDs found in IBANs are reported in this Exclusion List and the number is growing. The Exclusion List is of a great help in detecting invalid IBANs.
- A dedicated data collection and maintenance team ensures daily and permanent updates of missing or incorrect data reported directly by users. Before any changes are published, validation is confirmed with the data originator.
"Given the efforts that are made to source the SwiftRef utility only with the highest quality and accuracy of IBAN and BIC data (particularly in the SEPA dedicated directories), Société Générale has had no hesitations to adopt the SwiftRef IBAN Plus directory as their main reference data source for SEPA payments. Given the high volumes of SEPA payments we process on a daily basis, the operational risks in deducting a wrong BIC from customer IBANs and the reputational risk we run in case of payment failures on behalf of our personal and corporate customers, we recently even decided to upgrade as soon as possible our systems for the daily feeds from SwiftRef" said Martine Brachet, Head of Interbank Relationships, Société Générale Group.
"For SEPA Direct Debits and for payments to IBAN countries initiated in the branches, KBC relies on the IBAN Plus directory to accurately derive the appropriate bank BIC from an IBAN. The very high quality of this directory was a key driver to adopt it. What we appreciate even more though is the swiftness of reaction of the SwiftRef data team when we have an urgent payment issue," added Karine Derick, Swift Coordinator, KBC.
With the extended deadline for SEPA migration only six months away, banks and corporates need to act now and ensure they are ready to face the challenges that SEPA presents. To tackle this, the data completeness and high quality of Swift's reference data in the IBAN Plus directory will prove to be one of the most useful tools available to guarantee the success of SEPA implementation.
"Based on the number of validations we continuously apply and the positive confirmations we have received from our existing IBAN Plus users who are already deriving BICs from IBANs in live mode, we believe we can confidently state that we have the most complete and accurate reference data directory for SEPA payments in the market. Users can have full confidence in our high quality offering, and can rely on SwiftRef to take care of the detail behind the data" says Dusan Pobuda, SwiftRef Product Manager, Swift.