SEPA - Single Euro Payment Area

White Paper

Table of Contents

INTRODUCTION .........................................................................................................................................................3 Single Euro Payment Area - A Brief Background ..............................................................................................3

BUSINESS IMPLICATIONS.........................................................................................................................................4 SEPA - Key Components ...................................................................................................................................4 Key Directives ...................................................................................................................................................5 Impact on Key Stakeholders .............................................................................................................................7 Challenges for Stakeholders .............................................................................................................................8

FUNCTIONAL VIEW .................................................................................................................................................10 Credit Transfer Systems ..................................................................................................................................10 Direct Debit Systems ......................................................................................................................................10 Card Transfer ..................................................................................................................................................13

IT IMPLICATIONS.....................................................................................................................................................15 Credit Transfer ................................................................................................................................................15 Direct Debit ....................................................................................................................................................15 Card Transfer Systems ....................................................................................................................................15 PE-ACH concept..............................................................................................................................................16

ADDED VALUE FROM COGNIZANT .......................................................................................................................17 Cognizant & SEPA...........................................................................................................................................17 Cognizant Methodology.................................................................................................................................17

CASE STUDIES .........................................................................................................................................................18 CASE STUDY 1: Incorporating Visa & MasterCard Regulatory Changes in Card Processing (USA Market)....................................................................................................................18 CASE STUDY 2: Incorporating Industry Changes in Card Processing (European Market) .........................................................................................................................................19

COGNIZANT EXPERIENCE AND BENEFITS............................................................................................................20

ABOUT COGNIZANT ................................................................................................................................................21

These groups formed the European Payments Council (EPC) in this Workshop.e. market pressure is immense. irrespective of whether the originator and beneficiary are from the same EU country. At the same time. Throughout this paper the directives and guidelines laid down by the European Payment Council (EPC) will be used. which is to be finalised in the coming months. A second step was the introduction of the 2560/2001 EU regulations. Some of the key dates are as follows: • Cross border and national availability of the so-called Pan-European Credit Transfer in the EU by January 1 2008. The development of the New Legal Framework (NLF). The timescale is very aggressive. The strategy was developed within the so-called ‘SEPA Workshop’. The costs for implementing these requirements can be very high. All these regulations have a major impact on automation developments.Introduction Regulatory compliance issues are putting payment service providers under increasing pressure. will build the legal foundation for a single payments market. Liechtenstein. Sarbanes-Oxley. Because the requirements of SEPA are still under development. self-regulatory approach. Throughout this paper. in the form of general purpose cards. In advance of the law being enforced. because of the negative cash flows associated with tying up key resources that cannot be used on other strategic developments. greater transparency. Iceland. One of the latest to appear is the Single Euro Payment Area (SEPA). Objective The objective of SEPA is to establish a pan-European market for the safe. • Pan-European Cards usage. online realtime product behaviour and lower consumer prices are all increasingly important aspects of staying in business. SEPA is the vehicle for implementing this vision within the payments business. given the enormous challenges of executing SEPA across Europe. The NLF is to be implemented in the local laws of the different EU countries. recognising that a common strategy and an efficient organisational structure was essential. organised by the European Credit Sector Associations (ECSA) and some 42 European banks. To fully achieve SEPA a joint initiative of the European banks was established. together with the Euro Banking Association (EBA) in Brussels. to name but a few. this paper can only be seen as a particular snapshot in time. the financial industry has taken its own. SINGLE EURO PAYMENT AREA – A BRIEF BACKGROUND The development of SEPA is being driven by various key stakeholders. it will include these other four countries. From 2008 onwards PE-ACH mechanisms must be implemented to ensure the objective is met. Plans also exist to have a priority payment scheme in place which can process urgent payments. for example Basel II. The EC initiated further efforts to allow cross-border euro payments to be made under the same conditions as within national borders. efficient processing and settlement of all euro payments. The SEPA area also includes some non-EU countries i. by 2008. Over the past few years there has been a tremendous increase in regulations. 3 . Antimoney laundering and the FATF (Financial Action Task Force) Special Recommendation VII. The European Commission (EC) is pushing developments forward to enable the establishment of a truly internal European market by 2010. Norway and Switzerland. The introduction of the euro was just the first step towards creating the SEPA. where the ‘EU’ is referred to. • PEDD (Pan-European Direct Debit) availability from January 1 2008. • PE-ACH (Pan-European Automated Clearing House) framework in place by 2010. Shorter time-to-market cycles.

These are explained by Figure 1: from one account in the SEPA area to another. open standards will be a key component for success. as a result of treasury back office changes. The cost for the banking industry is expected to be approx. The EPC has drawn up guidelines for the key components that will make up the harmonised payment structure for the EU. corporations are also demanding a SEPA market to be able to consolidate their own treasury departments. At the same time they have developed rulebooks that describe guidelines and directions. More information will be found later in this white paper. it is also the party with the clearing systems. as all accounts held within the SEPA will have to be reachable. They will mandate the usage of an International Bank Account Number (IBAN) and a Bank Identifier Code (BIC). for both the originator and beneficiary of the transfer. All in all.g. as not all local ACH’s will make the transition to being a PE-ACH. A PE-ACH will perform the same clearing and settlement functions as the local ACH’s do currently. This is exactly what the EPC is aiming for with its SEPA approach. However this does not include the substantial costs that will be incurred by the members. the bankto-customer interactions and include the Pan European Automated Clearing House (PE-ACH) concept. there will be more room for descriptions and transactions will be finalised within three banking days. $9 billion (estimated by Tower Group). Fig. Banks). SEPA is an inevitable process that will be irreversible and will lead to major changes in the coming years. 1: Single Europe-wide Payment Structure Key Components Supported by the “New Legal Framework for Payments in the Internal Market” The schemes describe the inter-bank relations. A number of PE-ACH’s will be needed to achieve this goal.The EPC has put pressure on its members by drawing up key timelines for commencement by 2008. and will point out the methodology and services Cognizant proposes to help payment service providers implement SEPA. A number of key imperatives are proposed. The EPC is the decision-making body for the European Payment Industry. 4 . The expectation is that only a few PE-ACH’s will survive. Additionally. SEPA will be fully implemented in the 29 countries by 2010. as the operator of STEP2. Further. The EBA will develop and co-ordinate the implementation of the various SEPA schemes and. and definitive migration by 2010. PECT Pan-European Credit Transfer The standard PECT scheme deals with credit transfers Business Implications SEPA KEY COMPONENTS To achieve the objective of becoming one Euro-domestic market. Reachability is a prerequisite for SEPA to work. This white paper focuses on SEPA for the payment service providers (e. and that remittance information (2x35 characters) is submitted throughout the payment processing chain.

Individuals should be able to use their cards as easily. TARGET Working Group The output of the working and support groups will Cards Transfer The Cards Transfer will harmonise card usage throughout the SEPA area. The process is explained in Figure 2: Fig. SMEs. formed by the EPC. The key groups are: 1. Currently. a creditor. Electronic Credit Transfer Working Group • e-Payments and m-Payments • Task forces operating under ECTWG 2. 5 . Cash Working Group 5. merchants. PEDD Pan-European Direct Debit The PEDD is a means to perform an authorised collection on any account in the SEPA area. End-to-end processing within the SEPA area will be required within 4 hours (according to the EBA implementation). Corporations. Merchants and Government Bodies Currently a number of working and support groups. KEY DIRECTIVES Figure 3 overleaf describes the key directives of SEPA for the Banking Industry. 2: Direct Debit payments and cash withdrawals. In addition it is expected that the payment service providers will offer additional valueadded services to their customers. issuers and acquirers. are drafting frameworks. The debtor gives permission to a creditor to debit his account by signing a mandate. safely and efficiently within the SEPA area as in their home country. a creditor bank and a debtor bank. Infrastructure. OITS (Operations. This involves a debtor. Legal Support Group 6. The framework endorses the concepts of EMV and PIN and deals with cardholders. The framework that is being developed by the EPC will exclude e-purse cards and other value-added services that can easily be developed by the banks.A special form of PECT will exist. Consumers. Technology and Standards) Support Group 7. structures. Again it is expected that payment service providers will offer additional value added services to their customers. Electronic Direct Debit Working Group 3. it only involves so called general purpose cards .the mass market cards for provide further input for the SEPA implementation. in the form of the priority payment. This mandate will be sent together with the collection instruction and closes the circle between a debtor and his bank. Cards Working Group • Business model • Fraud prevention 4. directives and guidelines to achieve SEPA implementation by 2010.

Two timelines are very critical. 4. Individual financial institutions will need to carefully review the business case for their intra-EU payments activities. The first is 2008. Payment service providers should be able to accept these orders and process them in line with the SEPA definitions. 4: Timelines and Responsibility of Key Stakeholders1 1 Source: EPC Annual Report 2004 6 . Consequently. by when customers of the payment service providers have the right to offer their payment orders in the SEPA format. Cost saving opportunities must be balanced against the cost of changes to both the practice and process necessary to conform with the new model. when local (national) products should all be migrated into SEPA products. this means that between 2008 and 2010. This poses a number of serious challenges for payment service providers. Fig. 3: Key Directives The multiple timelines proposed by the EPC are shown by Fig.Fig. both local (national) and SEPA products will co-exist. The second is 2010.

It points out that a major advance in preventing fraud would be the use of the EMV standard throughout Europe. BEUC. European consumers organisation. sanction-backed legislation to counter industry reluctance and the imposition of extra domestic charges. and of consumers throughout Europe. EuroCommerce has welcomed the Commission initiative on SEPA. has welcomed the aims of the single payments market and in particular favours binding. Fig. 7 . will 6. The European Payment Council points out that demand for cross-border payments in the EU is still very limited and that an increase in costs for banks. 5: High Level Impact on some Key Stakeholders Key Stakeholders Business Impact Technical Impact Impact on Fees/Cost Impact on Domestic Services Impact on Cross Border Services endanger the competitiveness of the EU banking system. but agrees with the ECB that banks must do more and must be forced to operate in a more competitive way. but most countries are a long way from this. In the view of the European Central Bank. there is still great fragmentation in the euro area payment system and progress by the EPC has been slow. It also believes that there is not enough transparency on the charges levied for Will definitely improve Retail Customers Low Low Lower Improve (for Major inefficient Improvement countries) Improve (for Major inefficient Improvement countries) Major Improvement Corporate / SMEs Customers Banks Medium Medium Lower High High The fees will Neutral get lower but the cost may increase Not yet clear Neutral ACHs High High credit card transactions (interchange fees). 5. 2. Priority should be given to self-regulation and the disruption of efficient national systems should be avoided. Legislation should therefore be limited to what is strictly necessary. The European Parliamentary Financial Services Forum warns that the huge investment required to make SEPA work in the banking sector will only be forthcoming if there is a foreseeable return on that investment. SEPA needs the active support of businesses.and m-payments. particularly towards the compatibility of cards and to stop fraud. It provides a concise view of the expectations and apprehensions of the key players in European arena. caused by legislation/regulation towards SEPA. a high level impact assessment is shown in Figure 5. Observations of Some of the Key Players 1. It encourages the industry to take its own steps. including the four additional countries + European Committee • National and European banking and payment associations • Clearing houses • International clearing organisations • European Central Bank • Card companies • Management consultants • Information technology vendors For some of the stakeholders listed.IMPACT ON KEY STAKEHOLDERS Key Stakeholders The following is a list of non-exclusive key stakeholders affected by the creation of a SEPA: • Banks • End users (retail as well as wholesale customers) • National governments • European Union. 4. To ensure this. It also feels that banks have been particularly slow in developing e. 3. The Commission of the European Communities has stressed that legislation for SEPA will be limited to that which is absolutely necessary. large and small.

CHALLENGES FOR STAKEHOLDERS Business Research indicates that the payments industry will become less profitable for payment service providers. Payment service providers will need to achieve economies of scale and reduce transaction costs to a minimum if they are to achieve an adequate return on investment and make up for the high costs of set up.from receiving payments from customers. to cope with the enhanced size of the home market. Technology Technology changes are expected in all parts of the payment processing applications environment. as will the changes in the nature of payments caused by the introduction of the SEPA. The new SEPA products will need to be supported. The domestic payments teams will become much larger. etc. With the introduction of SEPA payment service providers will have to think of the right product/market mix for payments & cash management products. through internal processing (including booking. 6: Bank Payment System 8 . Organisational One of the major consequences of the move towards SEPA is the organisational shape of the payment service provider. billing. together with improved efficiencies in processing. Changes throughout the processing chain can be expected . revenues from value added services and minimising the costs of the business process changes. Consequently international teams will get smaller. Of course this is in addition to the generation of additional revenues from core SEPA products. Processing very high transactional volumes will be the key to achieving these objectives. The business case for SEPA will have to be focused on minimising the costs of running the systems involved. Their additional revenues will come from value-added services offered to the market. More information on these changes can be found in the next section. Fig.) to those involved with the PE-ACHs and the final reporting of information back to the customers.

4 External Interface System xxx A 9 .Fig. 7: High Level Outgoing Payment Process .An Overview Customer Order Order Receipt A1.1 Order Preparation & Conversion A1.3 Credit Check A1.2 System xxx System xxx Order Repair & Enrichment A1.

• Name of the beneficiary. • Identification code of the SEPA electronic credit transfer scheme. • Address of the originator (optional). The utility company’s bank (creditor bank) will then send information to the consumer’s bank (debtor bank) to collect the funds. the clearing and settlement of retail payments is conducted via an automated clearing house (ACH). • BIC code of the beneficiary bank. the flow of the outgoing payment process. DIRECT DEBIT SYSTEMS The creditor initiates the payment by instructing his bank (the creditor bank) to collect the amount owed by the debtor at the debtor’s bank. • BIC code of the originator bank. • Originator bank's reference number of the credit transfer message. at a high level. as well as payments between parties with accounts at different institutions (four-party system).0): • International Bank Account Number (European IBAN standard) of the originator to be debited for the credit transfer instruction. Typically. 10 . • Settlement date of the credit transfer. e. • Remittance information (optional). The information contained in the mandate is sent together with the collection instruction. • Beneficiary identifier code (optional) (to be assessed in national consultation rounds).Functional View This section examines the functionality of the three essential components of SEPA– Credit Transfer Systems. • Amount of the credit transfer in Euros.g. CREDIT TRANSFER SYSTEMS Bank-based payments systems handle payments between parties with accounts at the same institution. version 1. The utility company will instruct its bank to collect the specified amount owed by the consumer. All areas that require changes have IT implications and are examined further in the IT section. Usually.e. The direct debit transactions will be reported to the consumer and the utility via an account statement. each bank’s account at the settlement agent is debited or credited respectively. and the creditor bank will credit the beneficiary’s account. The data is transmitted and sorted (clearing). In this illustration. In most European countries. The information that needs to be sent to the PE-ACH is as follows (Source: SEPA Credit Transfer Scheme Rulebook DRAFT. recurring bills will be paid by direct debit. • Name of the originator (optional). an outgoing payment is a payment from one bank to another bank. • Originator’s credit transfer transaction reference. The table opposite shows a high level assessment of the processing areas that are expected to undergo changes with the introduction of SEPA. Figure 7 shows. • Originator identifier code (optional) (to be assessed in national consultation rounds). The debtor bank will then debit the consumer’s account. Such a system requires information to be exchanged between the two accountmaintaining banks. Direct Debit Systems and Card Payment Systems. • International Bank Account Number (European IBAN standard) of the beneficiary. the clearing of retail payments will only ever involve calculating and settling the net positions i.utility bills. Clearing and settlement between the banks will take place in the same way as credit transfers. The payment described above refers to the generic process of a credit transfer. • Address of the beneficiary (optional).

Examples may include automatic repair functionalities to increase the STP rate and enrichment of non-SEPA domestic account numbers to IBAN numbers. YES The EPC rulebooks mandate that the scheme operates in Euro’s. YES It is expected that the NLF will present guidelines on the standard tariffs of SEPA products and special tariffs will exist for value added services (especially for corporate clients). Order Repair + Enrichment Credit Check Validation + Authorisation Currency Conversion Routing + Transmission Settlement Billing Reporting 11 . The exact target number is not yet clear. the accounts held by the customer do not necessarily have to be in Euro’s.Table 1: High Level Outgoing Payment Process Overview Impact Assessment Process step Order Receipt Order Preparation + Conversion Impacted by SEPA? YES Customer channels that are provided by payment service providers need to be able to handle SEPA style orders. each handling one or more SEPA 'products'. SEPA orders will mainly be delivered electronically and therefore require very little preparation and conversion. the settlement process step will be determined. balance statements) or to central bank reporting. However. YES The reporting process step may apply to either customer reporting (e. Customer reporting is certainly impacted by the existence of SEPA. NO The payment validation and authorisation process step has to do with the agreements between a customer and its payment service provider. This conversion needs to be extremely efficient for high volume processing. NO Very little changes are expected. YES The value-added services that are expected to be offered by the payment service providers will require changes in this area. but it is expected that multiple PE-ACH's will co-exist.g. which is normally the case with paper based transactions. YES Depending on the outcome of the routing and transmission process step. currency conversion is therefore needed for all non-euro accounts. The billing process step should be able to cope with this. The routing process that determines which PE-ACH to use (and the way to get there) plus actual transmission of the message is bound to become a very important function. no sweeping changes are expected with the introduction of SEPA. SEPA will have no direct impact on the way this agreement check is handled. NO The credit check is needed for every payment order. This will have an impact on the way the general ledger is maintained. YES The PE-ACH's will evolve within the SEPA area. central bank reporting may be impacted.

For the Direct Debit collection: • Identification code of the SEPA Direct Debit Scheme. 8: Direct Debit System • Account number (only the ECBS IBAN standard) of the creditor to be credited for the collection. Fig. who has accepted to be debited in the mandate. as well as the liability between the parties involved. A generic Direct Debit System for recurring bill payments by a customer to a service company (for example a utility company) is shown in figure 8 below. • Transaction type (recurrent. the reference number of the pre-notification. 12 . • Name and address of the debtor. • Reason code for the amendment of the mandate. • Signing date of the cancellation of the mandate. • Name and address of the creditor. one-off. etc. version 1. • BIC code of the debtor bank. • BIC code of the creditor bank. The national direct debit schemes that are currently operating in the European member states differ considerably in terms of the documentation that is needed. (optional). • Placeholder for future electronic signature data. or the account number (only the ECBS IBAN standard) of the third person who has accepted to be debited in the mandate.0): For the de-materialised mandate: • Unique mandate reference. • Name and address of the creditor to be send to the debtor. • Account number (only the ECBS IBAN standard) of the debtor to be debited. • Name of the holder of the account to be debited. • Unique mandate reference. first. • Name and address of the debtor. • Identifier of the creditor. • Due date of the collection. • Signing date of the mandate. like the identification number of the underlying contract. • Remittance information from the creditor to the debtor. if different from the debtor. • Identifier of the original creditor who issued the mandate. or the account number (only the ECBS IBAN standard) of the third person. or reversal). • The account number (only the ECBS IBAN standard) of the debtor to be debited. • BIC code of the debtor bank. • Amount of the collection in euro. • Identifier of the underlying contract. the process steps and their timing. • Creditor’s reference of the direct debit transaction. • Name of the account holder.The mandatory elements for SEPA Direct Debit messages are as follows (Source: SEPA Direct Debit Scheme Rulebook DRAFT. • Reason code for the amendment of the mandate (mandatory for amendments). • Identifier of the creditor.

together with the mandate information. via the internet or phone or at an ATM used to obtain money. Clearing and settlement between the issuing and the acquiring bank are done daily via the card company. 9: Card Payment System • Settlements & clearings • Charge backs & retrievals • Fees • Statements 13 . The normal flow is as follows: • For first-time collection instructions and one-off collection instructions. and acquirers. with distance purchasing. Instead. to achieve economies of scale.The process has some specific characteristics with regard to timing. • Settlement should take place at the settlement date. servicing the card-accepting entities. specific timing directives exist. There are exceptions when the settlement date is not a banking business day. should reach the debtor bank at least five days before the settlement date. Fig. should reach the debtor bank at least two days before the settlement date. • For subsequent collections the collection instruction. At the core of a card payment system is the card company. This is done to make sure that the debtor bank has time to offer and execute any value added service. It provides the technical and legal network and is valid for all system participants regardless of their geographical location. they outsource operations to an issuing or acquiring processor respectively. The participants are issuers. CARD TRANSFER Card payments are initiated by the payer at the point of sale or. serving the card holders. Refunds can be sent within three months after the settlement date. The actual processing of the payment is not usually done by the issuers and acquirers. the collection instruction. together with a reference to the mandate information. for example checking the mandate information with the debtor. Returns should be sent by the debtor bank five days after the settlement date at the latest. The areas of the payments cycle that would be most impacted by SEPA are: • Authorisation For returns (initiated by the debtor bank) and refunds (claimed by the debtor).

which is calculated for each transaction. handle their settlements. • In Coming Second Presentations. Cards.). This is a balanced approach.. The specific calculation used for any single transaction is Clearings dictate how payments systems. the Association for Payments and Clearings (APACS) determines how authorisations come in and how clearings are generated. dependant upon whether the players involved in the transaction are the same or not. whilst referring back to the original fees of the charge back transaction. The APACS message structure. The components that determine which fee structure a transaction qualifies for include: • Regional Pairing. Adjustments are made between two financial institutions and only the net amount is calculated as the settlement amount. • Payment Scheme. They are then forwarded to the relevant financial institutions and make the defined by the eligible fee structure. Merchants. Both MasterCard and Visa have their own structured format of handling inbound and outbound clearings. This acts as a pre-processor. • Inter-National. • Domestic. the settlement amount is calculated for various groups of transactions. For settlements to happen. • Intra-Regional. settlements with the player who initiated the transaction.Authorisations For the UK Card industry. Fees Fees are an amount payable to the various players in a financial transaction. may be either a percentage of the transaction. 14 . • Outgoing Second Presentations. The settlements involved are classified as Intra or Inter. • Merchant Type. which validate the records. a fixed rate per item or both. Charge backs & retrievals The changes in message structure will have an impact on the following charge back and clearing field structures. • Outgoing First Charge Backs. will have to be modified to include additional reason codes for both authorisation and clearing. which govern financial institutions like MasterCard/Visa. the clearings have to go through the payment system. • Type (Transaction. All financial institutions have to follow the clearing rules in order to qualify for fees and outward settlements. The amount paid is considered to be a part of the settlement function and is re-defined by the payment schemes. SEPA will specify various message and clearing formats as well and the following non-exclusive list of interface areas: • APACS • SWITCH (an alternate means to debit cards and acquired by MASTERO) • Euro pay • MasterCard International • Visa Domestic and European • FNET • BANKNET Settlements & Clearance At the end of the day. etc. together with enabled associated clearings. The fee. Visa and MasterCard have their own in-coming and outgoing software. which enables financial institutions to correct any invalid clearings due to processing mistakes.. The net settlements that are made between the various players are pivotal to day-to-day processing. • In-Coming First Charge Backs. • Arbitration.

collection and annual fees. Card transfer and the PE-ACH concept. DIRECT DEBIT Again. for direct debit systems. The card framework maintains that ‘SEPA – level interoperability’ should be ensured in the following four areas: • Cardholder to terminal interface. This would also include calculations based on the interest for cash advances. However. • Terminal to acquirer interface. current direct debit systems will not be able to handle the new requirements of SEPA. it is not possible at this stage to indicate the exact IT impact. or parts of it. and the specific timing characteristics specified in the scheme. promotions etc. Direct Debit. because it depends on the specific situation and the functional differences between current national direct debit schemes and the forthcoming SEPA requirements. Not being ready for this deadline means not being able to maintain an aggressive strategy of staying and growing in the payments processing business. if any. Consequently it is important to assess the changes needed to the infrastructure as well as the applications. the state of the current systems will determine the IT implications. mainly because of the mandate information that is sent with the collection instruction. The data for generating the statements is mainly taken from the approved transactions.Statements Statement generation and distribution is an important part of customer communication and there are very stringent Service Level Agreements (SLA) to ensure that the statements are delivered on time. In some cases SEPA could be the trigger for re-assessing how the payment application architecture. CARD TRANSFER SYSTEMS Two types of companies will be significantly impacted by the introduction of the card transfer SEPA scheme. Because of the dependency on the current state of the systems used for credit transfers. late charge. However all changes need to be completed as a matter of priority. will mean core processing systems will have to be significantly adapted. These are the payment service providers and the card issuing companies. In most countries. This IT Implications Cognizant provides a high level service for assessing the impact of implementing the SEPA schemes. interest for merchandise. 15 . direct debit systems do have some specific characteristics. • Acquirer to issuer interface. This section discusses the IT implications for Credit Transfer. Technological changes are required in all of these areas to cope with the changes introduced by SEPA. The first deadline of 2008 is nearing fast. if applicable. Organisations that already have a consolidated application architecture may be confronted with fewer changes than those that have a complex distributed application architecture. including networking protocols. At this stage it is not possible to determine the exact IT impact. • Cards to terminal (EMV). are sourced. CREDIT TRANSFER The IT implications of the expected changes will depend on the current state of a service provider’s payment application architecture.

which satisfies the current SEPA requirements.PE-ACH CONCEPT PE-ACH’s will be a prerequisite for reachability with SEPA. built on the STEP2 platform. The files can be constructed of payments formatted using the MT103+ data set and XML syntax standards. and provides facilities such as archiving and disaster recovery. However not all SEPA countries are connected to STEP2. perform calculations of the bilateral positions of each direct participant. The business operation of the system is controlled by EBA CLEARING. to format files and to deliver and receive them. The choice of using the participant systems’ software or building their own solution will naturally be each participant’s responsibility. Software Direct participant financial institutions require software to connect to the secure networks. Currently there is a choice between SWIFTNet and SIANet. is already available. Areas that will undergo changes are: • Payment messages file format. They must then run the necessary projects to connect to the systems. files and bank configuration information within the system at the bank site. With a resilient central system and a range of participation options. A web browser application running over the secure network will be required to allow visibility of payments. receive settlement results. Files are exchanged between the financial institution and the central system. but it is expected that three to five PE-ACHs will exist after the 2010 deadline. We believe the upgrade from the financial institutions’ existing systems can be performed with a minimum of change. purchasing equipment and software. French STETS and VOCA from the UK have all indicated they want to evolve into a PE-ACH. generate settlement messages. allowing operations staff to monitor and control the business processing of the system. Financial institutions may either build their own connectivity software. create payment instructions and deliver them to the relevant financial institutions. 16 . including risk assessment. or use the software supplied by participant systems. store. responds to on-line enquiry requests. before going live. It also holds configuration data. Financial institutions must consult with the service provider and decide how to connect to the services provided within the PE-ACH providers. validate and route payments. configuration. Architecture and Environment A multi-purpose debit service. as all accounts must be reachable for the system to work. Dutch Interpay. is a natural development for STEP2 as a processing service. A secure business control terminal is provided at the EBA CLEARING operational centers over a secure connection. and testing. The bulk credit transfer service from EBA STEP2. • Back end changes in the central system. Financial institutions connect to the central system via a secure network. It is not clear yet what current systems will evolve to become a PE-ACH. At a very high level we can describe this as a central system which exists to receive. it would be able to settle in any Settlement Engine using multiple settlement algorithms. based upon their own assessment of the risks. The discussion about the IT implications of the PE-ACH concept will be focused on STEP2.

An organisation must decide whether the work will be carried out in house or contracted out (outsourced) to a third party provider. COGNIZANT METHODOLOGY Figure 10 below displays an overview of the generic methodology Cognizant would follow for implementing SEPA. Change Management Solution Design Implementation roadmap Payment Service Offshorability analysis Provider Standard solution Offerings Assessment Phase IT strategy development System study + gap analysis Table 2: Cognizant’s Service Offerings Phases Activities Leading Party Cognizant Service Offerings Payment Service Technology rationalisation Provider Payment Service Technology rationalisation Provider Offshorability analysis Requirements analysis Joint Effort (buy + make) Vendor selection (buy) Payment Service Provider Cognizant Solution Package Implementation implementation/ upgrade (buy) including change delivery ERP Change Management . Table 2 shows the services that Cognizant offers at each phase.Added Value from Cognizant COGNIZANT AND SEPA Cognizant provides a range of services that help organisations implement SEPA. Broadly speaking. The steps and phases that will apply to an individual organisation will depend on how far it has progressed with its SEPA implementation. the current state of a payment service provider's application architecture will determine the changes that are required. As indicated before. Joint Effort Cognizant e-Testing Application Value Management Fig. The IT strategy will also have a huge impact on the changes needed. 10: Cognizant’s Methodology 17 . Design + coding (make) including change delivery Solution Rollout Testing (buy + make) Exploitation Maintenance (buy + make) Cognizant Application Development. Cognizant's added value lies in handling the technical challenges that SEPA poses. there are two alternative options open to a payment service provider.

and some of the applications need to be phased out. In this role Cognizant can help you implement and/or upgrade the packages in your organisation. handling complete monetary and nonmonetary transaction processing and also providing 18 . It not only identifies the IT services suitable for offshoring. This six to ten week assignment delivers a plan describing how to clean up. Some examples of these include: • Identifying options for changing the interface to a single or simplified set of payment gateways • Banks which have payment systems based on certain payment products will be impacted due to changes in processing standards to uniform EU standards • Analysis of the payment systems to determine whether they need to be upgraded or rebuilt • Analysis of the messaging systems and communication technology to identify rationalisation opportunities • Identifying options for customer account consolidation and the data migration of account history • Determining an application strategy for streamlined reporting • Determining a migration strategy. by guaranteeing on time delivery for the new system. Testing services Whatever the options chosen. Last. Cognizant is an implementation partner for SAP and other major vendors.Technology rationalisation Some payment service providers may not have a complete and concise overview of their application environment. Offshorability Analysis Where an organisation is involved in a consolidation process. to manage and plan effective resource utilisation and the adoption of the new offshore processes by business users. Make: Application development + Change management When building a new payment processing platform. let alone a clear vision on the target situation to be reached in 2010. or adapting an existing one. Cognizant’s sophisticated and comprehensive testing services can reduce the cost significantly. they will all require extensive testing. As a result year-on-year costs are reduced and valuable resources are freed up for more strategic projects. which can amount to up to 50% of the project budget. the ‘Offshorability’ Analysis supplies you with a detailed implementation road map for offshoring applications in a tiered manner. with a focus on SEPA. This option could apply to applications used in any of the process steps which will need to change with the introduction of SEPA. Buy: ERP + Change management Your organisation may already have a payments processing software package or is planning to buy one. but not least. taking into account the different timelines for implementing SEPA across different countries. Cognizant can perform the maintenance on these end-of-life applications. Case Studies CASE STUDY 1: INCORPORATING VISA & MASTERCARD REGULATORY CHANGES IN CARD PROCESSING (USA MARKET) Client's background The client is a leading third party card processor in the United States. Cognizant can help structure your IT architecture by undertaking a technology rationalisation exercise. The ‘Offshorability’ Analysis uses a multi-dimensional approach to assess which applications are candidates for (offshore) outsourcing. rationalise and streamline your IT application environment. Cognizant can take the delivery risk. but also defines an optimal resource model to support the transition and a cost model to calculate effective savings. Cognizant can also maintain applications that are not being phased out.

Business needs The client’s industry team had to ensure the systems were enhanced to adhere to industry changes.other services like embossing (personalising) cards. since 2002. testing the incoming stream with files received from association and final implementation. testing with mock-up data to simulate the post-production scenario. with approximately 90 clients in 27 countries. statements and customer service. regulations. running regression tests on production data. • Yearly Fleet BIN range expansion for VISA & MC • Introduction of 4000 series of ICA numbers for MC • Execute the new Edit Packages and pass files to Visa & MC • Handle new FPI (for VISA) and IRI (for MC) • Regulatory Support for Visa Fast Track Forms for Charge backs. involving interfaces to the following: • APACS • SWITCH • Euro pay • MasterCard International • Visa Domestic and European • FNET • BANKNET Business Benefits Cognizant employed the right mix and pool of resources. fraud prevention and investigation. Business needs Visa and MasterCard (MC) make changes to their card industry governing rules. 19 . Therefore the client needed to make the following changes: • Changes to proprietary systems in the processor environment • Changes to processor systems to support Interchange process compliance with new rules and regulations.This involves incorporating the new changes in the processor test environment. card activation. and the interface with the proprietary systems. passing files to association. Some of the engagements which Cognizant has been involved in include: • Privacy notification letter in accordance with GLB (Gramm-Leach-Bliley) Act on Privacy of Consumer Financial Information. regulations and proprietary systems twice a year. including the entire Master Card / VISA regulations. It provides a variety of card and merchant processing services and money transfer and related payment services. CASE STUDY 2: INCORPORATING INDUSTRY CHANGES IN CARD PROCESSING (EUROPEAN MARKET) Client's Background The client is Europe’s leading independent third party transaction processor. Business Benefits Cognizant has partnered in the following areas: • Incorporating new rules and regulations and passing files to Visa & MC . Cognizant augmented the business team with their industry and technical skills. Scope & Solution Cognizant was actively involved in maintenance and enhancements of the following application subsystems: • Authorisation • Charge backs • Tickets and Clearings • Retrievals • Settlements • Incoming and Outgoing • Fees The solution provided involved changes to core areas in authorisation. governing rules. Scope & Solution Cognizant has been providing application maintenance and support services for these interchange applications.

workstation. commercial lending and investment banking. custody. In addition. with teams of industry consultants and technology specialists. TRIAD and Knowledge Sight. Payment Solution providers. CACS. portfolio management. asset management. Cognizant Experience & Benefits Strong industry focus: Cognizant has a strong banking focus. and all process areas including: Application Processing. Cognizant has expertise and experience in the areas of cards processing. who are empowered to make decisions for speedy resolution of issues. The practice consists of industry experts who constantly analyse the latest business trends to provide state-of-the-art solutions which have a positive impact on the key processes of mix percentage has been steady at a 15-30% onsite: 70-85% offshore average across all kinds of projects 3) Customer Responsiveness . Over the years. payments solution organisations.They were able to handle complex. Cognizant’s payment card industry experience covers the entire spectrum of financial services companies including Issuers. Solicitation. Cognizant is at the forefront of offering leading-edge technology solutions for solving business challenges. Complementing the business knowledge is the extensive experience of over 1. in projects varying from legacy systems to web-integration. Technology Bandwidth: Cognizant’s experience across various technologies and platforms has helped consolidate its presence in large financial institutions. Third Party Processors. retail banking. engineering services. With a combined strength of 6000+ associates in banking & financial services. brokerage. Charge backs. ACS.With a 100% focus on business verticals. Cognizant has built up extensive industry competence and functional expertise by partnering with various clients in the areas of Credit. wealth management. through the deployment of local relationship management/account management teams.Cognizant’s onsite-offshore Cards & Payments solutions expertise: Cognizant’s Cards & Payments Practice leverages its indepth understanding of the business and technology drivers in the payment industry. widely used in the cards industry. Settlements. and Emerging payment solutions. Capstone. Cognizant has gained experience in various third-party products such as VisionPLUS®. products. Key Differentiators 1) Focus . training and enabled services 2) Offshore Maturity . networks and the Internet. Customer Services. Stored-value cards and Payment Solutions. Loyalty. payment solutions. Acquirers. and also a breakdown of the requirements of the payment systems from Visa and MasterCard. Private-label. midrange. Risk Management. Cognizant is involved with application management across platforms and technologies such as mainframe. Collection and Recovery. charge backs and presentment.200 professionals who have been involved in developing. clearing and settlement. Back-office. supporting and implementing industryfocused solutions spanning a wide range of technology platforms and business entities. Cognizant works with large clients in core areas of systems software. Debit. generic changes in the clearings format. customer interfacing. stock exchanges. 20 . Transaction Processing. risk management.Close interaction with clients.

4) Onsite-Offshore Delivery Model . which ensures a physical proximity to the client as well as a focused. Cognizant closely monitors industry trends and regulations. business process outsourcing. we actively collaborate with our clients and invest significantly in solution development. proven value for customers by delivering high-quality. Focused on delivering strategic information technology solutions that address the complex business needs of its clients. and reengineering. The unique benefit of this model is the concurrent execution at onsite and offshore locations. reporting structures and escalation mechanisms and the deployment of Client Partner and Account management teams. About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of IT services. contributing to over 35% of the company’s revenues. program management. and further information about Cognizant can be found at www. As thought leaders. development. The survey rated Cognizant to have the best delivery capability among the offshore players. infrastructure management. Cognizant provides applications management.cognizant.com.000 employees are committed to partnerships that sustain long-term. scalable offshore team. Cognizant's more than 23. and change management through its onsite/offshore outsourcing model. Our comprehensive and mature portfolio of offerings enables our clients to consistently deliver higher stakeholder value and industry-leading results. Our customers provide great references into the onsite/offshore space. they found Cognizant gaining significant traction in the global outsourcing space. technology architecture. DON’T TAKE OUR WORD FOR IT According to the 2004 annual CIO Survey by Morgan Stanley and Goldman Sachs. and a number of related services such as enterprise consulting. At Cognizant the proof is in the pudding: Cognizant currently serves over 40 clients through our Banking and Financial Services practice. Cognizant’s Financial Services practice leverages domain and technology expertise to drive additional value for our customers.Cognizant has a proven onsite/offshore project management model with clearly defined roles. integration. 21 . Banking and Financial Services is Cognizant’s largest vertical. Cognizant maintains P-CMM and SEICMM Level 5 assessments from an independent thirdparty assessor and is a member of the NASDAQ-100 Index. cost-effective solutions through its development centres in India and onsite client teams.

com www. London .cognizant. NJ 07666 Phone: 201 801 0233 Fax: 201 801 0243 For further information please contact sepa@cognizant.com Cognizant Technology Solutions AG Seefeldstrasse 69 8008 Zurich Switzerland Phone: 41 43 488 35 75 Fax: 41 43 488 35 44 Cognizant Technology Solutions Tour Ariane 33th Floor 5 Place de la Pyramide 92088 Paris la Defense Cedex 5 France Phone: 33 1 55 68 11 36 Fax: 33 1 55 68 11 37 Hahnstrasse 30-32 60528 Frankfurt Germany Phone: 69 66 04 450 Fax: 69 66 04 542 Global Headquarters Cognizant Technology Solutions 500 Glenpointe Centre West Teaneck.cognizant.com .com Herengracht 136 1015 BV Amsterdam The Netherlands Phone: 31 20 524 7700 Fax: 31 20 524 7799 Email: infonl@cognizant.WC2H 7EF United Kingdom Phone: 44 207 321 4888 Fax: 44 207 321 4890 Email: info@uk.European Offices 20 Orange Street.

Sign up to vote on this title
UsefulNot useful