ISO20022 SEPA Card Clearing

Last updated: 20 August 2019

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Background
In many payment systems in Europe, the clearing of card originated transactions is performed analogously to the clearing of credit transfers and direct debits within an ACH infrastructure. The SEPA definition of credit transfers (SCT) and direct debits (SDD) enables mass volume clearing of card originated transactions within the SEPA Payments infrastructure. The Berlin Group has developed a SEPA Card Clearing (SCC) Framework that offers a simple message extension to the SEPA Direct Debit definition for including additional card originated data in ISO20022 payment messages. The message extension mechanism has been facilitated since the ISO20022:2013 release (enabling 'Supplementary Data Fields') and allows specific user communities to offer a functional expansion by providing supplementary data in a message without affecting the main ISO20022 messages. Hence, users that do not need the supplementary data will not be impacted. Therefore, this important evolution of the ISO20022 standard enables individual user communities to generate synergies on standards and infrastructure level and define the use of additional data without impacting already existing ISO20022 payment functionalities (these data are only relevant for the end-users, not for the ACH or other parties inbetween of the process chain). The advantage of such a solution is that the development/release management of the payment messages and the development/release management of the application data within the supplementary data fields are separated, yielding two different XML schema. Any kind of changes or additions can be made to the specifics of a community without impacting the master message or the other supplementary data extensions, hence without impacting the other communities of users. The ISO20022 message extension is structured as an ISO20022 compliant XML subschema that can be linked into the payment XML schemata and offers the advantage of full straightforward XML parsing and processing.


The SCC Framework leads to a full Straight Through Processing (STP) for card clearing by using the same processes and formats between different banks and between banks and Clearing & Settlement Mechanisms (CSMs) as already available for SDD. Banks are then enabled to switch easily between different market solutions for clearing, be it a solution using a European ACH or a bilateral clearing solution between banks. The SCC Framework does not mandate a specific CSM solution for clearing and settlement. In theory, clearing and settlement could also take place via card processors and their settlement banks. However, the power of the SCC Framework allows to reuse the costefficient SDD infrastructure for conventional payments. Prices for SCC-based card clearing services are comparable to those for the SEPA Direct Debit scheme, which is why the use of SDD CSM solutions is current practice.


With the SCC Framework, the Berlin Group offers a clear opportunity to leverage investments in ISO20022 payments infrastructures. Governance and change management of the main payment message resides with the ISO Payments SEG and governance and change management of the SCC Framework extension resides with the Berlin Group. As owners (at ISO level) of the SCC Framework extension, the Berlin Group will continuously work on support of all card related services within the supplementary data field approach for payment messages.

 Specifications
The Berlin Group SCC Framework has been detailed in

  • an Operational Rules document for the interbank sphere including Clearing & Settlement Mechanisms (CSM) with a detailed process flow definition and exception processing for the clearing of card transactions, and

  • detailed Implementation Guidelines with ISO20022 format descriptions for Payment Instructions, Payment Clearing & Settlement Messages and corresponding R-Transactions.

  • ISO20022 PaymentSupplementaryData (PaymentSD17V1)

  • ISO20022 Cards Supplementary Data Message Definition Report / ISO20022 XML Schema Definition

 

As part of the SCC Framework, each scheme defines its own Implementation Guideline which defines a functional subset and scheme-specific requirements on how to set specific ID fields or codes within the message.
 

In the clearing process, the SCC extension field is used to transport card transaction related data from the Acquirer to the Issuer. The SCC extension field data are used for the end-to-end clearing (incl. booking and reconciliation) of the card-based transaction and for downstream processes like e.g. reporting via the cardholder account statement or for dispute management (the SCC Framework offers all required data for scheme reporting, via the ISO20022 camt-messages and reports, and supports full exception/dispute handling via the Return and Reversal messages). As such, the SCC extension field data are only relevant end-to-end and are fully transparent for intermediate CSM mechanisms (once SCC is implemented on the central ACH services for one cardscheme, no further ACH effort is required to support clearing and settlement of other cardschemes). The data element entries in the SCC card extension describe card data, the card acceptance environment and additional dynamic transaction data such as e.g. tip amount, card related fees and EMV-related data. These entries are all taken from the existing card related data elements within the ISO20022 dictionary.
 

 Benefits
The SEPA Card Clearing Framework is aligned with:

  • Eurosystem demand for reuse of SCT/SDD standards and infrastructures in card processing

  • Standardised (ISO20022) UNIFI Messages according to ISO20022:2013

  • EPC SEPA Direct Debit Core Rulebook

  • EPC SEPA Direct Debit Core Scheme Inter-Bank Implementation Guidelines

  • EPC PE-ACH/CSM Framework (currently withdrawn by EPC)

  • EPC SEPA Cards Framework

  • EPC SEPA Cards Standardisation Volume

  • EU Payment Services Directive

  • TARGET2 as the common settlement platform (after netting by the ACHs)

 

The benefits of the SEPA Card Clearing Framework for Debtors and Creditors can be characterised as:

  • Processes are highly automated and cost-effective in clear, transparent and reliable processing cycles

  • Enables the proper management of liabilities and risks

  • A simple and cost-efficient way to collect funds

  • The opportunity to optimise cash-flow and treasury management

  • Fully automated reconciliation of payments

  • The ability to automate exception handling

  • Full STP of all transactions, including Rejects, Returns, Refunds and Reversals

  • Ease of implementation

  • Highly efficient: pricing comparable to SDD-levels

  • Interoperability that unbundles card payment schemes from processing

  • Leveraging of Payment Business Models instead of Card Payment Business Models

  • Increases competition: banks have the option to participate in any CSM(s) of choice

  • Based on open standards, publicly available, royalty free

  • Strong coverage of card services, functions and acceptance environments

  • Reusage of SEPA formats, data models, processes and infrastructures

  • European reachability independent of the underlying card scheme

  • Support of many different clearing scenarios: bilateral, multilateral, intra- or inter-community

 

SCC-based card clearing can be aligned with any authorisation specification that is based on the ISO20022 CAPE (CArd Payment Exchanges) definitions since the basis for the description of the SCC data elements have been the Acceptor to Acquirer messages as defined in ISO20022 CAPE version 2.0. The EPC Volume Book 3 provides a cross reference mapping between data elements used in CAPE, SCC, EMV and the different versions of ISO 8583.
 

SCC-based card clearing has seen strong adoption by large European ACHs who have started to offer their services to the European market which is especially in the interest of large pan-European banks. The German market of ACHs/CSMs, payment engines, core banking systems, ATM providers, POS acquirers and network providers has fully migrated to SCC-based card clearing for the girocard scheme and starting from Q4 2015 more than 4 bn card-originated transactions are already cleared on an annual basis via SCC. These transactions originate from Germany and other countries abroad, where banks have started to implement SCC in connecting to SCC ACHs.

 Reference implementation
As a reference, from 2013-2015 the German girocard scheme has implemented SCC-based card clearing in a common effort of ACHs/CSMs, payment engines, core banking systems, ATM providers and POS Acquirers. The project involved directly around 40 payment initiation institutions and 20 payment receiving institutions, where the latter were banks or computing centers of banks.

 

Defining the scheme-specific Implementation Guidelines required 2 man-years of work during 1 year (mainly a coordination effort between all participants on the technical details). Banks and ACHs needed 6 months for the implementation of the SCC service (which included detailed internal technical definitions). Within banks, the following IT systems had to be adapted for SCC:

  • Authorisation process: The disposition interfaces from card authorisation systems towards the account management systems had to be migrated

  • Clearing systems incl. ACH: New SEPA clearing services had to be introduced. The major delta to existing SEPA services was the D-0 settlement and the transport of the supplementary data in the extension field

  • Backoffice systems banks: Dispute and internal information systems had to be adapted for new formats, codes and processes

  • Customer interface: The account statements had to be adapted to SEPA-style for cards

  • Corporates which initiate payments had to migrate there e-banking clients, banks the corresponding e-banking server software

No change was needed for Payment authorisation processes. These processes were re-used from the SEPA processes.

Testing (including end-to-end testing) took 6 months and the pilot and rollout phase lasted 9 months.


The synergies to the implemented SDD service were estimated to be between 60% and 80%, dependent on the role of the corresponding bank.
The major success factors of the project were:

  • Central coordination: a central Project Office was responsible for the coordination of all taskforces, secretariat of the Steering Committee and general contact point for all issues and questions of project participants.

  • Setup of end-to-end test infrastructure: A thorough end-to-end test with all major participants during the testing phase lead to a flawless piloting phase. Furthermore, the availability of the test infrastructure during rollout for testing institutions with late development and for re-tests enabled an agile project management.

  • Steering volumes by a coordinated rollout: A 6 weeks pilot and slow volumes during the first months of the rollout allowed change implementations after first lessons learned. Changes within banks were needed for cardholder account statements and dispute process management.

  • Coordination of card and payment business lines within the banks: The implementation of SCC required card and payment knowhow within the banks. The coordination of these two different business lines was coordinated internally.

 

All these success factors finally enabled the banks to face the challenge of migrating business processes with high STP rates in a short period from legacy systems into a modern IT system infrastructure.

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