Financial institutions prepare for new European payments architecture

Financial institutions prepare for new European payments architecture
19.09.2019 08:15 am

Financial institutions prepare for new European payments architecture


SWIFT has today published a new paper on the evolution of the European payments landscape and the preparations that need to be made by the region’s financial institutions. The paper, Brave new world: be ready for Europe’s new payments architecture, looks at the changes underway in Europe, the global context in which these are taking place and the challenging implementation timeline. It also sets out how SWIFT is supporting the industry through these changes.

Europe’s payments market infrastructures are being redesigned and renewed, allowing for greater operational and collateral/liquidity efficiency, and supporting innovation. The migration of Europe’s high value payment systems to ISO 20022 lays the foundations for richer, structured data end-to-end across the value chain and supports better compliance. The move to instant payments is also well underway, with many domestic initiatives either live or in the process of implementation, and two pan-European services already live.

Planning successfully for the go-live in 2021 of the Eurosystem’s TARGET Consolidation and the evolution of EBA CLEARING’s EURO1 demands careful consideration of the wider changes affecting the global payments landscape and the interdependencies and opportunities that will result. Understanding the pathways to future interoperability – and what will be required to fully participate in the future payments eco-systems – will be critical for financial institutions.

Once all the building blocks are in place, interconnected, global digital ecosystems will quickly emerge. In the near future, it will be possible to channel instant payments across borders and through domestic systems to beneficiaries’ accounts anytime, anywhere – with complete certainty and rich information.

Alain Raes, Chief Executive EMEA and Asia Pacific at SWIFT, said: “The financial industry is undergoing profound change. Migration to Europe’s new payments architecture will be a significant market event demanding careful planning and implementation. Financial institutions are getting ready for this huge change with an eye to the wider impacts for their business models and their customers in an interconnected, fast-changing global landscape. We are committed to supporting our community through this transformation as a trusted partner, and helping them to capitalise on the opportunities.”

What’s changing in Europe

The Eurosystem is modernising and consolidating its market infrastructures. Its high value payments system, TARGET2, and TARGET2 for Securities will be consolidated, and TARGET2 will be replaced with a new real-time gross settlement (RTGS) system using the ISO 20022 messaging standard. The new consolidated platform will be launched in November 2021.

In parallel, EBA CLEARING, the privately owned provider of pan-European payment infrastructure, is evolving its EURO1 and STEP1 platforms.

For financial institutions, these changes will be felt in three areas: format, connectivity and processes. In turn, each of these has an impact on the end-to-end chain of applications at financial institutions, which will need to cater for the additional information that is required and carried in the new ISO 20022 messages.

Since the ECB’s appointment of two network service providers (NSPs) in July 2019, banks have been able to select their NSP; the final deadline for selection is July 2020. All developments must be completed by October 2020. User testing with the Eurosystem will begin in March 2021, with migration set for 22 November 2021.

Reusing existing SWIFT technology for ESMIG connectivity safeguards users from the risks of a complex new implementation and allows futureproofing against other infrastructure changes. With a single window, financial institutions can connect to ESMIG for all TARGET Services and to EURO1, RT1 and other infrastructures of choice.

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