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That was one reason given why UKFP did not go ISO 20022, plus the speed of XML parsers.  However I think that has been proved a non-issue and countries like Singapore and Canada are now adopting ISO 20022 and XML for their next generation of domestic payment systems.

A couple of good points here.  Firstly technology has progress to the point that a payments system can handle both high and low value / care in one system.  The transition of payments to both UKFP and TARGET2 shows that users are choosing real time services and NEFT shows that banks can differentiate their services and charges using such systems

The second point is that if you designed a system like this today you would have to seriously consider ISO 20022 and XML, as the Canadians have.  Innovations like UKFP and NEFT were before ISO 20022 had become generally accepted and took the pragmatic approach based on reliable technology of the time.  UKFP has been live since 2008 and was started back in 2005, which does not seem a long time ago but was before ISO 20022 and XML became mainstream in the payments world.

Much of what you say is true, getting the integration right is a huge issue, I have two thoughts.

A complete packaged solution does remove risk and complexity.  However if all components are tightly integrated you risk creating yet another silo where functions like WLC and AML are duplicated rather than using this opportunity to standardise on enterprise components.  A complete package with loosely coupled components which can be replaced with enterprise alternatives would be preferable.  Clients have a choice then.

This raises my next thought; you then have to integrate with these enterprise components and 3rd party systems. This has always been the problem with payment engines as they concentrate on the job of processing payments and not on the issues around ‘working with’ all the other systems a bank runs to provide a true end to end solution.  This is where payment hubs came from, a solution that helps a bank integrate payments processing from the front office to the back office and out to clearing and settlement by providing tools, frameworks, and web services around a standardise payment process.  This drastically reduced implementation time, complexity, risk and gets rid of bespoke interfaces and silos; it reduces those cost you suggest are stopping investment.  It also provides a modern infrastructure making it easier to offer innovative new services in the front office whilst supporting changes to clearing and settlement systems (such as SEPA) without major upgrades to the core processing systems. 

Hubs are therefore different from engines, but ultimately both are used to create payments solutions, the difference is in the time, approach and modern standards based tools provided to create the solution.

Thank you for your comments Stanley, whilst we may come at this from different angles we see the same problems, SWIFT is great at standards and running a rock solid network, but being good at these things seems to be in opposition to developing innovative and commercial products, they are very different things.  Perhaps they should be run as two separate businesses which would make them have to stand on their own, much like what they have done with Arkelis and AMH.

I take it the lack of comment is a sign that people are over exposed to SEPA; it’s certainly been a long time coming.  For us the level of interest from our users remains low, even with the threat of mandatory dates.  So I can understand why the EU is pushing the EPC.  Whilst I do not want people from the EU developing standards, claiming they would be less efficient at managing the implementation is an interesting view considering we are 10 years into the project, and it might take another 25 years to become a reality!  Initially the world was watching Europe, seeing SEPA as an economic threat.  An efficient Europe would make us more competitive globally, now, sadly I have to say SEPA is not seen as any sort of threat.

I was not expecting so many responses and have certainly enjoyed the interesting debate, so thank you all.  I started this blog simply because I was frustrated to receive a cheque in the post from a government agency.  It is the governments who are forcing change and it would be good if they lead by example.  Like many others my tax return is done by my accountant so next year I will make sure that should the same happy situation arise they ask for an electronic payment, and indeed why we did not this year.  Maybe the point here is that an electronic payment should be the default for a 21st century government and that government should be using the modern payments instruments they have mandated.  I don’t think my single transaction will make a difference, nor will relying on the public or corporates who are often poorly informed by the institutes that serve them and who often have different priorities to the regulators and clients.  To me it’s fairly obvious that the market is not that interested in driving change, which is a shame when the whole world has been watching Europe and the progress of SEPA, both from a technical perspective (ISO 20022) but more importantly from the efficiencies our businesses and economy could achieve should SEPA work as originally planned. 

There are banks who have achieved the dream, but I agree they have more than one hub but for operational reasons rather than payment types.  From recent experience at Sibos the issue of replacing legacy silos and multiple payments solutions is definitely on several large banks radars.  They may make lots of money but they are old and limit the banks ability to grow or are operationally risky, these are the issues getting C-level attention and investment.

And why just the securities industry, why not the whole financial services industry? We have seen several attempts to unify the industry under ISO 20022, which if successful would save billions and make a huge difference. Let's hope this one succeeds and is fully inclusive of all data flows and market participants.

Based on our experience with UK Faster Payment (UKFP) and SEPA, both politically driven initiatives, UKFP had a deadline, SEPA still does not, UKFP was successful, SEPA is a lesson in how not to do things, so nothing will happen without regulation. 

The market will drive innovation, but if governments don’t get involved in how their countries finances work and balance banks, corporates and individuals needs we risk more financial turmoil. Remember, banks were originally set up to help other business and individuals drive economic growth, but they now make so much money they are an intrinsic and very powerful part of the economy in their own right. All countries have to do domestic and international clearing and settlement, but they all have different rules and standards which makes it complex and costly for banks, corporates and individuals. SEPA tries to get rid of these problems in Europe and looks like a good idea on paper, it seems to make sense for everyone yet without regulation it will never fulfil its potential.

Hubs versus engines is an interesting topic and one that traditional engine vendors also seem to find confusing - or help make confusing!  In my experience ‘engine’ suppliers seldom think of the requirements to integrate the engine into the enterprise, and this is where the cost and complexity comes from.  Only a very few can afford this approach now days, if any.  This is why they have all jumped on the ‘hub’ band wagon which is much more attractive.  A payment hub does consider the integration, workflow and management needs of payments flows, but it does not do all the processing, often continuing to use the legacy applications strengths, but normalizing the process and centralizing the management using new technology.  But it is much more that a pure integration play or framework (which means you have to build everything) as the hub must understand payments and what needs to happen to them.  The hub is therefore much easier to implement in a phased manner than an engine or a framework, and success can be measured. 

As for SEPA, until an end date set, the majority of the industry will continue to wait and see, which I also don't see as a reason banks are not upgrading their payments.  In fact we are seeing a growing number of banks realising that they need to upgrade and that real payment hubs offer a viable way forward to big engine projects.