ING: SAB-SEPA solution interfaced to the Group Hub

Interviews with Mr Bernard Roman, Management Committee Member, and Mr Hubert Lecomte, Payments & Cash Management Department Manager (SAB Infos – September 2010)

The ING Group has been ranked in the Top 5 Euro “Clearers” for several years now (15% of all EBA flows), based on its Retail banking presence in more than 20 countries within Europe (Benelux countries, Poland, Romania, Turkey and, soon, in the Ukraine) and a portfolio of 85 million clients.

ING was the co-founder of the European Payment Council, which initiates and defines present and future payment standards within the SEPA zone. It is therefore a major player in the European payments economic revolution (pricing convergence) and technical revolution (standards convergence) which we are now reviewing in terms of its last nine months of operation and its “industrial strategy”.

ING has set up, like only one other competitor, a fully centralised European bulk payments processing centre for its full range of entities and clients (based in the Benelux countries). This type of infrastructure provides a strong competitive edge when overheads must be reduced to offset any expected downturn in client fees. Competitors will quickly clone this strategy with the upcoming launch of SEPA V2 (direct debits) to reach the same level of industrialisation and economy of scales.

Bernard Roman recalls that this leader status was the fruit of ING committed pioneering strategy during the first development stages of the Single European Payments Area (SEPA). ING had the good fortune to have availability to a bulk payments technical infrastructure and operational know-how acquired through PostBank (the Dutch Postal bank) with whom Banque NMB had merged in 1989 and then with Nationale-Nederlanden in 1991 to form ING. Postbank was already handling significant volumes of domestic payments for “largevolume” clients: one of these regularly processed more than 200 million transactions per year.

ING “simply” had to adapt this “production line” to the new SEPA standards, connect it to its network of branches and subsidiaries, and adjust the organisation to offer a true “processing centre” for payments in Euros. This Centre (Hub) has today been fully operational in certain countries for SCTs since January 2008 and ING says that it will come on line for SDDs on 1st November 2009.

60 banks, with indirect participant status, are already subscribed to the ING SEPA system. The project requires substantial funding each year.

In France, ING concentrates on three areas of activity:

  • On-Line Banking with ING Direct which operates 1,200,000 accounts (700,000 clients)
  • Property, with ING Real Estate
  • Wholesale Banking, which offers clients products and financing, cash management, leasing, investment and treasury management services to Major Companies and Institutions.

ING Wholesale Banking France is, historically, the very first SAB client, due to its links with Banque Bruxelles Lambert (1992).

Its Payments & Cash Management Department, managed by Hubert Lecomte, runs the SEPA Offer.

France is a key country within the facility, with a total of more than 15 billion transactions transmitted through its local clearing, of which 7 billion relate to credit/debit card flows.

The SAB SEPA solution is interfaced to the Hub to enable it to receive intergroup flows, to exercise controls, to effect routing, accounting and invoicing, and to transmit processing confirmations and rejection messages.

Hubert Lecomte confirms that, although the number of SCTs has increased each day since 28th January, it is still small in terms of volumes for both outward and inward payments. This demonstrates that, throughout Europe, Companies and Institutions have shown little appetite for the SEPA credit transfer : changing BBANs to IBANs and BICs takes time!

However, the arrival of the SDD Direct Debit will certainly generate more interest once its details are known. The main technical innovation within the SDD is its handling of new credit mandates (CMF) stored by the EPC. The creditor communicates the mandate held by himself when issuing his Direct Debit. It is no longer the bank of the debited party which holds the mandate and exercises controls. Banks will be interested in transcribing the details held on debit mandates, as proposed by the SAB solution, in order to be better prepared for the arrival of CMFs, and to be able to offer rejection guarantees in case of disputes concerning Direct Debits issued by creditors.

The advantages of SEPA for Companies and Institutions are numerous:

  • A means of payment which is complete and standardised : Transfers, Direct Debits
  • As a result, the possibility to install “payment production lines” within major clients and, more particularly, at financial management levels (cf. “Shared Financial Services”);
  • A reduction in the number of bank accounts, leading to a simplification of liquidity management 
  • Transmission and clearing charges, which today are expensive and punitive for issuers of Direct Debits, may be reduced in the medium term. A good time to consolidate transactions and to negotiate with your banker!
  • EDI software or transmission standards are more user-friendly (cf. Swiftnet software packages)
  • The management of supplementary or extended details fields, which aid reconciliations.

The ING SEPA offer has attracted a large number of accounts within major French Companies and Institutions.

The plus points of the ING offer are, without doubt:

  • Its Hub: This offers better conditions with regard to large volumes (Clearing via EBA)
  • Its capacity to offer various access channels and formats (internet, Swiftnet, Etebac stations, FTP, CFT, PeSIT) and flexibility in its customisation!
  • Its local support services, which talk to the Hub via an interface
  • Its reporting (AFB 240) giving improved details of any rejections
  • Its capacity to continue processing French “Non-SEPA-ised” products.

SEPA is a wonderful innovation for automatically processing payment flows throughout Europe, but STP is still missing because significant numbers of rejections have been experienced: incorrect BICs (the SWIFT Directory is not necessarily the best of reference documents!), closed accounts, incorrect beneficiary details … Several months or even years may be necessary to unblock the flows!

In this period of “liquidity” shortages, a number of bankers have rediscovered the virtues of the payments flows business lines offering competitive services to Companies and Institutions.