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In November 2007 my article “Moving Towards a SEPA-compliant Infrastructure” was published by GTNews. The article considered the challenges ahead of creating a SEPA-compliant infrastructure and how reachability and interoperability, two fundamental factors in the successful implementation of SEPA, could be achieved. It was written at a time the EPC was still in the middle of the process to establish guidelines and frameworks for SEPA.

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One of my posts was converted to an article, later published on “Half-baked interoperability is not enough; next steps needed for SEPA CSM interoperability.” I thought it interesting to see if we had achieved what we were aiming at at the advent of the process.

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The transcript of my keynote speech at the conference on the Future of Payments in June 2012 (Amsterdam), which I delivered on behalf of Enigma Consulting, is available (Dutch).


When the European Community drafted the Lisbon Agenda years ago the end goals were only broadly described for what since then has come to be known as “SEPA”. The stated goals aligned with the idea of creating an inner market without country barriers to create a highly competitive economic block in a changing world. Where people, goods and services were expected to be flowing freely it was, in my eyes rightly seen, a necessity that money – as in a “single currency” – should be able to flow freely as well. SEPA’s goal is to provide a common payments environment for all in Europe as to create increased collaborability that should lead help to increase economic growth.

To make this vision work the legacy practices for money transfers (a.k.a. “payments” being the logistics to transfer money (value) from one to an other) which where limited by country borders consequently had to be replaced with a new methodology to be used by all in the EU; financial institutions, companies, institutions and citizens alike. Where ECB and EU created the legal and regulatory part of the standardisation needed among countries the EPC has created the technical guidelines we are implementing for Credit (SCT) and Direct Debit (SDD) transfers today.


In SEPA parlance “CSM” is a clearing and settlement mechanism as defined by the EPC CSM framework.

A CSM allows payment institutions (in popular tongue “banks”, but can be others) to clear and settle payments made between them. The term “mechanism” is used, for CSM is considered functionality rather then a (single) party that combines clearing processing and settlement via a settlement agent.

A payment processor in the capacity of a Clearing and Settlement Mechanism (CSM) allows participating payment institutions or their branches to clear and settle payments made between them.

A CSM typically arranges for the interaction with the settlement agent on behalf of its participating banks. But in effect all the roles needed to clear and settle payments between banks can be executed by multiple and different parties.

Originally CSM is indicating the processes for SEPA clearing & settlement, but over time more and more it is referring to the entities that provide SEPA clearing & settlement. But to understand SEPA, let alone create interoperability, it is important to see what a CSM is, namely a “market role” not specific to any type of party.

Reachability is Vital

Reachability is a fundamental factor in the successful implementation of SEPA. The European Commission and the European Central Bank (ECB) have stated that, in order for customers to fully reap the benefits offered by the new pan-European payment instruments, payments need to successfully travel from any originating payment service provider to any beneficiary payment service provider in SEPA in a timely manner without there being any gaps or hurdles. Any payment service provider that offers SEPA services needs to ensure it can reach any other SEPA compliant payment service provider in the EU, the European Economic Area and Switzerland.

There is no doubt that reachability is critical to the success of SEPA; the question is how will it be achieved? It has become evident that individual payment service providers, payment processors and CSMs will not be able to create reachability across the eurozone on their own to the extent that general market structures can be based upon them. Full reach will, therefore, only be realised by ‘sharing’ reach between participants.

In a networked SEPA environment, and to structurally realise reach in SEPA, payment exchanges via CSMs is inevitable. Reach will be provided through intra-CSM agreements (because the majority of payment service providers will need at least one SEPA compliant CSM), as well as inter-CSM agreements (because any CSM will need at least one other CSM to become SEPA compliant). This proposition was supported by the ECB in its report where it stated that ‘each payment service provider should put into place whatever arrangements are necessary, either by agreeing suitable mechanisms with other payment service providers and/or connecting to one or more CSMs’.


From Wikipedia, the free encyclopaedia:

Interoperability is the ability of diverse systems (and organizations) to work together. If two or more systems are capable of communicating and exchanging data, they are exhibiting syntactic interoperability. Specified data formats and communication protocols are fundamental. Syntactical interoperability is a necessary condition for further interoperability.
Beyond the ability of two or more computer systems to exchange information, semantic interoperability is the ability to automatically interpret the information exchanged meaningfully and accurately in order to produce useful results as defined by the end users of both systems.
To achieve semantic interoperability, both sides must refer to a common information exchange reference model. The content of the information exchange requests are unambiguously defined: what is sent is the same as what is understood.

Open standards imply interoperability by definition, while interoperability does not by itself. Open standards rely on a broadly consultative and inclusive group including representatives from vendors, academicians and others holding a stake in the development. That discusses and debates the technical and economic merits, demerits and feasibility of a proposed common protocol. After the doubts and reservations of all members are addressed, the resulting common document is endorsed as a common standard. This document is subsequently released to the public, and henceforth becomes an open standard.

Interoperability for SEPA payments refers to the ability to be systematically and consistently accessible to other payments institutions and processors. Interoperability is creating general market conditions to guarantee SEPA product qualities in case multiple parties are involved in a payment value chain, but its main objective is to create a competitive SEPA processing environment.


EACHA, the European Association of Automatic Clearing Houses is a group of payments processors that in pre SEPA days served their respective national bank communities to clear and settle giro payments. Their backgrounds differ: their role in payments processing and their role in settlement is not uniform. And some of them are involved in cards processing or started to have a more European presence. But they have been established within the confines of their respective national (closed) communities and share the same DNA. These parties have teamed up to create interoperability for GIRO payments processors in SEPA.

EACHA has taken up the mantel to create a framework for CSM Interoperability for SEPA payments integral to the SEPA product frameworks. The EACHA Interoperability framework [LINK /downloads/EACHA_Framework_6_0.pdf] was set up as to be ready to become an open standard.

EACHA has been aiming to create a decentralised network of payments processors at first – inviting others to join – while creating a technical interoperability framework that could be the basis for a distributed network. (NB In this network all payments processors should be able to reach the others, while the various business models remain available if wanted by them.)

Today EACHA has achieved 15 operational inter-CSM processing arrangements. (As an operational network EACHA is only having a marginal impact on efficiently routing payments through Europe today.)

As a standardisations effort the EACHA interoperability framework is a success in my opinion, technically aligning 20 parties with all their constrains form 20 different countries in the EU. In these 10 years much has been achieved. EACHA has put interoperability firmly on the SEPA agenda.