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Connecting less dots thanks to the European Clearing Cooperative

It is a true milestone for international payments: six members of the European Automated Clearing House Association (EACHA) join forces to set up a new company called European Clearing Cooperative (ECC). Equens is one of the EACHA members to take the implementation of SEPA one step further, by delivering centralized and optimized processing services for SEPA transactions.

Five questions about the ECC answered by Gerard Scheepers, Senior Advisor Clearing and Settlement at Equens.

What is the purpose of the new company – ECC?

Gerard Scheepers: “Each country in Europe currently has its own automated clearing house (ACH), a payment transfer system that connects all financial institutions in that country. The ACH takes care of all money transfers between the individual banks. So instead of processing each individual payment at the time the order is given, the clearing house handles all payments in batches, by calculating – multiple times per day – how much money has to be transferred from one bank to the other.

You can imagine that this system is much more efficient than in a situation in which each set of banks would have to take care of their bilateral transactions. If there are 10 banks in a country, there are 45 bilateral relationships.

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If there is an ACH in the middle, the number of batch transactions is limited to 10 (between each individual bank and the ACH):

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With the introduction of the Single Euro Payments Area (SEPA), it has become easier for business and consumers to transfer money from one country to another. The volume of international payments is expected to grow substantially in the near future. It is not hard to imagine how much bilateral relations there are between all European banks.

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Therefor, six members of the EACHA (DIAS, Equens, Iberpay, ICBPI, KIR, and TRANSFOND) decided to register the European Clearing Cooperative (ECC), a central clearing house that will enhance interoperability and optimise efficiency in the processing of cross-border SEPA payments.”

What are the advantages of the ECC for ACHs?

Gerard Scheepers: “Cross-border transactions will be processed faster because there are fewer organisations in the process chain. This is a huge benefit for consumers and businesses, since international payments will take much shorter. By moving from a multilateral to bilateral interoperability, we will be able to enhance cost efficiency by reaping economies of scale through a single platform. Also, reduced complexity is a very obvious benefit. Every year we see some changes to the SEPA rulebook. Without ECC, ACHs would have to process these changes in all bilateral EACHA links. With the ECC, rulebook changes only have to be processed once.

The centralised model of the ECC also makes it easy for new countries to join the initiative; participation in ECC will be open to all ACHs active in Europe. Initially the payment service providers participating in the connected ACHs are able to reach more than 3,200 BICs (Business Identifier Codes). But if for example Portugal decides to join, all they have to do is link to the ECC, instead of creating bilateral links with every other bank in the SEPA zone, which immediately expands the reach of the ECC with all the Portuguese banks.”

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Why did six members of the EACHA take this initiative?

“The purpose of EACHA has always been to share knowledge and to set a standard”, said Scheepers. “The ECC will work according this standard. Now the introduction of SEPA is completed successfully, ECC is taking the next step by supporting cross-border payments.”

Where will the new company be located physically?

“You should think of the ECC as a lean and mean organisation; most of its tasks will be outsourced. So ECC will at least at the start not be a company with Employees, but it the ECC will be located in the Equens premises in the Netherlands. ECC will have be located as legal entity in the Netherlands.

ECC will outsource its technical and operational processing to this means Equens will be responsible for the processing of the transactions,.”

What will the future bring to the ECC?

“Initially the ECC only covers SCT transactions. We expect that the organisation will also process SDD in the future, which opens many new opportunities. Especially companies like telco’s and utility companies are expected to concentrate their payments in one country. It is not unlikely that a utility company will centralise all its payment collections in Germany or Italy. This means that suddenly your direct debit from e.g. your mobile provider will come from another country than your own. This is a next step in the harmonisation of the payments market, because it is much easier to process large quantities of transactions at once.”

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