A research paper – Simplifying payment routing data – highlights how some banks used the transition to SEPA to simplify their internal routing practices. It suggests that other initiatives may present similar opportunities in the future.

Internal payments to local branches 'obsolete'

The paper, published by SWIFT, notes that many banks used the conversion to SEPA banking formats (such as the Business Identifier Code/BIC and International Bank Account Number/IBAN) to implement centralised account management and payment processing. This made the practice of internal payment routing to branches obsolete. It explains: “Some banks have opted to replace multiple BICs with a single BIC serving the entire institution, leading to a significant reduction in the number of BIC codes used in SEPA payments over the last couple of years. At the same time, the IBAN-only rule has recently moved the responsibility for providing a BIC from the consumer to the bank.”

Changes in banking practices

The SEPA initiative came at around the same time as other changes in the market, including Know Your Customer (KYC) regulations, home banking and the increasing trend for physical bank branch closures. These all made it less desirable or necessary for banks to route internal payments between local bank branches.

SEPA Inst and GPII will give futher opportunities for streamlining

According to Hervé Valentin, Head of SWIFTRef, this simplification has enabled banks to lower costs and reduce customer frustration, as well as “improving straight-through processing rates and increasing efficiency”. He suggests that upcoming initiatives such as the SEPA Instant Credit Transfer (SEPA Inst) or SWIFT's global payments innovation initiative (GPII) could also present similar opportunities for simplifying routing data.

The paper also looks at how many companies have unwittingly generated invalid IBANs. The report states: “When IBANs became mandatory, 4.5% of all IBANs used in payments were invalid.” It also looks at how banks are simplifying the use of BICs.