7 minute read
A question of standards
Eric Bayle, Head of the UK-based global transaction banking team for Société Générale, and Edward Ireland, Product Manager for Bottomline Technologies, believe ISO 20022 and SWIFT gpi show interoperability between crossborder payment schemes is not just desirable, but possible
Legacy banks across the world, which have long enjoyed a highly lucrative near-monopoly on providing complex monetary transactions, such as crossborder payments, now face a tidal wave of competition.
Blockchain-based newcomers, notably Ripple, as well as financial giants Visa and Mastercard, have been extending their reach as the ever-increasing digitisation of the financial world offers up new opportunities.
Against that background, SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, a global messaging system for bank-to-bank payments, developed in the 1970s, remains the de facto standard for high-value international transactions, used by more than 11,000 institutions across 200 countries, including some of the newest fintech arrivals.
Founded by banks for banks and headquartered in Europe, SWIFT began to feel the hot breath of competition some years ago and responded with an enhanced messaging system, SWIFT gpi (global payments initiative), in 2017. A step-change in how the correspondent banking network operates, it vastly improved the speed of those transactions, from days to minutes, with full transparency of the payment journey between the counterparties. Since 2018, all transactions have carried a UETR (unique end-to-end transaction reference), which offers full tracking of payments on the SWIFT network. And, from November 2020, it will be mandatory for all financial institutions to send confirmation of incoming payments, too.
However, perhaps the single most important change to the payments landscape that affects SWIFT (and everyone else in payments for that matter), is the introduction of a new, open and universal messaging standard, ISO 20022. It’s described as a standard for the new data-driven payments world, and one in which application programming interfaces (APIs) are increasingly becoming the accepted way of improving client experience. Already used by payment systems in more than 70 countries, ISO 20022 will run alongside SWIFT’s legacy MT messaging from 2021, with the latter phased out by 2025.
The migration of high-value payment systems in multiple jurisdictions to ISO 20022 at pretty much the same time has been described by Deutsche Bank as ‘probably the most impactful payments industry undertaking since the introduction of the Single Euro Payments Area’.
WARM INDUSTRY WELCOME Société Générale was one of the first to convert to SWIFT gpi when it was introduced in 2017, and Eric Bayle, head of its UK-based global transaction banking team, is encouraged by the number of other financial institutions upgrading their systems to accommodate it. The numbers nearly doubled between 2019 and 2020, to almost 900. In total, 65 per cent of Swift’s crossborder payments, worth $77trillion, were made through gpi in 2019/20, mainly in the developed economies of Europe, the US and Asia.
“That tells you the scope of the pickup and the expansion,” says Bayle.
He’s convinced that a large part of that success is down to the added transparency offered by gpi. The track and trace function, previously only available to financial institutions, can now be exposed to those institutions’ corporate clients through APIs, too.
“You have the pure gpi, between banks, and then g4c, or gpi for corporates, which is the banks’ offer for their clients,” explains Bayle. “Very large companies might have an integrated gpi that allows them to automatically track payments, end to end. SMEs might choose to initiate a payment using an online banking tool and then access the tracker via the internet to monitor the payment. Now there is the inbound tracking initiative, too, where customers have the option to receive an alert of their incoming funds. This, obviously, is important for them to manage their treasury, because, whether you are a very large corporate or a small SME, you need to know exactly what’s going to come into your bank account on any given day to decide what payments you can make out of it.
“All these gpi initiatives rely on standardisation of formats and the help and support of vendors. The vendors have a very important role to play in plugging these APIs – the gpi tracker, etc – into the customer solution.”
Bottomline Technologies is one of those vendors. It has worked closely with SWIFT to encourage the adoption of gpi and Edward Ireland, product manager for payment technology, sees the next phase of that to be possibly the most challenging yet.
“The big cash management banks have the dollars to invest in this type of project; it gets more challenging as we get down to the smaller banks but the benefit is there for them, too,” he says. “That’s especially true of those that are very dependent on crossborder payments.”
Exposing the track and trace function via APIs as well as the universal confirmations initiative means the impact of SWIFT gpi is beginning to be felt way beyond SWIFT’s banking members. Implementing gpi triggers a whole raft of improvements in processes, applications and integrations across the payments ecosystem, says Ireland.
“APIs are key. The early adoption of gpi wasn’t really based on APIs, it was based on the old messaging rails. But now we’re increasingly moving towards APIs and institutions are becoming more familiar with them, I think it [has to be] API first, if you really want to get the benefit from the gpi programme.
“If we can give better visibility to our customers around transactions they’re making, and the detail within those transactions, there are other services and
other capabilities we can offer customers off the back of it. For example, if we have a customer making a BACS payment in the UK, there’s very little information we can get from that. We can’t see what they’re buying, we don’t really know when the money’s going to arrive.
“When we look at how payments are going to evolve, gpi is going to give us better visibility of when that payment is going to settle and when it has settled. There are other ancillary products and services we can then bring to the attention of our customers, based on what we can see within that payment.”
THE SAME HYMN SHEET… SWIFT aims to provide an increasingly friction-free international, bank-to-bank payment network, but what happens when it rubs up against local payment schemes, such as ACH (Automated Clearing House) in the US, Faster Payments in the UK and SEPA in Europe?
Both Bayle and Ireland acknowledge that interoperability between schemes – local and international – has been a major hurdle in crossborder payments, but they are optimistic that there will be greater alignment in future over both standards and formats. ISO 20022 will undoubtedly hasten that.
Explains Ireland: “If you look at the different faster payment or instant payment schemes, they’ve been developed at different times, in different standards. But the instant payment schemes are now standardising on the same format, which is a help. There is, increasingly, more interoperability between them.”
As an example of what can be achieved, he points to the emergence of P27, a new crossborder digital payments platform in the Nordics, built by the region’s major banks, which is due to go live in 2021.
“You’ll be able to settle instantly in various currencies across the Nordics, including the euro,” he says.
“We’re also seeing SWIFT looking at how it can pull confirmations from these instant payment schemes into gpi for settlements occurring off the SWIFT network.”
For Bayle, widespread adoption of ISO 20022 will make life so much easier, particularly when it comes to compliance.
“Regulators across the world want more transparency around what’s going on in the payment. You need to know who is the ultimate originator, the originator, the beneficiary and the ultimate beneficiary. With ISO 20022, you can have all that in the payment, meaning that, for banks and regulators, the more we move to an ISO 20022 scheme, format or standard, the more transparency there will be in payments.”
Both Ireland and Bayle acknowledge that change means cost – cost that many financial organisations would prefer to avoid. But take heed, says Ireland.
“The important thing to remember about ISO 20022, is that the level of detail required by the standard is the level of detail required by the market, so if your payment system can’t deal with it, you’ve got a bigger problem than the standard. Your problem is that you’re not going to be able to service your customers the way that you need to.” ■
