Getting it right: How to manage infrastructure change

ISO 20022, the transformative open standard for the financial services industry, is the acknowledged first choice for infrastructure renewal across major payment systems and jurisdictions worldwide. From early implementations such as the Single Euro Payments Area, through projects in development such as Australia’s New Payments Platform for fast, low-value payments (due 2017) to longer-term legacy renewal strategies in Canada, the UK and the US, ISO 20022 has now passed the tipping point for global acceptance.

“We noticed the international dialogue on ISO 20022 shift from ‘why and if’ to ‘how and when’ between Sibos in Osaka in 2012 and the following year’s conference in Dubai,” comments Richard Dzina, group head, wholesale product office at the Federal Reserve Bank of New York.

In the US, a round of infrastructure upgrades had then only recently been completed (the Fed-Wire modernisation programme). Despite that, the Fed actively researched the business case for ISO 20022 adoption and consulted with stakeholders. In January this year, the Fed’s strategy paper, ‘Strategies for improving the US payment system’, declared the intention to “develop an implementation strategy for the application of the ISO 20022 standard to US payment transactions”.

Local flavours In Canada, a payments system task force recommended ISO 20022 as the future direction for payments infrastructure in 2011, a recommendation subsequently adopted by the Canadian Payments Association (CPA). Three key payment messages – automated funds transfer (AFT), wires and electronic data interchange (EDI) – have now been mapped to ISO 20022 and targeted investigations are currently taking place with key stakeholders ahead of a public consultation phase later this year. The plan is to make the AFT message and rules available for market-led adoption by Q2 2016. ISO 20022 will then be the standard adopted for Canada’s next-generation clearing and settlement project, which is currently in the planning.

In the UK, there is industry agreement that ISO 20022 will be used for new infrastructure developments and change processes. For example, it is the basis of a current account switching service, will be used for processes required for ongoing pension reform, and for transfers of cash ISAs (a UK retail savings product).

So far, so good – and so domestic. But, as ISO 20022 projects proliferate in multiple jurisdictions, are some of the key benefits of ISO 20022 – the potential for interoperability and the exchange of more and richer data – in danger of being lost? With a wide variety of local market practices and national stakeholders to satisfy, a drift towards distinct local flavours of ISO 20022 looks likely. And we have been there before, on many occasions.

Payment market infrastructure operators today are well-connected with their counterparts across the globe, and alive to the dangers. “We’re most focused on replacing our existing legacy standards for domestic use. We’re also very plugged into what’s happening in other jurisdictions and we recognise the importance of leveraging the richness – for example, extended remittance data – and flexibility that ISO 20022 offers,” says Jeff Moran, VP, payments and industry relations, CPA.

Although full implementation is still some way down the line for Canada, the CPA is active in a number of international forums including: a group of market infrastructures working on an ISO 20022 harmonisation framework with SWIFT; the Common Global Implementation (CGI) group, a global body concerned with developing global market practice for ISO 20022 standards in the corporate-to-bank space; and the Payments Standards Evaluation Group, which reports to the Registration Management Group (RMG) for payments under the Technical Committee 68 of the International Organisation for Standardisation (ISO), and is in the process of joining the RMG itself.

Multiple markets For the Fed too, interoperability will not be sacrificed lightly. The US decision to consider adoption of ISO 20022 was based in part on the possible consequences of being outside a development that has global momentum, according to Dzina. A business case evaluation conducted independently for a stakeholder group consisting of the Fed, the Clearing House Company, NACHA and the Accredited Standards Committee X9, cited global momentum and competition as well as cost savings, enriched data content and interoperability as strategic reasons for adoption. Says Dzina: “We contemplated the negative business case as seriously as the positive one. What would it mean for the competitiveness of our financial institutions, and how would it affect our end users, and even the status of the dollar as a global settlement currency, if the US were not to adopt ISO 20022 for payments?”

Cost savings are a potent reason for not re-inventing the wheel with each implementation project. James Whittle, director of industry dynamics at the UK’s Payments Council, points out that financial institutions have to support developments across multiple market places. And because there are limited technological and human resources both internally and externally, it makes sense to harmonise what can sensibly be harmonised at an international level.

In April, SWIFT hosted a meeting for representatives of 20 market infrastructures for payments and securities to discuss these issues. The group agreed to establish a common framework for ISO 20022 harmonisation, to include information sharing (using SWIFT’s MyStandards as the central harmonisation platform), establishing global market practices and introducing stricter message version control and release management. An implementation roadmap is the first planned deliverable and the group will meet again at Sibos in October.

Real-time realities With several ISO 20022-based instant payments services either operational (Denmark, Singapore) in development (Australia) or planned (The Netherlands and the Euro Banking Association plan to offer services by 2019; the US is also considering a service), the recent decision to create a sub-group for real-time payments as a neutral industry activity under ISO governance is both positive and timely. An initial meeting was hosted by the UK Payments Council and attended by more than 30 global payment infrastructures, financial institutions and vendors.

Says Whittle: “There is a variety of market practices out there, and this isn’t about everyone having to do the same thing. But where there is a common approach, let’s use it; where there are accidental differences, let’s try to harmonise them, and where there are genuine differences, let’s document them, so everyone’s aware.”

The group has set a deadline of end-July to document current settlement practices for instant/real time payments. It will then go on to consider remittance/ merchant data and system messages covering, for example, irrevocability and other requirements.