Communicate, collaborate, co-ordinate
Sibos 2018’s Standards Forum highlighted the need for industry-wide collaboration when preparing for migration of cross-border payment messages to ISO 20022
Standards are at the heart of the ongoing transformation of the global payments landscape that is being shaped by regulatory change, new technology and fresh competition between incumbent players and disruptive entrants. This transformation touches upon the full spectrum of payment services, from retailed instant payments schemes and open API-based payment initiation services, to new high-value payment systems, and innovations aimed at improving the speed and transparency of correspondent banking.
ISO 20022 has been adopted by market infrastructures (MIs) in more than 70 countries, and further key infrastructure operators including the Federal Reserve, European Central Bank and Bank of England will adopt the standard from 2021.
Across the Asia-Pacific region, key markets such as Australia, India, China, Japan and Singapore have already adopted it for all or part of their domestic payments infrastructure. Following an extensive consultation, the SWIFT board approved the facilitation of an industry migration of cross-border payment messages (MT categories 1, 2, and 9) aligned with the adoption plans of major high-value payments systems in the euro area, currently scheduled for November 2021. Understandably, given the scale of the migration challenge, much of the Standards Forum at Sibos 2018 was focused on its practical and business implications.
MT messages will coexist with ISO 20022 for a period of four years and SWIFT will provide a central utility to translate between ISO 20022 and MT standards, enabling interoperability for the community. While the board recommended that SWIFT provide an ISO 20022 capability for cross-border securities flows for institutions to use on an opt-in basis, it does not propose to set an end-date for the use of ISO 15022 (MT category 5 messages).
As ISO 20022 becomes universal, it will yield major long-term reductions in operational cost and risk alongside improved compliance and transparency. MIs will be able to interoperate more easily, and banks will be able to access ISO 20022-based MI services through a standard interface.
For all this upside potential, migration is not without its challenges. As Stephen Lindsay, head of standards at SWIFT, noted in ‘ISO 20022 migration: Will it be a marathon or a sprint?’, the move to ISO 20022 for cross-border flows will require stakeholders – MIs, banks, SWIFT – to work together to ensure interoperability. Recognising that fragmentation of ISO 20022 deployments threatens to undermine the standard’s intrinsic value, SWIFT’s Payments Market Practice Group has been ensuring coordinated industry action to align and enhance global market practices across countries and ISO domains.
Inevitably, local migration projects progress at different speeds, incorporating diverse priorities. Hong Kong’s newly-launched faster payments infrastructure uses ISO 20022 and its RTGS system will do so next year. According to Stéphan Levieux, head of deposit, payments and cash management strategy at Hang Seng Bank, Hong Kong regulators are keen to move quickly beyond initial migration toward use of ISO 20022 to achieve greater integration with mainland China.
When it comes to the migration strategy, key lessons to draw from the experience of MIs include the importance of building from the needs of business users inwards to the centre, rather than the centre – the message format itself – outwards; and participants should initially be prepared to explore flexibility within the ISO 20022 standard framework.
Marc Bayle de Jessé, director general for market infrastructure and payments at the European Central Bank, stressed that there is no good or bad way of migrating, whether an ISO 20022 transition takes place in multiple steps, first on a ‘like for like’ basis and then only in a second step to the full enhanced functionalities, or moves straight to full implementation: “Each community must find the best way to migrate depending on their context, maturity and requirements. We in Europe will move directly to full implementation to benefit from the start from the enhancements brought by this new standard.” Nevertheless, to ensure a harmonised migration and end-to-end interoperability, observance of market practices – centred on a common set of business data and the way that data should be used – will be vital to the success of global ISO 20022 migration.
Outlining a clear timeline for any implementation is also an imperative. Patricia McSweeney, director of industry relations at CIBC, underlined the importance of communication in general – including tools to be provided by MIs, availability of translation rules and market practice guidance, and robust channels to keep banks informed from a timeline and a service perspective. In turn, banks themselves have a key role in communicating effectively with their own customers and to relevant third parties to manage required changes within their system infrastructures.
Difficult choices and compromises inevitably lie ahead, and engagement across constituencies will be critical to ensure informed decisions are reached and the outcome of those decisions is accepted by all. When the Bank of England looked at moving to ISO 20022 for wholesale payments as part of its blueprint for renewing the UK’s RTGS system, it adopted a community-wide approach to determining how the standard could change businesses and drive innovation.
As explained by John Jackson, policy lead for its RTGS renewal programme, the Bank of England identified three key benefits: more structured data, ensuring that transactions flowing through the payments chain are more standardised and predictable, and hence easier to process; richer data via a bigger data load, allowing the overlay of added-value data services and the creation of new products based on the flow of payments information; and harmonisation, through a common credit message for all payment systems in the UK.
The project goal should be benefits for the whole market, not just direct participants, through harmonisation, said Jackson. “That way, the cost of entry for your payments system is as low as possible, because people will be using the same standards that they have already built for all the other systems they need to access. You also want to provide as much guidance as possible about how the new messages can be used – it goes beyond the syntax of the messages into the business processes that sit around them, and how those are harmonised,” he said.
The inclusion of corporates in particular was highlighted by Sean Mouton, chief technology manager at ABSA Bank. “They bring a different view on how the business actually happens. As part of the MyStandards platform, we are now incorporating ‘South African standards’ for corporates to communicate to the banks – we are looking to create a messaging standards community involving many individuals and banks and corporates, large and small,” he said.
The bank’s decision to move immediately to enriched messaging has given rise to some temporary interoperability issues when dealing with entities outside South Africa, added Mouton: “We expect to start seeing real benefits when everyone is in the same domain and exchanging the same data and using that data for ancillary services, which will be around 2023 or 2024.” N
The onward march of application programming interfaces (APIs) continues unabated in financial services. Multiple new service initiatives involve designing and exposing APIs, as institutions look to provide single points of entry across diverse underlying systems and ensure interoperability across channels.
APIs provide “building blocks for new business functionality and user experiences”, noted Deniss Kascejevs, API product manager at SWIFT. APIs allow the creation of applications, facilitate the integration and organisation of business flows between counterparties, and provide a unique opportunity to bring a number of elements together within a single concept – standards, interfaces and products. Kascejevs added: “It gives users the opportunity to build their own value-added services around SWIFT’s offering.”
Paul Franklin, general manager for payments at National Australia Bank, flagged the ability of APIs “to deliver a richer interaction than is possible with a message-based interaction”, which is particularly valuable in the context of Australia’s New Payments Platform (NPP).
“Now that we can do real-time payments between banks, APIs are a good way for customers to have real-time interactions when it comes to instigating payments, making payment requests and receiving notifications of payments.”
However, the proliferation of APIs does raise questions and challenges for the industry. A reappraisal of funding models and KPIs – to reflect the product- or channel-based nature of APIs, rather than a traditional ‘project’ – were two aspects raised. Another was the need to reorganise internal teams to create more cross-functional units, allowing technology and business functions to work together in a more integrated fashion.
Consultation and collaboration are key, both inside and outside an organisation, noted David Andrzejek, responsible for API ecosystems at Google. “There can be resistance and suspicion about APIs at the business level, but they should not simply be delegated to IT,” he said. “View it like building a physical branch office, which is a tool for the business to acquire and service clients. The business should be involved in design and location and other technical decisions. APIs are just the same.” From an external perspective, “innovation happens in the bazaar, not back in the temple – standards designed in a locked room away from customers struggle to survive in the face of market forces,” he added.
Meaning and consistency
While regulators globally are mandating use of a relatively narrow set of open APIs, banks are putting pressure on development teams to quickly deliver APIs that solve specific problems, with less regard to standardisation.
“Standards help provide extra meaning and consistency and harmonisation to the data we are sharing with people within our ecosystem via APIs,” noted Dan Chesterman, CIO at the Australian Securities Exchange. His recognition of the need for standards was echoed by Hans Tesselaar, executive director at the Banking Industry Architecture Network: “Do we need standards? Yes. To increase adoption rates, how do we persuade people to use our APIs? We fully aligned them with ISO 20022, because people know it – the fact we are linked into a huge ecosystem of existing standards is a big plus, in terms of reassuring users.”
Taking up this theme in the context of the NPP’s API framework, Lisa O’Connor, SWIFT’s head of standards for Asia-Pacific, noted the tension between the creativity and agility of APIs in responding to client requirements and the need for interoperability through standardisation.
“The agility to deliver the right service to the right people at the right time will remain important,” O’Connor said. “Within the NPP framework, as long as you agree on the business meaning of what is used in the API with reference back to the ISO 20022 dictionary, the API not only works for NPP but can also be reverse compatible back into the banks.”