ISO 20022 and Evolving Payment Infrastructures: Where Are We Now?


Part one of four in our ISO 20022 blog series.

Payments are undergoing a digital transformation. The reach of this change is so deep and so vast that it will have an impact on large and small players alike – from traditional global banks to the taxi driver in South Africa who can now accept cashless payments.

Two interrelated factors are driving this transformation:

  1. Advancements in technology
  2. The increase in cross-border fund transfers as a result of international trade and growth in global remittances.

Tackling Legacy Infrastructure

Global payments revenues, which were $1.27 trillion in 2017 are expected to reach $2.42 trillion by 2027. Yet, the market infrastructure that supports domestic and transnational payments – enabling a business to send money from their bank account in the U.S. to purchase merchandise in Italy, for example, has scarcely changed since 1977.

That’s when the Society for Worldwide Interbank Financial Telecommunication (SWIFT) launched a messaging service with standardised codes and instructions to facilitate payment communications between its member institutions.

Although revolutionary at the time, today SWIFT is challenged by inefficiencies that result in high fees and extended processing times.

Banks fare no better. Many are still using legacy systems with proprietary messaging formats, protocols, and standards that were developed decades ago based on local laws and the technology available at the time. These systems were not designed for global interoperability.

Disrupting the Status Quo

Seeing huge opportunity to capture a growing market in need of change, challenger banks, payment service providers (PSPs), peer-to-peer lenders, and other disrupters have pulled the rug out from under traditional banks who are losing ground – and sacrificing revenue streams – to this new breed of competitor.

Not saddled by legacy technology, these disrupters have developed mobile and digital payment solutions that are faster and more efficient than the payment services available through traditional channels.

In China, the leading mobile payment apps, AliPay and WeChatPay, are so frictionless and so integrated in the economy that they are used for everything from paying a gas bill to buying coffee.

Mobile payments in China have surpassed credit card usage and pushed cash to near obsolescence. So much so, that international visitors to China often find they are unable to pay for a purchase because the merchant does not accept cash or credit.

Although Europe and the U.S. have been slower than China, India, Africa and other growing markets in adopting new payment solutions, interest in these alternative payment methods continues to gather steam.

Rising Expectations

Perhaps the greatest impact of alternative payment methods is that they have laid bare the inefficiencies of legacy systems and have completely altered expectations regarding ease of use, cost, and processing time.

Financial institutions and other traditional providers of market infrastructure in the payments ecosystem are finally heeding the wake-up call.

While some countries, such as Japan, have had domestic instant payment systems since the early 1970s, most developed countries have only introduced domestic real-time and instant payment systems in the last ten years.

These new systems, such as the EU’s Target Instant Payment Settlement system and the U.S. Federal Reserve’s FedNow Service, are making 24/7/365 availability and processing of funds transfers a reality.

Another addition to instant payment systems is SWIFT’s global payments innovation (gpi), which can execute cross-border payments almost instantly. SWIFT gpi processes 95% of payments in 24 hours and 40 percent within 5 minutes.

Setting New Standards

As barriers continue to fall and international trade increases, the need for fast, accurate and efficient cross-border payments will continue to escalate.

Meeting this need can only be accomplished with initiatives like ISO 20022, which offers a common, global messaging standard that enables payments and transactions to flow seamlessly between parties – whether a correspondent bank in Abu Dhabi or a domestic transfer within the U.S.

Already considered a worldwide standard, the tentacles of ISO 20022 reach banks, businesses, and financial institutions as well as securities, trade services, cards and foreign exchange.

There is no doubt, ISO 20022 represents the future of payments.

Part two of our ISO 20022 blog series delves deeper into what the new payment standard means for financial institutions.

Can’t wait until next week? Download our ISO 20022 whitepaper now!

Download the Whitepaper

The latest whitepaper from Accuity, A Guide to ISO 20022 and its Impact on Financial Crime Screening, explores the changing market dynamics that have given rise to the need for a common payment messaging standard. It takes a closer look at the benefits of ISO 20022, outlines best practices for migration and provides insight to help organisations better understand the impact on financial crime screening.

A Guide to ISO 20022 and its Impact on Financial Crime Screening

A Guide to ISO 20022 and its Impact Whitepaper

The latest whitepaper from Accuity explores the changing market dynamics that have given rise to the need for a common payment messaging standard. It takes a closer look at the benefits of ISO 20022, outlines best practices for migration and provides insight to help organisations better understand the impact on financial crime screening.

Download the Whitepaper