The cross-border payment topic is again discussed in an article posted on Raconteur, this time with an emphasis on data as a key to greater adoption and progress going forward. The catalyst in this case is the messaging standard ISO 20022. The author suggests that ISO 20022 is a new standard, but in actuality it has been around for more than a decade, although adoption has been generally limited to incorporation with the 50 something domestic instant payments systems that have been launched in a number of foreign markets.
The current U.S. version is RTP from TCH, which has been around since 2017. We recently released member research about the B2B faster payments space as well, where it is pointed out that Fedwire and CHIPS will be converted over to ISO 20022 during the next few years (exact dates TBD).
A logical ambition is for sovereign domestic instant payment systems to eventually interoperate with each other, and there are efforts already underway to achieve this, such as P27 in the Nordic region, which is a purpose-built cross-border instant payments system, and others we have previously summarized.
‘Making cross-border payments has traditionally been a cumbersome task. A typical transaction could take several days to clear while the recipient’s bank carries out the necessary compliance checks. Delays are common, sometimes payments fail. For global businesses, this can have a negative impact on supply chains and fulfilling customers’ orders….A new international payment standard currently being rolled out, known as ISO 20022, could start to change all that by harmonising payments data around the world…..“This format is the emerging de facto standard for new types of real-time payments systems that are in development globally,” says Aleks Stefanovski, vice president of strategy at Currencycloud, a cross-border payments platform. “That’s important because it enables fintechs to establish connectivity to different real-time payments systems around the world in a way that removes friction and improves the speed and customer experience of cross-border payments, reducing what, maybe ten years ago, took two or three days to just a matter of seconds.” ‘
The author goes on to discuss how exchangeable ISO 20022 data can be used, most fundamentally as part of remittance data which can speed up the settlement of funds by eliminating errors, but also provide additional data for the specific local regulatory regimes. Having a global standard is one thing, but getting everyone to agree on what data to send and how to use it when received are also challenges, so by no means is this a panacea.
In the member research mentioned earlier, we pointed out that RTP has massively increased remittance data volume capabilities but to date the usage of this messaging feature has been minimal, so more work to be done on this part, which of course is only the domestic theatre, not the more complicated international space. The article mentions a few other things of use so worth browsing through for those interested.
‘Harmonisation doesn’t solve all the problems, but it certainly helps with the ability to accelerate innovation by making certain things easier and more consistent,….This backdrop is already creating opportunities for collaboration across the industry. Modulr, for instance, has used its payments technology to enable challenger bank Revolut to credit its customers’ salaries into their accounts a day earlier than would otherwise be possible…..“The data is only as good as what you do with it,” says Zmuda. “Businesses increasingly need a payments partner that can keep them on the front foot and have the digital infrastructure in place to benefit from these changes.”….Wider benefits of the changes also extend to merchants and consumers. Take payment initiation, a PSD2-enabled service that makes online payments more seamless and secure.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group