A cross-border payment is more than moving money from one country to another. It’s also about making payments safe, efficient, and compliant with regulations, and the data about the payment that must be transferred as well. For this to take place, a number of checks and processes need to be ensured before the payment is made, while it is moving through the financial system, or even after the payment is received. This is why significant improvements have been made over the years to cross-border payments. Notably, SWIFT's Global Payment Initiative (gpi) which since its launch in 2016 has taken major steps forward to increase the speed, transparency and reach of cross-border payments.
Yet frictions remain with many complications stemming from the use of different and incompatible data formats in cross-border payment messages. These complications make it difficult for payment systems and services to communicate with each other, causing data loss between systems thus requiring manual intervention through processing. This is why standardized data formats, such as ISO 20022 and APIs are recommended, as they can potentially streamline, improve and automate these processes. Payments Market infrastructures around the globe are rapidly adopting ISO 20022 as a common messaging standard. Put together, the technology is becoming more important, faster than the payments industry is amping up.
A key building block to improve cross-border payments was highlighted by the CPMI - adoption of a harmonized ISO 20022 version - which is a common message format that can lead to additional efficiency gains. How? By avoiding workarounds and translation from one execution to another, which in turn reduces the implementation costs for new PSPs and finally enhances the ability to achieve fully automated straight-through processing functionalities. Thus making the financial industry more open, cheaper, faster, and always available.
Aware of the benefits, new payment providers are using APIs and ISO 20022 to offer their services to banks and established financial institutions, giving them the opportunity to grow faster rather than signing up end-users directly. APIs also allow payment providers to plug into different services to manage the various steps of cross-border payment, such as sanctions screening, money laundering checks, account validation and payment routing.
Working together, ISO 20022 and APIs are able to offer significant benefits to payment service providers, fintechs, banks, corporates and technology providers. They can:
- Through more context, provide richer data (ex: sending a payment with an itemized invoice that relates to the payment).
- Reduce the loss of data as payments when moving from one system to another.
- Provide greater visibility to corporates of where their payments are and when the funds will arrive, thus making it easier to manage their cash.
- Streamline Anti-Money Laundering checks, sanctions screening and Know Your Customer.
- Help firms use the best provider for each step or process, in a modular way rather than integrating all functions into one complex system.
- Increase the automatic processing of payments thus reducing the necessity of manual intervention if something goes wrong.
In short, the key steps towards making cross-border payments faster, cheaper and more transparent is the adoption of ISO 20022 and APIs.
Key Industry Deadlines:
- The Bank of England's brand new RTGS system, the Federal Reserve's FedWire and the new FedNow instant payment services will all use ISO 20022.
- The Eurosystem's TARGET 2 system already uses ISO 20022 for high-value payments, which means we will see another 14 high-value payment systems switch to ISO 20022 in the next 4 years.
- We will see 90% of HVPS value worldwide move to ISO 20022 rails by 2025
- As part of SWIFT's platform, SWIFT's global cross-border payments community will fully transition to ISO 20022 by 2025.
If your institution is taking the step towards making this move, we can help. Nth Exception is a payments specialist consultancy, we deliver professional services to banks and financial institutions globally and assist them in implementing best in class payments solutions.