Keeping it real
A small milestone in the development of truly global payments standards will happen during a breakfast meeting tomorrow morning, when the ISO 20022 Real Time Payments Group (RTPG) meets to discuss its progress, next steps and timetable for 2016. The main item on the agenda will be outlining the baseline version of ISO 20022 for real-time payments that will be put forward for ratification at the ISO Registration Management Group (RMG) in December.
A year ago, that milestone wasn’t on the map; in fact, there wasn’t really a map …
The first significant step towards the milestone was taken earlier this year when a group of banks, market infrastructures and vendors came together in London* to discuss a problem that they all faced: the potential fragmentation of the ISO 20022 messaging standard. The conclusion of that meeting was that any future global interoperability of real-time payments systems would require harmonisation of market practices and standards. Participants agreed that it made sense to start looking at the issues before the many proposed domestic real-time payments systems had gone too far down their own routes. Nearly all of the proposed RTP system proposals have mandated the use of ISO 20022, including those of the US and the European Central Bank.
“Interoperability between jurisdictions will ultimately be the key to getting value,” said one North American participant in the meeting, a point that was echoed by another: “Our focus may be domestic, but we have an eye on international interoperability.”
The good news from that initial meeting was that no new set of ISO messages needs to be developed – collaborative activities should concentrate on refinements of the existing – and an ambitious target of collating an initial variant of ISO 20022 usage guidelines for real-time payments was set for mid-2015. To the surprise of some, that deadline was met, with the publication of the first draft of ISO 20022 real-time payments messages by an industry association backed by Payments UK (formerly the Payments Council).
“What the group kicked-off in the UK was about getting the countries to line up and get a sense of normalcy about all the activity,” says Tom Durkin, head of digital connectivity and integration, global transaction services, Bank of America. “India has developments going on, as does Australia. If the US comes in, how do they all line up, especially for the global banks like ourselves?”
Industry responses to the draft were considered at a meeting in Berlin in September, when the version that is set to go before the meeting tomorrow was completed. Assuming all goes as swiftly as it has thus far, the work of the RTPG will form part of a number of ISO 20022 harmonisation efforts across different market sectors that Swift and others are trying to co-ordinate.
As well as forming the standards framework for most of the RTP projects now in train, ISO 20022 is also the basis of Target2-Securities (T2S), such as the Common Global Implementation initiative for the corporate to bank space and the high value payments (HVP) guidelines for HVP systems such as Target2, Euro1 and Step1.
Many of those implementing real-time payments infrastructures are at different stages of development, but are keeping interoperability at the front of their considerations. International compatibility is particularly valuable to multinational banks that have to connect to multiple market infrastructures. The ISO 20022 messaging standard was identified by all as the most appropriate technical standard for real-time payments and it is unlikely that another would supersede it but issues remain with implementation.
An important point about the different stages of implementation is provided by the eurozone countries, says Fred Bär, secretary general of the European Automated Clearing House Association (Eacha). “The immediate payment systems live today are in the UK, Denmark, Poland, Sweden and Switzerland – all of them outside the eurozone because in the eurozone, the communities were busy with Sepa [single euro payment area]. That’s why interoperability now becomes more important,” he says. Eacha is a forum where the members share their experiences in their respective communities, he adds, so from that perspective the Association can observe that the moves towards real-time payments are happening at different paces. The next step is to automate the euro countries. “Countries decide for themselves and whatever happens in each country will happen, whether they take a leap forward, or go for a cautious approach, whether they choose to talk to one of the countries that has already implemented a system, and whether they in- or outsource a system,” he says. The role that Eacha sees for itself is to follow developments and ascertain to what extent it can foster interoperability. “We can’t as an association make interoperability happen, but we can point out potential problems, such as the different flavours of ISO 20022.”
James Whittle, director of industry dynamics at the Payments Council, says standardisation should seek to standardise what is common and be a platform for innovation and competition. “ISO 20022 is not about getting everyone to do the same thing: where there is a need for a difference, we have to understand it and when there isn’t we need to work to harmonise. ISO is not a police force. No-one is going to knock on the door and say you are not implementing it properly. It’s more a question of is what you think is unique to your market really unique? If it is, what’s the fastest way for you to implement it?”
Meanwhile, others see the standardisation project as an opportunity to significantly change the way international payments work around the globe, particularly given that many countries and regions are implementing, or thinking about implementing, real-time retail payment systems. The argument is that the technical documentation on ISO 20022 is a crucial step in supporting these markets on their journey. The focus of the work is not merely on helping countries with their domestic implementation, it also has a large focus on interoperability between systems; a consistent set of standards will facilitate cross-border, real-time payments in the future.
Irfan Ahmad, vice-president, product development and strategy, The Clearing House, says: “In the short-term we believe these efforts will have a tremendous industry impact on multinational companies, who can use the same formats and procedures across their operations. In the long-term this effort provides the foundation for international interoperability among real-time payments systems.”
But there are considerable issues still to be dealt with that lie outside the scope of the pure standard for real-time payments. While some of these come down to market practice differences that can be ironed out, others relate to regulation, not least of which for institutions will be the anti-money laundering (AML) compliance implications. At the moment, in countries such as Germany, a cross-border payment cannot be made without cross-checking against AML sanctions lists. Can that be done in the context of real-time payments? Many are sceptical, pointing out that the extra data required would add a considerable payload to the messages, which is potentially already a problem in itself. “Compared to existing Swift traffic, real-time consumer payments have a much higher volume,” says Jerry Norton, vice-president of financial services at systems vendor CGI. “The effect of that on network traffic and the management of that is outside the scope of just the standards.”
Fiona Hamilton, vice-president of Europe and Asia at Volante Technologies, says this was part of the reason the standard was kept flexible. “ISO 20022 is not a panacea. You cannot standardise everything. Look at the Sepa implementation where we ended up with different cross-border ‘flavours’ of XML. You have to allow for pan-regional or sector extensions within a common framework. XML is an extensible language, which is why it is useful for this reason. ISO 20022 is a lingua franca.”
Similarly, some participants point out that real-time payments are largely retail so it is important to look at what data, such as geo-tagging, is being used in that space. “Otherwise we are potentially missing a range of data that will have to be built back in five years’ time,” said one.
Bank of America’s Durkin says the impact of ISO 20022 is wider than just real-time payments, with proposals for clearing and same-day ACH payments also adopting the standard. “We are at a cross-road in the US where there are numerous industry initiatives that are gaining attention and momentum,” he says. “The adoption of ISO 20022 for clearing does bleed into the real-time payments discussion. Real-time payments are about immediacy and the impact on consumers. Certainly there are already examples in the US of enabling P2P payments, but how do you enable C2P – the aspect of how companies and corporations can leverage it to for payments to clients. The other initiative that is already marching forward is for same-day ACH payments in the US – which means that there are three elements that are brewing.”
He also reckons that this is just the beginning of a significant change: “I think it is going to increase at Sibos. The industry is looking for that ‘big bang’ statement that is going to jump on innovation. There is a lot of work to do, such as getting the intellectual component framework, but the first step is to recognise the challenge. I do think it is an opportunity for the industry to collaborate,” he says.
“The majority of our work of the past five years has been about support for the industry standard, and frankly it was the corporations pushing us big banks to get there. Maybe we can see a parallel from the way that we have made it work for the corporate channel with how the industry can move ahead. ISO is going to open the door to one big goal that has hindered other aspects, and that is harmonisation so that we can harness the power that comes with data. The data that has flowed through ISO payments with corporations is significant, so there is a lot of additional value that the banks can get from that. I look at it as the data being the driving force behind the standard.” DNS