EXCLUSIVE: ‘First step into a new future for payments ’ – Jessica O’Rourke, ACI Worldwide and Carmen Podgurschi, Wells Fargo in ‘The Fintech Magazine’
ISO 20022 is the flag-bearer for efficient cross-border payments. Jessica O’Rourke of ACI Worldwide and Carmen Podgurschi of Wells Fargo discuss payment innovations and how the messaging standard will create a common language for banks and financial institutions.
Payments have evolved rapidly on several fronts over the past decade. Digitalisation has been relentless, many innovative payment challengers have entered the field, and initiatives such as SWIFT gpi and the revised Payment Services Directive (PSD2) have set new industry frameworks. And now we have ISO 20022, which marks the next big step for the industry.
The new standard, which is due for industry-wide rollout from November 2022, comes at a time when cross-border payments and e-commerce have been boosted by the impact of COVID-19 and customer expectations are increasingly driving service levels and the development of real-time payments. Wells Fargo has been part of the changing payments landscape for generations, and today has nearly $2trillion in assets, serving one in three US households. The bank’s Carmen Podgurschi has more than 10 years’ experience of working in treasury services, and says that cross-border payments are now at a watershed moment.
“At Wells Fargo, it’s covering the full range of cross-border payments, from below $100 up to $2billion, and working with many new settlement types,” says Podgurschi. “Tremendous end-to-end changes are taking place.” And in the international arena that’s mostly around transparency and interoperability, as the bank navigates a network of different payment rails – from, for example, an automated clearing house (ACH) to real-time settlement.
For Jessica O’Rourke, a wholesale banking solution consultant with ACI Worldwide, it’s precisely why new global standards are needed. “All the pressures arising from e-commerce, from customer expectations and digitalisation heighten the need for instant delivery, but also for transparency and interoperability,” she says. ACI research reveals that transactions surged by 41 per cent in 2020 as a result of the pandemic, accelerating the shift to digital payments.
“As the pace of change increases, ISO 20022 will help to integrate all the different payment types,” says Podgurschi. “The new standard will improve processing, migration, backend infrastructures, APIs, the whole technology architecture. “We want customers to have the same experience with cross-border payments, in terms of transparency, cost and speed, as they have with domestic payments. “ISO 20022 will be a big help for payment transparency in several ways – transparency of the amount the beneficiary receives, the currency, the foreign exchange (FX), where payment took place, if there were any type of fees, and the deductions applied to the payment.”
Compliance will be a big factor.
“SWIFT has implemented gpi, which has helped a great deal with transparency, but I think ISO 20022 will really reduce the compliance problem,” adds O’Rourke. ”It will make it faster and more efficient to do compliance scanning of cross-border payments.”
The process is currently complex, but with the arrival of IS0 20022, the structure is clearer and more efficient, she explains. As a payment goes through the correspondent banking network, it makes scanning much easier. Important though compliance is, it would be a mistake to see ISO 20022 as simply a compliance exercise. The new standard can have significant strategic advantages for banks and financial institutions. For example, product development and innovation on the back of ISO 20022 could generate new revenue streams, while improved efficiency could mean savings in labour and lower maintenance costs. Also, customer satisfaction is likely to increase because fewer payments will be rejected and user experience will be improved.
Podgurschi says that Wells Fargo is ready to embrace ISO 20022 in the US because it sees the opportunity for exploiting the rich data embedded in the message format, and the beneficial impact for processing, sanctions, and regulatory reporting. There is, of course, an investment cost in introducing IS0 20022, but it is outweighed by the benefits of the new standard.
“Just think of the maintenance savings,” she continues. ”Instead of having different types of formats, we are going to have the same standard behind all the formats, maintaining the way the data needs to flow. So, the cost of maintaining all these formats across geographies, payment types, market infrastructures, will be far less.”
The common structure will give Wells Fargo the versatility to develop different solutions for customers and apply automated reconciliation to a much larger proportion of receivables, she adds. That means a big payback for corporate customers; they won’t have to spend time reconciling invoices; the richer data, and the structure of that data, will promote straight-through processing (STP).
“At present,” says O’Rourke, “if you have an invoice and a payment, the funds move along one pipe, and the data about the funds flows separately, and then they have to be reconciled at the other end. With ISO 20022, the payment data is embedded in the payment itself. It eliminates friction and it’s a huge cost that we can now remove from the industry. “Put simply, the new standard opens the toolbox and enables us to do a lot more things, both cheaply and quickly – all by virtue of having a much better structure for payments data.’”
Fraud prevention is another compelling benefit to everyone across the industry.
“The enhanced data will provide sharper insights into fraud,” says Podgurschi. “It’s a huge consideration, and a priority for many teams within banks and fintechs. Our colleagues in sanctions, anti-money laundering, compliance, know your customer – they are all excited because they’ll be able to delve directly into individual transactions, as well as particular corridors or payment types, using very standardised tools. And they’ll receive rich data to make more informed and accurate decisions.”
Regulatory reporting in different jurisdictions is a major challenge for an international bank with costs to match, which inflates the pricing for customers. So, standardisation will make a positive difference because there will be fewer manual repairs and sanctions, and much better STP rates. But these gains in efficiency point to another important benefit – less time wasted looking for data means more time to build new solutions.
Given the ever-increasing number and variety of payment types, it’s no small undertaking for a single standard to unify and streamline payments. The standard has been around for years. The fact that banks have waited to adopt it until they must by default, would suggest that migration to ISO 20022 isn’t exactly a walk in the park. O’Rourke says it’s certainly a challenge for the banks that she works with at ACI but the spin-off benefits are now worth it.
“We tend to deal with Tier 1 banks, and they invest in what makes sense for them,” says O’Rourke. “So, over the years, they have had their ACH infrastructure, their wire infrastructure, and they build a shiny new instant payment infrastructure. And then they’re siloed. This is not a criticism of any particular bank; it’s just that previously it didn’t make sense to invest in pulling all these things together.
“But that’s changing now. ISO 20022 mandates a change in the overall banking infrastructure, and that opens doors.” Podgurschi agrees. “It’s important to migrate to infrastructures and platforms that operate on all the rails, and embed translations in them. All leading banks are probably moving in that direction now, working in the Cloud, and the benefits in terms of flexibility should be clear. You can use whatever you need, when you need it. This improves the way you develop new solutions, leveraging technologies such as AI and machine learning. The result is tons of moving pieces on top of ISO 20022.”
Nevertheless, according to a recent joint paper from ACI and SWIFT on cross-border payments and ISO 20022, many banks are still struggling to identify a clear path to compliance that also delivers additional value. Podgurschi and O’Rourke would urge them to look more closely at the benefits, because they believe that if the industry fully embraces the spirit of interoperability, which is the cornerstone of ISO 20022, it can truly create a new era for payments.