Top 5 Innovations in the Payments Landscape You Should Know by the End of 2020
The notions of interoperability, harmonization, transparency and unification have been popular in financial payments and messaging standards in 2020. As technological developments evolve and offer so many advantages for the businesses in every field, the financial ecosystem has had its share and benefitted from this evolution. Solutions that require less human intervention, cost and time are preferred in the payments services as they increase the overall efficiency of the processes. Especially in cross-border payments, often encountered problems of ambiguity in timings, costs and information about the payment during the process are targeted and improved with new or developed services. Make sure to take a look at the financial trends and innovations in the payments ecosystem listed below before 2020 ends.
ISO 20022 for a structured financial messaging
The complex structure of the data used in the international payments messaging standard causes uncertainty in many cases. Manual intervention is required in such cases which eventually increases the time spent, number of processes and the costs to deal with them. What the financial industry urgently needed was a standardization that will be able to meet the requirements of the digital era which are qualitative data, agility, transparency, flexibility and compliance.
The ISO 15022 financial standard has been in use since 2003 and it provided the financial messaging with the idea of data dictionary which enabled standardization and reprocessing of data. However, as the speed of technology has gained enormous acceleration, the advantages of the ISO 15022 has become downsides by the year 2020.
The ISO 20022 was introduced as the new financial standard that focuses on offering better efficiency with more structured data, end-to-end transaction monitoring and improved performance in cross-border payments. Financial institutions will be able to benefit from the updated international, open and extensive data dictionary designed for financial data transmissions. The ISO 20022 is using MX messaging standard which as opposed to its predecessor MT messaging standard creates more structured and automated data.
Customers who are accustomed to the simple, fast and smooth services of the digital age expect the same in their financial transactions, but financial transactions should also be secure and compliant. The ISO 20022, with its structured data dictionary, provides more consistency for customer experience and at the same better compliance with regulatory requirements.
The migration ISO 20022 has started in 2020 and is planned to be completed by the end of 2022.
You can read more about ISO 20022 from here.
SWIFT gpi for faster and trackable cross-border payments
SWIFT’s initiative SWIFT gpi (Global Payments Innovation) aims to address the most problematic aspects of international payments in relation to cost, tracking and velocity by improving the payment procedures both for the customers and institutions.
Speed is one of the most appealing benefits of the SWIFT gpi as it enables same day payments (depending on operating hours), almost all the payments powered by gpi are completed within 24 hours while half of them are done within 30 minutes and 40% of them within 5 mins. The ultimate pace SWIFT gpi brings in automatically improves international trade businesses, ameliorates commercial relations and increases the service quality offered by banks.
Another outstanding feature of SWIFT gpi is the traceability. The ability to track the payments end-to-end and in real time makes all the details of the cross-border payments fully transparent which enables financial institutions to act quickly and effectively if a problem occurs within the course of the payment.
The transparency of the costs related to the processing or exchange rates and timing of the transactions improved both the bank-customer relationships in terms of decision-making and financial management. It also erases the uncertainty of costs and timing in the cross-border payments.
Data consistency is also guaranteed with the SWIFT gpi as the information about the payment remains stable and unchanged throughout the whole payment process. In cross-border payments, the integrity and consistency of data is highly important because otherwise the tracking, reconciliation and settlements of the payments would become harder to deal with.
Finally, SWIFT gpi offers a payment system that is compliant with the regulatory expectations and secure against the threats of digital attacks at the same time.
Read more about SWIFT gpi in our previous blog post.
ESMIG for harmonized connectivity
Within the scope of Eurosystem’s consolidation project of TARGET2 (the real-time gross settlement (RTGS) system for settling payments) and T2S (the securities settlement platform) services, to increase connectivity within the European financial market infrastructure with a secure and standardized interface, ESMIG (Eurosystem Single Market Infrastructure Gateway) was introduced. The aim is to create a harmonized gateway to access all the services of the Eurosystem presenting various connectivity options for the participants. It is also targeted to increase the competition in between the network service providers by enabling multi-vendor connectivity to the system.
The expectation is that ESMIG operate the fundamental controls on inward messages and then direct them to the related TARGET service. ESMIG also performs the routing of the messages going out of the TARGET services to the relevant network services platform.
You can read more about TARGET consolidation project and its benefits here.
CPBR+ specifications for effective migration from MT to MX
MT and MX abbreviations refer to the message standards created and developed by SWIFT in order to pass information via financial services offered by SWIFT and used by financial institutions.
MT is the original message standard first introduced by SWIFT and it was used in the ISO 15022. MX, on the other hand, is a message standard developed by SWIFT again utilizing XML format. MT messages are migrated to MX standard which is used in ISO 20022.
In the process of migration from MT to MX (to ISO 20022), the message mappings and market practices are defined by the SWIFT’s working group called Cross-Border Payments and Reporting Plus (CBPR+) group. On the matters such as how ISO 20022 can be implemented for cross-border payments and reporting on cash flow on the SWIFT network, CBPR+ specifications will be followed. The correct implementation of CBPR+ specifications is crucial because the conformity to CBPR+ will be confirmed by SWIFT’s message service itself.
The financial messaging solutions offered by Fineksus which are PayGate™ Inspector, PayGate™ Maestro and PayGate™ Message.SDK have passed through the SWIFT testimonials and were approved as the CBPR+ ready solutions by SWIFT. Fineksus, thereby, is a CBPR+ ready service provider with its contributions to the migration process of ISO 20022 and with the innovative solutions provided for sanction screening and financial messaging. Fineksus is also SWIFT gpi, ESMIG and UPC ready with its PayGate™ financial messaging products.
In addition to the innovative trends in the mainstream payment areas, it is also essential to have a look at and to understand the different FinTech approaches that try to address issues of interoperability, harmonization, transparency and unification. Cloud-based payment methods, for instance, are able to increase the speed of payments with automation and flexibility while at the same time they provide a more secure payments environment. Financial institutions can benefit from cloud computing technology in order to achieve efficiency in cost-management and productivity. On the alternative payment channels and blockchain networks side, the promising technological developments offer new ways and methods to validate data with higher security and transparency. Among those, Distributed Ledger Technology (DLT) and Blockchain Technology are standing out as they are expected to become more widely used in increasing the efficiency and easing the limitations in cross-border payments while at the same time incorporating many other advantages improving the transaction processes. Augmented transparency, security and speed in cross-border payments with the effective use of these technologies eventually improve the customer experience by promoting trust, accuracy and data integrity.
Ahmet Vefik Dinçer, CEO