The Future of
About this report
The results are in from 311 banking & FI players across Treasury, Fraud, Operations, Product & C-Level in 34 countries globally including - 8.4% United States, 10.5% UK, 3.2% Cambodia, 2.10% Germany, 6.3% India, 3.2% Israel, 14.7%, Malaysia, 5.3% The Netherlands, 5.3% Singapore, 5.3% Switzerland, 4.2% Thailand.
During the summer, we asked you and other banking & financial service executives to participate in a real-time comparison to their organisational peers to see how they measured up in meeting customer expectations and in their progress toward a payments modernization strategy. Thanks very much for participating. Your reward is a uniquely personalised report covering comparisons on cloud usage, real-time payments, ISO 20022 messaging, cross-border payments, fraud defense, treasury management and Open Banking. As an added value we have also put together an overall summary of the results and included insights from Bottomline, EBA Clearing, Aite-Novarica Group & Open Banking Expo on the findings.
Why is this report worth reading?
The simple answer: Competition. To quote author and financial analyst Nicholas Nassem Talib: "If you are in banking and lending, surprisingly outcomes are likely to be negative for you." This report is aimed at removing those surprises, because they are competitive killers. The rapid evolution of payments has seen Banks & Financial Institutions having to juggle their strategies in the face of a flurry of new industry and regulatory deadlines. Among them: Overhauls of messaging standardisation, a drive towards real-time and the need for product road-map fulfilment within tight deadlines. COVID-19 has accelerated the transition to the digitalisation of payments and raised customer expectations for speed, agility and fraud protection from providers. PSD2 and Open Banking have encouraged competition, opened up the market to challengers and focused more on interoperability for access to global markets.
All of the above is good news if it means Banks & FIs can improve their operational efficiency and develop new revenue streams. However, with competition comes the need to ensure that you are keeping up and providing your customers with what they demand in order to retain the current ones and acquire new ones.
How does your Bank or Financial Institution stack up against your competition? We felt banks & FIs could benefit from comparing their strategic priorities, product road-maps and plans for future innovation with their peers. In the process you could discover the technology trends the industry is prioritising and make sure you are aligned.
If you're interested in competition it is worth reading this personalised report. With views from over 300 industry experts from across the banking ecosystem, the question is can you afford not to?
General outlook
A significant proportion of FIs need better support internally from the top-down to accelerate change and address legacy infrastructure.
Insight 1: Which of these topics are the biggest focus for you and your business at the moment?
Real-Time Payments ranked as the second highest focus with cross-border payments coming in 3rd. Digital transformation, real-time & cross border are all closely linked as legacy systems need to be updated for real-time rails. Also: real-time architecture forms the basis of SWIFT gpi and other innovative cross-border channels. For instance, the G20 have set out clear quantitative global targets for addressing the challenges of cost, speed, transparency and access faced by cross border payments to ensure an enhanced cross-border experience.
Read our ebook – Navigating Banking & Payments in 2021 Report
Insight 2: How confident are you with your company’s digital transformation and payments modernization strategy?
Competition in the short term will surely depend on digital transformation. Yet, nearly a quarter of banks & FIs (25%) are somewhat or highly sceptical of their company’s digital transformation & modernization strategy. This is despite this ranking as the biggest focus for their business at the moment in insight 1. This would indicate that a significant proportion of FIs need better support internally from the top-down to accelerate change and address legacy infrastructure.
Listen to our podcast – Payments Modernization: “Are we nearly there yet?”
We asked
How confident are you with your company’s digital transformation and payments modernization strategy?
Insight 3: Which issues are you facing with your current payments infrastructure?
In the "biggest focus" chart above, the concern about the disruption of updating systems and technology impacting business continuity or current day-to-day transactions is evident by it being ranked fourth. However, business continuity also includes adhering to RegTech, as well as innovation, and should be considered as part of this category.
It is surprising to see insider fraud ranked last in terms of focus as this is an increasing threat which the market needs to be educated on.
In the chart below, covering current issues with payments infrastructure, legacy systems ranked first and lack of operational efficiency ranked second. Lack of interoperability between internal systems ranked third, which ties back to the lack of operational efficiency as well as legacy infrastructure. Again, there seems to be a disconnect as in benchmark question 6 replacing legacy infrastructure to improve operational efficiency was the only listed as the third = top priority when it comes to payments over the next 12 months.
Read of whitepaper with Lipis Advisors Leveraging real-time payments (RTP) in digital ecosystems - How banks can benefit from expanded access
We asked
Which issues are you facing with your current payments infrastructure?
“Banks globally recognize the need for digital transformation as their end user expectations change. Achieving successful digital transformation however is easier said than done and most banks recognize these challenges. Putting off digital transformation is no longer an option as the Covid-19 pandemic has dramatically accelerated this shift, changing end user expectations, and is now changing the competitive landscape.”
Gilles Ubaghs, Strategic Advisor, Commercial Banking & Payments, Aite-Novarica Group
Transitioning to a payments ecosystem
Connected finance was an important theme in this report
Insight 4: What is your financial institution’s appetite to transition towards a Payments ecosystem over the next 5 years?
Connected finance was an important theme in this report. It showed that 76% have a strong or extremely strong appetite to transition towards a payments ecosystem over the next five years. This would suggest a strong use case for having an aggregated connectivity solution that helps remove silos in FIs. This supports the view expressed in benchmark question 3 which listed interoperability between internal systems as the third rated key issue faced with current payment infrastructures. What is more, having a single-end-view and platform to carry out all functionality, analysis and reporting will also help with delivering better customer service and gathering customer data. Perhaps the most surprising discovery is that despite the strong push towards payments modernisation as demonstrated in the responses for insight 1, FIs haven’t factored in the benefits of the payments ecosystem being SaaS rather than on-premise – only 31.5% saw migrating to cloud or SaaS technology as a top priority over the next 12 months.
Listen to JP Morgan & Bottomline podcast Real-Time Payments & Aggregation
Insight 5: How important do you think RegTech will be in the next 12 months?
63.5% of respondents said that RegTech will become more important in the next 12 months. This despite only ranking sixth out of eight options as the top priority in benchmark insight 6. This view may be due to context of interoperability and data. FIs now see RegTech and the best practices it demands as a positive in terms of what it can do to support interoperability & Data (ISO 20022), best practice (latency for real-time, CoP for fraud) and easier access models (PSD2, Open Banking, UK Faster Payments Access Models etc). Therefore, it isn’t just hitting deadlines for business continuity (25% benchmark insight 1), but how you leverage RegTech to grow and improve your financial institution.
Read our article: Confirmation of Payee Request to Pay, ISO 20022 – it’s time to start seeing payments regulation for what it is … your key to greater efficiency and stronger security.
Insight 6: Which of the following are your top priorities when it comes to payments over the next 12 months?
Hear what your corporate customers are saying their priorities are – do they match? Find our with the 2021 Business Payments Barometer
We asked
Which of the following are your top priorities when it comes to payments over the next 12 months?
"The profitability of the payments business stands at a crossroads. The combined forces of fierce competition, regulatory interventions, and necessary investments in infrastructure and compliance put operating margins under pressure. At the same time, the pandemic has boosted the adoption of digital payments, creating new opportunities for banks and other payment companies. Recent Aite-Novarica Group research among leading retail banks globally concludes that banks clearly recognize the importance of investment in the modernization of their payments platforms to meet the increasing competition in the payments value chain. Banks foresee a significant impact on revenue if they do not adapt and invest in payments modernization. Based on the survey, Aite Group estimates revenue at risk for retail banks of 10% to 15% of retail bank payments revenue, or US$100 billion to US$150 billion globally. Banks see clear benefits of payments modernization projects, with greater flexibility in future product offerings cited as the most prominent benefit. But payments modernization also supports quicker time to market for new products, improved infrastructure for managing compliance and operational needs, and the ability to offer more value-added services to their customers."
Ron van Wezel, Strategic Advisor, Retail Banking & Payments, Aite-Novarica Group
ISO 20022
The sooner you implement ISO 20022, the sooner you can start reaping the benefits of high-levels of transparency, better customer service and of course -improved operational efficiency.
Insight 7: How advanced are you in the implementation of ISO 20022?
It is encouraging to see that 13% of banks & FIs have implemented ISO 20022 to date, 15% are mid-way through implementing & 13% have completed their plans and are about to start the implementation process. This means 41% are at the right spot considering the ISO 20022 testing window opens in February 2022 and slots will be limited and on a first-come-first-served basis. However, as for the other 59%+, they need to get their skates on. Consider that 25.5% have not even started, 23% have just started planning & 11% are still looking for information on how to move forward. This shows that many banks may have underestimated the complexity of the migration. The transition isn’t just a simple upgrade of process. Or it could simply be that their hands are tied by finite resources and competing priorities. Existing infrastructure and legacy systems will struggle to deal with the speed of integration and transition required. Additionally, as stated by SWIFT: “data richness isn’t the only thing that needs to be addressed; data collection is a key requirement via e-banking, treasury portals, ERP Machine-to-Machine connections, mobile apps, teller systems, ATMs and paper forms."
This is particularly concerning when you consider that SWIFT has mandated that any financial institution that processes SWIFT messages must be able to receive and process ISO messages by the now-delayed date of the end of 2022 from the original November 2021 deadline. To quote from the SWIFT Connectivity Guide: “The mandatory action required for all institutions is to upgrade your messaging interface (supporting InterAct store-and-forward).” Bear in mind that SWIFT currently has 17 million payments messages exchanged every day. With numbers set to increase dramatically and imminently, it would be a brave bank or FI that chooses to ignore this scale and reach.
Additionally, the systemically important payment systems of Target2, MEPS+, CHATS, CHAPS, RITS, BahnNet, Rentas and others also have deadlines for November 2022, as well as PhilPass in 2021 & Chips & Fed is 2024. Essentially, the next four years until the 2025 will see the start of the co-existence period for SWIFT and the migration of all the remaining major markets with most reserve currencies (Euro, USD, GBP) onboard. This shift will represent the ‘new norm’ for high-value payments supporting a predicted 80% of volume and 90% of the value of transactions by 2025. As stated above, a lack of compliance to ISO 20022 deadlines will lead to a disruption in ‘business continuity’ which is a challenge for those that ranked it as only fourth equal in terms of their biggest focus currently in insight number 1. Furthermore, there is also a direct contradiction to responses in insight 5 where 63.5% said RegTech will be more important over the next 12 months & insight 6 where hitting compliance and regulatory deadlines was ranked sixth out of eight options as the top priority for their business in the next 12 months.
However, probably the strongest business case is that the sooner you implement ISO 20022, the sooner you can start reaping the benefits of high-levels of transparency, better customer service and of course -improved operational efficiency. Among the other benefits:
• Supports transparency & interoperability for domestic & cross-border payments
• Lowers operating costs
• Provides data insights to improve customer payments insight
• Increased automation & less manual intervention
• Richer customer data which helps with reconciliation & enhanced fraud capability
• Creates new revenue streams through digital overlays
• Improved customer service and the ability for clients to self-serve
As for the almost 11% who are still looking for information on what to do, this is a result of different levels of educational support globally. For instance, EBA Clearing has worked hand-in-hand with SWIFT to educate and offer guidance to banks. Bottomline has also hosted education sessions with ABS in Singapore, SWIFT, EBA Clearing, Payments Canada, PayUK, ECAMS. However, correspondent banks have been slow to release exact specifications of what their customers need to do to use their rails which has led to some confusion for planning and prioritisation. Recent conversations that we have been party to have shown that they are addressing this as we speak. Either way, the wide range of regulatory deadlines for ISO 20022 migration, the size of institutions and disparate education, have ramifications for both speed-to-market and interoperability – what is described by industry experts as “breaking the chain.” Therefore, government bodies and regulators globally still need to ‘step up’ and steward all institutions to reach a fruitful migration.
Here are the three clear steps needed to ensure a successful migration that delivers scalability, minimum hassle and speed to market:
Step 1
Upgrade interfaces and core overlay services to ISO 20022 native
Upgrade Interfaces and core Overlay Services to be ISO 20022 compliant, whilst simultaneously providing access for our clients to a utility that enables transformation, enrichment and validation of their legacy messaging transposed into ISO 20022. NB. Customer messaging processing remains unchanged.
Step 2
Implement the upgraded Infrastructure and enable new messaging services without impacting daily operations
Implement the upgraded Infrastructure for our clients and enable the new messaging services for them without impact on their daily operations. This will prepare our clients for the market facing changes they will have to make and ready them for the switch, post a customer impact assessment and further data analysis.
In parallel, Bottomline will work with clients to enhance the data they need to make available and process. This can happen in two different ways: The first is for the client’s own applications to produce full ISO 20022. The second is to maintain current outputs, allowing access to the full data via a complete data store based on the original messaging and integrate secondary data sources to build the complete message.
Step 3
Final decision to set ISO 20022 ‘live’ in the market
The final decision to set ISO 20022 ‘live’ in the market. With all the internal work completed in the background, the communication out to the market moves from old to new. Now our clients can feel confident to elect a date to switch on the full capabilities of ISO 20022 payments processing having had ample time for testing. The improved processes that have been developed internally can then be set ‘Live’.
Don’t be a laggard as even with the support of industry/ government bodies, as well as a seasoned service provider partner like Bottomline, a simple migration takes 9-12 months to implement, let alone a strategic approach - so you better act now!
ISO 20022 Whitepaper
To find out more read our whitepaper Digital Payments Transformation with ISO 20022 as the Springboard
Barriers to adoption
It’s apparent that real-time payments has gone from a “nice to have” investment to a “must have” in a very short period of time and those that don’t provide this functionality risk attrition and gaining a reputation as a laggard.
Insight 8: What are your company’s greatest barriers to adoption of real-time payments?
The future of payments is in real-time. But it's no surprise that prioritisation within an already busy road-map is ranked as the greatest barrier to its adoption. Banks & FIs have a great deal to accomplish from a regulatory and industry compliance point of view with ISO 20022, SWIFT CSP, Confirmation of Payee, PSD2 etc point of view. Additionally, COVID-19 has led to a rapid increase in the use of digital payments and so education of customers has been front and centre since 2020. However, the benefits of real-time payments are over-arching as real-time rails are used for all modern payment transactions, from SWIFT gpi, through to digital overlays such as Request to Pay. The value of real-time seems to be acknowledged in the market as it ranked last as being a barrier to adoption. It also contradicts insight 6, where adopting new payment rails such as real-time payments was ranked the top as a priority in the next 12 months.
What is more, customers will benefit from speed, reliability, rich data, interoperability and the added security that ISO 20022 brings as the messaging standard for real-time rails. The growth of real-time payments (‘Faster’ in the UK, ‘Instant’ in Europe), is proof positive. The 70.3 billion transactions processed globally in 2020 represented a 41% increase over 2019, and it is estimated to be tracking on a 23.6% annual clip for the next five years. In 2025 it is estimated that Real-time Payments (RTP) will have a 17.4% share of global payments. According to a report, corporates have stated that they will switch banks to access RTP (65% US; 90% Italy; 75% France; 58% Germany). Since this report was published, RTP has only increased in stature. The survey from Citizens Commercial Banking in August 2020 found that nine out of 10 businesses were interested in the new RTP payment standard. Offering real-time payments, leveraging the amount of rich data & insights could be the difference between strengthening the customer experience and stemming attrition.
The second highest barrier was legacy infrastructure which is also connected to lack of IT resources which ranked third. To address this banks & FIs need to view the upgrade from legacy as a scaleable project and not a large rip and replace strategy – i.e. Minimal Viable Requirement. Additionally, there is plenty of support in the market from solution providers such as Bottomline, as well as central infrastructures like PAY.UK, EBA Clearing, TCH, Singapore Fast etc. to help with strategy and best practice roll out to ensure speed to market without disrupting existing operational efficiency. Therefore, this should not be seen as a project that is just taken on by just one part of the business such as IT or Operations, but where the responsibility can be split across multiple functions internally. Outsourcing support will address the concerns of two audiences: 1)those worried about the cost and hassle of implementing a new payment rail who ranked it 3rd as a barrier and 2) those concerned with ongoing compliance headaches (fourth ranked). Both can be more confident about driving this initiative as it is the solution provider’s responsibility to ensure they take away the pain of integration and ensure that you are future-proofed by automatically complying to ongoing regulation.
The reality is that upgrading legacy infrastructure isn’t a project that can be postponed and isn’t tied to real-time payments alone. Banks need to invest in new technology and upgrade legacy systems to embrace Open Banking and the payment rails that enable RTP. By upgrading those systems, banks get additional benefits. Because RTP and Open Banking use ISO 20022 standard messaging, it provides banks with an incredible amount of data with every transaction. Consequently, RTP opens the door for upsell and cross-sell opportunities which was ranked second as their top priority over the next 12 months in insight 6 – creating new revenue streams using digital overlays.
Finally, the issue highlighted as the fifth greatest barrier by the respondents was the restrictions in access models for smaller banks, fintechs and e-money providers. It is true that it used to be the case that real-time payments were only the auspices of larger traditional players, however there have been industry initiatives off the back of PSD2 and equivalent regulations to help level the playing field such as the New Payments Architecture in the UK, Target2 in Europe & Zelle in the US to name but a few. However, more still needs to be done and I think Pay.UK’s model New Access Model should be the ‘poster-child’ for further improvements.
Watch our Webinar on-demand: 4 ways to Maximise Instant Payments in Europe
The evolution of payment system access models – 3rd generation
One or more payment rails accessed under a common architecture:
ISO20022 – richer data; Request to Pay; Cross border; Open Banking & Collaboration
First Generation
Direct Only
Indirect participant fully relies on direct participant
Indirect and Direct
Indirect participanthas direct access
Second Generation
Direct, Indirect and Third-Party Gateway
Indirect participant can utilize third-party gateway to access
Third Generation
Consolidated Access Layer
Consolidated layer routes to relevant clearing system
There are three ways to access UK Faster Payments, depending on what best fits your organisation’s needs and strategy:
1. Directly Connected Settling Participants (DCSPs) – connect directly into the Faster Payments Central Infrastructure to send and receive payments in real-time, 24 hours a day. DCSPs set their transaction limits and perform their own settlement with the Bank of England. This setup is often the best option for organisations that handle a high volume of payments and are eligible to open a settlement account at the Bank of England.
2. Directly Connected Non-Settling Participants (DCNSPs) – connect directly into the Faster Payments Central Infrastructure via a sponsoring Participant that performs Bank of England settlement on the Payment Service Provider’s behalf. This option is the best for organisations not eligible to open a settlement account at the Bank of England.
3. Indirect Agency – this alternative enables a Payment Service Provider (PSP) to connect to Faster Payments via a sponsoring Participant which manages the direct connection on its behalf. The Participant offers several ways to send and receive Faster Payments, and also performs Bank of England settlement on the PSP’s behalf. This option is beneficial for PSPs that find a direct connection is not commercially viable.
Source: http://www.fasterpayments.org.uk/access
However, compliance and regulatory timescales and restrictions on UK Faster Payments (FPS) testing have limited the number of new entrants to the real-time Payments ecosystem via the first two options listed.
For Directly Connected Settling Participants, there are several challenges. Firstly, participants need enough volume and value to justify the cost of building the gateway. Then there’s hiring additional technical experts to implement the platform, plus the time required to adhere to the mountains of initial and ongoing compliance obligations.
For Directly Connected Non-Settling Participants, the obstacles start with the fact that most transactions aren’t indeed real-time (0-15 seconds), and can take several hours. Additionally, the charges imposed per transaction are very high. Many participants find they experienced more outages and are often at ‘the back of the queue’ in getting this fixed because the sponsor prioritises their own core systems first.
So, what’s the alternative? Smaller or challenger banks and financial institutions can benefit from the New Access Model - an option introduced in response to the global financial crisis in 2008. Designed to remove barriers, this model creates a level playing field for smaller financial institutions and PSP’s to connect to Faster Payments. It sits under the 3rd option of Indirect Agency, accessing FPS via API connectivity without the need for scheme approval.
A speedy, smart competitive advantage
Indirect Agency represents a real opportunity for previously excluded financial institutions. By offering real-time payments without compromising on speed, spend, performance and resources, it builds their customer base and challenges traditional players in the market. Making real-time payments accessible to everyone increases competition. It allows smaller banks and companies to enjoy the 24x7 faster payment rails for account-to-account payments. This access is made possible by using API Connectivity, which enables all users to send and receive money instantly through any digital channel.
Best-in-class solutions are SAAS-based, subscription models. This approach avoids expensive capital expenditure (capex) outlay and prevents unnecessary delay in adopting new services. The payment workflow should include extra controls and checks. For example, a ‘net sender cap’ to ensure all the money moving through this service is fully funded by the sender before making any financial transaction. These extra technical features guarantee that the service is accredited and fully auditable by the Faster Payment Scheme, Regulators and independent audit organisations.
This model offers several compelling benefits:
Gain speed-to-market.
Using a simple, cost-effective API interface means you go live with UK Faster Payments more quickly, and avoid long, costly development cycles and complex legal agreements.
Eliminate regulatory upgrades.
Staying compliant will be automatically handled by your indirect agency partner.
Increase service uptime and confidence.
Enjoy a higher level of stability and availability to the gateway.
However, in general across the world it is still a largely fragmented landscape and therefore the costs of connecting to multiple country schemes can be expensive. This is again where solution providers like Bottomline can help by offering a multi-connectivity platforms such as our Universal Payments Aggregator that offers one solution across multiple domestic & real-time schemes.
In conclusion, when you do the maths it’s apparent that real-time payments has gone from a “nice to have” investment to a “must have” in a very short period of time and those that don’t provide this functionality risk attrition and gaining a reputation as a laggard.
“Instant payment uptake has been quite spectacular so far, with roughly 10% of all European credit transfers being processed in real-time today. RT1 is a solid cornerstone of the underlying clearing and settlement infrastructure, extending pan-European reach to all PSPs adhering to the SCT Inst Scheme. And there are more developments ahead on this journey that will further boost instant payments. We are convinced that request to pay will take instant payments to the next level by enabling the payee and the payer to exchange relevant data ahead of the payment. This can bring additional convenience, security, and transparency to many payment situations, including buy now, pay later scenarios. The combination of request to pay and instant payment is a game-changer that will facilitate the rise of pan-European end-user solutions leveraging the existing rails while focusing on fast, cheap, and frictionless customer experience.
David Renault, Head of SEPA Payments & Country Manager for France at EBA CLEARING
Cross-border pain points
The future of cross-border payments lies in co-existence of new, innovative cross-border channels with the updated correspondent banking model provided by SWIFT gpi
Insight 9: What is the greatest pain point when sending cross-border business payments?
Cross-border is a regulation-filled area but critical to the health of any FI, especially in the EU. It's only logical that pain points will ensue. In our survey, 31% said that the greatest pain point when sending cross border payments is the costs of maintaining so many “nostro” accounts where a bank holds in a foreign currency in another bank. For instance, on average, banks in Asia Pacific have 58 Nostro accounts, which have an annual maintenance cost of more than $1.7 million. This is because fees accumulate at each step in the process, including correspondent bank and third-party service fees. This is also connected to the 9% who highlighted trapped liquidity in the system. The main channels used to make international payment are still leveraging legacy methods that can be both ‘clunky’ and expensive. By using separate accounts, coupled with poor visibility for traditional rails (non SWIFT gpi) on the payments being sent it make it difficult to optimize liquidity. Therefore, it is of paramount importance that innovative players start exploring new strategies that leverage multi-lateral platforms such as Visa B2B Connect Integration, available via Bottomline Technologies to improve efficiency and maximise on revenue potential.
Other key pain points expressed include 27% that have issues with the slow or unknown speed for arrival of a cross-border payments, 24% focused on the lack of visibility on payment status and 8% are concerned about poor quality or loss of data. This combined response of 59% can be addressed by the usage of the ISO 20022 global messaging standard in all new innovative cross-border rails. These new rails include, but not uniquely –Singapore Fast (Central Infrastructure based), non-bank solutions (e.g. Western Union) and Multilateral Payment Platforms (e.g. Visa), that was also specifically referenced by Jerome Powell, Chair of Board of Governors, Federal Reserve System “one of the keys to moving forward will be both-improving the existing system where we can, whilst also evaluating the potential of and the best uses for emerging technologies”, and in the recent G20 Report below. Essentially, the goal for the FSB running this program is that cross-border payment costs will drop to 1% broadly by 2027 and 75% of payments arrive <1 hour & 100% are same day.
Enhance cross-border payments
A. Public & private sector commitment
1. Develop common cross-border payments and targets
2. Implement international guidance and principles
3. Define common features of cross-border payment service levels
B. Regulatory, supervisory & oversight frameworks
4. Align regulatory, supervisory and oversight frameworks
5. Apply AML/CFT consistently and comprehensively
6. Review interaction between data frameworks and cross-border payments
7. Promote safer payment corridors
8. Foster KYC ad identity information-sharing
C. Existing payment infrastructure & arrangements
9. Facilitate increased adoption of PvP
10. Improve (direct) access to payment systems
11. Explore reciprocal liquidity
12. Extend and align operating hours
13. Pursue interlinking of payment systems
D. Data & market practices
14. Adopt a harmonised version of ISO 20022 for message formation
15. Harmonious API protocols for data exchange
16. Establish unique identifiers with proxy registries
E. New payment infrastructure & arrangements
17. Consider the feasibility of new multilateral platforms and arrangements for cross border payments
18. Foster the soundness of global stablecoins arrangements
19. Factor an international dimension into CBDC designs
B2B cross-border payments growth
In the face of recent B2B cross-border payments growth, banks are left to deal with these highly complex transactions that are dependent on correspondent banking relationships, offering limited visibility into the status of payments, costs, and certainty. The traditional payments process leaves receiving banks with little predictability of when payments will arrive or the amount they will receive after currency exchange calculations and various fees are deducted. Know Your Customer (KYC) and Anti-Money laundering (AML) regulations are also adding to the demand for new approaches. Complying with regional AML rules can result in transaction delays, which fosters greater concern in an already uncertain process and a current business landscape fraught with unpredictability. Again, in relation to SWIFT gpi, the big myth is that gpi measures money in the hand end-to-end. This isn’t the case as it is actually BIC to BIC and can then still suffer the same local peculiarities of settlement days.
With expanding global business growth, comes increased opportunities for modernization across the cross-border landscape. Banks are in an excellent position to take advantage of dynamic changes made possible by emerging technologies, such as distributed ledger technology, artificial intelligence and cloud, which are bringing greater innovation to cross-border payments. The rise of leading-edge solutions designed to reshape B2B cross-border payments will enable savvy banks to meet the shifting demands of clients.
Executing cross-border payments using the traditional bilateral corresponding process lacks transparency because both the originating bank and the beneficiary bank remain unaware where the funds of a transaction are at any given moment. Since the transaction is routed across multiple correspondent banks, knowing when payments will arrive or what costs will be incurred is difficult to determine.
It is little wonder that banks view transparency into the movement of payments as a key to improving B2B cross-border payments. New digital technology innovations are entering the marketplace to address this pressing need. In a recent survey, 82% of banks worldwide viewed gaining improved visibility as one of the most appealing features of emerging payment approaches.
The business model is under pressure, and alternatives are needed even faster, with post-pandemic stimulation for digitisation, new client expectations, acceleration of the use of APIs and rich data.
Banks are adopting/migrating to ISO 20022 for all their payments infrastructures as we speak including SWIFT and in the UK & Europe (Chaps, Target2, RT1 (2022), APAC (BahtNet, RENTAS & RITS (2022), CHATS (2023), PhilPass (2021), MEPS+ (2022)) & chips & Fed in 2024 in the US. This adoption is a catalyst as well as an enabler for the introduction of new payments rails, complementary to the correspondent banking model, and where ISO 20022 provides the vital 100% interoperability between different cross-border payment models and platforms. Whilst ISO 20022 standardisation will help remedy many of the current pain points through improving the transparency of the payment, offering interoperability and in-turn improving operational efficiency, it isn’t a ‘solve all’.
In fact, the future of cross-border payments lies in the co-existence of new, innovative cross-border channels with the updated correspondent banking model provided by SWIFT gpi. There are a number of complementary, strategic options to choose from, that add true flexibility according to the size, priority, frequency and geography of a cross-border transaction including, but not uniquely – SEPA Instant & P27 (Central Infrastructure based), non-bank solutions (e.g. Western Union) and Multilateral Payment Platforms (e.g. Visa), that was also specifically referenced by Jerome Powell, Chair of Board of Governors, Federal Reserve System “one of the keys to moving forward will be both-improving the existing system where we can, whilst also evaluating the potential of and the best uses for emerging technologies”.
This future is NOW – You can optimise your future proof cross-border payment services today
Your business customers are calling for more modern cross-border payment solutions.
All elements to build your strategic cross-border payments infrastructure, are available for use today, generating new efficiencies and new revenue streams
• ISO 20022 provides the standardisation needed for interoperability between traditional and new cross-border channels;
• the abundant availability of rich data and related (artificial) intelligence allows us to route payments intelligently and to choose the right channel for each transaction, whether it is to drive new coverage in markets or currencies, or to optimise the execution in existing markets;
• the technology to enable innovation is available for cross-border: APIs, cloud, speed, security, resilience, security & operational efficiency and innovation at scale.
• All triggered by innovation initiatives from Fintechs, incumbents and new large players, including account-to-account/PaaS, and new multi-lateral platforms.
Part of the roadmap for many banks in Europe that are connected to Target2, is to transition to ISO 20022 by November 2022. Additionally, the European Central Banks who manage Target2 have said that banks need to have tested for ISO 20022 by February 2022. Central Banks globally are monitoring project status very closely with their local institutions to ensure they pass strict deadlines for network, user and system testing. Border payments, SWIFT are mandating readiness on FINPlus and support of inbound ISO 20022 messages from November 2022 ISO 20022 is a central solution that also impacts real-time and open banking - all key initiatives. That aside, the impact that the richer data will have on fraud monitoring & compliance, cash-flow management and of course data and analytics provides justification enough. Therefore, it makes sense to implement a more efficient cross border solution at the same time and start reaping the benefits as soon as possible.
The potential new revenue streams via developing a new & growing fee-based pricing structure, and to cross-sell other products in your armoury and access to coveted deposits can’t be ignored. It is a brave bank decision maker that says to its board of directors and shareholders that they aren’t planning to fully leverage this opportunity as a priority.
Multi-lateral platforms enable global payments through a single connection. For transactions between participating banks it offers an enhanced customer experience at a reduced cost and with security and efficiency through tokenisation, governance and rich data. Optional foreign exchange and same or next day settlement in multiple currencies allow for true innovation and more choice.
Choose a solution provider such as Bottomline that offers cloud-native, API-based implementation that is completely integrated with your existing payments infrastructure and 100% interoperable with SWIFT flows. As such, they will be uniquely placed to offer banks a seamless and elegant solution for all cross-border payment flows.
As global business continues to expand, so too does the volume of cross-border payments. There are currently $120 trillion in global B2B payments processed annually. There is a predicted $10T opportunity* in the global high value cross-border payments space according to a survey commissioned by Visa, with almost six-in-ten respondents (59%) expecting overall revenues from cross-border payments to increase in the next five years as a result of faster payments. This is also supported by the combined research of Aite Group & McKinsey & Company which predicts that revenue for cross border based on transaction & FX fees will rise to an estimated $261B by 2025. This justifies the focus that banks & FIs have placed on cross-border in this benchmarking report where in insight 2 37% said cross border payments was their biggest focus at the moment and 39% said it was a top priority in the next 12 months.
The business case for updating your cross-border strategy is clear – after all, no bank is so busy or so asset rich that they don’t need to be more cost effective, further delight customers, be more cost effective and turn down the opportunity to create new revenue streams via transaction fees, FX rates and cross-sell. As for the wider payments modernization piece, 86% of financial institutions agree that it is a very or extremely strong priority. This seems to tally with the responses in insights 2 & 6 where real-time payments was the biggest focus for them at the moment and adopting new payment rails such as real-time payments is a top priority in the next 12 months.
Make sure you don’t lose out to your competition and proactively seize the opportunity to be an innovator for cross border, whilst also addressing your overall payments strategy for 2021 and beyond.
Here are some key next-steps;
Step 1: Identify your internal business case & strategy
• Form project team & allocate budget for 2022
• Where does it sit in your busy road-map and can it be integrated into your existing ISO 20022 or real-time payments strategy?
Step 2: How will cross-border innovation be integrated into your existing processes?
• If you have legacy infrastructure are you going to do a rip-and-replace or focus on scaling the project – Minimal viable requirements
• What pricing structure should you use?
• Should you place a limit on the transaction value?
• Do you need to invest in extra fraud prevention tools, bring in data scientists as well as leverage AI & ML?
• How do you manage and monitor transactions out of working hours?
• How many processes should be automated vs manual?
Step 3: Talk to your peers, service providers, partners/vendors and key customers
Peers
• How can you as a community of financial institutions and corporates collaborate on best practice?
Service Providers
• What support can you get from your service provider to ensure speed or adoption, whilst maintaining operational efficiency?
Partners/Vendors
• Will they be able to accept it and will this result in more competitive terms?
Customers
• Do they know how they can use new cross-border rails to improve their business?
• What are your customer’s needs e.g. what volume & value do they need?
Read the supporting article The Trillion Dollar Cross Border Market is Getting a Makeover
Treasury management and security risks
Unified or straight-through automation between treasury, A/P, and A/R will more than likely be a priority focus to meet growing demands for accurate and timely cash positioning and forecasting.
Insight 10: Which areas of your treasury process are currently automated to your satisfaction?
It is not surprising that AP/AR automation at roughly 18% and liquidity planning at 27% are showing as the bottom two areas of satisfactory automation with Treasury. Over the past year liquidity access and planning have been a priority focus for Treasury. At the start of the pandemic in 2020, many areas of liquidity began to dry up for corporate and the one of the most vital liquidity sources for any business is receivables.
The waterfall effect of slow receivables impacted the ability for Treasury to understand their positions, forecast their near, mid, long-term financial health, plan liquidity optimally.
Treasury teams need real-time visibility across the entire payments and cash lifecycle to provide the business with accurate and timely cash positions sometimes multiple times per day. Disparate, manual processes and the lack of automation between payment, receivables and treasury data and analysis is simply no longer sufficient. Lack of visibility into receivables directly impacts working capital management and liquidity planning.
As suggested by these findings, unified or straight-through automation between treasury, A/P, and A/R will more than likely be a priority focus to meet growing demands for accurate and timely cash positioning and forecasting.
Watch our webinar: Which Treasury Management System is Right for You
Insight 11: What is the biggest challenge with your existing Financial Crime prevention strategy?
Looking at the results it’s interesting that given a broader audience of responders at Banks and FIs that the biggest challenges faced are keeping up with regulations (31%) and ‘Increasing Fraud Threats (28%)’ which are key concerns for Compliance and Fraud professionals consecutively.
Alert investigation time and false positives ranked 3rd (11%), we know that this is a big challenge across the industry that requires optimization to ensure organizations can focus on combatting genuine fraud attempts and threats to compliance.
Read our report: Reimagining Watchlist Screening
Insight 12: How important is the use of Open Banking in your customer propositions over the next 12 months?
It is clear from the fact that 23% have stated that they are fully operational that we are now successfully passing through the early adopter phase and we are moving into more mainstream planning and embedding into the customer journey. It is wonderful to see 31% have open banking on their wish list. However, the 16% who have said they need more information need better support as it isn’t fair to expect the market to educate itself. The uses of 'powered by Open Banking' are very wide with an abundance of use cases available, although many still haven’t been properly explored in the world of real time instructions (PISP) and real time data pulls (AISP).
Read this industry report: Who’s, Who in Open Banking 2021
Globally, open banking has reached a tipping point. Clearly, there are many organisations forging ahead with open banking in customer propositions. The findings indicate that the industry is going in the right direction and momentum is building. Among those respondents that indicated it is either ‘on the wish list’ or they need to know more, the onus is on the industry to pull together to inform, educate and provide use cases. It is exciting to see the pace at which open banking is being adopted and, here at Open Banking Expo, we think it bodes well for open finance in the future.
Ellie Duncan, Head of Content, Open Banking Expo
About Bottomline
Our Financial Messaging (FM) solutions are recognised and trusted by 600+ customers in 92 countries, across 6 continents for SaaS-enabled payments, securities, connectivity and messaging with a track record of success. FM connectivity solutions leverage multiple domestic & cross-border payment networks and schemes, including SWIFT, UK Faster Payments, RT1, TIPS, Bacs, Six, EBICS, Visa and others to enable our clients to deliver added value to their customers. As one of the top SWIFT service bureaus globally, we serve 450+ customers, managing 15% of all international cross border traffic. Our global experience and expertise for financial messaging and ISO 20022 implementation includes message translation, validation, transformation, Intelligent routing, orchestration and integration. In total, more than £10M of payments and transactions are processed daily by our Managed Services. Overall, our solutions allow Financial institutions and corporations to achieve lower costs, rapid implementation, greater security and improved risk management, while avoiding the costly internal infrastructure typical of legacy, on-premise solutions.
Connect, Comply, Compete
Bottomline delivers a single SaaS platform for payments, securities and messaging that helps financial institutions and corporates to achieve lower costs, wider reach, speed-to-market, greater security and improved risk management.
Payment & Cash Aggregator • Financial Messaging & Connectivity • Securities Aggregator • Fraud & Financial Crime Management • Data, Insight & Analytics
Find out more and book a meeting to discuss your payments strategy
About the author
Zhenya Winter, Head of Financial Messaging Marketing, Bottomline
More than 22 years of experience in the Financial Services sector, specialising in payments over the last 10 years. Currently Head of Financial Messaging Marketing - Global (minus US), at Bottomline. Key areas of specialisation within payments include Real-Time domestic & cross-border payments & ISO 20022.
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