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SEPA Instant Payments – a catalyst for new developments in the payments market (part II)

26-02-2024 | SEPA Instant Payments – a catalyst for new developments in the payments market by François de Witte

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Universwiftnet Paris – March 2018

| 30-04-2018 | François de Witte |

On 13/3/2018, I attended the 15th Universwiftnet Paris event, a one-day conference day to discover the recent tendencies in payments, banking connectivity and the relationship between corporates and banks. There were over 1.000 participants, and this was a good opportunity to have an immersion in the latest tendencies in treasury. Down below, you will find some hot topics and takeaways,

KYC (Know Your Customer)

KYC remains high on the attention of banks. There is a new initiative of the KYC – SWIFT registry, which aims to provide an efficient, shared platform for managing and exchanging standardized Know Your Customer (KYC) data. SWIFT has worked with the world’s largest correspondent banks to define a set of data and documentation that addresses KYC requirements across multiple jurisdictions.

SWIFT takes on the task of validating the information and keeping it up to date. That means banks are relieved of this task, while remaining sure that their data is reliable and up to date. The KYC registry also offers a useful set of tools to simplify and enhance risk management procedures. This includes a KYC Advanced Notifications feature that can trigger alerts, if the profile of one of their counterparties changes.

Institutions can upload completely free documentation to the Registry and share it with the institutions you select. SWIFT validates the data rigorously, informs the counterparty if it is incomplete or needs updating, and alerts your correspondents whenever your data changes. The KYC Registry is currently only open for banks, but it this would be opened to corporates to corporates this year, enabling them to deposit documents there. This is welcomed development.

eBAM – management of the bank mandates

eBAM is the SWIFT initiative aiming at rationalizing the bank mandates. This provides standardized messages, which can be used between corporates and banks. BNP Paribas is already using this extensively, but other banks, like Sociét Générale, Citibank and Natixis are also joining the initiative. The further extension of eBAM to other banks would enable to rationalize an area, which remains a pain point for many corporates. One of the projects is to enable to sign digitally bank agreements.

Fraud & cybersecurity

Fraud & cybersecurity also remain high on the agenda. According to a study of Euler Hermes, 80 %, of the corporates have at least experience & fraud attempts, and 25 % over 10 fraud attempts. According to a study of the EU, 80 % of the European corporates have been victim of cyberattacks.

Corporates need to invest in the risk assessment, the browser & app protection, onboarding and password management. The challenge is to payments as frictionless as possible, in a context of increasing authentication cost.

It is important to embed this in processes, which should include whenever possible measures enabling to prevent:

  • Internal fraud: through the secure import of the files and other internal fraud prevention measures (black and white list of beneficiaries, limits on the amounts, banks and countries, check on abnormal transactions, verification of the account of the beneficiaries, etc.)
  • External fraud: through a secure digital signature (multifactor authentication using One time passwords, certificates, etc.) and a secure transfer of the payment files to the banks

PSD2, instant payments and open banking

We are moving to a paradigm whereby we need to combine:

  • The real time of the transaction
  • The request for user-friendly and frictionless payment initiation
  • The controlled opening of the payments landscape to third parties through PSD2
  • The protection of the PSU (Payment Service User) through PSD2 and GDPR

This will also create opportunities, both for the new players and the incumbent banks, who are prepared to develop an active open banking strategy. The retailers look at reducing the collecting costs of the card schemes and are looking at alternative more cost efficient collection methods. The SEPA Instant Payment Scheme could become in the future an interesting alternative.

New multibank solutions will come up. They will provide a more cost efficient technology using APIs. In a first stage, I expect that they will mainly extend to smaller corporates. Larger corporates might stick to the proven SWIFTNET or Host-to-Host solutions, due to the bank independency, the proven track record and the high integration with the existing processes.

There has been an interesting testimony of EDF, who is currently daily retrieving its bank statements through APIs. These are easier to implement, and have enabled a more efficient and quicker process. This new way of working also has a lower impact on the IT environment, identified as a bottleneck in the organization.

In fact, we are currently moving to a real time and digital treasury. This will require new profiles, such as IT developers and AI specialists for the operational tasks and the dash boarding.

François de Witte – Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

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PSD2 – Fall update and new developments

| 28-11-2017 | François de Witte |

PSD2In 2018, when PSD2 comes into force, banks will lose their monopoly on payment services and customer’s account details. Bank customers will be able to use third-party providers (TPP) to administer their payments. When a customer agrees on using the services of a TPP, then their bank has to give access to TPPs to their accounts. TPPs are then able to build and offer services that compete with the existing bank services. During the summer 2017, I published a Summer Update on PSD2. Since then, a lot of things have moved, and hence I found it the right moment to provide an update to you on some developments on PSD2, in this area.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

  • 2FA: Two-factor authentication
  • API: Application Programming Interface.
  • EBA:  European Banking Authority
  • PSP: Payment Service Provider
  • PSU:   Payment Service User
  • RTS: Regulatory Technical Standards (final draft issued by the EBA on 23/2/2017)
  • SCA: Strong Customer Authentication
  • TPP:  Third Party Provider
  • OTP: One time password

Main updates on the regulatory framework

Some member states have already advised that they expect delays in the transposition of PSD2 in the national law, e.g. Belgium (by March 2018), the Netherland (by June  2018), Sweden, Poland, Spain and France.
Following countries already announced that they will be on track, e.g. Italy, Finland, Ireland, Czech Republic, Germany and Bulgaria.
By end November the EBA should publish the revised draft on the SCA (Strong Customer Authentication) and Secure Communication. We expect that a number of points, raised by the market participants, will be incorporated in the text.
With regard to the access to TPPs, article 113.4 of PSD2 explicitly states that the member states shall ensure the application of the security measures within18 months following the entry in force of the law. Hence, we might expect that this part of PSD2 needs only to be implemented by Q3 2019. However, in some countries, the authorities are pushing for an earlier implementation (e.g. in Belgium by end Q1 2018). Given the strategic importance and the IT act, I recommend starting this quite soon.

Main developments

Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.
The challenge is to create standards for the APIs specifying the nomenclature, access protocols, authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this.

A number of working groups were constituted to further elaborate on these standards, the most important ones being the UK’s Open Banking Working Group (OBWG), the Berlin Group, and STET. Experts seem to agree that the Berlin Group Standard is the most elaborate one., as it incorporates the most relevant use cases and has been built with the latest technology standards using REST, OAuth2, JSON and HTTP-signature. It relies on ISO 20022 elements for structuring the data to be exchanged between TPPs and ASPSPs

As Marc Lainez, CEO of Ibanity, part of Isabel Group (developing API and PSD2 solutions for the XS2A and beyond) pointed out: “We can already see a fragmentation on the market. Several groups publishing specifications that are on many points different. With the RTS still being a moving target at the moment, those specifications are also incomplete as some details still need to be clarified. Some banks also choose to implement their own specifications without following closely any of those already published. In engineering, a standard is usually something that emerges through the best practices of an industry, it is not something that can be thought off entirely before it is actually used. At Ibanity, we are convinced that fragmentation will be a reality and several formats and specifications will co-exist on the market for some time. Looking at them from a pure software engineering point of view, we can say that those that seem the closest to what TPPs are actually expecting in terms of API quality are the specifications from the Open Banking Working Group and the Berlin Group. They still need, of course, to be challenged by the market with real use cases.“

The large banks have already started working on being PSD2 compliant and on building for the opening of their banking architecture to the TPPs. However, several small or medium sized banks only started recently on this project.
PSD2 has numerous interdependencies with other regulations (such as GDPR and eIDAS Regulation), promising a complex implementation with multiple stakeholders. For many banks, compliance by 2018 will be a challenge. Moreover there is a strong technology impact, adding to the complexity of the project. The following graphs of a market survey of PWC are a good illustration of the current state of the project with the European banks:

Conclusion

The PSD2 creates challenges. Several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces. Moreover there are some unclarities in the text.
However, there are solutions in the market to withdraw the hassle for Banks and TPPs. The clock is ticking in the PSD race. Consequently, there is no justifiable reason for any bank to delay starting these projects.

François de Witte – Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

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Alternative Payment Providers

| 18-10-2017 | treasuryXL | The Paypers |

Traditionally, banks provided the infrastructure to enable payments to take place. Nowadays, there are many different third party online payment services that compete directly with the bank models. We came across an interesting article detailing the rise of a mobile payment platform with a large customer base in China, which is bigger than well-known services such as Paypal. It is part of the Alibaba Group who already have a large presence in Europe via AliExpress – after making a large impact on European online shopping, will they make an impact on the payments systems?

With a customer base 400 million strong, Alipay alone represents 50% of all online shopping in China. As the number of Chinese tourists in Europe increases by 100% annually, this tool is offering a wealth of business opportunities for retailers and e-merchants.

An ultra-simple virtual wallet

From taxi fare to the water bill, to purchases in small shops, or traffic tickets—online as well as in the physical world—Alipay can be used for almost any transaction. Such incredible flexibility puts this e-wallet at the centre of daily life in China. Witness the staggering figures: over 175 million transactions per day, peaking at one billion orders processed on 11th November 2016, dubbed “Singles Day,” a huge shopping fest organised by Ali Baba since 2009.

Please read more by referring to the original article on The Paypers.

PSD2 – Update and new developments

| 17-8-2017 | François de Witte |

Early 2017, I published a post about PSD2, a lot of opportunities, but also big challenges. Now half a year later, I would like to update you on some developments in this area. PSD2 still needs to be transposed in the national legal system of all the member countries, and according to my knowledge several countries, including Belgium, have not yet released the draft laws. This creates quite some uncertainty in the market, as there will be several country-specific specifications. Hence one can expect that Fintech’s and other TPPs might already have started their certification application in countries that already enacted PSD2 in their local legislation.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

2FA: Two-factor authentication
API:  Application Programming Interface.
EBA: European Banking Authority
PSP: Payment Service Provider
PSU: Payment Service User
RTS: Regulatory Technical Standards (final draft issued by the EBA on 23/2/2017)
SCA: Strong Customer Authentication
TPP: Third Party Provider

Main updates on the regulatory framework

On 23 February 2017, the EBA published the final draft on the SCA (Strong Customer Authentication) and Secure Communication.
In this final draft, the EBA clarifies the new rules to be followed for customer authentication, applicable both for operations performed in traditional channels and over the new API (Application Programming Interfaces) services. The key clarifications concern the following:

The 2 factor authentication

Following systems would comply:

1. The 2-device-authentication, where the user has two independent devices:

  • one device to access the banking website or app
  • another device to authenticate himself or a payment: the authentication device, usually a hardware authentication token, a combination of a smart card and smart card reader, or a dedicated app on a mobile device.
    The authentication device generates one-time passwords (OTPs) over transaction data

2. The 2 app authentication:

This approach does rely on two different apps running on the same mobile device.

  • Banking app : when a user wants to make a payment, he opens the banking app and enters the transaction data.
  • Authentication app: When the user has submitted the transaction, the banking app opens the authentication app. After verification and confirmation of the transaction data by the user, the authentication app generates an OTP (One Time Password) linked to the transaction data and sends it back to the banking app, which submits it to the banking server for verification

The dynamic linking

In order to dynamically link the transaction, the draft RTS states the following requirements must be met:

  • the payer must be made aware at all times of the amount of the transaction and of the payee;
  • the authentication code must be specific to the amount of the transaction and the payee;
  • the underlying technology must ensure the confidentiality, authenticity and integrity of: (a) the amount of the transaction and of the payee; and (b) information displayed to the payer through all phases of the authentication procedure (the EBA hasn’t specified the nature of this “information”);
  • the authentication code must change with any change to the amount or payee;
  • the channel, device, or mobile application through which the information linking the transaction to a specific amount and payee is displayed must be independent or segregated from the channel, device or mobile application used for initiating the electronic payment transaction.

The exemptions from the SCA

The exemptions from the SCA including also:

  • Transactions between two accounts of the same customer held at the same PSP
  • Low risk transactions: Transfers within the same PSP justified by a transaction risk analysis (taking into account detailed criteria to be defined in the RTS),
  • Low value payments or contactless payments < 50 euro, provided that that the cumulative amount of previous consecutive electronic payment transactions without SCA, since the last application, of the SCA < 150 euro
  • Unattended transport and parking terminals

The draft RTS (not finalized, not approved yet) also states that Screen scraping is no longer allowed. Screen scraping is a method to take over remotely the data on the screen of the user. This creates a lot of opposition in the financial community, in particular the Fintech’s, as this complicates the interaction between the bank, the TPP, and the PSU. On the other hand, the both the EBA and the EBF (European Banking Federation) are against it. There is a power game ongoing.

Main developments

Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.

Although PSD2 does not specifically mention the API (Application Programming Interfaces), most technology and finance professionals assume that APIs will be the technological standard used to allow banks to comply with the regulation.

An API is a set of commands, routines, protocols and tools which can be used to develop interfacing programs. APIs define how different applications communicate with each other, making available certain data from a particular program in a way that enables other applications to use that data. Through an API, a TPP application can make a request with standardized input towards another application and get that second application to perform an operation and deliver a standardized output back to the first application. For example, approved third parties can access your payment account information if mandated by the user and initiate payment transfer directly.

In this framework, the challenge is to create standards for the APIs specifying the nomenclature, access protocols, authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this.

At this stage, following working groups were constituted to further elaborate on these standards:

  • UK’s Open Banking Working Group (OBWG). This initiative of UK Treasury aims to deliver a framework for open banking and data sharing via APIs for the UK’s banking industry. The joint industry/government initiative recently released its report on establishing the framework for an Open Banking Standard for the UK alongside a timetable for implementation.
  • The Berlin Group, a-European payments interoperability coalition of banks and payment processors, is pushing for a single standard for API access to bank accounts to comply with new regulations on freeing up customer data under PSD2. The aim is to offer operational rules and implementation guidelines with detailed data definitions, message modelling and information flows based on RESTful API methodology. It will be published for consultation in Q4 2017
  • STET has also released of a RESTFUL API standard which will allow TPPs to access payment accounts. This API has been built with the latest technology standards using REST, OAuth2, JSON and HTTP-signature. It relies on ISO 20022 elements for structuring the data to be exchanged between TPPs and ASPSPs

In the meantime, several providers are developing their services, including in the Benelux Equens Worldine, Capco, Sopra Banking and Isabel.

Along with the arrival of open API banking, there is also clear momentum for providing real-time services such as “instant payments”. This requires banks to shift their entire product and service mindset towards immediate delivery and to make fundamental changes to their legacy systems. While this is a challenge, it also presents opportunities (see also my article in TreasuryXL on this topic: SEPA Instant Payments – a catalyst for new developments in the payments market (https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-catalyst-new-developments-payments-market and https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-a-catalyst-for-new-developments-in-the-payments-market-part-ii/).

The large banks have already started working on being PSD2 compliant and on building for the opening of their banking architecture to the TPPs. However, several small or medium sized banks only started recently on this project. Hence a lot has to be done, and I do expect some shortages in resources in the next coming months.

With regard to the access to TPPs, article 113.4 of PSD2 explicitly states that the member states shall ensure the application of the security measures with the 18 months following the entry in force of the Hence, we might expect that this part of PSD2 needs only to be implemented by mid-2019. Given the strategic importance and the IT act, I recommend starting this exercise much earlier.

Conclusion

The PSD2 creates challenges. Several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces.
However, there are initiatives, such as the Berlin Group, the UK’s Open Banking Framework and the STET group, which help give further clarity and direction in the absence of specific technical detail.
Consequently, there is no justifiable reason for any bank to delay starting these projects.
The clock is ticking in the PSD race.

If you want  further update on this topic, you can join the 1 day training session on this topic, which I will give on 22/11/2017 at Febelfin Academy.

 

François de Witte – Founder & Senior Consultant at FDW Consult

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Please read my earlier articles on PSD2:

PSD 2: A lot of opportunities but also big challenges (Part I)

PSD 2: A lot of opportunities but also big challenges (Part II)

Sepa instant payments – A catalyst for new developments in the payments market (Part I)

Sepa instant payments – A catalyst for new developments in the payments market (Part II)

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SWIFT Blockchain POC: Enhanced cross-border payments

| 8-8-2017 | Carlo de Meijer |

Early July SWIFT announced that 22 global banks recently joined its Blockchain proof of concept (PoC) initiative introduced in January this year in collaboration with six leading correspondent banks (ANZ, BNP Paribas, BNY Mellon, RBC Royal Bank and Wells Fargo). The PoC is part of SWIFT’s ‘gpi’ (global payments innovation) service, the new standard for cross-border payments, aimed to “re-arm the correspondent banking system for a new age of technological disruption”. 

This Blockchain PoC initiative is designed to explore whether blockchain technology can help banks to improve the reconciliation of their international nostro accounts in real-time, optimising their global liquidity. If so, that would be a break through event for both SWIFT and blockchain.

Present state

Currently, banks cannot monitor their account positions in real-time due to lack of intraday reporting coverage. The present pain points banks currently experience when making cross-border payments center around a lack of visibility into the end-to-end transactions lifecycle. Under the current correspondent banking model, banks need to monitor the funds in their overseas accounts via debit and credit updates and end-of-day statements. The maintenance and operational work involved represents a significant portion of the cost of making cross-border payments.

“Cross border payments are like a black box for us. We don’t know when the funds will be credited, we don’t know what fees will be charged and we also have problems with reconciliation”. states Martin Schlageter, head of Treasury Operations at Swiss healthcare conglomerate Roche.

As such, the POC recognises the need for banks to receive real-time liquidity data in order to manage funds throughout the business day.

SWIFT GPI service

The PoC is being undertaken as part of SWIFT gpi, a new service that “may revolutionise the cross-border payments industry by combining real-time payments tracking with the speed and certainty of same-day settlement for international payments”.

The SWIFT gpi should be seen as SWIFT’s response to the problems they faced after a series of attacks events that showed that “all was not as secure as everyone believed”. SWIFT gpi initiative was first announced at the annual Sibos conference in 2015. The project went into live production in January this year to address core problems related to speed, transparency and traceability of cross border payments.

SWIFT gpi not only delivers a much-needed improvement in the speed of transaction, but also improves overall customer experience by creating predictable settlement times and clear statuses, through additional (unaltered transfer of) information on remittances and transparency around the FX rates and fees applied throughout the payment cycle.

“The ability to deliver enhanced remittance information alongside the payment will help customers make better decisions along the payment chain, while also creating better efficiency opportunities. The decision to make gpi available in the “cloud” is also exciting, and we anticipate this will lead to the development of entirely new services, that combine SWIFT gpi with capabilities provided by banks, clients and vendors.“ says Tom Halpin, Global Head of Payments Product Management, HSBC Global Liquidity and Cash Management

Key features

Key features of the SWIFT gpi service include a secure tracking database in the cloud accessible via APIs, and enhanced business rules.

Cornerstone of SWIFT gpi is the highly innovative new cross-border TRACKER, a special tracking feature that enables international payments to be traced real-time. It allows banks to provide corporate treasurers with a real-time, end-to-end view (visibility) on the status of their payments, including confirmations of the amount credited to the beneficiaries’ account. The Tracker is available via an open API, making it compatible with proprietary banking systems worldwide – helping to ensure maximum impact of gpi benefits at a greater adoption speed.

A second key feature is the OBSERVER, a quality assurance tool that monitors participants’ adherence to the gpi business rules. Gpi’s transparency ensures that remittance information such as invoice references, is transferred unaltered to recipients.

Gpi uptake

Membership is open to any supervised financial institution that agrees to comply with SWIFT’s business rules. But also non-bank organisations can join SWIFT gpi initiative. The SWIFT gpi service has received considerable bank support across the globe. And the number of global transaction banks that are actively using SWIFT’s gpi service is continuously growing. Since its launch the number of banks that are live with SWIFT gpi has risen beyond 100, and hundreds of thousands GPI payments have already been sent across 85 country corridors. This represents more than 75% of all SWIFT cross border payments.

“The increasing number of banks going live on this service addresses the demands of corporate treasurers. Hence, banks cannot afford to not join the initiative and go live as soon as possible. Our expectation is that all of our cross-border payments will be end-to-end Swift gpi payments in the future.” Group of Swiss corporates

SWIFT expects that numerous additional banks will join the gpi initiative in the coming months. The ambition is for all countries to be live by the end of 2017.

Phased approach

Next to the design of the second phase of SWIFT gpi, that is already underway focusing on additional digital capabilities and further enhancements such as ‘a rich payment data service’, for its third gpi phase SWIFT started exploring the potential of new technologies such as Distributed Ledger Technology (DLT), including blockchain, through a Proof of Concept (PoC).

SWIFT Blockchain PoC

Launched in January 2017 with six founding banks the SWIFT Blockchain PoC initiative, designed to validate/explore whether blockchain can be used by banks to improve the reconciliation of their international nostro accounts (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) in real –time, optimising their global liquidity. At its core, the PoC builds on SWIFT’s rulebook as part of the intraday liquidity standard gpi.

This SWIFT Blockchain PoC initiative aims to help banks overcome significant challenges in monitoring and managing their international nostro accounts, which are crucial to the facilitation of cross border payments.

“Whilst existing DLTs are not currently mature enough for cross-border payments, this technology, bolstered by some additional features from SWIFT, may be interesting for the associated account reconciliation,” “This PoC gives us the opportunity to test DLT and determine if it can be applied to this particular use case.” Wim Raymaekers, Head of Banking Market and SWIFT gpi at SWIFT

Characteristics

In developing the POC, SWIFT is leveraging the Hyperledger Fabric v1.0 technology, and combining it with key SWIFT assets, to bring it in line with the financial industry’s requirements.

“SWIFT will leverage its strong governance, PKI security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT PoC platform for the benefit of its community.” Damien Vanderveken, Head of R&D, SWIFTLabs and User Experience at SWIFT 

The PoC application will use a private permissioned blockchain in a closed user group environment, with specific user profiles and strong data controls. User privileges and data access will be strictly governed. This to ensure that all the information related to nostro/vostro accounts is kept private. Only account owners and its correspondent banking partners will see the details.

Collaboration

SWIFT gpi member banks can apply to participate in this Blockchain PoC. Next to the 6 founding banks, another 22 banks have recently joined the SWIFT blockchain PoC. They include include:

ABN AMRO Bank; ABSA Bank; BBVA; Banco Santander; China Construction Bank; China Minsheng Banking; Commerzbank; Deutsche Bank; Erste Group Bank; FirstRand Bank; Intesa Sanpaolo; JPMorgan Chase; Lloyds Bank; Mashreq Bank; Nedbank; Rabobank; Société Générale; Standard Bank of South Africa; Standard Chartered Bank; Sumitomo Mitsui Banking Corporation; UniCredit; Westpac Banking Corporation.

“Collaboration is the cornerstone of innovation,” “This new group of banks allows us to greatly extend the scope of multi-lateral testing of the blockchain application and thus adds considerable weight to the findings. We warmly welcome the new banks and look forward to their insights”  says Wim Raymaekers, head of banking markets and SWIFT gpi at SWIFT.

Process

Moving forward, the SWIFT PoC Blockchain application will undergo testing, with the results scheduled to be published in September and presented at Sibos in Toronto in October. Working independently of the founding banks, the 22 institutions will act as a validation group to test in a deeper way the PoC’s Blockchain application, that is currently under development by SWIFT and the group of six founding banks. They will evaluate how the technology scales and performs.

Benefits

For banks

The potential business benefits ensuing from a successful SWIFT blockchain POC may be significant. If it proves to enable banks reconcile those nostro accounts more efficiently and in real time, that may lower costs and operational risk.

“The potential business benefits ensuing from the PoC are clear,” “If banks could manage their nostro account liquidity in real-time, it would allow them to accurately gauge how much money is required in each account at any given point, ultimately enabling them to free up significant funds for other investments.” Damien Vanderveken, head of R&D, SWIFTLab and UX at SWIFT.

It brings together banks worldwide who want to offer an enhanced cross-border payments experience to their corporate clients. By being part of SWIFT gpi, banks may improve the quality of their correspondent relationships and networks, helping to reduce risks and management costs and improve compliance.

“Transparency is key to a good end-to-end client experience. SWIFT gpi is a significant step in the evolution of correspondent banking, which remains the primary means through which cross-border payments are delivered worldwide. Bank of America Merrill Lynch is pleased to be working with like-minded institutions around the world to better serve each other and our respective customers.” states Greg Murray, head of Global Product Management for High Value Payments and FI/NBFI Products in Global Transaction Services at Bank of America Merrill Lynch.

For corporate treasurers

SWIFT gpi may enable corporates engaged in international trade to get paid for services, or delivery of goods, in a more timely fashion, enabling a faster supply chain process. It also enables a more accurate reconciliation of payments and invoices, optimizes liquidity with improved cash forecasts and reduces exposure to FX risks with same-day processing of funds in the beneficiary’s time zone.

“Being part of SWIFT gpi, and working with our industry counterparts, is giving correspondent banks a platform to examine and refine current processes, and to collaborate and explore different, more efficient ways of doing things. Ultimately, our clients will benefit most from this initiative,” Kent Marais, head of TPS product management at Standard Bank SA.

SWIFT and the banks have designed the gpi services so that banks have flexibility in how they offer the new services. They can deliver the gpi service in very different ways. Services could potentially include enhanced invoice presentment and reconciliation to facilitate financial supply chains, exchange of supply chain documentation to improve global trade, exchange and interactive enquiry of account and processing conditions to improve end-to-end straight through processing, and providing additional party and transaction information to support compliance and sanctions screening of cross-border payments.

Enhanced cross-border payment service

“SWIFT has addressed several of the pain points corporates have had with cross-border payments,” “Changes to existing corporate payments infrastructures should be very limited, if any. So hopefully, corporates won’t need to make any major investments to benefit from smoother cross-border payments.” says Magnus Carlsson, AFP’s manager of treasury and payments

Given the size of the number of banks and corporates participating in SWIFT gpi, the SWIFT Blockchain PoC may face the challenge of scalability. If that could be solved in a successful way it may be another prove of the viability of blockchain and DLT to enhance cross-border payments.

 

Carlo de Meijer

Economist and researcher

 

 

 

More on blockchain from this author:

Blockchain: accelerated activity in trade finance

Blockchain and derivatives: Re-imagining the industry

The digital trade chain: The blockchain train is rolling

Please feel free to visit the treasuryXL/articles page to see more articles.

 

Payment Processing in 2017: FX-MM’s survey and the results

| 4-8-2017 | treasuryXL | FX-MM |

For almost 25 years, FX-MM  publishes about the issues that bankers, corporate treasurers, fund managers, traders, brokers and technology vendors face in the international financial markets. With a focus on treasury, trading and technology, FX-MM serves all of these sectors effectively with their magazine on a monthly basis. Earlier this year they asked their community to take part in their payments processing survey, which they had conducted together with Accuity. 215 senior professionals involved in payments processing from the banking and corporate sector, ranging from the largest multinationals to SMEs, responded.
FX-MM now published a summary of the results online, which we summarize for you.

According to FX-MM’s editor Peter Graham the survey shows the ‘critical importance of payments data accuracy for banks and corporates as they seek to grow their businesses and increase their presence across the world.’

FX-MM made a difference between financial institutions and corporations in their survey. To be categorised in the corporate category, the respondent must work for a non-banking organisation that makes a substantial amount of payments through their daily operations. Typically this includes a range of payroll, supplier, and partner transactions and was referred to as ‘corporates’.

95 top-level corporate respondents from a wide range of industries took part in the survey, with the majority either being treasurers or chief financial officers.

The 120 respondents from the banking sector represented individuals working in all areas of payments processing, from corporate banking, payment operations, and electronic payments, to remittances, settlements and operations. Much like the corporate respondents, the banking respondents represented a wide range of organisations, .

Global reach

Geographically, respondents to the survey were mainly based in Europe and North America. 25% of bank respondents, and 20% of corporate respondents, however, were based outside these mature markets and featured representatives from all regions across the globe.

The majority of banks – 39% – are active in at least 15 regions, and at least 20% serve more than 50 geographic markets. Since only 21% of the banks only process payments domestically, these results highlight the need for accurate payments data across a range of regions. The survey highlights the frequency in which banks today are operating in emerging markets. Indeed, 61% of banks said they often or always route payments through Eastern Europe, 56% through Asia Pacific, 37% through Africa and 35% through Central and South America.

The need for global reach, and the increasing internationalisation of today’s business world, is also reflected in the corporate world. While just 9% of corporate respondents to the survey only send or receive payments domestically, 72% send or receive payments to up to 50 countries.The rest % send payments to more than 50 countries.

It seams that corporates are even more likely to expand their operations internationally than banks, with 64% saying they intend to enter new geographic markets. That implies that a wide scope of payments data is critical as corporates plan for the business needs of the future.

Why does payments data accuracy matter more in today’s market landscape?

Sarkis Akmakjian, Senior Director, Product Management at Accuity, explains: 

‘Evolving business strategies combined with the demand to send payments into emerging markets drives the need for accurate payments that go through every time and in any location. Yet, underpinning each successful transaction is critical financial and routing data. It is not surprising, then, that many financial institutions and multi-national organisations have become more concerned with ensuring this critical information is kept up to date.’

For multi-national corporations, accurate payments data is becoming a key factor in achieving strategic objectives. As the survey highlights, a growing number of global corporations (64%) are expanding their supply chain, customer base and workforce into new markets. However, this cannot be fully achieved if payments cannot be processed with certainty into those countries.

Many respondents (61%) acknowledge that their business could take advantage of new opportunities if it was less of a challenge to process payments. Therefore, they are most helped when payments data is delivered through tools that enable efficient processing.

For financial institutions, accurate routing data drives metrics like straight-through-processing (STP) rates and client satisfaction. In fact it takes fewer delayed payments which damage relationships with clients in a  financial market that is growing more competitive.

For both financial institutions and global businesses, the ability to overcome global payments challenges grows more important. Both types of businesses are looking to the accuracy of their bank and routing data to meet the pressure for accurate payments.

Mission critical for corporates

Significant consequences for corporates arose from not having complete and accurate payments data for their suppliers and vendors. 58% said it led to too much time spent on manual research to correct data errors, while 31% said it led to a lack of trust and posed a reputation risk with vendors.

The survey revealed that there are clear challenges for corporates as they onboard and maintain payments data for their suppliers and vendors. The corporates indicate that problems arose when vendors did not keep them up to date when their payments data changed, or when vendors did not supply all the information they needed. Corporates also stated that their onboarding process was too arduous and that they did not catch errors in vendor data.

Despite these challenges, the importance that corporates attach to payments processing should not be underestimated. 82% of respondents said the ability to process payments accurately had a direct effect on their organisation’s current success and future growth, while 62% said their organisation could take advantage of more new business opportunities if processing payments were less challenging.

The survey revealed the biggest challenges corporates face in keeping bank and payments up to date, namely  manual entry of data that led to errors in their master database and ensuring that payments met complex country-by-country requirements and language requirements.

Bank STP concerns

For banks, 57% said their straight-through-processing (STP) rate for payments was less than 95%. Clearly, this is a cause for concern. The most common cause of payment failure or delay at banks was incorrect or missing beneficiary details, missing or incorrect clearing system details or missing or incorrect account numbers.

The survey also revealed bank priorities for payment processing in 2017. . More than half of the respondents said reducing cost, time and effort was a priority. 42 % cited the need to minimise the risk and exposure of failed payments. A larger group mentioned the automating of data and workflow to save time. 33% of the banks in the survey wanted to protect organisational reputation and existing customer relationships.

It became obvious that banks are feeling the pressure as far as payments processing is concerned.

Without doubt payments are a vital instrument to keep the global economy running. Banks and corporates face challenges. Inaccurate data is clearly an obstacle to increase straight-through-processing and to realise the full benefits of payments automation. Overcoming these inaccurate data issues will reduce costs for banks and corporates and also place them in a better position to take advantage of business opportunities as they expand into the global markets.
(Source: FX-MM)

You can read the complete article about the survey results on FX-MM by following this link.

Annette Gillhart – Community manager treasuryXL

 

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Bitcoins or banks, who is taking care of the business?

| 2-8-2017 | Hans de Vries |

Banks have long been target of wild spread ideas that their role as facilitator in the (inter) national money transaction industry will soon be overtaken by new Fintech initiatives like PayPal, Bitcoin and recently Ethereum. The idea behind these new technologies is that the Trusted Third Party (TTP) role of the conventional banks which is crucial for the operational day to day operations of the economic systems can be overtaken by the new block chain technology. Main advantages are clear: transactions are no longer limited by timing (no dependency on the operational boundaries of clearing houses, cut-off times of banks per currency, immediate processing etc), account opening procedures at the banks, the costs involved in maintaining accounts and transactions themselves etc.

The recent Ransomware attacks, that had an enormous impact on numerous companies and governmental institutions at a global level, showed however a less favorable aspect of this new technology. Due to its lack of control on the specifics of account ownership, Bitcoin proved to be the ideal means to collect the ransom money the victims have to pay to free their systems. This piracy trend will in my view also seriously hamper the future development of these sort of bank independent transaction mechanisms. Even more threatening for the Bitcoin development are the recent crypto robbery cases in which millions of dollars’ worth balances were stolen from the accounts. These incidents show the vital role of the banks as TTP since most banks are obliged to deliver their services according to the rules and regulations of their national and super-national banks. As indicated before, this means that for opening accounts lots of formalities have to be endured (the KYC rules are in some countries stretched to the absolute max). At the same time., due to the international regulations the control on international transactions are very extensive and therefore at the same time very costly for the banks. Every violation of the international code book on transactions to banned countries can have severe financial consequences for the banks involved. An last but not least banks have to maintain an international network of correspondent banks to make sure that the international transactions reach their beneficiaries in a reasonable timeframe and at reasonable costs.

This whole system has of course been developed to gain maximum control on transaction flows locally and worldwide. However it also provides the trust needed to be able to deal with (inter) national trade flows crucial to our economic day to day operations. As long as there are no ways to secure your transactions and balances in a bitcoin like environment as most transaction banks are providing today, Bitcoins remain a very interesting technological experience but will in no way replace the role of banks as TTP shortly.

 

 

Hans de Vries

Treasury/Cash Management Consultant

 

 

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Preparing the roll out of instant payment services: testing EBA’s RT1 platform

| 31-7-2017 | Jan Meulendijks | Finextra |

Instant payment services become more popular. UniCredit is testing the EBA Clearing’s RT1 real-time platform and preparing for the roll out of this service to 30 banks in Italy and Germany. Last week Finextra published an article about this development. Our expert Jan Meulendijks gives his opinion about the EBA Clearing’s RT1 real-time platform.

EBA’s RT1 is a probably a life-saving step for the banking/financial world as we know it today. SEPA was of course a major improvement in speeding up cross-border EURO-payments, but still the clearing process and therefore also the required processing time, was rather something from the 20th century and not up to today’s technical standards.

Without RT1 (and maybe similar developments yet to come) the banks are about to lose their payment processing activities and the related profits to other parties, mainly in the public domain (Blockchain) and ITC-sector. Microsoft, Google and Apple are names that will be appearing in this industry.

Remarkable: Italian banks seem to be fore-runners in joining RT1. Italy has always been infamous for the archaic infrastructure of their local and cross border payment systems. The slogan “what is backward will become forward” seems to apply here.

Jan MeulendijksJan Meulendijks – Cash management, transaction banking and trade professional

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SEPA Instant Payments – a catalyst for new developments in the payments market (part I)

| 19-7-2017 | François de Witte |

On 29 June 2017, I attended a workshop organized by Fintech Belgium on how Instant Payments will push the financial sector to innovate. In this article (the first part of 2) I will set the scene by presenting some use cases. In the second part (online next week) I share some views on how Instant Payments, in combination with PSD2, will be a game-changer in the market. 

The new generation customer claims “I want it all, and I want it now”. It is his anthem for having packages delivered, ordering food or finding a taxi driver. Payments are next, and they expect the financial industry to follow by offering real time or near real time experience.

As opposed to real-time payments with smartphones, transferring money between banks or cross-border payments often takes several days to be processed. For this reason, the EPC (European Payment Council) decided to introduce SCT Inst scheme: a real-time payment system where interbank transactions will be cleared within maximum 10 seconds at any time of the day and 365 days of the year. Similar schemes were already successfully put in place in other states (e.g. Denmark, Sweden and the UK).

Setting the scene – some use cases

As already mentioned by Boudewijn Schenkels on TreasuryXL, the characteristics of the new SEPA Instant Credit Scheme are the following:

  • SCT Inst is proposed by the EPC, and is hence not a mandatory scheme
  • it is a 365/24/7 available (no down time)
  • it is near real execution time (maximum 10 seconds, and some communities try to reduce this execution time)
  • there are real time failure notifications of the beneficiary
  • the funds are immediately credited and reusable by the beneficiary
  • a very important feature is the irrevocability of the payment. Once the payment has been initiated, it cannot be revoked, except in case of fraud
  • the scheme only cover single transaction only – no batch processing
  • currently the scheme limit is set at 15.000 euros, but this limit is expected to increase later on

The scheme should be operational in November 2017, but in some countries it is already live (e.g. Finland and Spain). Besides the processing, an important aspect is to ensure that the beneficiary is advised.

As Alessandro Longoni outlined earlier on treasuryXL, both from a cash management, and from a treasury perspective, Instant Payments open many new possibilities both for merchants, and corporates.

Thanks to its irrevocability, the SCT Inst will also be a disruptor for existing PSPs such as Paypal and Amazon Pay. It is expected that the banks will charge much lower fees then them. We might also expect that this scheme would also challenge in the cards market, where new players could benefit from both PSD2 and SCT Inst to offer more competitive payment schemes. However the card operators might also react by adapting their prices and/or offering additional new services.

For the banks, merchants, and the payment industry more widely, the PISP (Payment Initiation Service Provider) model will have a significant impact on the way in which consumers and merchants transact in the future. Unlike the traditional four-party card model, customers would “push” cleared funds to merchants, with ACH transactions replacing the current card CSM (Clearing & Settlement Mechanism). This will significantly simplify the existing payment model, with fewer players and interactions involved.

The drawing down below illustrates this quite well:

Source: OVUM – Instant Payments and the Post-PSD2 Landscape

We also expect that thanks to the new schemes and competitors, the use of cash will decrease, although cash will remain important for a while. Cash is accessible to all, also those who do not have a bank account. It enables immediate settlement without intervention of a third party. Cash is the only payment instrument that currently guarantees the user’s privacy and anonymity, while all electronic transactions are traceable.

In the second part of this article, which will be online next week, I will tell you more about instant payments as a game changer.

François de Witte – Founder & Senior Consultant at FDW Consult

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