6 simple phrases to understand ISO 20022 adoption for High Value Payment System(s)

Global HVPS* market infrastructures have laid out plans for adopting XML messaging based on ISO 20022 standard. This includes markets like the EU(T2, EURO1, STEP1), UK(CHAPS) and US(CHIPS,Fedwire). Over the next 3-5 years, most of them will fully adopt the format, albeit in phases. Regional schemes such as GCC-RTGS have also adopted ISO 20022 for the core, while allowing participants to use MT standards. National schemes such as RITS (AU) are in the process of consultation.

HVPS adoption of ISO 20022 can be viewed as the natural ‘second wave’, next to the first wave heralded by real time payment schemes. Many non - HVPS schemes are already on ISO 20022 e.g. SEPA, RTP (US), NPP(AU). Upcoming regional and national schemes like P27 in the Nordics, IPS in KSA are also on ISO 20022.

Scheme specific design specifications are being released as per stated plans. Banks that are keen to continue to be direct participants and/or act as sponsor banks (FI) need to act right away to plan their adoption. Other participants are also impacted, although to a lower degree.

Here are the primary adoption needs that CXOs should be aware of, packaged into 6 everyday phrases:

1.      ‘First things first’ - While some markets have incremental/ phased adoption, schemes in EU specify a big bang migration to T2. Banks should prioritize such markets and adapt the learnings to be ‘early adopters’ in other markets.

2.      ‘Mind the Gap’ - While the underlying formats are standard in general, there is a need to tailor the nuances to each scheme at the country level and also to the guidelines for cross border payments (CBPR). Differences should be expected via – usage of specific messages in schemes, message versions etc. Functional enhancements such as warehousing timelines, cancellation windows, data volume, extended character count need to be baked into the product and process constructs. Also, not all schemes have adopted the ‘V’ copy model. For example, CHAPS continues with ‘Y’ copy and will migrate to ‘V’ later. EU’s T2, for example is on ‘V’ model, upfront.

3.      ‘Keep the lights on’ - Banks that enable indirect participants, may choose to support legacy/non-ISO 20022 formats for their partners, while adopting ISO 20022 between themselves and the HVPS scheme. Back to back support from ‘translation services’, such as those provided by SWIFT (e.g. envelope with both MX & MT, 'on request' MT via API) should be added into the delivery model. Costs / benefits of this model need to be evaluated.

4.      ‘We are in it together’ - HVPS systems are used across bank LOBs/BUs. This drives the need to ensure a cross LOB/BU program while allowing for product level adoption. Synergies between in-country real-time/ instant payment scheme (usually, with a value limit), in-country HVPS and cross border (regional and global) should be managed , preferably by the product management unit(s). Governance, more than ever before, is key to program success.

5.      ‘On the house’ - Given the magnitude of change and the resultant costs, standalone business case will be quite a challenge. Benefits due to newer revenues from enhanced products or cost saves from lower compliance efforts (e.g. STP due to structured data) need to be captured/estimated carefully. The volume vs value mix in HVPS, adds a unique dimension of complexity i.e. very low volume as a share of overall payment transactions versus very high share of value. Key is to drive down cost of adoption through usage of all available levers. Else, it may, well, be on the house. 

6.       ‘Till data do us apart’ - Adoption is ISO 20022, primarily, is a data handling upgrade. The ask is to handle extended and structured data not only in core engine(s), but also in typical side and downstream systems  i.e. AML/Sanctions, fraud management, Exceptions &Investigations, activity monitoring, on-boarding, account services, billing, recon and reporting. Payments Business and IT need to work even more closely.

Set the sails. ISO 20022, Ahoy!

#ISO20022 #SWIFT #RTGS #CXO #XML

* HVPS - High Value Payment System(s)