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Preparing for Europe’s new payment architecture

Preparing for Europe’s new payment architecture

29 October 2019

How are banks preparing for changes to the Eurosystem’s core infrastructure while simultaneously acclimatising to shifts in global payments? An expert panel sat down at Sibos 2019 to discuss the implications of the changes on banks, their networks and global finance.

Change is coming to European payments. The Eurosystem and EBA CLEARING are modernising their infrastructure and migrating their TARGET2 and EURO1 high value payments services to ISO 20022. Simultaneously, instant payments are becoming an expectation industry-wide, an initiative recently implemented in Europe with the launch of TARGET Instant Payments Settlement (TIPS). 

What can the European financial community expect when it comes to these high stakes changes? Efficiency, innovation and ultimately the greater integration of financial markets across the continent. To get there, the community must take on complex, multi-year projects but the potential benefits are significant. The Sibos panel explored the strategic choices the community must make in order to manage the transition successfully.            

ISO 20022: standardising data, simplifying communication

There is no doubt the payments landscape is in constant flux. The market must address new challenges like GDPR, PSD2 and ISO 20022 and consider how to remain functionally compliant. With regards to the latter, migrating messaging to ISO 20022 standardises global communication between financial institutions. Benefits include information-rich, streamlined messaging and transparent, always-on collateral management across market infrastructures.

We think that ISO 20022 is the standard for the future. It opens up possibilities not just for ourselves but [also] for the banks who are participants in these systems, so we see it is very important for the future.

Fiona van Echelpoel, Deputy Director General, Directorate General Market Infrastructure and Payments, European Central Bank

ISO 20022’s data requirements are an improvement on messaging services of the past, increasing efficiencies and developing new value propositions. For banks, the adoption of this data-rich language is not just a technical migration, it’s a chance to take advantage of new strategic opportunities. 

Regulation as an enabler of development

With customer expectations changing – specifically in relation to payment speed, availability and transparency – Europe has implemented new regulation that provides industry newcomers with the opportunity to compete alongside traditional banks. API development, value-added services and richer data are just some of the innovations regulation is attempting to unlock.

Scott McInnes of Bird & Bird spoke in support of one such regulatory programme PSD2, which allows customers to instruct third parties to be given access to their payments data. “By PSD2 we mean in particular the topic typically referred to as open banking (i.e. the fact that banks have to open up their infrastructure). In particular, so that two new kinds of players [Account Information Service Providers (AISPs) and Payment Initiation Service Provider (PISPs)] can get access to payment accounts to bring first, more competition, and second, more innovation.”

Open banking allows the financial community to instantly collect and view data from other organisations, replacing previously manual and complex processes. In turn, PISPs and AISPs are developing new applications that aggregate this data to drive innovation industry-wide.

The significance of instant cross-border payments

When it came to discussing instant payments, the panel was unanimous. Europe must be at the centre of introducing this feature. Pierre Antoine Vacheron, Executive Director, Natixis Payments touched on a SWIFT pilot project with the Eurosystem that included 20 banks worldwide to facilitate instant payments across the world: “It was kind of a challenge because of the number of stakeholders who were involved in this pilot, but it went very well.”

So well, in fact, it took just 41 seconds to send funds from Australia to Spain using SWIFT gpi and the TARGET Instant Payments Service (TIPS). "Remember, the world has become instant," added Stephan Mueller, Divisional Board member Transaction Banking at Commerzbank. "Today, consumers expect everything to be there right away.” 

From banks’ end customers to large multi-nationals and SMEs, instant cross-border payments improve speed, up-front clarity on fees and predictability of when an end beneficiary’s account will be credited, preventing the disruption of a supply chain caused by untraceable or delayed payments.

Because deadlines are short and requirements considerable, a strategic approach must be taken to fully benefit from Europe’s new payment architecture. SWIFT is on hand to support the industry and its key players navigate ISO 20022, new regulation like PSD2 and the benefits of instant cross-border payments.

Read more about the changes to Europe’s payment infrastructure here.

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