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Taking local Confirmation of Payee global

Taking local Confirmation of Payee global

14 September 2023 | 6 min read

A new proposal from the European Commission would mandate financial institutions across Europe to offer IBAN-name check services to their customers. At Swift, we think this is a great opportunity to facilitate interoperability between domestic Confirmation of Payee systems around the world.

Cross-border payments are becoming faster and faster. No matter where they’re heading, their value, or currency, transactions that arrive in a few minutes or seconds are quickly becoming the new norm.

But as we move closer towards an instant and frictionless future, it’s important to consider the other side of the ‘instant’ coin. While customers undoubtedly want a cross-border experience that mirrors the speed of domestic payments, financial institutions should be aware of what higher payment speeds could mean for the fraud threat. If payments arrive instantly, stopping them if a problem occurs becomes much harder.

What’s the solution? How can institutions meet customer expectations and keep their funds safe? In Europe, the European Commission believes that checking payments for errors and anomalies before they’re sent could play a key role and is proposing new regulation to this effect.

What does the new European regulation say?

The new regulation proposed by the European Commission would mandate banks to offer pre-validation services to their customers. Banks and other providers will be required to check that the IBAN and beneficiary name match before a payment is sent, as part of a wider initiative to make instant payments the new norm across the continent.

Alongside an expected reduction in fraud, this regulation will help to reduce the friction that already exists within a payment’s lifecycle too. 72% of Swift payments requiring manual interventions are the result of avoidable errors such as formatting issues, incorrect account numbers and invalid data. This regulation seeks to drive that percentage down, helping to keep funds safe and moving on their way.

Interoperability is the answer

While this move from the European Commission is new, the concept of pre-validating a transaction to prevent fraud is not. Across Europe, some countries have already implemented their own Confirmation of Payee systems to ensure funds are kept safe from fraudsters and that operational errors don’t prevent transactions from completing the first time they’re sent.

But while these systems provide clear value in a domestic setting, some of them have limitations when using them in a cross-border environment. For example, in France, legal entities are often identified using SIREN or SIRET codes that are specific to that country. Whereas in Italy, a national tax ID is a common identification method.

This proposed regulation could significantly help reduce fragmentation amongst European Confirmation of Payee systems and provide a better experience to consumers and businesses moving value across the entire continent.

How Swift can help

As a neutral cooperative made up of over 11,500 institutions, our mission has always been to ensure that transactions of all sizes can flow seamlessly around the world. And to achieve this, working together is essential.

The European Commission’s proposal is a huge step towards providing a better payments experience for millions of people. The benefits that individual domestic systems bring can be further amplified by enabling them to work seamlessly together on a cross-border level. We’re committed to helping the industry achieve this and are already working with local domestic providers to make sure they can integrate their solutions into our own – Payment Pre-validation. This allows institutions to pre-validate data outside of their own country or jurisdiction and comply with the new regulation, without having to heavily invest in new solutions.

We first released our API-based Payment Pre-validation service back in 2021. Since then, we’ve not stood still, innovating and evolving our capabilities to provide even more value to our community. Today, it’s a powerful and versatile solution that enables financial institutions to go above and beyond the European Commission’s proposed requirements. As well as the ability to perform an IBAN name check, it also allows users to perform Confirmation of Payee services, regardless of the account format or location.

Users can cross-check payment information against historic transaction data on the Swift network too. Alongside other validators features, the use of centralised data can be used to confirm that account format, purpose of payment and currency codes are correct before a payment is sent.

As a member of the Payment Pre-validation community, we at Rabobank, understand the value we can bring as a data provider on the service. We’ve integrated Swift’s solution into our existing domestic Confirmation of Payee system, SurePay, to help banks beyond our borders pre-validate their payment data is correct. Doing so greatly expands the impact that domestic systems can have in tackling fraud and reducing cross-border transaction friction.
Ton Versteeg Senior Product Manager Market Infrastructures, Rabobank
Protecting our customers against fraud is a high priority at BNP Paribas. As fraudsters hone their tactics, we must strengthen our defences too and act collectively. Swift’s Payment Pre-validation solution is a promising way to make sure that a payment is legitimate and heading to the right account. European Confirmation of Payee solutions are currently focused mostly on domestic transactions, which could cause fragmentation later down the line. We think that Swift is an excellent neutral player with an already extensive network, and thus could play a central role to facilitate interoperability in this space.
Nicolas Trimbour Head of Fraud Prevention & Chief Data Officer for Cash Management, BNP Paribas
We adopted Payment Pre-validation as a data provider back in 2021, being one of the first banks to offer a global pre-validation solution for all Deutsche Bank accounts across the globe. As a global bank that processes millions of payments per day, we believe that Confirmation of Payee is a service that can not only improve the speed and reliability of transactions, but also their security by reducing potential payment fraud. The work Swift is doing to standardise the different approaches to name matching around the world is very valuable to us and we will continue supporting these initiatives for the benefit of our clients.
Jose M. Buey Global Head of Client Account Services, Deutsche Bank

Sibos 2023: Learn more about Payment Pre-validation

For 2023, Sibos is coming to Toronto. Once again, we’ll be bringing the financial community together to learn, network and hear from industry experts from across the globe.

We’ve got a number of sessions planned to help you get a better understanding of Payment Pre-validation, including industry context, how it works and whether it’s the right solution for your institution.

Don’t miss these sessions:

  • Removing friction in cross-border payments: A formula for customer success | 15:00, Monday 18 September | Conference stage 1
  • Get started with Payment Pre-validation: See it in action | 09:45, Tuesday 19 September | Swift stand
  • Get started with Payment Pre-validation: Hear from your peers | 09:00, Wednesday 20 September | Swift stand
  • Go further to detect, assess and correct your payments – before they’re sent | 13:30, Wednesday 20 September | Conference stage 1
  • Cross-border Confirmation of Payee: Taking local pre-validation global | 09:00, Thursday 21 September | Swift theatre

For more information on all we have to offer at Sibos, explore our programme.