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Sibos 2022: New global priorities for payments

This year’s Sibos conference flagged the need for banks and their customers to get ready for the new world of instant global payments. Westpac’s Jeff Byrne and Nish Dharmaratne explain what’s on the way.

Sibos 2022, this year’s annual gathering of finance professionals, centred on the theme, ‘Progressive finance for a changing world’

 

More than 8,000 people gathered in Amsterdam in October for the first in-person Sibos since COVID, to hear about the need to embrace digital transformation, navigate new risks and drive sustainability and ethical change.

 

Organised by the global money transfer system SWIFT (short for Society for Worldwide Interbank Financial Telecommunications), the conference had a focus on how cross-border payments are changing to make for more seamless and faster transacting.

 

The Metaverse and the use of artificial intelligence to ward off financial and cybercrime were among the hot topics discussed, but the boldest conference-wide themes at Sibos 2022 were: the benefits of the new ISO data standardisation globally; the latest developments interlinking cross-border and real-time payments; and, the pressing need for regulators to provide guardrails in the form of governance for the next generation of global transactions.

 

So, what does this mean for customers and corporate treasurers?

 

Benefits from richer data

SWIFT is receiving an upgrade, with the new ISO standard 20022 to be introduced from November 2022 and to be completed by 2025.

 

The standard will create a common language for payments worldwide, with the ultimate result that payments will carry higher quality data – and more of it

 

Dharmaratne says the richer data will bring several benefits for banks and their customers. They will be able to identify their customers’ payment trends and gain insights into their payments experience.

 

“We will be able to build insights through this data to help customers. With supplier payments, for example, we will have better visibility and very quickly be able to provide information back to the customer when the payment lands,” she says.

 

“Banks will have to think about how to manage this data in more useful ways for the customer. We will get it through our payment platforms, but just keeping it in the platform won’t be beneficial.”

 

Additional data will help banks more quickly identify whether an international transfer is to or from a party that is on a nation’s sanctioned list. Each country has its own different list of sanctioned parties. Currently identification takes time, because the data attached to payments is unstructured resulting in many false positives that can delay payment delivery

 

Once the information is in the new ISO standardised form, it will be easy for banks to write algorithms to conduct almost instantaneous checks, allowing money to be delivered to customers almost immediately.

 

“The bottom line is it'll improve straight-through processing significantly,” Dharmaratne explains.

 

But with the new technology and capability also comes a new imperative for banks, as the Sibos discussion highlighted.

 

To benefit from the change, banks need to build the right data repositories and understand what to do with that data, including upgrading downstream processes, financial crime monitoring and sanctions screening.

 

“Banks will not necessarily have the right data techniques or technologies, so we may need to partner with companies or fintechs to build value-added applications off the back of this data,” reports Dharmaratne.

 

Infrastructure for 24-hour global transactions

Many countries, in particular the larger markets such as the US and Europe, are moving towards instant seven-day 24-hour transaction processing and payment, just as Australia has with the New Payments Platform.

 

These systems are aiming for instant domestic transactions. Sibos 2022 highlighted the need for two sets of infrastructure in different markets to “connect” to each other, creating instant global transactions – and this recognition puts real-time treasury strongly in the frame.

 

Real-time payment networks across the world are maturing, and interoperability between international and domestic payments is now the focus of both banks and regulators, observes Jeff Byrne.

 

Currently, a bank making a payment to a recipient in another country relies on its relationship with a correspondent bank in that country, while payment speed varies according to the time zone, the quality of the infrastructure available and individual banks’ processing times.

 

Developments discussed at Sibos point the way to a seamless, follow-the-sun approach to transaction processing. “So, a payment made in the US to an Australian recipient, for example, could be settled immediately. That's the end game,” Byrne says.

 

Australia already has seven-day, 24-hour transaction processing and payments through the New Payments Platform (NPP), but it’s not yet interlinked with the rest of the world. The NPP’s roadmap to introduce cross-border transaction settlements brings this a step closer.

 

“We're not there yet, but markets such as the UK and India are gearing towards getting the local infrastructure ready to connect with infrastructure in other jurisdictions in the future,” notes Byrne. “This is a foundation for real-time treasury operations, and it’s central to the value proposition of Westpac’s plans and strategic investments.”

 

Digital currencies on the rise

Sibos participants also received updates on how various nations were progressing with central bank digital currencies (CBDCs).

 

The Reserve Bank of Australia is one of many central banks working on a CBDC proof-of-concept, similar to other nations, with some more advanced.

 

Byrne says Sibos featured many high-level conversations on CBDC, “but there weren’t any conclusions or recommendations,” he says. “Right now, it’s almost as if we have a solution looking for a problem, so I think it will be some time before CBDC, or any other crypto or blockchain exchange of value matures in the formal economy.”

 

The Sibos discussion, however, delivered pause for thought on Australia’s progress for Dharmaratne. If Central Banks do adopt CBDCs take off and it becomes possible for state and federal governments to settle foreign sovereign bond purchases through CBDCs, might Australia be left behind?

 

“We are looking at some use cases within the industry now & potentially working towards an acceptable proof-of-concept. But what I saw through Sibos sessions is that the thinking on central bank digital currencies is now much more advanced.”

 

Keeping up is particularly important for Australia because the Australian dollar is the fifth most traded currency in the world.

 

But before the global economy can start to draw on the fast and seamless transaction and settlement potential of CBDC and other digital currencies, Dharmaratne says there will need to be a robust and widely accepted governance framework to provide “guardrails” against potential related risks. A lack of tracking and traceability of digital currencies makes them susceptible to money laundering, making the security of CBDCs important for central banks everywhere.

 

Improving the customer experience

Ultimately, all of these changes will improve the transaction experience of the customer.

 

Banks will start working with customers to enrich the data they receive from them, so that customers can derive the maximum benefit from that data, Dharmaratne says.

 

For instance, customers could include supplier and invoice reference numbers in their payments, which would make reconciliation easier, but also allow banks to provide them with better insights about payment trends, she says. “We will be able to identify payment patterns, improve on fraud statistics and early recognition of payments that have failed in the past.

 

“The most important part is how customers build their own strategies, particularly their e‑commerce strategies, by understanding this instant payment landscape. Because the end-consumer will expect instant payments and receipt of goods, or instant refunds when a purchase is not going through. It will be instant in most parts of the value chain.”

 

Australian companies with global operations will need to invoice and collect in local currencies and then bring the cash back to Australia to be used. This will be a lot more efficient if banks are operating with a global 24x7 payments infrastructure with cross border transactions seamlessly connected.

 

Immediate settlement of global transactions will provide company treasurers with a lot more control and flexibility, allowing them to quickly move cash from one location to another jurisdiction.

 

However, Dharmaratne warns that a lot of companies aren’t ready for the change, and are still using legacy ERP systems and applications that don’t cater to the instant payment cycle.

 

The cost of change management for new e-commerce models is top of mind for many treasurers but, with the enhancement of web services and online transactions, companies that are investing in new ways of accepting payments will become the ultimate winners.

 

Collaboration across the industry between banks, technology partners and regulators

When it comes to global payments, no organisation can go it alone to solve for all customer requirements, regulatory requirements and scheme compliance. That is why collaboration is growing across the spectrum – between banks, fintechs, regulators and other governing bodies, such as the Financial Stability Board (FSB).

 

This collaboration aims to solve not only for current friction points in the customer experience, but also to set the standard for the future, including the adoption of new ISO messages, the interlinking of real-time payments, the entrance of alternative payments and settlements schemes, and the introduction of Digital Assets.

 

As payments continue to evolve, regulators will need to rapidly infuse the required governance, working together with the industry to keep pace and maintain the regulatory standards followed today. 

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