The good news for the industry is that since its introduction, ISO 20022 has already displaced many legacy payment messaging schemes and this process is accelerating. The updated scheme has been embraced, thanks to the way it facilitates the fast, standardized and robust exchange of financial messages across borders.
This change is just a glimpse of a new real-time vision for the payments industry. Delays and inefficiencies will become a thing of the past and customers will benefit from an enhanced experience that is built around faster and more responsive information about their payments.
However, to make this vision a reality, banks’ infrastructures need to be ready for it. That means untying them from the limitations of their legacy payment systems through payments modernization (or PayMod). This offers a variety of opportunities that can drive new revenue, and even open the door to more agile and future-proofed deployment methods such as cloud deployment.
Modernization initiated by regulations
User demand for a better payments experience is just half of the real-time story. The other is the way regulations are driving modernization. As ISO 20022 proliferates and governments intervene to accelerate real-time payments, the foundations are being laid for widespread transformation through regulation. The result is that more – and better quality – payments data is generated than ever before, which can be harnessed to create added-value services such as QR code-initiated payments or Request to Pay (RtP). Such innovations simultaneously protect existing revenue for all players in the payments ecosystem, while generating entirely new revenue streams.
Furthermore, this change is happening at all levels. For example, high-value payments are benefitting from new data-rich standards, driven by SWIFT’s, regional and many domestic countries’ adoption of ISO 20022 for high-value domestic and cross-border payments.
SWIFT gpi is another great example of PayMod in the way it increases payments velocity, transparency and traceability. It’s a wide-ranging initiative, from improving SLAs between banks to mandating full visibility of where payments are on their journey. SWIFT gpi gives transparency into the margins taken along the way, the tracking of corporate-initiated payments, and stop and recall. Overall, this promises to remove friction in corporate banking with truly transformational capabilities for businesses; capabilities that will be able to understand more about their payment-routing networks to secure better value and service.
The challenge of legacy infrastructure
To meet these new regulatory standards and take advantage of the opportunities and benefits of PayMod, they must somehow be integrated with the banks’ legacy payments infrastructure. These engines were created to handle outdated expectations of volume and velocity of transactions (and variety of data). They’re struggling with current real-time payments demand and will fare even worse with what’s coming down the pipe.
As an example, in the U.S. real-time transaction volumes are expected to increase six-fold by 2024. Depending on the bank’s own models (such as divisions of lines of business and the existing payment engines that support them), all of that volume could hit the corporate side of the house. Certainly at least some of it will, as B2B use cases arise for instant payments, and we see a convergence of high- and low-value payments on the ISO 20022 standard.
Customers will desert banks that cannot keep pace with demand, but many of these legacy infrastructures are integral to a wide range of operations. They’re also highly customized after years of incremental updates.
These systems can’t simply be ripped and replaced, so banks need to find a cost-effective way to build up their readiness to handle higher volumes and more diverse workloads.
The path to transformation and modernization
In order to move towards real-time modernization, banks will have to find a solution that allows them to be agile, consistent, competitive, and adherent to regulations, and one with centralized control. It might cost in the near-term, both in terms of capital outlay and disruption (which can of course be minimized), but modernization will save money in the long run through greater efficiencies while generating new revenue from enhanced capabilities.
This kind of transformation likely demands working iteratively and, on this journey, banks may consider the cloud as the optimum route for responding to global payment trends.
Ultimately, however, the solution will depend on each bank’s unique situation.
Discover more about overcoming common obstacles to PayMod in our eBook: Real-Time Payments Modernization: Leveraging ISO 20022, Universal Confirmations and SWIFT gpi for payments innovation
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ACI Low Value Real-Time Payments 
