ISO20022 was a hot topic throughout the SIBOS 2023 global conference. We circled back with a key speaker, David Rego, global head of payments for Standard Chartered Bank, from one of the several panel sessions on the subject during the week’s events.
Asking for a roundup of the top benefits - and challenges - he believes would come to corporate cash management clients from ISO implementation, Rego states:
1) ISO20022’s harmonisation of standards with instant payment schemes: “I think for all types of corporates, anyone doing cross border payments, I think that's a massive upside, because you don't have to have so different formatting, data conversion
and all of that at the corporate end before sending the payment send the payment through to the bank.”
2) ISO’s rich data and its structured data: “I think helps a number of clients, probably some which are more regulated. Fraud detection and prevention, things like monitoring of transactions will be aided by standard formats as will any type
of reporting (on client transactions, trade data, verifying names matching accounts) that companies would need to do. Because with the structured data, it becomes a lot easier to do things like reconciliation and cash application too.”
3) Remittance information: “Especially on the supply chain financing side, this is something that has to be explored more but that's where the ERP providers come in. If that remittance information is sent across with the payment message, you
then have the opportunity by the banks or maybe even other providers for financing coming in. Again, that's, something that is across the spectrum, because maybe the larger corporates, and some of the smaller ones can have somebody in the supply chain to pick
up financing because you've got all that structured, rich data that can be used and as it builds up, it will build an excellent base for future usage as well.”
Rego’s take on the top ISO 20022 challenges for corporate clients:
1) Education on ISO20022’s applications and benefits: “I think the education piece is a big challenge. I think most corporates are not even aware in some cases of the whole journey that the banks are on, and even leaving aside the corporates,
banks in certain emerging markets have not even started. To me, education is the biggest concern.”
2) Adoption of ISO20022 by corporates: “The bank side has primarily started, but (soon) that momentum has to move into the corporate side as well. Because otherwise we will get stuck. So that's a big one."
3) Variations in formats: “A number of domestic and high value payment schemes are also moving to ISO. We hope that people don't start creating too many variations around things at a domestic level, because then that departs from what the whole
intention is. So there needs to be coordination and there needs to be a lot more commitment to having a standard that works for not just domestic but cross border and domestic transactions.”
Also, Rego adds, “different banks have different level of adoption. When I say that, what I'm referring to is the adoption from complying on an interbank basis. That’s really where the challenge is. So, it is going to be a bank by bank situation, where
some will be more prepared, some will not, and it’s really a function of how much banks have invested in this journey, three, four years ahead of the time. Certainly, the larger banks are far more prepared to have those discussions. They’ve probably done a
lot more work as well, on how do you convert your formats to the new message format, is it proprietary, is it
PAIN (ISO20022 payment initiation format)? Is it XML 3, what needs to happen?”
When asked if any types of business, or specific customer groups, might be left behind or present specific difficulties for banks to convert them, Rego says public sector organisations in emerging markets, which is one area where Standard Chartered, for
example, does a lot of business. “Those clients tend to be slightly behind the local corporates and then definitely behind the multinationals, but banks will always figure out a way to serve that segment of their client base.”
What about small to medium-sized companies (SMEs)?
“I don't think any good bank would have a view that they didn't want to cater for the SME. Even with the 80-20 rule, i.e., ‘let’s go after the biggest clients first, and then we’ll figure out the rest.’
“What we’ve seen,” Rego adds, “is a lot of SMEs in Asia and I would even say the Middle East, maybe in Africa, many of them are actually far more sophisticated than we expected, and many of them are using ERP software on a subscription basis. A number of
these firms have actually spent the time and energy to prepare for things like ISO 20022. We expect them to do that, because they generally are at the - I wouldn't say bleeding edge - but they are usually at the front of the queue to get things done with their
banks. APIs all the way with many of them, so it’s much easier to set up new arrangements like with ISO20022. SME clients also tend to do things fairly cheaply, and very quickly too.”
What will it take to get the ISO 20022 adoption rate up among corporate customers?
“With Euro, GBP, Canadian dollar, Aussie dollar, all having moved to ISO format, and CHIPS (in the US) scheduled to go in April next year, then the US Fed system a year later, we should see real momentum soon.”
How do real-time payments play into the discussion?
“In Asia in particular, the way it's worked out is it's not been just about the fact that the payment is instant. What people have also done is made the whole process effectively into an instant payment.
“What I mean by that is, if you issue an invoice, or even are presented an invoice from a screen, you've got a QR code. So, when you scan that QR code, it opens up your bank, Apple app, your mobile app, it auto-populates reference number. That’s locked-in,
and the amount is auto populated and then you just pay. This will improve any billing type of exercise. It could just as well work with anyone who's doing trading, buying and selling of goods, wants to pay in advance, whatever. So, the trick with the instant payment”
system is not necessarily about it being instant, but making the whole process easy from the front to the back.”