Hard-Talk on ISO 20022: a catalyst for payments modernization?
Banks face complex challenges with implementing ISO 20022. We discuss the ‘state-of-the-art’ situation with Stephen Peters and review best approach, the costs/benefits for banks and customers and the ideal route to a successful implementation.
This Hard-Talk is also a starting point for our Expert Webinar and debate around implementing ISO 20022, introducing best lessons-learned from Europe and present implementation experiences from APAC
Harry Smorenberg
Well ladies and gentlement, welcome to APC Hard-Talk. And we are happy to have Stephen Peters here. Stephen is head of enterprise payment solutions at FIS Global. And Stephen is based in Singapore. Welcome Stephen.
Stephen Peters
Good afternoon Harry. How are you?
Harry Smorenberg
Fine. Thanks. So, you are very much involved with payments modernization and of course on top of the ISO 20022 developments. A lot of things are happening in that space. We see an increase in acceptance of that new standard and implementation of that standard. So the financials, the banks are quite busy with that. Is this all going well. Do they manage to get it implemented in Asia?
Stephen Peters
What we have seen Harry is that most banks in the region and most countries have implemented a real time payment scheme on top of ISO 20022. And that work has been underway for the last couple of years. But the next steps of the 20022 way, if you like, are high value payments, RTGS payments, cross border payments and occasionally in some countries some bulk payments and then you have additional overlays for the real time payment scheme. So we are really only just at the start of that ISO 20022 modernization drive.
Harry Smorenberg
Right. So what is the biggest hurdle at this stage? If you look at the practices and the best practices in your vicinity in Asia.
Stephen Peters
Yeah look I think there is a couple of hurdles. First is in how do the banks, sort of justify the cost. So there was a range of different approaches towards the real time payments compliance. And that was okay, it worked because it was a single use case a single payment type. And what you have now is 4 or 5 different payment types along with additional RTP overlays, which makes the importance of a strategic approach to ISO 20022 compliance and having that flexible architecture to deal with all of the different payment types and the other elements of that scheme makes us all more valuable. So things like the ability to have a single platform for all your payments processing rather than having a lot of different silos multiplied across the organization, the ability to derive some data advantages out of your investment. The ability to remove some of the complexity of payments processing from the course, which is often a lot of banks in Asia still have had some element of payments processing in their course and that makes it rather inflexible for them to respond to the market. Or at the same time, it can be either or. A lot of banks have a little payments processing embedded in their channels. And that also provides a point of inflexibility. So we see that the impact of 20022 aligns very well with the drivers for payments modernization and payments transformation. So some banks are using the rather 20022 as a catalyst, if you like, to spur investment in a completely new payments platform across the bank. And that will, at the same time, remove complexity from the course and remove complexity from the channels.
Harry Smorenberg
So you see early adopters and fast followers and those who will lag behind? Kind of situation?
Stephen Peters
Yes. I think that`s a fair assessment. I think what we are seeing there are, and of course this is taking place in the background a lot of innovation in digital payments in Asia in particular because you have Grab, you have Alipay, you have Amazon, Gojek, Facebook at some point all of these players are moving into the market place. Even Stripe now with its alignment with Spotify and then new banking as a service offering. It’s going to create a very competitive space for banks to operate in. so there certainly are banks that are early adopters and want to be seen to be leading the market. But there are a lot of other banks that`s going to sit back and probably waiting to see how it all plays out. You know time will tell which is the best strategy.
Harry Smorenberg
Yeah well given the spaghetti and most back office of financials, it’s nothing easy task and nothing easy job. And you mentioned cost. The costs are enormous to implement and for what benefits, what kind of benefits really ,if you look from your perspective. What is the driver for bank because the costs are enormous and the benefits are hardly to see. Apart from of course the data insights and certain connections.
Stephen Peters
Yeah look I think it’s very difficult to predict what the cost will be. It’s actually easy to predict what the cost will be if you don’t comply. Because there is just so much turmoil and so much competition for retail consumers, for corporates, SMEs each one of those space is now being attacked by non-traditional companies. I mentioned some names a little while ago. So if you don’t chose to try and lead, I think the risks are for banks that they will lose their engagement with those users. Whether they are retails, whether they are SME, whether they are corporates. And at that point they are just becoming a store of wealth in the background but all of the engagement is sitting with the platforms they have got between themselves and the bank. And the bank find themselves losing out on all that revenue generated by from fee generating services. So you see that’s a lot. For example Grab, I use Grab here at Singapore quite a lot and they are increasing the number of services they are offering on the platform. And that has to come at the expense of banks who typically are just providing that backend transactional capability. But it’s Grab, who actually has engagement. So I think that’s the model that we will see more and more. It’s that engagement factor that banks really need to take seriously. Otherwise they will just be put in the background.
Harry Smorenberg
Right. So given that the expertise in the area but also your feeling on the best practices case in implementing ISO, what is the best route for banks? What should they do? What you think is the best directions for them to speed up that process?
Stephen Peters
Well I think, the best time to start with a strategic approach to ISO 20022 was last year when the real time payment schemes really started to arrive. The next best time is today. And what I mean by that is that it’s clear to me from the discussions I had with banks around the region is that all of them plagued in one way or the other by the inability I should say to react quickly and to launch services quickly and in some examples, it takes the banks years to be able to launch a new service to a particular customer or customer whatever it might be. That simply not going to be sustainable in the face of the new players who can launch products in a matter of weeks. Now of course there is different pros and cons to that and the ability to launch deep services versus light weight services and things like these. But the point remains that the engagement metrics will be high for banks who can launch products more quickly. So agility is always the number one factor that I see. So when we sit down and work with banks to start on the journey, that would typically have a couple of pain points and it kind of make sense for some of them to look at serving a particular segment more effectively whether that’s a corporate segment, whether that’s SMEs or whether its retails. Each bank will have a different set of priority. And that means they look at how those payments should be acquired from channels, from mobiles, from internet banking, from Kiosks, QR codes and all those interaction points. And make sure that all those interaction points are being handled in a consistent and effective way on their payments platform. So it’s typically for a bank if you need to serve your customers more effectively if you want to increase market share. That’s where you need to focus your efforts. Other banks have a burning platform if you like. With a lot of support issues and lot of P1s and things like that. And they need to focus their efforts on cleaning up their backend. You know, so it’s a little bit less visible to the frontend that the point remains that both of those approaches are required typically in most banks. So where you start will depend on what your particular priorities are within that bank whether it’s a clear revenue driver or you know you need to increase the number of accounts, what are your business goals versus the back office legacy run cost.
Harry Smorenberg
Right. So looking at the global picture, we have discussed a little bit about the status in Asia, looking for instance Europe, is there a big difference or do you see similar trends in the Europe as you see in Asia?
Stephen Peters
Yes. Good question. I think Europe is the home of ISO 20022, they have being doing that seriously now for 12, 13 years with the first waves of separate quota transfers and so forth. And the banks have had a lot of time to get used to what 20022 means for them and the impact it’s going to have on the organizations more broadly because it’s not just the payments platform your core platforms may be impacted or your treasury, your risk, your reporting, your warehouse, your analytics all those things need to have some sort of level of renovation or repainting to become compliant with 20022. So European banks typically do now have a single platform approach to that ISO 20022 compliance. The Asian banks I think are still coming to that decision point. But some are moving forward with that, for sure.
Harry Smorenberg
Right. Well thank you Stephen. Good to have our first discussion on this topic and later on we will also have a webinar, expert webinar on this topic about implementing the ISO. And I think it will be great to also share the lessons learned from some European banks, and blend it in with what’s happening in Asia. So we will come back to that and get some more information out on this topic. I like to thank you so far and we will be in touch again. Thank you Stephen.
Stephen Peters
Alright. Thank you Harry. Bye.
Harry Smorenberg
Bye.