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ISO 20022 – THE BEDROCK FOR PAYMENTS TRANSFORMATION

PAYMENTS

Lauren Jones, Global Payments Ambassador, Icon Solutions

 

The financial services industry has seen ISO 20022 grow firmly over the last 15 years. What was then a small pocket of countries tackling migration has now become widespread adoption for domestic and international payments.

And with momentum building, it is clear that IS0 20022 is playing a foundational role for banks in the transformation of their infrastructures, with the rich messaging format delivering business benefits and enabling enhanced customer propositions.

 

PAYMENTS

Lauren Jones

The time is now for ISO 20022

European initiatives, such as SEPA, were the first to drive usage, but have since catalysed a network effect in other countries. Recent examples driving adoption include the New Payments Platform in Australia and the Bank of England’s Real-Time Gross Settlement (RTGS) service doing the same in the UK.

Despite the timeline delay, the SWIFT migration to ISO 20022 for cross-border payments will drive further adoption and it is clear to see why. As the world becomes more connected, having a globally interoperable standard is attractive. ISO 20022 allows banks to have a consistent experience across geographies and provides a low-risk approach to modernisation.

In the US things are moving as well. With the country’s most important payments market infrastructures, the Fedwire and The Clearing House Interbank RTP system, migrating their High Value Payment (HVP) systems almost concurrently, widespread ISO 20022 has reached a tipping point.

For US banks this means it is important to understand that ISO 2022 is no longer happening “somewhere else”. Banks dealing with the modernisation of infrastructure need to decide what will become the bedrock of their transformation efforts. ISO 20022 seems to be the only sensible choice.

 

ISO 20022 in practice

While banks in the US and across the world grapple with ISO 20022, it is crucial that they engage internal and external stakeholders early on in their journey to define their strategy. Resources should also be pulled from all areas of a bank, including technology, operations, AML, product and sales.

Implementation is not just a technical issue. Governance, sequencing and coordinating activities are all vital for success.  Banks need to lay a foundation where legacy systems are ringfenced, but it is equally important for them to understand how to move rich data through or around legacy infrastructure as early as possible.

Deciding what to do with legacy systems is a challenge for many financial institutions. Therefore it can be useful to deploy mapping or translation services in the early stages of adoption. In fact, many market infrastructure ISO 20022 programs include a phased approach where there is a like-for-like phase (where no new functionality is used), allowing adopters to become familiar with the new standard.

This is often followed by multi-year adoption of new functionality and gradual decommissioning of legacy formats.  However, mapping should not be viewed as a longer-term solution. To harness the full value of ISO 20022, supporting the standardisation natively allows banks to build from the ground up. This creates a modern data model where both internal efficiency and external value can be realised.

 

ISO 20022 is the way to deliver added value

One of the major drivers for ISO 20022 adoption is to remain competitive. By implementing a common standard banks can have a platform to innovate at pace and with lower costs.

Many banks now see ISO 20022 as a critical foundational element to deliver value to their corporate clients. But the benefits of ISO 20022 are not solely external. Increasingly, APIs are being used to support both deep integration within the bank and with a broad spectrum of fintech partners. ISO 20022 allows the capability of having a single data model across various computer languages and therefore across multiple use cases.

With a shift towards data-driven architecture, ISO 20022 allows banks to generate greater amounts of standardised data to provide targeted insight. The move to ISO 20022 will therefore be of paramount importance for banks to take advantage of richer, standardised data sets. With more payment volumes set to adopt ISO 20022 by 2025, the discussion is moving on from the standard simply serving transactional needs to the data that can be extracted from these transactions.

 

Prioritising payments transformation

In other words, over the next few years we will see payments being refocused from a commoditised proposition to a strategic, value-adding one. Yet being “data-aware” is not good enough. Banks need to be powered by that data. As cutting costs is no longer enough to sustain banks, they must use payments data to deliver more appealing propositions and revenue-boosting, value-added services.

As the adoption of ISO 20022 remains fragmented in the US for the time being, many banks will continue to question how best to take advantage of the standard. However, it should be evident that ISO 20022 is coming and the time to prepare is now.

 

Business

UNBANKED AND UNCONNECTED: SUPPORTING FINANCIAL INCLUSION BEYOND DIGITAL

Darren Capehorn, Director, Icon Solutions

 

Many of us take it for granted, but accessing basic financial services is fundamental to our economic and social development. It is hard to ‘get on’ if you are forced to hide life savings under the mattress, or rely on predatory loan sharks for credit.

Yet an estimated 1.5 billion adults around the world do not have a bank account or access to formal finance systems – making 40 percent of the global population ‘unbanked’. This limits opportunity and stifles potential. Indeed, research by EY has shown that financial inclusion could improve some countries’ GDP by up to 30 percent.

Given the transformative benefits (and yes, revenue opportunities), promoting financial inclusion has been a key priority for banks and fintechs over recent years and as a result, significant progress has been made. But with COVID-19 plunging the world into a period of unprecedented uncertainty, it is imperative that these gains are protected.

 

Banking on financial inclusion through technology

Undoubtedly, enabling financial inclusion has become significantly easier in the wake of technology-led innovation. Take increasing smartphone penetration, which has allowed banks, fintechs and telecom operators to offer highly accessible, low-cost digital financial services to previously underserved populations.

These initiatives have had a huge impact. Sub-Saharan Africa, for example, has become the global leader in mobile money, with competition between different providers driving rapid innovation and promoting financial inclusion at scale.

This success provides a blueprint for the power of technology. But despite the huge long-term potential, we must be realistic about the current limitations. Although mobile connectivity is increasing, over half the world’s population remains unconnected. To rely solely on digital interventions is to leave billions of people behind.

 

              Darren Capehorn

Beyond digital: Establishing community banking systems

Where there is no digital infrastructure, establishing safer financial systems is the first critical step to transitioning out of poverty. This is where organisations such as WeSeeHope, a charity committed to creating community-led change for vulnerable children in Southern and Eastern Africa, play a crucial role in laying the foundations for a sustainable future.

WeSeeHope’s Village Investors Programme (VIP), for example, has established a community banking system enabling parents and guardians of vulnerable children to access savings and loans. By providing training and tools, communities have been able to establish self-funded and self-regulated savings and loans groups, helping members to start and expand small businesses.

It may not be complicated, but this simple, sustainable and scalable approach delivers tangible benefits and supports a range of positive outcomes. Since the start of the programme, nearly 24,000 members have been trained as part of the VIP.

As a result, 67,000 children have directly benefitted from access to financial services, as their parents and guardians can afford school fees, improve their homes and invest in naturally reproducing assets to secure future income. This creates a virtuous circle, with economic prosperity driving better infrastructure to enable the delivery of more advanced financial services.

In 2018, I was fortunate enough to see these benefits first-hand in Malawi where, on average, members of VIP see their income rise from $1 to $3 a day. As you drive through this beautiful country, it is easy to spot a community where WeSeeHope has made a difference simply by counting how many homes have upgraded their traditional straw roofs with tin sheeting.  Literally a shining example of improved financial prosperity!

 

A call for global financial inclusion

Unfortunately, we are at risk of taking a significant step back. We have all been impacted by COVID-19 in some way, but the crisis is set to extend and exacerbate extreme poverty and financial insecurity for some of the world’s most vulnerable people.

As part of a global financial community, we must consider the long-term impact and see financial inclusion as a fundamental priority as we look to re-build a fairer, more sustainable world.

Technology will undoubtedly be integral to this effort, but as the International Monetary Fund notes, “to tap the high potential of digital financial services in the post-COVID era, many factors need to fall into place.” This will take time.

We must therefore take a holistic view and ensure that organisations like WeSeeHope, which are playing a crucial and immediate role in promoting basic financial literacy and service availability, do not slip through the cracks themselves. Immediate short-term funding and long-term income projections across the entire third sector have been decimated, putting vital initiatives at risk.

These are challenging times for everyone, but we must trust that in acting now the rewards will be worth it.

 

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Finance

TIME TO FOCUS ON YOUR ‘WEALTHBEING’

Tony Mudd, Divisional Director, Development & Technical Consultancy. St James’s Place

 

FIVE WAYS TO SAFEGUARD YOUR FINANCIAL FUTURE

The financial and economic impact of the coronavirus crisis has thrown up a host of issues for families to consider.

Above all, the experience has reinforced the importance of always being prepared.

The pandemic’s effect on jobs and incomes has underlined the value of having a robust financial safety net in place.  And it’s never too late to take control and start planning. It’s time to focus on your ‘wealthbeing’.

 

Here are some positive steps you can take to safeguard your financial future.

  1. Income security

With almost nine million UK employees of around one million businesses1 placed on furlough since the coronavirus crisis unfolded, there is potential for large numbers of redundancies as employers examine their reopening plans and contemplate the future of their business.

If you’re in employment and still being paid, look at how long that is likely to continue. As far as you are able, try to budget appropriately. Also look longer term at other sources of finance that you would be able to access if needed (such as savings, existing investments or, perhaps, borrowing), as well as the gaps that insurance policies could help fill.

If you are facing redundancy, make sure you understand what you can expect from your employer – your notice period, redundancy entitlement and statutory redundancy cover – as well as the government support that’s available.
Ask yourself – Where do I stand? What do I need? Can I continue to pay my bills? What are my responsibilities?If you do need to dip into your savings or investments, be careful about where you take it from – and when. The right choices here will help you preserve your capital by helping you minimise your tax, reduce charges and get the best from your assets.
If you don’t have savings or investments available, check whether you’re entitled to state support. The Money Advice Service website is a good source of information and guidance. If you’re struggling, or think you might soon be, don’t hesitate to seek free, impartial debt advice from the likes of StepChange and Citizens Advice.

 

  1. Create an insurance buffer

Do a risk audit on yourself. Ask what the financial implications would be – for you and your family – if you get sick or lose your job. Ascertain what potential risks you might face as a family and as an individual. It will be different for everyone, so it’s about considering your personal circumstances and those of the people who rely on you to work out what you need. There’s nothing to stop parents or grandparents from paying income protection premiums for a younger member of the family, particularly if they are renting or starting out on the property ladder and can’t afford them.

 

  1. Prepared for later-life care?

It may seem a long way off, but the Covid-19 outbreak has shown us all that our lives can change in an instant. A will is something that should be reviewed on a regular basis, as it sets out not only who your assets will go to, but also when. Power of attorney (POA) can be especially important, and it’s essential in long-term care. This is an area where financial advice is enormously valuable. Long-term care planning is difficult, and too often people ask for advice when they are already in or approaching a crisis, when it’s likely too late to make a significant difference.

 

  1. Avoiding gaps in inheritance and legacy plans 

Inheritance Tax legislation changes frequently, and because you don’t know when you are going to die, it can be difficult to cover every possible gap, even with a will in place and some form of legacy planning. The closest option is often ‘whole of life’ cover, which can pay out in trust as a legacy or help family cover any Inheritance Tax liabilities. One of the great things about protection policies is that they can be the solution to a range of different problems.

 

  1. Involve your partner and family

Many families remain reluctant to talk about money issues. Consider working with a financial advisor who can bring the family together to ensure that all the necessary issues are discussed among the people who need to be involved. An advisor can facilitate the discussions (without emotional involvement) and offer guidance.

 

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