Why data is the key to unlocking payments innovation

Mak­ing cross-bor­der pay­ments has tra­di­tion­al­ly been a cum­ber­some task. A typ­i­cal trans­ac­tion could take sev­er­al days to clear while the recipient’s bank car­ries out the nec­es­sary com­pli­ance checks. Delays are com­mon, some­times pay­ments fail. For glob­al busi­ness­es, this can have a neg­a­tive impact on sup­ply chains and ful­fill­ing cus­tomers’ orders.

A new inter­na­tion­al pay­ment stan­dard cur­rent­ly being rolled out, known as ISO 20022, could start to change all that by har­mon­is­ing pay­ments data around the world.

“This for­mat is the emerg­ing de fac­to stan­dard for new types of real-time pay­ments sys­tems that are in devel­op­ment glob­al­ly,” says Aleks Ste­fanovs­ki, vice pres­i­dent of strat­e­gy at Cur­ren­cy­cloud, a cross-bor­der pay­ments plat­form. “That’s impor­tant because it enables fin­techs to estab­lish con­nec­tiv­i­ty to dif­fer­ent real-time pay­ments sys­tems around the world in a way that removes fric­tion and improves the speed and cus­tomer expe­ri­ence of cross-bor­der pay­ments, reduc­ing what, maybe ten years ago, took two or three days to just a mat­ter of sec­onds.”

The new ISO stan­dard fol­lows recent reg­u­la­to­ry changes in Europe with PSD2, the new pay­ment ser­vices direc­tive that under­pins open bank­ing and makes pay­ments more secure, which came ful­ly into force in the Euro­pean Union at the start of this year. While the two are uncon­nect­ed, both are crit­i­cal cogs in build­ing what blockchain-based pay­ments net­work Ripple’s vice pres­i­dent of glob­al account man­age­ment Pat The­len calls the “inter­net of val­ue”, a future where he envi­sions mon­ey will move around the world like infor­ma­tion does today.

“In the lega­cy world, you have very frag­ment­ed data and restrict­ed, closed envi­ron­ments, which cre­ates two things: poor user expe­ri­ences and a lot of man­u­al costs,” says The­len. “That’s where ISO 20022 steps in, pro­vid­ing a rich data for­mat that allows for more pay­ment infor­ma­tion to be tied to an indi­vid­ual pay­ment in a way nev­er done before. Then with PSD2 you get to the last mile, the abil­i­ty to have open access to that data and allow dif­fer­ent pay­ment schemes to con­nect with one anoth­er.”

Replacing outdated payments systems

One of the issues with a lack of har­mon­i­sa­tion when it comes to cross-bor­der pay­ments, par­tic­u­lar­ly in an increas­ing­ly glob­alised dig­i­tal econ­o­my, is com­pa­nies mak­ing or receiv­ing pay­ments in dif­fer­ent juris­dic­tions are exposed to dif­fer­ent reg­u­la­to­ry regimes and stan­dards.

“The pay­ment infor­ma­tion that the UK reg­u­la­tor requires is dif­fer­ent to what the reg­u­la­tor in, for exam­ple, India requires and a lot of it is dri­ven by each of them devel­op­ing their rules in iso­la­tion and they are not fit for pur­pose for fric­tion­less cross-bor­der trade or stream­lined inter­na­tion­al oper­a­tions,” says Ste­fanovs­ki.

The sec­ond chal­lenge is the exist­ing infra­struc­ture that sup­ports glob­al pay­ments activ­i­ty was built in a pre-dig­i­tal era.

“Many of these pay­ment sys­tems were devel­oped decades ago,” says Ste­fanovs­ki. “They were devel­oped pri­mar­i­ly to process domes­tic pay­ments at a time when there was no expec­ta­tion for a lot of data to be attached to each pay­ment instruc­tion.”

Hong Kong’s old low-val­ue pay­ments sys­tem, for exam­ple, sup­port­ed few­er than 20 char­ac­ters of infor­ma­tion, just enough to show which account to deb­it and which to cred­it, he adds.

All those dif­fer­ent data stan­dards and for­mats cre­ate a bar­ri­er to inno­va­tion, but it is some­thing that data har­mon­i­sa­tion and access to rich­er data will start to address, says Kuba Zmu­da, chief strat­e­gy offi­cer at busi­ness pay­ments plat­form Mod­ulr.

“Har­mon­i­sa­tion doesn’t solve all the prob­lems, but it cer­tain­ly helps with the abil­i­ty to accel­er­ate inno­va­tion by mak­ing cer­tain things eas­i­er and more con­sis­tent,” he says.

Generating richer data insights

An area where rich­er data could help dri­ve inno­va­tion is with pay­ment rec­on­cil­i­a­tion, par­tic­u­lar­ly for busi­ness­es that need to process high vol­umes of incom­ing pay­ments.

“There is a lot of excite­ment around pro­vid­ing addi­tion­al detail asso­ci­at­ed with invoic­es so the recip­i­ent of a pay­ment can see exact­ly what the invoice pay­ment relates to,” says Zmu­da.

Anoth­er area where rich­er data could help improve pay­ments is by attach­ing greater detail for cross-bor­der trans­ac­tions to sat­is­fy com­pli­ance require­ments, ensur­ing pay­ments can be approved faster.

“For cross-bor­der pay­ments, you have to include infor­ma­tion about the pay­er and the rea­son for the pay­ment, so the receiv­ing bank look­ing at it will be able to run its checks on their side to make sure the pay­er or pay­ers are not on any sanc­tions list and they’re not pro­cess­ing pay­ments on behalf of any indi­vid­u­als for whom they have con­cerns around poten­tial fraud, mon­ey laun­der­ing or ter­ror­ism financ­ing,” says Ste­fanovs­ki.

This back­drop is already cre­at­ing oppor­tu­ni­ties for col­lab­o­ra­tion across the indus­try. Mod­ulr, for instance, has used its pay­ments tech­nol­o­gy to enable chal­lenger bank Rev­o­lut to cred­it its cus­tomers’ salaries into their accounts a day ear­li­er than would oth­er­wise be pos­si­ble.

“The data is only as good as what you do with it,” says Zmu­da. “Busi­ness­es increas­ing­ly need a pay­ments part­ner that can keep them on the front foot and have the dig­i­tal infra­struc­ture in place to ben­e­fit from these changes.”

Wider ben­e­fits of the changes also extend to mer­chants and con­sumers. Take pay­ment ini­ti­a­tion, a PSD2-enabled ser­vice that makes online pay­ments more seam­less and secure.

“As a cus­tomer, you can make pay­ments with a mer­chant online and be redi­rect­ed to your bank­ing app to authen­ti­cate your­self with­out ever hav­ing to enter your card num­ber, so there’s a huge amount of scope to improve the expe­ri­ence for the end-cus­tomer,” says Alan Irwin, head of prod­uct and cus­tomer solu­tions at pay­ments tech­nol­o­gy provider Glob­al Pay­ments.

That is also enabling mer­chants to ben­e­fit from faster, low­er-cost pay­ments. “Where­as in the past, card pay­ments might take up to three days to set­tle, now those pay­ments can land in the merchant’s account in a mat­ter of sec­onds,” Irwin says. “The impacts are going to be huge.”