Parth Desai, Founder & CEO, Pelican AI
With every new regulation, technology, and customer demand, the world of payments is changing. As the strength of cash and physical branches vanish from this digital world and we enter the next generation of payments; it’s crucial that banks are prepared for this fundamental change for the long-term.
The rapidly changing payments industry forces banks to not only evaluate the added value of their business models, but also to adapt them; to remain solid, agile, and future proof. As the industry adapts to new regulations, technologies, and competition, plus demanding customer expectations – are you ready to harness the opportunities?
Why payments innovation is so important
Different payment types and systems to process high and low value payments, coupled with cross border, domestic ACH and faster payments processing have created a plethora of fragmented systems. Add to this financial crime compliance in an open and real-time world. And you quickly see how all these siloed systems hamper a banks ability to have a complete, comprehensive, and streamlined payments process and consolidated view of customer payments.
What’s more, delays in providing timely updates to corporate customers impacts some of your biggest customers’ liquidity, forcing them to borrow more or keep more money than required.
Additionally, competing with agile, built-from-the-ground-up digital Fintech players is a real challenge, particularly as banks must focus on retaining loyalty from customers now demanding more intuitive and personalised products.
However by working together as an industry, in true partnership, we can deliver a complex, critically important and highly beneficial change, which will help create the conditions for the next generation of innovation in payments and personalised financial services for our customers.
The start of the new digital payments journey using ISO 20022
Arguably, the biggest catalyst in the acceleration of payments innovation will be ISO 20022, which will revolutionise the payments industry through a new standardisation of language and messaging for payments and associated data.
In fact, actual use of ISO 20022 and harnessing its data using the latest technologies will be decisive on the role various financial institutions will play in the next decade. Across the globe, the ISO message format is now being adopted for all types of payments such as high value, SEPA, cross border and faster or instant payments. This will bring much needed harmonisation and interoperability of payments. And we’re now starting to see the shift from message translations to payments data.
As the world of payments is entering a new and exciting period that brings the promise of modernisation and flexibility brought on by the ISO migration, there’s a lot more to consider. From the cost of maintaining both the legacy system and the new ISO 20022 system (for parallel run ‘like-for-like’ phase) to the operational impacts due to the data quality, truncation and new data fields – finding a way to harness the data opportunity is essential.
That’s why proactive preparation is key. Adopting a flexible and data-led approach will enable the necessary delivery of change to comply with the regulation as well as the ability to adapt to evolving regulations, competition and customer demands. These can be achieved in an incremental manner as long as a well thought out plan is deployed. Making for a hassle-free, smooth and lucrative migration to 2025 and beyond.
A combination of Artificial Intelligence (AI), API connectivity and cloud technologies can address this challenge. Banks can leverage these technologies to allow them to focus on what they need to do rather than having to run large IT setups. For banks of all sizes, technology has the potential to reduce costs, respond to change and innovate quickly.
Early adopters can then steal a march on the competition with the ability to provide value added personalised products and services around rich data sets to their customers.
5 key steps to gain opportunity from ISO 20022
ISO 20022 can contain substantially more data than conventional legacy formats. Therefore, payments infrastructure (such as systems, databases, and networks) will need to be capable of processing these larger data volumes – and at faster speeds – for real-time payments, liquidity management, compliance checks, and fraud detection and prevention.
The data contained in these payments and associated account information embed a lot of information that can be used to generate insights for optimisation and monetisation.
So how can you ensure a successful migration and harness the opportunities that arise?
1. Conduct a comprehensive review of the new payments landscape (customers, competition, product offering and infrastructure)
There are several different operational aspects to consider here. The migration to ISO 20022 not only affects IT systems, but also business rules and process workflows. Conduct a thorough gap analysis keeping in mind customers current and future needs with new product offerings.
Here we have to consider an ecosystem where banks, corporates, SMEs, and clearing systems work in a seamless manner exchanging payments information in multiple standards, multiple formats and multiple versions based on ISO standards. As well as impacts due to data quality, truncation and new data fields in data translation and data cleansing to transition to the ISO 20022 format, especially transforming free text to structured fields. Also consider how you can benefit using AI on this data.
A comprehensive and effective strategy will be required to ultimately address customer needs, and to triumph in the competitive landscape.
TOP TIP: Consider the best migration approach with parallel programs and consider the potential synergy of aligning several migration programs (such as Payments, cloud, API and Financial Crime Compliance) where applicable. Then look at how you can use AI on payments and clean customer data to stay ahead of the competition by offering innovative products.
2. Start to implement critical cloud, API, and ISO 20022 components
It’s critical that banks focus on future-proof platform strategies. Forward-thinking banks are exploring cloud, micro-services and containerisation, and last but not the least, API based integration. This approach leverages existing platforms to quickly start the project on a firm footing, in a cost-effective and scalable way.
Cloud-based deployment offers an opportunity to scale and optimise payments processing costs across all types of payments allowing for 27x7 “always ON” availability. API-ready platforms enable banks to integrate various applications easily, to speedily process transactions or get data quickly and efficiently for better customer service. Using microservices based architecture and containerisation also enables banks to modularise and scale the platform in a cost-effective manner.
TOP TIP: Kickstart the migration approach on a firm footing by considering cloud-based deployments for speed, scalability, flexibility and use APIs as an integration strategy between in-house, industry and partner systems.
3. Use AI and data to gather insights and upgrade product offerings
ISO 20022 migration provides a tremendous opportunity for financial institutions to upgrade and transform their legacy systems to regain competitiveness over the coming years. That’s why many banks are now exploring to the fullest extent new technologies in payments processing such as AI – Natural Language Processing (NLP) and Machine Learning (ML) for data cleansing and normalisation enabling better insights, internal process optimisation and personalised product offerings for increased revenues.
When modernising payment journeys, using ISO 20022, AI can provide banks with greater data quality and understanding using Natural Language Processing and insights and recommendations using Machine Learning. This will provide the chance to lower costs, improve operational efficiencies and provide opportunities to monetise innovative products and services.
TOP TIP: ISO 20022/XML message formats provide a way to replace unstructured information with structured data fields using AI and NLP capabilities. Leverage AI and NLP technology to use unstructured data and clean data elements and then use the derived insights to perform internal optimisations and monetise new products and services.
4. Don’t forget effective and efficient financial crime compliance
ISO 20022 migration and digital payments transformation will have an impact that goes far beyond core payments processing, affecting peripheral systems such as anti-financial crime applications (especially embargo/sanctions screening as well as AML systems) and liquidity management.
In the new open and instant world of payments, you can no longer afford to ignore financial crime compliance. Payment systems have to perform in tandem with compliance systems. That’s why the use of the cloud platforms, API technologies and AI techniques to increase accuracy and reduction of false positives in the integrated financial crime compliance systems is vital.
TOP TIP: Structured data and AI will also improve the integrated financial crime compliance – sanctions and Anti Money Laundering systems resulting in higher accuracy and less false positives that is cost-effective and will result into better customer services as well as compliance.
5. Partner with FinTechs’ agile, intelligent and open technologies
Projects like ISO 20022 are a perfect opportunity to perform a comprehensive review of a bank’s payments infrastructure and technology stack. Modern systems enable banks to get ahead of the competition, but this will require the bank to look at the entire payments processing value chain, holistically.
Work with tech partners to leverage new technologies and deployment options and develop customer focused digital product and service offerings that will be sure to delight customers and at the same time increase revenue and profit margins.For example, banks that leverage cloud-enabled, API ready platforms can offer an always “ON” solution in a cost-effective manner along with robust AI capabilities to leverage data. This will enable banks to focus on customer centric innovative products and services.
TOP TIP: ISO20022 will act as a catalyst and trigger for larger digital payments transformation. From cloud deployment and microservices architected that supports API, to omni-channel interfaces that leverages AI and data from ISO messages for better customer service. What’s more, cloud and API solutions are easily deployed to fill gaps in banks own technology estates to simplify them, thereby reducing operational risk and lowering technology spend.
New technology, new opportunities
Under pressure from multiple forces, successful banks will develop a new payments model better suited to changing times. New technologies are opening up new opportunities for businesses to offer new kinds of products and solutions to consumers and businesses. By 2025, we will all pay for things in a variety of ways and authenticating payments in new ways too. That’s why an always on 24x7, resilient and cost-effective solution will be critical.
We firmly believe that AI and data are the “secret sauce” for banks to leverage better personalised product offerings, to stay competitive and gain market share.
Payments innovation beyond ISO20022
The next few years will be critical for the success of the innovation opportunity within the payments landscape. Looking ahead, a clear strategy is essential for banks that want to avoid disruption in the face of this industry overhaul. The stakes are high – ignoring the transition could have significant costs in the future, or risk disintermediation by competition resulting in loss of revenue and market share.
ISO 20022 migration paves the way for comprehensive digital payments transformation and is an opportunity for banks to overhaul their entire payments processing and service offerings to customers. Use of ISO 20022 will give banks the chance to take a step back and look at their whole payments processing system in order to establish how to make the most of capturing, understanding and using the additional MX and ISO 20022 payment information in new ways. To ultimately create added value for customers.
Acting as an “early adopter” of the holistic digital payments strategy will result in a competitive advantage – bringing earlier the benefits of harmonised standards, amortising the investments on the bank side, and securing end-to-end efficiency of the payments ecosystem. Yet it will require a clear and comprehensive strategy and it is critically important that senior management are involved from the very outset to secure the necessary commitment to the project, timely resources, and budget.
To learn more about the opportunities presented by ISO 20022 and the Nextgen payments for your bank, speak to one of our experts today.