Where is the action in retail payments?

 In the beginning there was gold  followed by cash. Then came the check. And then came technology where we are now.The best analogy to understand  the action in retail payments is that of a kitchen table where the transaction occurs. The table has 4 legs and the table top. The four legs together with the table top  in our kitchen table example are the basic requirements of creating a transaction.Customer:The  first leg...

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Embedded Finance and Payments

 We have seen a lot of exciting developments in the consumer space introducing payments as a way to enhance revenue and customer interaction. Starting with major tech players like Apple and Google offering wallets for paying merchants, Square added debit cards to its Cash App P2P platform, Uber used the Visa  rails to provide instant payments to its drivers to Shopify adding Stripe's payment processing capability for its merchants.These initiatives have led to revenue gains for all parties but more importantly taken away customers which...

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The business of banking and payments

 What does a bank do? From the perspective of a consumer of business here are the core functions:-Offers consumers banking services around their day to day needs of payroll, paying bills, cash requirements, mortgages, deposits and managing wealth.-Offers businesses a way to receive money from customers and pay their suppliers, loans to fund their business, handle domestic and international  payments Between themselves, they offer loan syndication, securitization, investments , stocks and bonds.A common theme is the use of information...

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Why should banks care about ISO20022?

 Consider some of this data:-Total transition costs for migration to ISO 20022 payment message standard cost the SEPA $9 billion as per a 2017 study.-Payments Canada expects a migration from checks will save the Canadian economy $4.5 billion.This is good for the economy and society as a whole but I am a bank running for profit so why should I care? I have a system that works fine, the inefficiencies and delays in my current system is to my benefit...

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Data Security in ISO 20222 with Tokenization

 With increasing use of account level credentials being used for facilitating payments it comes with risk of ensuring safety of the remittance information. Compounded by various real time rails and the rise of immediate payments the new payment methods such as wallets, ecommerce, QR code and  other payment methods have increased the chance of fraud . Given lack of delay in the real time rails and that payments are irrevocable, fraud mitigation is taken on a higher priority.Tokens , which can be thought of as surrogates for the PAN or...

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Customer minutes and friction as a metric for Banks

 Everywhere we see especially in ecommerce what used to be complicated method of paying for goods and if required getting refunds used to be fraught process. Nowadays Amazon has shown the way with One click ordering and refunds.This consumer focus to help make their lives easier while interacting with a machine has been rewarded both by customers and the stock markets . What are some examples where banks have made the difference?- Transaction alerts on the mobile app -Customer authentication on the phone if calling from a registered number-Servicing...

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Business in the instant payment world

 Many jurisdictions are working on implementing a low value system on real time rails. Built on ISO20022 payment messaging standards, these promise the availability of instant and irrevocable settlement as well as rich data about the transaction such as invoice details.Some well established business use cases that will benefit from these new capabilities  where payments are available 24x7  as opposed to time delay for ACH and checks are:-Ecommerce vendors buying and selling online-Gig economy payroll for workers for payment of hourly...

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CSM Opportunity for Banks

 Given the huge innovation in payment initiation  for consumers its only a matter of time that businesses would ask banks what options are available for them to participate in the instant payment world.Its not going to be easy for banks. They will have to take calls that may or may not pan out. One area they can start thinking about is the Clearing and Settlement function. There is a history of lag and costs in this area. However there is sporadic innovation as well. Ripple's cross border RippleNet system has shown the potential for reducing...

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What is LEI?

 LEI stands for Legal Entity Identifier . This is a 20 character alpha numeric code based on ISO 17442 standard. This code helps in identifying the legal entities in a payment transaction. For example in Canada all counterparties to the derivatives transactions need to have an LEI. As faster payments and pay mod initiatives kick  in, more market participants including legal companies, their subsidiaries, government departments, charities...

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The Age of Open Banking

 Let us pivot for a moment from the back office of ISO20022 payment messages to the front office where the customer meets the bank.  Imagine your legacy bank has worked hard to modernize its payment systems and now carries rich data about a transaction end to end.What challenges do banks face? Several in fact. Sharing Customer Data: Who do I share this data with?  What is the risk to the bank, the customer? How is my API strategy shaping up?  Regulations are spotty at best and cant be depended to course correct us.Partner:...

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Cost and Value in Payments

 Today cross border payments have a reputation for high cost and lack of transparency in the fee structure.Coupled with a 600 year old system of Vostro/Nostro accounts and Correspondent banks as middlemen the system is opaque as best and takes 5-7 days for settlement to conclude.Where are these costs coming from? This graphic from Payments Canada will help.Can fintechs help reduce costs? See this graphic from RBC in one of their pilot studies...

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Value of digital transformation

 Customer onboarding at VisaCustomer onboarding at PlaidVisa paid $5.3 billion for Plaid. What does this tell us about the potential for digital transformation and embedded finance with ISO200...

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How to use data from ISO20022?

    The attraction of ISO20022 messaging data is: -It is unambiguous: the meaning of each data element is known -It is credible: the origin point of the data is known. -It is consistent: all ISO messages follow a standard that is universally understood.   These factors lend itself to data analytics at scale. Many banks have data lakes and initiatives to use AI/ML to develop insights. The building blocks are in place. What is payments data? Data generated by providing payment services such as card payments, mobile payments,...

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Brief on ISO20022 CAMT Reporting

    Under the ISO20022 payment messages for credit transfers, direct debits and electronic payments will all need to use the same standards, languages, procedure, and format to be compatible. The new format is called CAMT for Cash Management. CAMT ensures the customer a continuous XML process from submission through to the account statement with no disruption and specifically covers Bank to Customer Cash Management reporting The three most relevant CAMT formats for payment processes are listed below: camt.052 – Electronic...

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Case for ISO20022 migration

  Its not about a technical specification and the fact that a lot of data travels with the payment in ISO20022.In making a business case for migrating to ISO20022, its very hard to sell to executives why a change of this magnitude is desirable. I collected a couple of data points both for the bank and its customer to showcase why this migration is desirable.   For Bank: Banks have a very complex legacy architecture that has served them well for most part. However, the cost of servicing failed STP payment transactions is becoming prohibitive. In...

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ISO20222 and Straight through processing (STP)

The main benefit of ISO20022 rests on the fact that it will allow higher STP throughput. Let’s peel this onion a little bit. What we know: -The ISO 20022 standard defines a methodology for the development of financial message standards. - It relies on UML3 (Unified Modeling Language) models representing financial business processes, flows and transactions in a neutral notation. -These business transaction models are then subsequently converted into physical messages in the desired syntax, like XML (eXtensible Mark-up Language). - ISO 20022...

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Compliance a Concern for Banks migrating to ISO20022

As ISO 20022 becomes more prevalent as a message standard of choice, banks are wrestling with the compliance risks that come with implementing this standard. For the last 40 years a name and address in Swift MT consisted of 4 lines of 35 characters each. MT focused on concise information as opposed to clarity since it was developed in the days of low bandwidth and leased data lines were every expensive. In addition, over the last few years there has been the requirement of AML screening against sanctions lists and enhanced KYC including more...

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Understanding ISO20022 Message Types

  So what is the fuss all about? Currently the transaction related information is sent in legacy formats (e.g. SWIFT MT) and that is expected to change with the use of ISO20022. Let us look at the different message formats and where they are used in ISO20022. These formats will cover debit, credit, mandates, settlement, investigations and statements to name the key ones. In ISO 20022’s naming scheme, message type is described with four letters...

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What is ISO20022?

  ISO 20022 is the latest international financial messaging standard to exchange transaction information between the players in the financial ecosystem. With the growth in Internet Protocols and XML this standard was derived to capture the benefits of these new technologies. It was first released in 2004, so it has been around for while and well accepted. Around 200 FIs globally are considering implementing, in addition to market participants like SWIFT, Ripple and Visa to name a few.  The standard allows users and developers to represent...

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 Welcome to my blog.Here I will endeavor to post in brief some of the key issues facing the payments industry as banks modernize their financial messaging infrastructure. These are the common themes: ISO20022, APIs, Open Banking. In future posts you can see updates on current thinking on how to approach the major aspects and some more detail of what needs to happen at the frontlines.I hope my content helps executives at banks and product managers who are not payment experts to get a birds eye view of the effort and opportunities in this journey.Stay...

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