How can financial institutions hit G20 targets for cross border payments?

Finextra’s latest webinar, ‘Cross Border Payments: Hitting G20 targets for speed, cost, and transparency’ – hosted in association with Bottomline – explored why embracing new protocols, technologies, and data structures around cross-border payments is a non-negotiable for all financial institutions in 2024.

Moderated by Finextra’s head of research, Gary Wright, the webinar featured Frédéric Viard, head of commercial product management for financial messaging at Bottomline; Anastasia Serikova, head of revenue and growth, Money Movement at Visa; Egle Skomskyte, senior payments market expert at Swift; and Colin Williams, executive director and global lead for clearing transformation at J.P. Morgan.

The panel explored how Swift and Visa are helping the industry meet the G20 targets; what institutions can do to manage cross-border friction; how the competitive edge can be sharpened in a climate of rapid innovation; as well as how success will be determined.

Meeting G20 targets through Swift

While the payments landscape has seen rapid advances in recent years, it remains – at a cross-border level – fragmented, particularly regarding payment system interoperability, regulatory frameworks, and messaging standards.

Frédéric Viard, head of commercial product management, financial messaging, Bottomline, kicked off the discussion by noting that “this is why the G20 cross-border payments roadmap is needed; it seeks to install something faster, cheaper – as well as more interoperable, transparent and accessible.”

For institutions, it seems that cost, lack of visibility on payment status and slow speed remain the biggest pain points, as revealed by Finextra’s webinar poll:

One initiative that will go some way to solving these issues is Swift’s migration to the ISO 20022 standard for cross-border payments and reporting (CBPR+). The new format, referred to as MX messages, has native support in a lot of programming languages, meaning cross-border payments can be rationalised effectively and processed smoothly.

After adopting new formats, banks have the opportunity to validate their applications, as have J.P. Morgan, by deploying Swift’s Test Sparring Partner – a free tool that is used for testing.

 “It is important to ensure that the entire end-to-end payment chain speaks and understands the same language. The move to ISO 20022 is universal and, while Swift is driving CBPR+ adoption, local payment market infrastructures are responsible for the domestic scheme migrations,” commented Swift’s senior payments market expert, Egle Skomskyte.

With transactions becoming more structured, there will be fewer exceptions. Any which do make it through can be more easily managed, since more precise data is enabled by the XML format.

The current CBPR+ global adoption rate stands at 23% and is gradually increasing month by month. However, based on our analyses and conversations with FIs, 2025 will be the crucial year to make sure the community meets the November deadline, adds Skomsyte.

With the ISO 20022 transition deadline set to November 2025, there is still time remaining, but “we need to accelerate on this because it's a huge project, and stands to benefit the entire ecosystem,” argued Viard.

The varying trajectories to seamless payments

For some institutions, such as J.P. Morgan, cross-border payments already move at a considerable rate. “The majority, around 80%, of our cross-border payments, based on [Swift’s global payments initiative], gpi, settle and clear within 30 minutes of being instructed,” said Colin Williams, executive director, and global lead for clearing transformation, J.P. Morgan.

This is particularly impressive considering J.P. Morgan processes around 10 trillion transactions every day, across all payment rails – contributing to 40% of the cross-border ISO MX traffic globally.

But we cannot expect all banks to take the same big bang approach, the panel acknowledged. It is natural that different institutions move at different speeds in adopting ISO 20022.

Skomsyte noted that to ensure support during the coexistence period, Swift has introduced in-flow translation, which delivers multiformat messages (MX with embedded MT), as well as Transaction Manager – ensuring ISO 20022-initiated transactions are captured at the start and preserved throughout the payment chain, without the loss of rich data.

Clearly, the trajectory to seamless payments will form a different curve from bank to bank. To avoid any potential friction from an incoming payment, J.P Morgan, for its part, places emphasis on its own sanctions screening – the process of vetting individuals, entities, and politically exposed persons (PEPs) against sanction lists, in order to avoid financial loss. “Even if you have a false positive hit, that slows the payment down in the process,” said Williams. “The more remittance detail banks have, the better. But we are already seeing improvements and are receiving some structured data elements from other institutions and certainly where we send payments intra-bank – from J.P. Morgan’s London branch to J.P. Morgan in the United States.”

Further options for banks seeking quick-to-market, scalable solutions include software-as-a-service support. This facilitates access to techniques such as intelligent routing (which automatically identifies the provider most likely to perform the best and sends the transaction along the most appropriate route) and pre-validation, serving to reduce the need for customer case management measures.

Indeed, the mitigation of payment risk featured highly on Finextra’s webinar poll, with 16% of respondents citing it as a high priority on their roadmap for the coming year.

Keeping pace with innovation

The tectonic plates of the payments landscape are constantly shifting on the mantle of innovation – creating new and unpredictable frontiers. With the introduction of initiatives such as digital wallets or blockchain-based transactions, Finextra’s panel agreed that there is more impetus than ever for the traditional banking network to deliver the kind of speed and efficiency that customers demand.

“The ultimate goal is, of course, to grow the revenues of organisations, in order to remain relevant,” Visa’s head of revenue and growth, money movement, Anastasia Serikova argued. “Retail remittances, for instance, are almost lost by the banks to new players, so we're working with the banks to not only retain clients but win them back.”

Remittances are commonly thought of as “blue collar transactions,” Serikova pointed out, but retail remittances, for example, can be white collar – “including anything from tuition payments to medical support.” Clearly, the business case is there for banks.

“We typically talk in dozens of millions when banks upgrade their network – be it through Visa or other ways,” added Serikova, “and, yes, it is about that revenue, but it is also about improving the lives of customers. It is about winning their loyalty in the long-term.”

Another segment for banks to watch is the small and medium-sized enterprise (SME) space. A report published by FX and payments provider, Neo, in July 2023 revealed that 22% of this segment have already turned away from traditional banks for their cross-border payments. The biggest pain point cited was unfair pricing, which over half of SMEs claimed they struggle with.

Serikova said that “SMEs are increasingly being included in international trade, are agile, and tend to count every dollar spent on transactions.” Visa, for its part, works with the banks to retain and win back such customers, “but this is all a big wakeup call.”

While once upon a time, cross-border payments were expensive to execute for financial institutions, there are now technologies that have made things cheaper – thus preserving banks’ margins. This should enable banks to pass some of the savings back to SMEs, which typically manage their profit-loss ratios closely.

What will success look like?

On an industry-wide level, progress towards the G20’s targets is regularly measured against a set of KPIs issued by the Financial Stability Board. But from an intra-bank perspective, success will be the ability to seamlessly process ISO 20022 cross-border payments by the deadline – capturing data rich enough to better understand “what clients are doing, and how we can offer new services,” says Williams. “There should also be knock-on benefits for customers in the corporate-to-FI payment space, in terms of reconciliation, invoice processing, and lots of other activities.”

Ultimately, summarised Skomsyte, the migration effort is a team sport: “Whether you are a financial institution, a technology provider, a regulator, or payment market infrastructure – everyone must come together and ‘do their bit’ to ensure successful ISO20022 adoption and adherence to the G20 roadmap.” Benefits will come from not just a compliance perspective, but from all the fresh and tailored services that spill from the global drive to innovate.

Learn more by watching the full webinar, ‘Cross Border Payments: Hitting G20 targets for speed, cost, and transparency’, hosted in association with Bottomline.