SWIFT support for Payments Platforms to facilitate...

SWIFT support for Payments Platforms to facilitate

remittances and innovations in retail payments

A bank-centric approach in the cooperative space

Marie-Christine Diaz, Market Infrastructures, SWIFT

CPSS - World Bank Retail Payments Forum, 3-4 Dec 2013, Cape Town, South Africa

Agenda

2

SWIFT for LVP MIs

SWIFT Sanctions screening

Market trends and SWIFT’s response

SWIFTRemit

Business Intelligence for MIs

MI Resilience service (MIRS)

SWIFT Secure Signature Key

CPSS - World Bank Retail Payments Forum, 3-4 Dec 2013

Retail payments ecosystem

CPSS - World Bank Retail Payments Forum, 3-4 Dec 2013 3

HVP MI Regulators

Wholesale

corporate

LVP MI

(ACH)

Consumer

Clearing

Agent

SMEs

Clie

nt

P

aym

ent S

erv

ice

Pro

vid

er

C

learin

g a

nd s

ett

lem

ent

• Payments initiated by consumers

or SMEs (low value)

• Payment service providers are

banks or outsourcers, card

processors, MTOs, MNOs,

merchant networks, Exchange

Houses

• Banks offering retail payment

services are deposit banks, postal

banks, transaction banks.

• Retail Payment clearing services

either bilateral or multilateral (ACH)

• Settlement in batches on High

Value Payment Market

Infrastructure (e.g.: RTGS)

• Common scheme (rules) defined

and agreed by domestic/regional

communities (Low Value Payments

Market Infrastructures)

• Correspondent banking agreements

for x-border remittances

Players in the retail payments space

Other players

Legend

Mobile

Network

Operator

(MNO)

Card

Payment

processor

Money

Transfer

Operator

(MTO)

Merchant

(e-wallets)

Clearing

Agent

Bank or

outsourcer

Exchange

Houses

What are the market drivers?

4

Consumers • Easiness (voice & data)

• Ubiquity – universality

• Secure access – safety

• E- and social networks

• Ability to pay in “urgent” situations

Banks • Customer acquisition & retention

• Support the “unbanked” & SMEs

• Cross-sell interest based services

• Transaction fee and forex income

• Partner with non-bank innovators

• Leverage international connectivity

• Alternative to cash & cheque

Businesses • Reduce reconciliation costs

(same day credit)

• Viable contingency to

corporates expense and salary

process

• Guarantee of payment

Regulations • Develop a robust infrastructure

• More transparency on fees

• Faster & richer transactions (CA & AU)

• Adequate levels of collateral (EU & US)

• Fighting informal economy: sanctions

• Reduce costs & improve efficiency of

infrastructures


Strategic importance of retail payments

(1) includes payments and trade finance

~30-45% Of bank’s total revenue

+1.7 trn $ Cross-border trade flows

8% GAGR Cross-border payments

99% cash in developing countries

+152 bn Payments on 112 LVP MIs

+1.5 bn cross border remittances

+3.5 bn Mobile subscribers

+1.5 bn Bank and credit cards

+1.5 bn Internet users

+2 bn Bank accounts

25 bn $ Cross border payments revenue

Sources: Putting Growth Back on the Banking Agenda 2013 (McKinsey, SWIFT),

Banks Global Payments 2011: Winning After the Storm, (The Boston Consulting Group, 2011)

Getting Business Models and Execution Right: Global Payments 2013,(The Boston Consulting Group, 2012)


377 trn $ Global non-cash payments (2012)

~249 bn $

transaction retail payment revenue (2012)

1.1 trn $ E-commerce market (2102)

5

https://www.bcgperspectives.com/content/articles/financial_institutions_globalization_global_payments_2011/

https://www.bcgperspectives.com/content/articles/financial_institutions_globalization_global_payments_2011/

https://www.bcgperspectives.com/content/articles/financial_institutions_digital_economy_global_payments_2013/



Payment method usage and price for remittances

Source: Remittances prices worldwide, Sep 2013, The World Bank

• Cash services continue to dominate the remittance market at competitive prices

• Mobile payments represent 1% but has a better price than other channels;

Many services but few are successful


+130 mobile payments services

Price

6

Retail payments market landscape

Different needs

7

US and Canada

• Faster payment and richer information (CA)

• Inability of legacy infrastructures to process all

new payment data (healthcare payments)

• Alternative Payment Providers for remittances

• Focus on pre-paid cards and debit cards (MX)

• High consumer price sensitivity

Latin America

• Faster settlement (txn value >20 USD)

• Lack of regional cooperation on infrastructure

• Inflation impact on payment choice

• High penetration of chip cards

North Asia (JP, KR)

• Strong Govt role in creation payment

infrastructures at regional level (c&s)

• New payment instruments (contactless)

• Strong cooperation with telcos and

local vendors

Western EU, Australia and New Zealand

• Consolidation of infrastructures (+ 10 bio txns) - competition on price

• Licensed APPs (cards, mobile, internet)

• Faster payments (UK), Real Time payments (AU) and 24/7 service

• High security of debit and credit card transactions (chip and PIN)

• SEPA (ISO 20022 standard)

Africa and South and Central Asia

• Basic services: reach unbanked customers through MNOs (Kenya) • Increase payment acceptance (lack of POS, branch, cards, ATMs)

• Remote remittances securely (international networks)

• New infrastructures at regional level (Western and Eastern African countries)

• Govt cooperation for electronic payments (e.g.: Nigeria, Angola, Ghana)

• Regional initiatives for integrated c&s payment system (e.g.: Rwanda)

Middle East

• Government cooperation for

low value electronic payments

Developing/emerging economies

Advanced economies

Eastern EU

• Lack of regulation (Russia)

• Migration to SEPA

Sources: KPMG, Retail Banking – The beating heart of banking, June 2009

Aite Global Wholesale Payments Trends, October 2009

Boston Consulting Group 2009, SWIFT

Putting Growth Back on the Banking Agenda 2013 (McKinsey, SWIFT)


Trends in Payments Market Infrastructures


• Increased monitoring and control needed to ensure system stability

• Pressure for more transparency of transactions fees

• Sanctions to fight terrorism and narcotics traffickers

• Increased collateral demand (Basle III)

Regulatory pressure

• Growing need for payments immediate finality

• Economic pressure to improve further liquidity & collateral management

• New principles to withstand better financial shocks

Business risk mitigation

• Higher levels of robustness (increased volumes 2000 TPS and 100% availability )

• Criticality of payment systems for economic stability requires top security

• Fast-moving network & computer attacks (denial-of-service, confidentiality breaches)

Operational risk mitigation

• From domestic payment schemes towards regional and international schemes

• New Payment Service Providers as participants to PMIs

• Unbundling of the scheme management and the payment system operations

Business interoperability

• Shrinking margins - pressure on the payment service fees

• Continuous trend to reduce the operating cost & members’ TCO

• Need for further standardisation of the format and messaging

• Private cloud technology for data privacy - savings of 20% vs. mainframes

Cost efficiency

• Ubiquity, rapidity, simplicity and convenience (m-/e-payments)

• New payee identification mechanisms (mobile number, QR code,…)

• Consumer demands sophistication: tracking, monitoring, more information

• Merchants / SMEs look for payment rapidity and irrevocability

Innovation

Regulatory pressure

Business risk mitigation

Operational risk mitigation

Business interoperability

Cost efficiency

Innovation

SWIFT’s response

9

• Message price in line with market mark up

• Reduced TCO – standard messaging protocol

• Assess STP processing and standards usage

• Optimise interfaces setup and configuration

• Guidance for interface capacity planning

• Choose billing scheme (direct or reverse)

• Multi-payment scheme and instrument support

• Any format & channels (m-/e- payments)

• Application-to-application or user-to-application

• Addressing needs through Reference data

• Common Person Identification and PKI (3SKey)

• Recommendations for payment scheme rules and implementation

• Support E2E business modeling

• Map flows to Standards (MT,MX, ISO 20022)

• Define own PMI market practice (MyStandards)

• Standards change management control (MyStandards)

• Provide expertise on existing market practices

• Balance of payments reporting (FINInform)

• SWIFT’s Sanctions screening

• High operational availability

• Select connectivity for resilience

• 3rd contingent site: MIRS

• PKI features for security

• Role-based access control at the CUG

• Define Service Administration model

• Assess real-time & store-and-forward, Y- or T-Copy models

• Standards for interactive liquidity and collateral control

• Options for non-repudiation, delivery notification

• Assess market share, currency usage with BI/Value

Analyzer


Agenda

10

SWIFT for LVP MIs



SWIFTRemit





11

Current retail payment messaging models

Serial multi-lateral and bilateral models

Bank B SWIFTNet FileAct

File of payments

1

2 3

Bank A

1 File of payments instructions (proprietary or standard format)

3 Request to settle the net amount to the Central bank

4 Statement message and confirmation credit/debit


Bilateral model

Beneficiary

Customer

Ordering

Customer

Bank B SWIFTNet FileAct

File of payments

1 2

3

Bank A



4 Instructions to settle in the central bank (i.e.: FIN or InterAct)


4

Serial multi-lateral model

Beneficiary

Customer

Ordering

Customer

Central Bank (RTGS)

Retail Payment

Market Infrastructure

3

Central Bank (RTGS)

4 4


Live: 25 LVP Mis & 70 HVP MIs

IPFA

SEPA,EU

BR

DK

CH

FED, US

CPA, CA

IPFA

T2, EU

AU

Zengin,

JP

CNAPS,

CN

IN

Low-

value

High-

value

BOJNet,

JP

CPA, CA

Live Live

Live

NZ

SG

CO

PE

Live

PG

CL

Hybrid

ZA

PL

BN

CNAPS,

CN

SADC

UK

ISO 20022 adoption by PMIs


13

Innovation retail payment messaging models Copy models with or without pre-notification

Bank B SWIFTNet FileAct & FileAct Header Copy

File of payments

1

2

4

5

3

Bank A

5

1 File of payments instructions (standard format)

3 Central bank authorises the file to be released

4 Authorised payments released to the receiver



“ File Copy” model

Beneficiary

Customer

Ordering

Customer

Central Bank (RTGS)

Bank B Copy

Payment 1

2

4

5

3

Bank A

5

1 Individual payments instruction (standard format) – clearing notification with immediate availability of funds to beneficiary

3 Central bank authorises the payment to be released

4 Authorised payments released to the receiver



“ Message Notification and Copy” model

Beneficiary

Customer

Ordering

Customer

Central Bank (RTGS)

2

Variants: bilateral or multi-lateral netting


Real time ~20 markets but 1 bn payments

Global market reach

• 8000+ banks in 90+ countries

• 500+ corporates

• 25 Retail payments systems (i.e.: ACHs)

• 70 high value payment systems (i.e.: Target2)

• Closed business community

• Single security and file transfer

• Non-repudiation (proof of sender)

• Reliability and availability (99.999% uptime)

• 0.07 to 0.02 eurocent per payment

Cost efficiencies

• Supports both proprietary or standard format

• Same infrastructure for all currencies

• Credit transfer, direct debit, cheque

• Single message or bulk transfer

• Routing directories (SEPA Routing)

Interoperability and flexibility

Key benefits


Agenda

15

SWIFT for LVP MIs



SWIFTRemit





Challenges faced by banks in remittances

service delivery

Total control

but costly to

deploy in

many

countries

Available but

not tailored

to provide

consumer prices

& time

transparency Ready product

but bound to

operators’

branding and

pricing terms

Franchisee of a

MTO

Branch network

Correspondent

banking

Partner with

MNOs

Domestic and

regional reach

but

interoperability

issues at global

level


Open platform for any payment service provider

17

Bank

MTO

ATM Network

MNO

Closed platforms

Bank

MTO

ATM Network

MNO

Open platform

SWIFT Remit

Enhance interoperability, reduce cost and provide scale up opportunities


A common framework

Directory Client

services

Messaging

standards

Market

practices

• Service levels: flash, instant, urgent, standard

• Products (account, cash, mobile, pension)

• Notification by phone,

email, post , sms

• Charging practices

• Transaction ID for tracking

• ISO 20022 standards

for payment & cash management

• Format and usage guidelines

• Mapping for MT messages

• FileAct Store &Forward

• 1.5 to 8 eurocent per txn

• FX guidelines

• Clearing transmission timing

• Gross bilateral settlement

• Serial/cover method

• Contract template

• Counterparty, agent

• Point of service

• Direct and Indirect participant

• Data collection, distribution

• Access control

• Support account identifiers

(IBAN, phone number)

Business terms and conditions remains bilaterally agreed between

counterparties CPSS - World Bank Retail Payments Forum, 3-4 Dec 2013 18

19

Directory

FileAct

ISO 20022

Contract + Rules + Guidelines

Beneficiary

Agent Agent

Distribution network

sending country

Distribution network

Receiving country

Participant Participant

Settlement Agent Settlement Agent

Cover payment

Interbank shared platform for the bilateral clearing &

settlement of cross-border, person-to-person payments

e-banking

Mobile

Customer

at the counter

Debit/Credit Card

e-commerce

e-banking

Account

Mobile wallet

Cash

(ATM, branch )

E-merchant

End-to-end service levels

Live: 47 Participants and 18 Certified Banks


SWIFTRemit process flows

I paid $100. You can pick it up at XYZ bank.

Give 123 as reference.

Payment instruction

(mobile or other channel)

• Mobile instruction

• Mobile access to online

banking application

1

ISO 20022 payment via

SWIFTRemit

2

3

4 Mobile Notification

and pay-out

• SMS notification

• Cash pick-up

• Credit bank account

• Store on mobile wallet

Mobile phone numbers as account identifier or

beneficiary identity verification to authorize cash pay-out CPSS - World Bank Retail Payments Forum, 3-4 Dec 2013 20

21

Benefits

Consumer

experience

Business

flexibility

Easy to

integrate

Easy to scale-

up

• Predictability and transparency on cost and execution time

• Any product: account-to-account, account-to-cash, mobile

payments

• End-to-end payment tracking and notification

• Any business model and branding. No commercial exclusivity

• Any Payment Service Providers (PSP) can participate.

• Expand commercial opportunities in new business areas

• Inter-operability across payments types & retail networks

• Integrates with existing payments applications in an STP way

• Re-uses existing clearing and settlement mechanisms

• Compliance - Dispute resolution & KYC

• Lower cost of new agreement by 80% ( framework and contract

template)

• Faster time to market for a new counterpart (from 6 to 2 months)

• Multi channels/networks support



Agenda

22

SWIFT for LVP MIs



SWIFTRemit





23

40,000 Names and aliases on lists in

2012

$4.0 billion Total fines levied for sanctions in the recent

years – Just a fraction of the total cost of

remediation

4 billion+ Possible fuzzy logic combinations

20% Increase of names and aliases

in less than a year

1 day Average interval of list updates

3,000 New Aliases in a single EU

update on 19 July 2011

Key challenges

TCO Complex/costly solutions

Regulatory

scrutiny enforcement

of sanctions policies

How to make sure the filters work?

How to guarantee that the lists are up-to-date and error-free?

How to detect fuzzy names?


notification

Institution

Our solution

Messages resulting in alerts are temporarily held in the filter and notified

to the bank for investigation

When the user confirms a true hit on an outgoing message:

• The original message is aborted

• An abort notification (MT019) is sent to the user

When the user confirms a true hit on an incoming message:

• The original message is flagged…

• …then delivered to the recipient that routes it to a special queue for

appropriate processing

Correspondents

Total Live : 55 (live), 58 (test)

Volume : 700,000 txns per month

FIN MT cat 1, 2, 4, 7 + ISO 20022 & SEPA (2014)


Benefits

Real-time filter

Security

Resilience

Business continuity

List updates:

28 public lists

Private lists

Select lists &

review alerts

Logs

Reduce

operational cost

(doubling every 4

years)

Cost efficient

Operational

excellence

Ready and easy

to use

Zero footprint

Centrally hosted

and operated by

SWIFT

COST


Agenda

26

SWIFT for LVP MIs



SWIFTRemit





Support policy decision making and assist banks in

compliance efforts towards international bodies

Data

visualisation

& reports

Expert

consulting

Compliance

monitoring

• Balance of payments

monitoring (in-/out cash flows)

• Bank’s market share evolution

(value and volume)

• Concentration / shifts

• systemic important bank

counterparties/branches

• Highlight trends

• Consolidate information

• Identify patterns & behaviors

• Set forecasts

• Suspicious transactions

(unexpected amounts)

• Sanctioned countries

• Payment data quality

• Money movements

• between corridors/ banks

• Change in currency pattern

• FIN Inform messaging to

capture information (copy)

• Data warehouse setup

• Customised dashboards &

reports

• Data visualisation

(worldmaps and graphs)

• Historical data, if available

Cash flows

monitoring

Payment beneficiary countries


Our solution

• FIN Inform messaging on payment messages MT cat 1,2 and FileAct

Header Copy for XML files

• Agreement with the community on the collected information

• Possible data extraction: sender /receiver, amount and currency,

originating customer BIC, beneficiary

• Optionally, packaged with an analytical tool and expert consulting

Bank Country B

FIN Inform Payment

1

2

3

Bank Country A

“T-Copy” model

Beneficiary

Customer

Ordering

Customer

Central Bank (RTGS)

or Regulator

Copied information


Total Live : 3 FileAct and 4 FIN

Essentially in developing countries

28

Benefits

Fact-based

Accurate

information

Real-time or

periodically

Timely and

flexible

data capture

and reporting Expert support

to interprete the

country

transaction

activity

Business insights

Comprehensive

data

Customized

reports

Cost efficient

One single data

wharehouse

No skills

No application

Payment beneficiary countries


Agenda

30

SWIFT for LVP MIs



SWIFTRemit





Key challenges

MIRS : An shared RTGS platform for last resort contingency

Staff

diversity

The industry is more and more exposed to low probability but high impact events.

Geographic

diversity Technical

diversity

Technical

independence

Current contingencies

• Weak or inexistent

• Reintroduce credit risk

• Introduce operational risk

• Capacity constraints (cost issue)

• Difficult identification of ‘grey payments’

• CPSS-IOSCO principle 17


• Maintains real-time settlement finality

• Starts from the balances at the point of failure

• Resolve the “grey payments”

• No additional credit risk

• Distant system in SWIFT OPCs

• Business operations by RTGS administrator

• Technical operations by SWIFT

• Re-use the SWIFT connectivity

• Available spare capacity

• Sized to business needs

Benefits

32

MIRS

Business continuity

Technical diversity

Normal business volumes

Flexible offering

Geo graphic diversity

Cost efficiency

Minimum impact

• Shared RTGS utility

• Economy of scale

• Generic RTGS

• Can re-use SWIFT connectivity

• Different hardware and

software

• Different and proven

release management

• Different Operations

• Different Staff

• Entry levels to fully customized

• All transaction types

• All participants

• All ancillary systems

Pilot : Bank of England

Live by Jan 2014


Agenda

33

SWIFT for LVP MIs



SWIFTRemit





Our solution


Bank A

Bank B

Bank C

Bank A

Bank B

Bank C

SWIFTNet

Online

Proprietary

3SKey

Password 1

Password 2

Multiple devices and

technologies for each bank

MI MI

Authorise financial data at the level

of one or multiple individuals

Outsourcing the PKI security

to SWIFT

Benefits


Non-repudiation

PKI digital signature

- WHO, WHAT,

WHEN

Hardware tokens

Neutral

governance,

Own registration

Rules

Tracking Multi-bank,

multi-application,

multi-network

and multi-

country

Interoperable –

Easy

Highly secure Audit & Control

Cost efficient

Single shared

SWIFT-run CA

infrastructure

& operations

(+40% cheaper)

Thank you


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