Our 2024 Business Payments Outlook continues with Mark Sutton. As senior manager at global consultancy Zanders, he is on the front line of treasury management and corporate finance in the UK and EU. He’s had that perspective for more than a decade, notching a previous 10-year stint at Citi’s EMEA and then Singapore offices. He has seen treasury and other senior finance functions undergo intense change during that time, most of it driven by digital transformation and advances in data analytics.
We are now witnessing increasing momentum around the digital transformation within the payments ecosystem and there are a number of contributing factors. Firstly, driven by the increasing convergence and integration between e-commerce and mobile technology, consumer expectation is now around payment choice, frictionless, fast and secure buying experiences. The regulators are also increasing the pressure on market infrastructures to strengthen the current platforms, improving the use of structured data to help with both compliance and the requirement to fight financial crime. Governments have an increasing focus on financial inclusion, increasing competition to drive further innovation and reduce the use of cash. Whilst other factors exist, we are now seeing the acceleration of digital payments across its various forms, which is at the centre of this broader development of the digital economy. Current payment trends highlight continued growth around the use of digital wallets. The increasing focus on real time feed into the greater adoption of instant payments, complemented by the rise of open banking schemes around the world. However, the key payment trend this article will focus on is the growing payments ecosystem foundation which is based on the adoption of ISO 20022 – the global financial messaging standard and the new language of payments.
Why is this an important trend in 2024?
At the industry level, there has been a much greater focus on cross-border payments since G20 leaders endorsed the Roadmap for Enhancing Cross-border Payments in 2020. The G20 made enhancing cross-border payments a priority – specifically making cross-border payments, including remittances, faster, cheaper, more transparent and inclusive, while maintaining their safety and security. The Swift migration to the ISO 20022 XML (MT-MX) standard, initially in the cash management space, aims to deliver on one of the key building blocks identified by the Committee on Payments and Market Infrastructures (CPMI) in July 2020. Better quality data will improve the overall efficiency, speed and compliance of payments. But this goes beyond the Swift industry migration. Swift currently estimates that by 2025, 80% of the Real-time Gross Settlement (RTGS) volumes will be ISO 20022 based with all reserve currencies either live or having declared a live date, which further reinforces the view, ISO 20022 is becoming the global language of payments.
What are the benefits to the corporate community that will provide the motivation for engagement?
This is all about the opportunity that this global financial industry initiative presents to redefine the best-in-class cash management operating model. At a high level, the benefits of ISO 20022 XML financial messaging can be boiled down to the richness of data that can be supported through the ISO 20022 XML messages. You have a very rich data structure, so each data point should have its own unique XML field. This covers not only more information around the actual payment remittance details, but also improved compliance through the ability to support more structured and standardised regulatory information. It also provides a more elegant way of providing information around on-behalf-of transactions in addition to supporting local language requirements.
This rich and structured data has the potential to help all stakeholders in terms of compliance, automation, reconciliation and overall improved visibility. From a treasury lens perspective, receiving more structured data around receivables flows, primarily around invoice information, provides the opportunity to accelerate the cash application process, which then reduces the Days Sales Outstanding (DSO) – a key treasury working capital metric. So more structured and overall richer data will help remove the current friction in the account receivables process, enabling greater operational and financial efficiencies.
Another important benefit to corporate treasury is greater straight through processing (STP). Regulators are now demanding increased transparency, compliance and security, so better quality structured data in payments will deliver significant benefits to all stakeholders in the payments ecosystem. As the payment message will be structured and standardised, it will reduce the risk of payment delays due to false positives in addition to reducing costly manual repairs from the banking community.
In summary, whilst large parts of the global payments ecosystem continue the migration to an ISO 20022 operating model throughout 2024 and beyond, we also anticipate the corporate community will start to increase the dialogue around the adoption of ISO 20022. The corporate community needs to have this financial industry migration on its radar as it’s a case of ‘when’ as opposed to ‘if’ they ultimately adopt this global language of payments.