Ever-accelerating digital innovation in the financial world requires adherence to the most up-to-date standards and protocols. Payments expert, Anthony Walton, CEO of Iliad Solutions, focuses on the latest issues, risks and solutions the industry needs to address.
A veteran of 25 years in the payments industry, Walton started his career with the software division of Stratus Computer (S2), which led him to Frankfurt, Germany where he founded DNA, his first company, in 1996 with the intention of bringing an open system switch and test tools to the payments market.
Following a merger with EPS GmbH in 2001, these products (ASx and ASSET) were acquired by ACI in 2004.
Iliad Solutions was formed in 2004 to improve the way payment systems are tested. Iliad’s first product t3 was launched in 2007 and is used in 16 countries by card schemes, tier-1 banks, processors, retailers and software development companies.
ISO20022: why migration is about more than compliance
Ever-accelerating digital innovation in the financial world requires adherence to the most up-to-date standards and protocols. And there’s one standard that is proving particularly notorious in terms of its ability to alter IT teams’ blood pressure levels, especially where relevant skill sets are missing: ISO20022.
Aimed at better harnessing data and sharing information between banks, merchants and fintechs, the standard captures financial business areas, business transactions and linked message flows in a syntax-independent way, using a core dictionary of business terms used in financial communications.
ISO20022 has been implemented across 70-plus countries, yet roll-out in parts of the developed world remains ongoing – delayed in some quarters by the pandemic. With so many key components in the global payments infrastructure working to different implementation timescales, it can be difficult for innovators to know when to jump. For example, the UK Faster Payments Service is looking at 2023 adoption and SWIFT’s conversion is expected in 2024.
Migration will drive innovation and ultimately reduce stress
The truth is, while there is no set deadline for implementation, financial institutions of all sizes should start preparing to migrate now if they haven’t already done so. The risk of not migrating means competitors that do will gain an advantage as the standard improves end-user experiences, drives compliance efficiencies and enables faster and better product iterations.
Financial institutions with long-established, or legacy, banking platforms are the most likely to face challenges converting to ISO20022, which has been developed for the cloud-based financial world. Making an architecture-wide assessment of platform compatibility will seem like a gargantuan task for those IT teams where in-house capability is lacking. In such circumstances, it can feel like yet another costly project that threatens to suffer from interminable delays or derail business as usual.
But there are tools that help to simplify and automate the process, making the job of identifying areas that need recoding or upgrading much less painful.
Modern test engines can be deployed in the cloud or on-site to automate testing and simulate endpoints, supporting preparation for conversion. The good news for financial institutions with large complex architecture is that ISO20022 can be implemented strategically across different parts of a business rather than in one go – maintaining reasonably steady stress levels among IT teams in the process.
However, this should still be done with a sense of urgency and considered in the wider context of a business model review. Those financial institutions that have resisted platformication to date are presented with an opportunity to finally embrace change through ISO20022.
Change: a case of when rather than if
Indeed, change isn’t really an option and failure to adopt the standard sooner rather than later – along with the cloud-based approach to delivering financial services – will, over time, result in lost customers due to their expectations of a Netflix-style seamless digital experience not being met.
Crucially, converting to ISO20022 isn’t a means to an end either. It’s simply the beginning. Because one thing’s for sure: digital innovation is only going in one direction and all future standards will be designed to make the landscape deliver for businesses and consumers.
This is being enabled by the shift from monolithic closed silo operating models towards horizontal layered architecture comprising interdependent modules connected to a spine. The benefits of the horizontal layer approach are that if one module needs to change, it doesn’t require an entire-organisation upheaval.
In Iliad Solutions’ 25 years of supporting innovators to build and launch modern payment products, it’s obvious to our team that the pace of change over the past 24 months has been unprecedented. And the impacts are being felt, with the UK’s regulator, the Financial Conduct Authority, recently noting that fintechs are beginning to eat into traditional banks’ market share.
Innovations unimaginable just a few short years ago are being woven into mainstream conscience – the prevalence of propositions connecting crypto to fiat currencies being just one case in point.
ISO20022 will help to further accelerate this change, and we expect to see increased pressures on financial institutions to make the migration, particularly as the UK Faster Payments Service and The Clearing House in the US come on board.
As the Bank of England says of the standard: “Better data in payments promises to deliver significant long-term benefits for the economy.” It will also bring benefits to your business – and ultimately remove a persistent stress point for your IT team.