Developing a Payments Market Infrastructure Fit for the 2020s

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Background

What’s driving the change?

CGI’s PMI framework

Summary

Table of Contents

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Developing a Payments Market Infrastructure Fit for the 2020s

At the heart of payment market infrastructures (PMIs) owned by central banks and central market infrastructure operators is a real-time gross settlement (RTGS) system. In developed economies, RTGS systems, including their technology and related applications, have remained relatively stable over the past two decades. However, as the rest of the world moves closer to real time everything, including payments—and governments encourage innovation, better governance and wider access—the role of the central bank and its RTGS system is evolving. In turn, this places new demands on the business and technology architectures of PMIs and RTGS systems in particular.

In this paper, we outline CGI’s roadmap for the future of PMIs and present a high-level view of a new approach to PMIs, which will support the expanding objectives of central banks while providing a flexible route to RTGS system modernization.

Developing a Payments Market Infrastructure Fit for the 2020s 3

RTGS systems underpin every country’s economic activity. These systems, many designed originally in the 1980s and ‘90s, have proven track records as risk efficient, extremely stable platforms that ensure high transactional throughputs with very high resilience. Most in-country bank-to-bank payments activity is settled ultimately through an RTGS — whether low-value; one-off; high-value; or critically-timed payments.

Over time, additional modules have been launched to support other economic activities surrounding the RTGS —such as netting systems, securities settlement, collateral management systems, and auction systems that support bond issuance. These are all connected to participants and the RTGS with a flexible routing and messaging infrastructure to ensure reliable connectivity locally and globally, usually through SWIFT.

Background

Developing a Payments Market Infrastructure Fit for the 2020s4

Developing a Payments Market Infrastructure Fit for the 2020s

What’s driving the change?

PMIs are under pressure to modernize. The launch of real-time payment systems around the world is one of the key drivers, as these systems operate 24/7 outside the operating hours of most RTGS systems. Without special measures, 24/7 operation causes unacceptable build-up of inter-bank settlement risk in the country. But, there are a number of other considerations driving the modernization, including the following:

• New standards and message formats: All new PMIs and most modern participant payment hubs and real-time systems have been implemented based on ISO 20022 standards. SWIFT, too, has made the step to redesign its message formats and move to ISO 20022 XML. It’s clearly desirable for PMIs to reflect this standardization agenda.

• Improved liquidity and settlement management: Central banks need to ensure that liquidity is used efficiently and conserved across all participants. PMIs must accommodate best practices in liquidity saving mechanisms, liquidity bridging and the introduction of multiple settlement windows at different times of day.

• Greater connectivity choice: To ensure resiliency and offer participants choices, PMIs now need to support multiple networks—both SWIFT and private.

• Monitoring, control and reporting: Modern governance and regulatory rules require participants to have sophisticated management and control tools to monitor and report in real time on their data in the RTGS system and any ancillary systems.

• Lower operational costs: Participants expect PMIs to offer value for money. The adoption of new technologies, such as open source, can deliver significant cost reductions. Many of these technologies also better support the demands resulting from the move to 24/7 operations.

• Emerging technologies: Technologies such as distributed ledgers may change the nature of settlement itself. Central banks need to ensure any solution has a degree of future proofing to accommodate such developments.

• Enhanced security and fraud detection: Fraud prevention and enhanced cybersecurity have become the new normal. PMIs require additional security for protection from increasing cyber threats—internally and externally—with modern fraud detection and advanced anti-money laundering controls.

Next Generation PMI

Built-In Cyber Protection & Security

Built-In Cyber Protection & Security

Accessibility Layer

Settlement & Netting

Advanced Liquidity Management

Core RTGS engine

Bulk & Wire Clearing Real-Time Clearing

Overlay Overlay Overlay Overlay

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With more than 30 years of experience in developing core systems for central market infrastructure providers, CGI has developed a flexible roadmap that enables each individual provider to transform its existing legacy systems into a new, modern PMI framework. This framework consists of the following core modules:

• RTGS engine: As the core of our PMI framework, the RTGS engine performs gross settlement of money through accounts held at the central bank. This includes any submitted transaction, whether it’s high value, systematically important, or a settlement instruction from an ancillary payments clearing system.

• Liquidity management: The liquidity management module provides information on collateral and value and also enables participant liquidity management between and across participant accounts, potentially for each payment clearing.

• Settlement and netting: This module enables netting of incoming flows from multiple clearing channels, either individually, bi-laterally or multi-laterally.

• Gateway, landing zone management and routing: This ISO 20022-certified module is a flexible shell that ties other modules together and provides external connectivity, resiliency and value-add functionality for participants.

• Future modules: Future planned modules include additional features for the gateway module that support new functions, services, clearing options and connectivity.

Within and alongside this flexible architecture, CGI has introduced built-in cyber security, encryption, control, and audit features across the entire solution. Central banks require the highest level of protection possible from both external and internal threats.

CGI’s new architecture also provides for the addition of overlay services that access the functional modules through APIs. These overlay services can be operated by the central market infrastructure provider or by participant banks—individually, collectively or by suitably regulated third parties. An example overlay service would be a transaction monitoring service with the capability to monitor transaction flows and velocities across the PMI, which would assist in the early detection of fraud among individual participant members or between multiple participant members.

CGI has made fundamental contributions to the global payments industry—from the design of the SWIFT network for international transfers in 1973, to the design and development of a Continuous Linked Settlement (CLS) network interface, to the most recent advances in the design and implementation of payment infrastructures and processes in more than 20 countries.

CGI’s PMI framework

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Developing a Payments Market Infrastructure Fit for the 2020s

The key takeaway is that now is the time to develop a long-term payments strategy. Leaders are taking special care to implement the right instant payments platform, making sure their infrastructure is fit for the future. As such this needs to be low cost, flexible, capable of running in the cloud (at some point in the future), composed of high performance open source modules, and free of unnecessary and ongoing proprietary licence costs, especially as volumes increase when payments from other areas of the bank are migrated onto the platform.

Following the right strategy and carefully laying a solid foundation now will deliver huge benefits in the long term.

Summary

Why CGI

CGI has been a leading provider of payment services and solutions for more than four decades. Our capabilities cover the entire payments value chain—from central market infrastructure design and implementation, credit card and other consumer payment solutions, payment systems modernization, to real-time payment infrastructure adoption. Our experts work with leading financial institutions worldwide to design, build, implement and integrate a wide range of payment solutions customized for their unique business requirements. In addition, our client proximity business model, combined with our global delivery network, ensure clients receive the best local support backed by extensive global resources, ensuring high quality solutions and on time, within budget delivery.

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www.cgi.com

Founded in 1976, CGI is one of the largest, end-to-end IT and business process services providers in the world. Operating in hundreds of communities across the globe, we help clients become customer-centric, digital organizations. Our high-end business and IT consulting, systems integration and transformational outsourcing services, complemented by more than 150 IP-based solutions, help clients accelerate their digital strategies. Our unique client proximity and best-fit global delivery model enables highly responsive service, on-time and within budget delivery, and competitive advantage for an increasingly digital world. We are one of the few providers with the talent, scale and end-to-end capabilities that clients need to connect legacy to digital for holistic success.

For more information about CGI, visit www.cgi.com, or contact us at info@cgi.com.

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