larc2013 - what's happening in payments
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Payments Work Session
What’s happening in the payments marketplace?
George M Doolittle, Head of Global Payment Services, Global
Transaction Banking, Wells Fargo
Liba Saiovici, Managing Director, Latin America Product Management, Global Treasury Solutions, Bank of America Merrill Lynch
@swiftcommunity #LARC2013
George M Doolittle Executive Vice President Global Transaction Banking Wells Fargo International Group Cartagena, Colombia, Julio 2013
Some Thoughts On Emerging Payments Issues
Agenda
• Trends and Issues
• The Emerging Science of Payment Risk Management
• The Work of the Payment Market Practice Group
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But, Payments Sit at the Heart of the System …
What is on the Industry’s Mind?
Transparency
Global Regulatory Activism
Platform Efficiencies
Sanctions Management as a
Critical and Competitive Advantage
The Battle for Liquidity
Flight to FX Payments
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CyberCrime
Application Promotion
Management
The Value of Data
Discretionary v. Non- Discretionary Development
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Some of the Detail…
Industry Initiatives:
•eInvoicing
•Payment Reference Data
•Data Repositories
•LEI-Legal Entity Identifier
•Off-shore Clearing Sites
•CNY-CNH
•Character Sets
•ISO 20022 Migration
•Settlement? PvP, CLS, RTGS, Netting, CCP
AML/T &TE:
•FATF.. Beneficial Ownership
•Sanctions Management
•FinCEN…Reporting
•Trade Products
•Extensions …Human Slavery, Tax Evasion, Corruption, Gambling
Competition:
•Market Infrastructures
•Money Remitters
•Non-Banks: e.g. Telecoms, Web Players, Retailers
•Central Banks
Regulation:
•Dodd Frank Act
•Reg E/1073
•Reg Q
•FATCA
•Basel III
•BIS-CPSS
•FDIC-Living Wills
•FSA-CP 09/16
•PSD II
•Internationalisation of RMB
•Account Portability
•Faster Payments
Payment
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What should we be focusing on?
• Payment Transparency
• Intelligent Payment Routing
• Payment Risk Management
• Public Works & Community Projects
• Regulatory Harmonisation
The Emerging Science of Payment Risk Management
Errors Mount at High-Speed Exchanges in New Year By NATHANIEL POPPER
January 14, 2013, 8:00am Security Firm Discovers Global Spy Campaign
Bank Hacking Was the Work of Iranians, Officials Say By NICOLE PERLROTH and QUENTIN HARDY
Payment Risk Management (an Emerging Science)
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Disruptive Technology Identity Theft Fraud-Electronification Card Scams DDoS
Evolving Environment
Globalisation •24x7 Real Time Operations •Offshore Centres •Terrorism •Liberation e.g. Arab Spring
Globalisation
Regulatory Activism
Disruptive Technology
Natural Disasters
Natural Disasters: Payment Centre Locations Telecommmunications and Infrastructure Team Member Safety
Regulatory Activism •Consumer Protection •RingFencing: Safety and Soundness •Anti-Money Laundering and Anti-Terrorism •Corruption and Tax Evasion •Liquidity
Customer Segments
Consumer
Corporate
Institutional
So, Hot Topics In Payment Risk Management …
• Anti-Money Laundering, Anti-Terrorism, Tax Evasion, Corruption and Sanctions Management
• Transparency …
– Pricing, and Processing
– Banking Privacy and Beneficial Ownership
– Counter-Party Risk (LEI)
• Safety & Soundness:
– Liquidity and Capital
– Solving for Too Big to Fail (Living Wills, Basle III, Liquidity)
– Euro-Contingency Planning
• Interconnectedness: Financial Market Infrastructure Risk
– Systemic Risk Analysis
• Our Wired World:
– Identity Theft and Card Fraud – Software Promotion Mis-Haps
– DDoS
• Disaster Recovery
– Natural Disasters
– IT Implementations
Introduction: PMPG and its Work
Introducing the PMPG
• International industry group of payment subject matter experts focusing on setting market practices, beneficial to the payments community
• Not a regulatory body, no enforcement
• Focus
– Setting of consensus driven global market practice
– Educating the market place by provision of white papers
– Protecting the market place by responding to industry consultations from a global market practice point of view
• SWIFT Advisory Group
• www.pmpg.info
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Mission
• Provide a truly global forum to drive better market practices which, together with correct use of standards, will help in achieving full STP and improved customer service:
• The PMPG mission is to:
– take stock of payments market practices across regions
– discuss, explain and document market practice issues, including economic viability
– recommend market practices, covering end-to-end transactions
– recommend payments market practices in response to changing compliance requirements
– ensure publication of recommended practices
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Scope
• End-to-end payment transactions, including:
– payment initiations from any business to a financial institution
– payment instructions between financial institutions
– any kind of exception handling related to the above (rejections, returns, status reports, request for cancellations, reversals)
– transportation and processing by financial institutions of business to business information
– financial reporting, confirmations and statements, related to the above
– the convergence of the trade and payments space
– the impact of compliance requirements as they relate to global payments market practices
– market practices for securities transaction related payments
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Publications
• Market Practice Guidelines
– Use of the MT 202 COV
– Compliance with FATF SR VII
– International payment charging claiming process
– US expanded wire formats
– Use of ISO 20022 for high value payments
• White Papers
– Use of IBAN in international payments
– Maritime attachments
– Handling of multiple character sets
– Auto Foreign Exchange Conversion
– Foreign Account Tax Compliance Act (FATCA)
– Dodd Frank Section 1073
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www.pmpg.info
What’s happening in the payments marketplace? Liba Saiovici, Managing Director, Latin America Product Management July 11, 2013
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The global payments landscape
Multiple countries… Multiple innovations…
Multiple currencies…
Change in global payments is inevitable… and will require a different strategy.
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Forces at Work in the Global Payments Industry
Innovation Regulation Standardization Globalization
There are a number of forces at work which are shaping the direction of the global payments industry
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Globalization
With the increasing volumes of electronic payments, there is a focus on improving infrastructure to transform how payments circle the globe
While the forces at work are similar across the globe, focus areas vary by region:
North America - focus on mobile and near-field communication (NFC) payments, and a number of regulations
EMEA – SEPA implementation and the impact of an integrated market
Asia Pacific - increase in electronic payments and payment options
Latin America - growth of person-to-person (P2P) payments and electronic payments as a result of an increase in non-cash usage.
Global volumes of non-cash payments increased by 7.1% , reaching $283 billion during 20101.
Mature economies contributed nearly 80% of the volume, however, the 4.9% growth rate of mature economies was far outpaced by the 16.9% growth rate in developing economies.
Use of non-cash payment instruments continues to grow exponentially.
Heightened importance of emerging markets in driving global economic growth has highlighted the growth of intra-regional trade and has increased the need for enhanced cross-border settlement and cross-currency payment solutions.
Payments is one of the fastest growing industries worldwide and future growth potential remains enormous
1 Source: World Payments Report 2012
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Standardization
But… a lot of companies in Latin America are still unfamiliar with ISO 20022
ISO 20022: the lingua franca in payments and securities
ISO 20022 has been widely viewed as the ‘holy grail’ of message standardization for the future.
The standard offers great potential for reengineering the payments industry and for process improvement.
Use of the standard has been greater in more developed markets with emerging markets, such as LatAm, being slower to adopt, however, usage continues to grow.
Global embracement of the standard will be critical if industry participants are to reap the full benefits of global standardization.
Widespread adoption will most likely drive further changes in consolidation, competition and technology.
Standardization initiatives aimed at improving efficiency, streamlining processes and reducing costs continue to gain widespread industry attention and participation.
Organizations such as SWIFT have become a critical voice on the standards front and have emerged as catalysts towards global standardization of processes.
In a recent Anthemis Group report, SWIFT was highlighted as still being “the preferred infrastructure when we talk about international payments” through its core “strategic positioning”.
Standards are particularly key in the emerging mobile space with the need for mobile payments standards definition and management.
Historically the lack of a common global standard and variations between systems have reduced the ability to seamlessly pass data between counterparties
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What is ISO 20022?
For payments
Implemented by banks, corporations, payment systems and financial applications providers to conduct payment operations
The future (and present) standard in use with a number of the world’s clearing and payment systems
Frequently appearing in corporate cash management RFPs where multi-bank, multi-country reach is required
For financial services
A harmonized set of standards across financial services domains:
– Cash, Securities, Trade, Card, FX, Remittances and other
Freely available to all members of the financial services community
Based on a partnership of multiple standards organizations including SWIFT, IFX, OAGi, x9, TWIST, and others
A single set of globally relevant financial services messaging standards
The focus of SWIFT’s future standards development (SWIFT MX)
Many view ISO 20022 as the ‘holy grail’ of message standardization for the future
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Who (and what) is driving adoption?
Drivers
- Harmonization (driven by regulation or innovation)
- Renewal of legacy systems
- Further automation required
- Creation of new services
- Interoperability with other systems/players
New initiatives
- Market infrastructures
- Global harmonization & regulation (e.g., SEPA in Europe)
- Automation in specific markets (e.g., the ‘funds’ market)
New players
- Corporates, fund managers
New technology
- XML, SOA, web services
Bank of America Merrill Lynch is a leader, very actively supporting ISO 20022 adoption globally
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ISO 20022 Payment Market Infrastructure Adoption
CA
IN
JP
CN
CO
PE
BR TH
EU-EPA EU-
Target 2
DK
SADC
AU
CH
IPFA
GB
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Regulation
It is important to note that while the myriad regulatory changes taking place across the globe represent unique challenges, they also bring with them
opportunities for firms who are able to seize them
The evolving regulatory landscape: the list that keeps on growing
Dodd-Frank
SEPA
FATCA
Basel III
Regulatory changes around the globe are impacting the operational, technological and competitive models of payments.
Pace of regulatory change brings with its own challenges for firms to keep current on existing, and emerging regulations at a global, regional and local level.
A wide range of global and regional regulatory and industry initiatives are reshaping aspects of the payments market
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Innovation
Familiarity with the latest advances in technology innovation will prove invaluable for firms looking to stay ahead of the global payments curve
Mobile technology: Revolutionizing financial services throughout the world
Mobile is widely viewed as a game changer, globally, in the evolving payments landscape.
Increasing penetration of smart phones and mobile tablets.
The user experience with a mobile device has evolved to be much richer and is contributing to channel convergence.
The emergence of mobile as a ubiquitous delivery channel is also seen as fueling the drive to real-time payments.
Mobile has become increasingly important in the emerging markets where the use of mobile devices continues to climb and be seen as an important delivery channel for services.
Financial institutions have the chance to leverage their reputation as trusted payment providers and effective risk managers to strengthen their role in the mobile payments ecosystem.
Enhanced automation through technologies, such as mobile , and the evolution of artificial intelligence and straight-through processing abilities, are quickly reinventing industry payment methods and vehicles.
With advances in technology and adoption of industry standards, there is a tremendous opportunity for firms to deliver more “value added services” to differentiate themselves in an increasingly level playing field.
Advances in, and adoption of, technology continues to fuel and foster the introduction of new innovations
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Forces at Work in the Global Payments Industry
Adapting to an increasingly connected global industry
It is clear that the future payments landscape will be very different in the coming years compared with what it is today.
In order to fully embrace and capitalize on this change, collaboration at all levels of the industry is required.
The pace of regulatory change will continue to increase as regulatory and industry participants adapt to a more globally connected industry.
Newer technologies , such as the ubiquity of mobile, are going to be game changers.
SWIFT will continue to play a pivotal role as the drive towards global standardization continues.
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Disclaimer
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