Incorporating stronger data elements and automated processes within aging payments infrastructure remains a monumental task for Swift and any others working to streamline networks or initiate faster payments.
If there is a common denominator for countries pursuing those goals, it is this: It is a long process, often spanning multiple years.
The Society for Worldwide Interbank Financial Telecommunication, the global messaging network known as Swift, is currently helping push Canada toward adoption of the ISO 20022 messaging standard. The move for a new standard within the country's payments landscape illustrates the growing importance of getting banks and payments networks to operate in the same manner.
The financial industry looks at ISO 20022 as a key driver because it allows the inclusion of remittance documents with cash, card, securities, trade or FX international payments in a language that all domestic and global financial institutions would share for B-to-B, cross-border and other payments.
"Each country and community will decide what pace and adoption approach is right for them," said Malene McMahon, senior business manager at Swift. "For a very large country, a five- to seven-year horizon from start to finish is not unusual."
The conversion can move faster in smaller communities in which legacy system use is not as heavy and a smaller number of participants are involved, McMahon said.
"Each and every financial institution will have to eventually adopt the new standard, but there are a variety of ways to shield some of the complexity from some of the smaller players," McMahon said, referring to service "concentrators" or middleware providers that can handle translation and provide a longer window of migration time to many players in the market.
The U.S. Federal Reserve has been in the thick of the ISO 20022 discussion for more than two years, citing the standard as a key factor in its plans for a faster payments system.
Its timeline development for ISO 20022 conversion indicates a long process, said Connie Theien, vice president of payments industry relations for the Federal Reserve System.
Planners for the faster payments initiative are expected to have a detailed implementation and timeline in place by the end of the year for the standard's use in the wire transfer ecosystem.
"You will see from the timeline that this is not a quick undertaking," Theien said.
Indeed, members of the Fed's faster payments task force have cited the complexities and size of the U.S. bank market as a significant challenge for a faster payments initiative. They note that, in being a key part of that transformation, ISO 20022 adoption costs will vary among banks, depending on their current technology and how many facets of faster payments they want to support.
The U.S. is also considering integration or conversion to the standard for use in the Automated Clearing House network, Theien added.
"There is already some support within ACH messages for ISO 20022 formatted data, specifically for B-to-B remittance data," Theien said. A stakeholder group consisting of the Federal Reserve, The Clearing House, X9 and Nacha has been leading the wire transfer and ACH initiatives.
As Swift concentrates on Canada, the organization knows there are 90 countries either already using or planning to use ISO 20022 in the near future, Swift's McMahon said.
But it is important that Canada and the U.S. eventually get on board with the messaging standard, McMahon added.
"Canada and the U.S. are important trading partners and alignment in payment formats certainly can’t hurt from a practical point of view," McMahon said.
Ultimately, each country will "set its own roadmap and deadlines that support its respective communities," she added.
"At this point in time, one could say that Canada has a bit of a head start on implementation, but the U.S. could decide to move more quickly and catch up with its Canadian neighbors as the banking community in the U.S. decides on the appropriate pace and planning for ISO 20022 implementation," McMahon said.
Swift's report calls for Canada to have a detailed plan and timeline in place by the end of the year, with a strategy for a multi-year conversion process.
Canadian banks and businesses likely have open ears regarding ISO 20022. Late last year, the Canadian Payments Association delivered a report estimating the country's businesses could save as much as $4.5 billion over five years by adopting ISO 20022 and eliminating paper checks as part of the process.
Even though Canada and the U.S. are lagging behind a lot of the world in the movement toward real-time payments, the countries have an advantage because those further along have used existing standards for implementations. Many systems have been domestic implementations, said Nancy Atkinson, wholesale banking expert and senior analyst with Aite Group.
"Because ISO 20022 is being reasonably adopted globally, those countries that implement ISO 20022-based solutions will be best positioned for the future of international near real-time payments," Atkinson said.
There is a benefit to approaching this transformation slowly.
If the Federal Reserve moves before other payments systems convert, the needed interoperability won't exist, Atkinson added.
Nacha has been working on allowing ISO 20022 in addenda records for a couple of years, and the Clearing House is moving forward with its own faster payments solution. But when the Federal Reserve and Clearing House launched extended remittance information on wire transfers, they decided against using ISO 20022 in the near term, Atkinson said.
However, there is little fear that waiting would result in another standard taking the place of ISO 20022 in the future.
"It's possible another standard would be available, but it probably would not be adopted as widely as ISO 20022," Atkinson said. Plus, a new standard would face the same processes in educating players on its benefit, development of specific messages to meet business needs, and positioning for broad adoption and conversion, she added.
In its information paper on the topic, Swift points out that Canada has one of the highest take-up rates of electronic cards and consumer payments, behind only the U.S., Korea, Australia and Sweden. To maintain that strong position and be able to respond to an "ever-changing market and regulatory forces," the country's government has supported the need to enhance its payments systems and the adoption of ISO 20022.
Pointing out the need for standard messaging, the report includes comments from Jack Fucale, a senior manager for credit and payment management with the Canadian National Rail.
Fucale said his company's biggest challenge is supporting the high number of its customers sending electronic payments with separate remittance data.
"Due to the variety of formats and the lack of integration, it is currently more efficient and requires less effort to process checks than electronic funds transfer payments," Fucale said.
Swift emphasizes that a major benefit of ISO 20022 rests in its flexibility of allowing users to establish a business model and identify all of the processes and data requirements for that business. The next step is determining communication flows, and the messages and fields needed for information exchange.
"It is only at this lowest level that any physical message formats are defined," Stephen Lindsay, head of standards at Swift, said in the report. "With ISO 20022, if the syntax changes, the business model and message layer do not change, and new messages can simply be generated using new syntax."
ISO 20022 brings many other benefits, from automating reconciliation for payment remittances, decreasing the complexity of using multiple formats, supporting cross-border interoperability, providing better data integrity, regulatory transparency, market efficiency and allowing banks to provide value-added services.
At the same time, Swift understands the need for banks to advance technology within their legacy systems as part of a plan to increase the transparency of cross-border payments. Calling it the Global Payments Innovation Initiative, Swift is asking banks to concentrate on making the messages, rules and procedures common among their legacy systems.