Unlocking Innovation: Instant Payments and ISO 20022 Reshaping Financial Operation

Vijay Anand, Mastercard’s Head Products, Digital Payments & Payments Processing for APAC and MEA, is a visionary in global payments transformation, consistently spearheaded pioneering digital initiatives across the payments landscape with an impressive record of driving innovation, orchestrating strategic alliances, and fostering thought leadership and bringing unmatched expertise to catalyze success. His career encompasses the entire payments value chain, and he has been a driving force in propelling digital payments into new dimensions. In this exclusive interview by Marcia Klingensmith, Director at Payments Consulting Network, Vijay unveils his insights, shedding light on the transformative impact these advancements are having on the intricate landscape of financial processes and structures across the two dynamic regions.

MK: Can you share your insights on how instant payments and adoption of ISO 20022 standards are reshaping financial operations in the APAC and MEA region?

VA: Absolutely. The combination of instant payments and ISO 20022 is proving to be a game-changer in the landscape of financial operations, especially in the regions of Asia-Pacific (APAC) and Middle East and Africa (EMEA). The adoption of the ISO 20022 messaging standards not only accelerates transaction processing but also brings about significant reductions in manual operational practices, freeing up resources to focus on more strategic initiatives.

It’s important to note that a common standard is just the starting point, the real challenge is to ensure a common understanding of how that standard is used. Working with a global partner, who has experience in many countries with many different types of implementations, brings the overview that is essential to ensure that real interoperability can happen, which will be necessary if the cross-border real-time linkages are to maximise their benefit.

We have been implementing real-time payment systems globally for over 15 years, several of which use the ISO 20022 messaging standard. In fact, all of Mastercard’s real-time payments implementations globally, since the launch of FAST in Singapore in 2018 have been based on ISO 20022, including the launch of InstaPay with BancNet in the Philippines.

MK: How does this integration streamline internal bank operations, particularly in terms of interbank transactions and reconciliation processes?

VA: The real-time nature of instant payments is a boon for interbank transactions. With ISO 20022 providing a standardized data format, communication between banks becomes more efficient and error resistant. This streamlined communication minimizes the need for manual intervention in processes like reconciliation, allowing for smoother and more accurate internal operations.

MK: From a customer perspective, how do instant payments coupled with data messaging capabilities of ISO 20022 enhance the overall experience, particularly in scenarios like loan payments and bill settlements?

VA: Customers experience a significant improvement in transaction speed and convenience.

ISO 20022 goes hand-in-hand with the growing client demand for real-time payments, which also necessitates adopting a common international standard for all financial data exchange.

Whether it’s loan payments or bill settlements, the instantaneous nature of these transactions can have control over when they make their payments, and have confidence that the payment was received, reducing the need for customers to follow up on the status of pending payments. There is a significant reduction in operational support, not only from a loan processing perspective, but from a customer care perspective. This not only enhances customer satisfaction but also has a cascading effect on customer support teams, allowing them to focus on more complex issues and proactive service.

MK: In the realm of B2B transactions, how do you see instant payments and ISO 20022 messaging contributing to efficiency, especially in terms of invoice settlements and financial processes?

VA: Various reports indicate that as many as 57% of invoices are handled manually. B2B transactions benefit immensely from the acceleration of payment settlements. With ISO 20022’s standardized data, payment transaction can carry rich information about the payment and provide insights that can help when payments don’t match invoices, as well as facilitate the reconciliation of payments and invoices through seamless automation. This not only reduces the workload on finance teams and manual error, but also allows businesses to redirect resources toward strategic initiatives rather than getting bogged down in manual processes.

It also offers harmonization, with better interoperability amidst the various settlement networks. With regards to corporate services (across B2C, B2B and C2B), they benefit from better reconciliation, improved transparency, and in-depth payer-to-payee information. Banks and corporates will also be able to benefit from smoother, more unified KYC processes, covering more regulations and regions.

MK: Security is a paramount concern in financial transactions. How does the ISO 20022 messaging structure enhance fraud prevention and overall system integrity in the context of instant payments?

VA: Instant payments as a push payment is inherently safer than a pull payment, as the user is in control of the transaction (security precautions still need to address risk factors like social engineering, account takeover, first party fraud, etc.). But the ability to share rich information about the payments can also help mitigate risk exposure associated with incomplete or incorrect transactions, by providing greater insights and context into the payment.

MK: Can you elaborate on how instant payments optimize working capital for businesses, allowing for a more agile approach in managing funds?

VA: Absolutely. The accelerated settlement of transactions through instant payments means that businesses have access to funds sooner, allowing for optimal working capital management. This agility empowers businesses to reinvest funds more promptly or allocate them strategically, providing flexibility in seizing timely opportunities and navigating economic uncertainties.

MK: Compliance and reporting are critical aspects of financial operations. How does ISO 20022’s standardized data format impact compliance and reporting?

VA: ISO 20022’s standardized data format plays a crucial role in facilitating seamless payments; and global payments’ infrastructure is to convert to this messaging standard by end of 2025. Bank systems need to be updated to capture new information flowing through the payment messaging, to ensure adherence to regulatory standards. It can also be leveraged for digital compliance by using automated analytics for various compliance purposes (i.e., sanctions screening) based on structured information.

MK: In conclusion, how do you see the integration of instant payments and ISO 20022 shaping the future of financial operations, and what opportunities does it present for innovation?

VA: The adoption of ISO 20022 payments messaging standards is crucial not only for instant payments but also for other key payment messages, playing a pivotal role in the ongoing evolution of financial services. Beyond transaction speed, it opens doors to a new era of efficiency where manual operational practices are significantly reduced.This liberation of resources allows financial institutions to redirect efforts toward more innovative and value-added activities.

At Mastercard we have a wealth of experience in developing and demonstrating the value of use cases that can be enabled by ISO 20022 data and offer support to scheme operators in managing this process through significant change.

As the financial landscape continues to transform, those embracing this integration are at the forefront, leading the way in fostering innovation and shaping the future of financial operations.

Rich data will provide the foundations for financial institutions to innovate and deliver better payments and digital experiences, especially in combination with Artificial Intelligence (AI) and Machine Learning (ML) to enable them to leverage the full value of the new platform. Financial institutions can also monetize the rich data by learning customer preferences to offer more customized solutions, to identify industry trends, or simply to offer aggregated data to other companies.

Author: Marcia Klingensmith, Director, Savannah, Payments Consulting Network

Marcia is a respected expert in emerging payments, with extensive experience in the financial services and payments industry. With a strong focus on fraud and identity, she has worked with top industry leaders including Bank of America, Wells Fargo, Visa, FIS Global, and LexisNexis Risk Solutions. Marcia’s mission is to guide organizations in navigating the complexities of instant payment systems securely and effectively.

Mastercard is a global technology company in the payments industry, with connections across more than 210 countries and territories, with a mission to connect and power an inclusive, digital economy that benefits everyone, everywhere by making transactions safe, simple, smart, and accessible.

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