Payments: an evolution in progress

For digitalisation to become fully embedded in cross-border payments, adopting ISO 20022 is an absolute prerequisite.

Although Europe leads the way on ISO 20022 implementation, other markets - including those in Asia - are fast catching up, said Yvonne Yiu, Regional co-Head of Global Payments Solutions, Asia Pacific, at HSBC. “In Asia, the key payment market infrastructures (PMIs) in Hong Kong, Singapore and Australia will be ready with ISO 20022 by mid to end 2024, so we can expect the adoption will start picking up from late next year,” said Yiu.

Despite the benefits of ISO 20022 adoption, the transition for banks and corporates could be quite challenging.

“Banks need to convert a huge amount of legacy data into an ISO structured format, while enhancing all of the connecting infrastructures, client interfaces and communications so as to enable the use of this enriched data. It is not a simple task and will cost both time and money. For corporates, the ISO data migration is also a major investment as firms will need to unwind their existing processes and interfaces so they can store and receive the new data format,” continued Yiu.

Others agree that integrating ISO 20022 risks being problematic for certain organisations.

“While large financial institutions can shoulder the costs of ISO adoption, it is harder for those further down the chain. This could be challenging for some institutions - especially in emerging markets - so progress may slow as a result. If I had one ask of Swift, it would be how do we help everyone comply with the changes in a cost-effective way,” said Temi Ofong, Global head Customer Channels at HSBC.

Today, pain-points in the payment system cost the industry around $2 billion each year, and affect more than 700 million transactions.¹

Often, these delays are caused by silly – but preventable – errors, such as inaccurate formatting, missing information, or typos.² In order to root out these inefficiencies, the industry is turning to solutions - such as Swift’s Pre-Payment Validation tool.

But what exactly does it do?

By using application programming interface (API) technology, banks can check the authenticity of a beneficiary account by cross-referencing it against Swift’s vast trove of transaction data before initiating a payment.

Through effective pre-validation, the likelihood that a transaction will need to be repaired or returned at a later point is reduced, meaning providers spend less time investigating exceptions while customers receive their money quickly.³

“We approached the business case for Swift’s Pre-Payment Validation tool through two distinct but complementary lenses. The first was to improve the client experience by reducing payment friction and helping them see payments end to end as rapidly and efficiently as possible. We also believe the service helps our own operations and investigations,” said Mark Evans, Head of Cross-Border Payments, Global Payments Solutions, HSBC.

Although Swift’s Pre-Validation tool has facilitated a number of synergies in the payments world, Evans highlighted there still needed to be greater industry-wide adoption, if the benefits are to be fully realised.

Artificial intelligence (AI) is reshaping financial services, but it is not without risk.

Proponents of Generative AI tools - such as Chat GPT - argue the technology can help companies enhance their productivity by automating mundane operational processes, synthesising large data pools and producing meaningful insights off the back of them, and enhancing client communications through hyper-personalisation.

According to PwC forecasts, AI could contribute an additional $15.7 trillion to the global economy by 2030.⁴

Nadya Hijazi, Global Head of Wholesale Digital Channels, HSBC, said that the bank is currently exploring potential applications for AI. These include using the technology to conduct operational resilience scenario testing, and developing chatbots for relationship managers to help them navigate and understand the bank’s compliance policies and procedures more seamlessly.

Elsewhere, AI is being leveraged in FX trading, said Gemma Laman, Global Head of the FX Solutions Sales Team at HSBC’s Global Markets business. “There is more pressure on the FX industry to embrace AI and other technologies to drive operational efficiencies, namely by automating manual tasks, improving customer experiences and strengthening risk management,” she said.

Nonetheless, AI is not a risk-free technology.

Although AI innovation can be a force for good, it is also ripe for exploitation by bad actors.

“AI is out in the wilderness and people who want to abuse it can do so quite easily. For example, we have seen a lot of synthetic voice fakes emerge, and this is going to be a major threat to our customers. This is because a lot of banks have call back systems for customers if they have doubts about the legitimacy of a call from their bank. This system could be affected by synthetic voice fakes,” said Hijazi.

Similarly, regulation could also impact AI development. While providers such as HSBC are conducting AI trials, Hijazi said the bank must take into account the different regulations in each of the markets where it operates – which could become quite challenging if global regulation on AI starts to diverge.

Through digitalisation and adoption of ISO 20022, payments will continue to adapt and evolve. Although disruptive technologies - such as AI - could unlock plenty of opportunities, financial institutions do need to be mindful of the risks these tools may pose.