Harmonising instant payments for a global payments ecosystem

In recent years, we’ve seen an exciting trend emerge where domestic instant payment systems are increasingly willing to send and receive cross-border payments – promising significantly faster, cheaper, more accessible and transparent payments. And with the G20’s cross-border payments programme pushing the industry towards interlinking these systems, this trend is likely to grow in the coming years.

While great progress has been made, there’s an exciting opportunity to further enhance our efforts: creating harmonised standards to enable interoperability across these domestic instant payment systems. Achieving this will reduce friction and pave the way for a truly interoperable global payments ecosystem.

Making domestic systems work for a global world

To better understand this challenge, we must realise that because most instant payment systems have been built for domestic use only, they have lacked a true focus on interoperability. This means that most domestic message usage guidelines and market practices have been developed without aligning with other market standards. This is an important distinction from the dynamics behind Real-Time Gross Settlement (RTGS) systems, the de facto solution for delivering the domestic leg of many cross-border payments today. 

RTGS systems are designed with cross-border use in mind, and tend to be used for the first or last mile of such payments – meaning they need to be interoperable to successfully complete these transactions, and they are built to be so. Interoperability in this context means that a domestic payment message can be transformed into a cross-border transaction and vice versa, without losing data and while ensuring all necessary data for the target leg is provided in a consistent manner. Achieving this for domestic instant payment systems presents a challenge, as each domestic market infrastructure supports its own local practices with unique message standards. By working together to align these standards, we can enhance interoperability and create a more cohesive global market.

With different domestic instant payment systems proliferating, harmonised standards are crucial for a global payments ecosystem.

The importance of standards in achieving scalable interoperability

The global industry is working to address these sources of friction, with the world’s RTGS platforms currently in the midst of an important migration to ISO 20022 – a modern, rich and open financial messaging standard designed to replace the legacy MT messaging standard. The ISO 20022 standard is focused on clearly defining the business elements of a payment. 

To help ensure a common rollout and implementation of ISO 20022, Swift worked with the global payments industry to define a set of harmonised usage rules for cross-border payment messaging called Cross-border Payment & Reporting Plus (CBPR+). These usage rules define all key elements necessary for a cross-border payment, along with how to use them. 

These efforts enable the preservation of data integrity for the cross-border leg of the transaction. But disparate market infrastructures still need to align their domestic ISO 20022 message usage guidelines to ensure the end-to-end integrity of payment messages between jurisdictions.

In other words, there must be harmonisation of standards.

To address this challenge, an industry body called the High Value Payments (HVPS+) working group was established. This group works to agree on the definition and maintenance of a standardised set of message usage guidelines for the global financial market infrastructures community to adopt (with some limited flexibility to adapt to their domestic needs). Most global market infrastructures migrating to ISO 20022 are adopting HVPS+ messaging usage guidelines, ensuring they remain interoperable for cross-border payments.

Harmonised messaging standards hold the key

There’s a drive to make domestic instant payment systems work in a cross-border context, which would make the last-mile delivery of international payments faster, cheaper, more accessible and transparent, in alignment with the G20 roadmap. But this cannot be achieved without ensuring alignment with cross-border messaging standards and other instant payment systems. 

Not having sufficient elements to carry all the data necessary for a cross-border transaction means expensive, manual enrichment is needed, defeating the true objective of an instant cross-border payment. Likewise, any inbound cross-border payment into a cross-border enabled instant payment system will likely suffer from data truncation, resulting in the inability to complete compliance processes such as mandatory sanction screening. 

The good news is that 68% of instant payment systems are designed to be ISO 20022 native. But they still need to harmonise their usage guidelines. RTGSs are already doing this, and the payments industry must now actively work towards achieving harmonisation across the instant payments community too.

In 2020, Swift brought together 15 institutions as part of the Instant Payments Plus (IP+) Working Group. This collaboration led to the development of a global ISO 20022 market practice for cross-border payments through domestic instant payment systems. This market practice references both CBPR+ and HVPS+, creating a foundation for unifying ISO 20022 usage rules for instant payment systems while maintaining flexibility for specific domestic requirements.

With these milestone initiatives and migrations, now is the time to make inroads on the crucial journey towards a common, harmonised messaging standard that enables efficient cross-border interoperability with other instant payment market infrastructures. This is by no means an easy journey, but we have already taken strong steps towards achieving a significantly faster, cheaper, more accessible, transparent and interoperable global payment ecosystem.

This article first appeared in The Paypers in May 2024.