Time of upheaval

Postponed is not cancelled: the change to ISO 20022-compliant data formats in payments is coming – albeit a year later. And it brings with it further changes, not least for SWIFT. The planned transaction management platform (TMP) is intended to make international payment flows more transparent and faster. However, are these central systems secure enough? And are there alternatives? 

Central data platform as a development goal

Payment systems are at the heart of the financial infrastructure. A breakdown like the one that occurred for TARGET2 last year weighs heavily and understandably caused backlash. The postponement of the change to ISO 20022-compliant XML data formats in European payments is not related to this, but of course gives the financial institutions time leeway. They may need this time because the format change also set other things in motion. With the TMP, SWIFT has announced the establishment of a central data platform for international payments based on the XML standard. 

By storing all transaction data centrally, all parties involved in the process can access the data at any time. For SWIFT, this is a paradigm shift, away from a mere information broker to a fully-fledged payment logistics provider. The platform solution offers several benefits:

  • Reduction of interfaces
  • No data loss between the individual stations
  • High transparency for all parties involved
  • Higher manipulation security
  • More service offerings

No introduction without risks

However, the introduction of the TMP bears some risks. First, there is a possible breakdown of the SWIFT network. With the central TMP, in extreme cases all orders of a certain time period were lost. Financial institutions' concerns about implementing a single point of failure cannot be completely dismissed. Regarding the confidentiality of the data, it must be taken into account that the United States already demanded direct access rights to the data stock of the SWIFT US data centre. In response, SWIFT set up a location in Switzerland, among other places.

Are there alternatives to SWIFT?

In principle, yes – but the choice is limited: potential candidates are Internet payment networks such as Ripple. The first major financial institutions are already using the system in a test run. Central bank digital currencies are not yet ready for the market, but they will definitely present a possible alternative in the future. The e-renminbi is already in the trial phase in some Chinese provinces and the Swedish e-krona has recently started a test run. The ECB is likely to follow suit with the digital euro.

Cross-border real-time gross settlement systems (RTGS) are also worth considering. However, not many of these exist or, like SEPA, they are fixed on a single currency. Finally, there are special cooperation schemes that are set up as alternatives to SWIFT, such as the Instrument in Support of Trade Exchanges (INSTEX). This European system was created specifically for the trade with Iran. China has taken a similar path with CIPS. Visa B2B Connect works in a completely different way but is in principle also based on the cooperation of the participating financial institutions. In Europe, the service is currently available in selected countries.

Still, even a solution from SWIFT that uses one of the rare alternatives does not exempt financial institutions from the obligation to change to ISO 20022-compliant XML data formats. At the same time, it is advisable for financial institutions to take a close look at and question the changes in cross-border payments that are pending because of TMP. In the roadmap toward ISO 20022, some time has been gained by postponing the go-live date – this time should now be used wisely!

Authors: Sabine Aigner, Thomas Ambühler

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