modernising the philippine financial infrastructure - michael moon and alex kech

Business Forum Philippines

Modernising Financial Market Infrastructures

(FMI)

April 2016

Michael Moon

Head of Payment Markets | APAC

Alexandre Kech

Head of Securities Markets & Standards | APAC

Modernising FMI 2

Agenda

Trends in Financial Market Infrastructure (FMI) development

Transformation in Payments Market Infrastructures (PMI)

Renewal of Securities Market Infrastructures (SMI)

Open Discussion

Infrastructure matters, and financial infrastructure is the backbone of all economies

3

airports

railway

roads

Financial infrastructure is important tooModernising FMI

Five big trends in Financial Market Infrastructures (FMI) modernisation

Trends

Renewal

• Fighting financial crime, monitoring & control, compliance

recommendations.

• FATF, Basel III, FATCA, FCPA, AML, Sanctions

• ASEAN Economic Community (AEC), CIPS, Pacific

payment system

• Increasing international connectivity of infrastructures

• ISO 20022 adoption

• Demand for safer and more reliable infrastructure

• Cyber threats increasing

• CPMI-IOSCO PFMI & Annex F for CSPs

• Real-time 24-7

• Convergence btw high & low value

Payments

• New systems: ISO 20022 messaging – rapidly growing

interest in XML messaging capabilities

• Multi-currency clearing, PvP

• Extended operating hours (e.g. HK RMB 20.5 hrs)

• CPMI-IOSCO Principles• Mandatory OTC clearing (collateral management challenge)• Securities regulatory reporting• T+2

• ASEAN Economic Community (AEC)• Regional harmonization: ABMF, ASEAN Link, HK-CN,

TW-SG, CSIF cross-border DVP• ISO 20022 adoption

• Issuer to investor CA announcement

• Funds

• Collateral management

• OTC clearing

Securities

• Aging technology

• Fin tech (distributed ledger)

• Regional ambition-collaboration

• ISO 20022

Regulation &

compliance

Regionalization

Resiliency & reliability

Real-time

(New services)

• Demand for safer and more reliable infrastructure

• Cyber threats increasing

• CPMI-IOSCO PFMI & Annex F for CSPs

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RTP

CashCards

(ATM/POS)

Cheque

(PCHC)Interbank Transfer X-Border

Gcash

SmartMega

Link

Banc Net

National Card

Switch

(BancNet)

Paper E-chequeLVP

NRPS

Express & Bulk

PhilPaSS RTGS

Clearing

Settlement

ACH

(PCHC)

HVP

Mobile

Money

Customer/

Product

Institutions

Remit Correspondent

Banking

Commercial banks, Thrifts, Rurals, NBFCs

Consumer, Business, Government

Systems

NRPS

Corporate Bonds &

Equities

(On-Exchange)

PSE

PDTCBTr - RoSS

OTC/ Government

Bonds

Settlement Banks

SCCP

PDEx

Market Infrastructures in The Philippines require renewal, rationalisation and modernisation

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ASEAN 2025 vision confirmed commitments to the following

Payment & Settlement System enhancements

CapitalAccount Liberalisation& Market Integration

Global Standards & ISO 20022

Cross-border trade; Remittances; Retail payment systems

Promotion and harmonisation of standards and market practices

Facilitate investment in region through deepening clearing settlement and custody linkages

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Payments Markets

7

“The pace of change in terms of what

customers are doing, how they pay us, how

they come to us – it’s breathtaking … Any

company that interacts with consumers and

thinks that last week’s technology and

approach is going to work five years from now

is probably making a mistake”

Warren Buffett, March 2013

Interview at The Innovation Project 2013 (Harvard)

Modernising FMI

Emergence of new payment systems:

Real Time Retail Payment Systems (RT RPS)

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Deferred Net

Settlement

(DNS)

Real Time Gross

Settlement

(RTGS)

Automated Clearing

House

(ACH)

Real Time Retail

Payment Systems

(RT-RPS)

Batches Single Payments

High

Value

Low

Value

Time Criticality

Size

of

paymentHybrids

Mu

ltip

le

batc

hes

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RTGS

ACH

Country A

RTRPS

• High Value Payments Modernisation

• Re-Inventing Low Value Payments

PSS

Country A

PSS

Country B

• Cross Border Payments Integration:

• Local PSS to Foreign PSS Connectivity

• Local PSS to Foreign Bank

• Local Bank to Foreign Bank Connectivity

Payment & Settlement Systems in Asia Pacific

Modernising FMI

Domestic Cross-border

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The New Reality of Retail Payments ..Simpler.. Anywhere.. Anytime.. Immediate.. Secure.

High growth of mobile and Internet technology

Ability to do business on-line,anywhere, anytime

High customer expectationsSet by m- and e-commerce - must be simple,

immediate, certain with cost transparency

Competition from agile new entrants

New business propositions and improved customer experience, not hindered by existing legacy

Impact of increased regulation

• Consumer protection• Financial inclusion• Transparency• Financial crime compliance• Credit card interchange fee caps• Regional harmonization

Emergence of new technologies

New technologies, such as block-chain / distributed ledgers, will

facilitate the implementation of new payment systems

Threat from cybercrime

Threat is significant and growing - banks are having

to strengthen their security provisions

Modernising FMI

RetailPayments

Real Time Retail Payment Systems (RT-RPS) are live in 18 markets, many more planned

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18 countries ‘live’

12 countries ‘exploring’ / ‘planning’ / ‘building’

17 additional Eurozone countries ‘exploring’

Planning

Eurozone

Live

Modernising FMI

RFP for Eurozone system

to be live by 2018

French domestic

and pan-

european

initiative

Denmark

domestic initiative

Spanish domestic

initiative

Pan-European

initiative

UK domestic

initiative

Canadian payment

modernisation

US Faster Payments Task

Force and a US Secure

Payments Task Force

US domestic initiative

US domestic

initiative

Japanese

domestic initiative

Singapore domestic

initiative, central

addressing service in

review

Major RT-RPS initiatives are occurring all over the world ....

Need for at least one solution for

the Eurozone according to ERPB

Defining SEPA SCT Inst

scheme on request of ERPB

12

Australia National

Payments Platform to be

live by 2017

Thailand Mobile

Instant payments

in review

Indian domestic

initiative

Modernising FMI

Modernising FMI 13

Real Time Payments Innovation – its not just about going faster

Open AccessSimpler

AddressingAPI to Anything

Intelligent

Messaging

Inclusive -

extended

participant

ecosystem

Regional/global

interoperability

Extensive use of

Digital Channels,

esp. Mobile

Reduced friction for

customer

Centralized

Addressing across

banks

Alias/Proxies

instead of account

numbers

Addressing and

Overlay Services

integration

Consumed by

Corporates,

SMEs, Govt.

organizations

Information rich

ISO 20022

The BSP has established a vision for a National Retail Payment System (NRPS)

To establish a safe, efficient and

reliable payment system that

• Enables effective and efficient

interface and interoperability

among players

• Fosters innovation and new

business models

• Facilitates the provision of a wide

range of products and services

with needed certainty, affordability

and trust

• Ensures transparencySource: BSP

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Financial inclusion is important for all Filipinos

What is NRPS? Well, NRPS envisions Filipinos to have easy access to financial

services and have accounts to make payments, and receive or transfer funds to

other accounts anytime, anywhere, at a reasonable price from any digital device.

Efficient retail payments contribute to the stability and efficiency of the financial

system and the economy as a whole.

- Amando M Tetangco, Jr

BANCNET 25th Anniversary

Modernising FMI 15

A National Retail Payment System (NRPS) in the Philippines must address …

• Financial inclusion to address current large non-banking population

• Rationalization of existing infrastructures for efficiency & scalability

• Government needs of monitoring national payments

• Flexibility and adaptability for future generations, catering to future payment

innovation and technology

• High availability, safety, security

Modernising FMI 16

And key features of the NRPS must include

Industry standards

Cater for ubiquity

Manage settlement risk

Cost efficientEnd-user

convenience

Richer data Easy integration

Real-time 24/7/365 services

RT-RPSDesign

Guidelines

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5 Strategic Objectives of RBA Timing

1. Same Day Settlements for Direct Entry 2013

2. Real time payments and immediate

availability

2016

3. More complete remittance data with

payments

2016

4. Payments outside normal banking

hours

2016

5. Easier payment addressing

mechanism

2017

5 Strategic Objectives of RBA Key Features of NPP Solution

Key features of SWIFT NPP Solution

24/7 availability

Real-time, low latency messaging in-country

ISO 20022

Addressing database service

Re-use existing SWIFT Infrastructure

Lower cost to MI and community

http://www.swift.com/about_swift/shownews?param_dcr=news.data/en/swift_com/2014/PR_AU_SWIFT.xml

Case Study - New Payments Platform Australia

How the Reserve Bank of Australia (RBA) drove change in partnership

with Australian industry …

Modernising FMI 18

The basic infrastructure is run as a utility to cater for future volume growth whilst overlays

foster competition, innovation, and commercialisation

NPP

Basic

Infrastructure

Overlay

Services

• Cooperation

• Operating as utility

• Long term utilisation offering real-time payments

• Resilient

• No constant innovation required

• Aim to grow volume and scalable

• Commercialisation

• Competition to differentiate services

• Innovation for the end customers

• Value added services

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An open, scalable, flexible NPRS can support financial inclusion in the Philippines

Modernising FMI

Basic Infrastructure

Dir

ect

Part

icip

an

ts

Ind

irec

t

Part

icip

an

ts Addressing Database

Switch

Network

Se

ttle

me

nt

Se

rvic

e

Overlay Services

Real-time

24/7

ISO 20022

Addressing database

Connected services

such as Mobile

Payments

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Case Study - New Payments Platform Australia

How does it work?

Payer / Ordering Customer

SWIFTPaymentGatewayBank

Channels

SWIFT Payment Gateway

Fast Settlement Service

Addressing Database

$24h

Overlay Services

Payee / Beneficiary Customer

SWIFTPaymentGateway Bank

Channels

Ordering CustomerBank

Beneficiary Customer Bank

RTGSCentral Bank

Settlement

Clearing

Settlement1

2

4

3

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Account-to-Account Gap

Mobile convenience service

Ubiquitous POS

Emergency Payments

Direct to account ticketing / tolls

Workflow Managers

Conditional Payments

Alternative Currency Redemption

Property Transfer

Data Rich Use of ISO Messages

Electronic invoicing and remittances

Data rich payments

Participant services

Fraud monitoring

Batching

Possible Overlay Services

What is an Overlay Service? Some examples

Source: APCA22

Modernising FMI

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RT-RPS : big questions for the industry to consider..

What are the Business Case drivers?

How does the end customer benefit?

How will new standards like ISO 20022 help?

Promoting wider adoption & innovation?

Modernising FMI

Considerations for the longer term roadmap?

• Flexibility

• New Service Development

• Convenience

• Security

• Overlays & Open Access

• Simpler Addressing

• Regulation

• Wider Adoption & Innovation

• Convergence of payment systems

infrastructure?

• Regional integration

Swift has developed a set of modular components

Domestic Messaging Channel (DMC) - in-country messaging solution

that supports low latency, high message volumes, on a 24/7/365 basis,

with no downtime

Payment Gateway (PAG) – supports exchange of clearing and

settlement messages, and APIs that enable value-added services, e.g.

addressing database, fraud detection and merchant platforms

Addressing Database - links short name alias, email address or

mobile phone number to customer’s bank account number

ISO 20022 Standards - enables long-term interoperability with other

market infrastructures

SWIFT ‘FNAO’ Performance – 40 years of operational excellence –

5x9s resilience, reliability, privacy, PKI security and round the clock

support, on a 24/7/365 basis

FNAO

Performance

Domestic Messaging

Channel

Payment

Gateway

Addressing

Database

ISO 20022

Standards

Modernising FMI 24

SWIFT and the NRPS

25Modernising FMI

Reuse

messaging

infrastructure

Adapted to

needs of real-

time retail

eco-system

Strong Local

& Global

Presence

• Single window

• Resiliency

• Security

• Availability

• Proven API-based

technology

• Low latency

• Intelligent messaging

• Based on

global ISO 20022

real-time payments

market practice

• Includes standards

for addressing

• Globally

• Asia Pacific

• In The Philippines

ISO 20022

Real Time

Payments

Standards

Recommendations

Develop an industry roadmap for ISO 20022 adoption – whole of industry

Form an industry working group to collaborate and agree on the non-negotiable NRPS

requirements

Establish core principles for national payments systems development in The

Philippines

Leverage global expertise

Modernising FMI 26

Further reading

The Level One Project Guide, Designing a New System for Financial Inclusion -

Bill & Melinda Gates foundation

Consultative report: Payment aspects of financial inclusion – Committee on

Payments and Market Infrastructure, World Bank Group

Improving national payments system infrastructures – McKinsey & Company

Guidelines for the next generation of Real-Time Retail Payments System (RT-

RPS) – SWIFT

The Global Adoption of Real-Time Retail Payments Systems (RT-RPS) – SWIFT

Modernising FMI 27

Securities Markets

28Modernising FMI

Asia Pacific

Securities

challenges,

trends &

opportunities

Securities

Market

Infrastructures

Post-Trade

System refresh

Business

diversificationRegulation

Aging technology

New technology

(distributed ledger)

Regional vision

ISO 20022

CA golden copy

Funds hub

Collateral mgmt

Off-shore CNY

OTC clearing

CPMI-IOSCO

T+2

OTC derivatives

Regulatory

reporting

AEC

ABMF, AFSF

CSIF-Cross-border DVP

ISO 20022 adoption

MP harmonisation

Regionalisation

Domestic projects fed by regional initiatives and vice versa

29Modernising FMI

India

Maldives

Sri Lanka

NepalBhutan

Bangladesh Burma Laos

Thailand

Cambodia

Brunei

Vietnam

Malaysia

Singapore

Indonesia East Timor

Philippines

Hong Kong

Taiwan

South Korea

North Korea

Japan

China

Renewing Technology

Clearing and Settlement Projects

Australia

Talking about it

Live or planned

Aging technology

Fin tech (distributed ledger)

Regional ambition-collaboration

ISO 20022

30Modernising FMI

Business Diversification & Value Added Services

Corporate Actions Collateral Investment Funds

Challenges

• Misinterpretation

• Manual scrubbing

• Lost announcements

• Missed deadlines

Trend

• Demands for higher quality

• Issuer involvement

• ISO Standardisation

• Automated dissemination

• New revenue

Challenges

• Funding & liquidity demand

• Streamlining operations

• Account segregation

• Regulation

Challenges

• Regional funds pass-porting

• Manual handling

• Streamlining operations

• Regulatory pressure

Modernising FMI

Trend

• Domestic demand for better CM

• Clearstream/Euroclear partnerships

• ISO standardisation

Trend

• Addressing domestic demand

• Domestic funds hubs

• Linkage of funds hubs

• ISO Standardisation

• Asian Funds Standardisation Forum

• Clearstream/Euroclear partnerships

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Regionalisation

32Modernising FMI

Transformation projects: around ISO

Involved in all major APAC SMI’s projects

Clearing & Settlement

• ISO 20022 strategy

• High level and detailed gap analysis

review

• ISO governance support

(maintenance and new)

• MyStandards

• Implementation support

• Trainings

Corporate action (TSE)

• Specification co-writing and

maintenance


• MyStandards

Clearing & Settlement

• Standards strategy

• Specifications review

• MyStandards

• Implementation support

• Community engagement

Corporate action


maintenance


Corporate action


• Community engagement

• Specification writing and

maintenance

• MyStandards

Post-trade


Collateral Management


maintenance

• MyStandards

• Standards forums

• Customised trainings

• Standards consultancy

Securities M

ark

et

Infr

astr

uctu

reC

om

munity




• Market practice discussion facilitation




• Market practice discussion facilitation

• Community workshops

• On boarding portal

Readiness

PortalMyStandards

33Modernising FMI

The Philippines & ISO 20022

Modernising FMI 34

More information

• Payments: Michael Moon ([email protected])

• Securities: Alexandre Kech ([email protected])

Modernising FMI 35

modernising the philippine financial infrastructure - michael moon and alex kech

Presentations & Public Speaking