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TRANSCRIPT
Tackling Global Payment Challenges
Laura McGortey
Global Payments Product Line Manager
BNY Mellon Treasury Services
Kevin O’Neil
Regional Account Manager
SWIFT | Americas & UK Region
May 17, 2017
2 Information Classification: Confidential
• Causes behind today’s challenges within cross-border payment processes
• Potential implications of new and alternative payment channels and
technologies
• Examples of innovative solutions in pilot or readily available
• What the future holds for the industry, and where we are headed
Tackling Cross-border Payments Challenges
4 Information Classification: Confidential
CCT
CSP CVSSv3
NIST/PCI KYC OFAC
PSD
Dodd Frank
CISO SIP
STP SCORE
ISO AL2/SAA/SB
ACMT
PACS
CDD/EDD
DOJ
USA Patriot Act
FIN/FileAct PSR
BIC/IBAN
SSI
UCC (4A)
GPI
UETR
CGI
PAIN
CAMT
FCC
2FA TCH/FED
TCH/FED
DLT
Grouped by Themes – Brought To You by SWIFT SCRL
6 Information Classification: Confidential
Potential for Additional Intermediaries with Any Transaction
Beneficiary Correspondent Beneficiary Bank
Cross-border Payments End-to-end View
*Such as:
• ISO 20022
• X12 820
• EDIFACT
• SWIFT FIN or File Act
• Bank Proprietary
Company
XYZ
TMS and
or ERP
“When and for what amount was beneficiary’s account credited?”
Bank
Access
and
Routing
Infrastructure
File Acknowledgement(s)
Potential for
Foreign Exchange
Debit Advice/Acknowledgement
Debit from
Funding
Account
FILE Upload
User Interface/Web
*File Transfer
Mobile Initiation
Third Party Initiation
(e.g., Payroll)
Central Bank
Beneficiary Correspondent Beneficiary Bank
Beneficiary
Correspondent
Beneficiary Correspondent Beneficiary Bank
Beneficiary Correspondent Beneficiary Bank Central Bank
Beneficiary Correspondent Beneficiary Bank
Foreign Currency
Drafts
IACH (Domestic
Low Value
Clearing)
USD ACH (IAT)
Wire Transfer
(Domestic and Int’l
Foreign Currency)
Bank
Clearing
Settlement
Accounts
Advising or Statement
Possible Currency Conversion (FX)
Possible Principle Deduction
Currency Conversion (FX)
7 Information Classification: Confidential
Common Global Implementation – Market Practice Groups – Innovation?
Table of contents
• WG1: Credit Transfer/Payment Status
• WG3: Direct Debit
• WG5: Bank Services Billing (BSB)
• WG2: Bank-to-Customer Reporting
• WG4: Electronic Bank Account Management (eBAM)
The CGI-MP initiative includes five different work groups. Each of the work groups holds bi-weekly or monthly telephone conferences, with the
latest documents published on our website.
WG1: Credit Transfer/Payment Status
WG1 focuses on defining the harmonized guides associated with the following ISO 20022 payment initiation messages:
• pain.001.001.03 Customer Credit Transfer Initiation V03
• pain.002.001.03 Payment Status Report V03
The content focuses on three basic transaction types: ACH, Wires and checks/drafts
8 Information Classification: Confidential
Innovation?
3,022 Number of relationships between
corporates and banks
exchanging ISO20022
680 654 740
675
463
21.9%
26.0%
21.3% 22.1%
29.3%
0
100
200
300
400
500
600
700
800
900
1000
Send Receive Total Payments* MT940 & 20022**
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
ISO20022 Based on Live traffic in Q3 2016
# of corporates inQ3 2016
Growth vs PY
*Send/receive pain.001.001 and pain.008.
**Send/receive both FIN MT940 and ISO20022
9 Information Classification: Confidential
The Challenge to Create a Global System
Source: The Clearing House U.S. Real-Time Payments Business Playbook, November 2015
• Countries have been developing
domestic real-time payment
solutions with an eye towards
interoperability with other
countries.
• Consistent messaging and
formatting across countries:
ISO20022 is likely the new global
standard.
• Security and regulatory issues
must be addressed.
The Clearing House Real-Time Payments
10 Information Classification: Confidential
Internal actions
Your
Counterparts
Your
Community
• Secure your local environment
• Sign up to our Security Notification Service
• Register Chief Information Security Officer (CISO)
• Attestation for bilateral transparency/discussions
• ‘Clean-up’ your RMA/relationships
• Put in place fraud detection measures
• Engage with us on market practice
• Bilateral discussions with bank
counterparties
• Provide contact details of your
company’s CISO for incident escalation
Many applicable regardless of channel
Tackling Customer Security
Corporate/Industry Discussion Points
11 Information Classification: Confidential
Regulatory Expectations
• Yates Memo/DOJ guidance (updated Feb. 8, 2017) on Corporate
Compliance Programs. Also covered in USAM U.S. Sentencing
Guidelines
• Operational Integration – Who is responsible for integrating policies and
procedures, controls across payment systems and vendor management?
• Evidence of continuous improvement, periodic control testing, internal
audit reviews, and evolving updates
Costs and Complexity
• Increasing costs and complexity are driving institutions to look for
innovative ways deal with complex compliance challenges
• Need to balance efficiency vs effectiveness
Corporate/Bank Compliance
• Banks seeking to mitigate risks and reduce costs of compliance checks
• Companies typically outsource this to banks
Implications
• 2015 fines from U.S. DOJ and SEC to U.S. companies $1B+ for sanctions
and FCPA violations
• Payment processing delays and impacts to liquidity
• De-risking and increased processing costs
• Headline risk remains with the company
Emerging Corporate FCC Challenges
SWIFT Proprietary & Confidential – Fairfield AFP March 2017
12 Information Classification: Confidential
Financial Crime Compliance Ecosystem – Overlay
Sanctions Analytics/AML KYC
Activities Across the Spectrum
e.g.:
• Transaction and
Name Screening
• Lists (Sanctions/Pep)
• Quality Assurance
• Alert Management
e.g.:
• KYC Registry
• KYC Market Place
• Standards
• Notifications
• RMA
• Adverse Media
e.g.:
• Compliance Analytics
• Daily Validation
Reports
• FATF 16 – Payment
Data
• Correspondent Bank
Monitoring
Process review, audit and testing to mitigate risk, per corporate policy
13 Information Classification: Confidential
“I’m not able to tell when
the money hits the
beneficiary’s bank
account.”
“Many times we don’t
have visibility on the fees
lifted along the way.”
“Critical business requires
faster payment
execution.”
“We miss information
regarding the invoice and
the payer for timely
reconciliation.”
Tracking Transparency Speed Remittance Information
Sound Familiar?
14 Information Classification: Confidential
*Through your participating banks
Benefits for Corporates
• Same day use of funds
• Transparency of fees
• End-to-end payment tracking
• Unaltered remittance information
SWIFTgpi
Accounting and core functions
• Better cash flow management
• Speed and visibility on critical payments
• Certainty for buyers and sellers
• Transparency on bank fees
• Reduced exception handling and investigations
Budgeting, planning and forecasting
• Enhanced predictability and traceability
• Greater planning and decision making
• Improved reconciliation and forecast reporting
Treasury and Cash Management
• Reduced settlement time
• Leverage investment opportunities
• Higher visibility for capital and credit management
• Reduced FX risk
15 Information Classification: Confidential
Rich Payment Data Request For Cancellation International Payment Assistant
SWIFTgpi
Rich remittance information, invoices,
compliance documents, etc.
Stopping unsolicited payments
(double payment, manual errors, fraud)
STOP
SWIFTgpi
Validation of payments before execution
SWIFTgpi
Account number?
BIC?
Passport required?
Beneficiary?
v2 – Q4 2017 – 2018
Evolution of Functionality…
16 Information Classification: Confidential
BN
Y M
EL
LO
N
INIT
IAT
IVE
S
Education
Educating clients and
internal businesses for
organizational readiness
30+ Clients educated,
8+ Internal businesses
educated
Exploration
Exploring fintechs, and
internal use cases for
efficiency, security and
resiliency
50+ Fintechs explored,
5 Internal POCs
Collaboration
Working with clients, fintechs
and industry peers to explore
opportunities
Consortium participation to
drive standards
4+ Consortiums,
6+ Collaboration
opportunities with clients
Transformation
Short Term: Incremental
benefits – efficiency,
security, resiliency
Long Term: Organizational
readiness for potential
disruption
2 Internal use cases in
production
Permissioned ledger with an intermediary is better suited
for financial transactions
Technology is still evolving. Standards will drive adoption
and interoperability
Blockchain Could Be Disruptive, with The Potential to Bring Improvements in
Security and Efficiencies to Our Financial Industry Short Term
KE
Y
CO
NS
IDE
RA
TIO
NS
KE
Y T
AK
EA
WA
YS
Fundamental business process redesign is required to reap
the benefits of blockchain
Effectively representing cash in-ledger is the first step towards
any financial use cases
Regulatory, accounting and legal frameworks need to
evolve. Fiat currencies are not going away
Internal use cases are a good start, but network effect will be
the key to harness the benefits of distributed ledger
2017... 2016 Q1-Q4 2015 Q3-Q4 2015 Q1-Q2
17 Information Classification: Confidential
Assumptions that are central to today’s financial business models will be impacted.
Blockchain Will Redraw Processes And Call Orthodoxies into Question
Current State Assumptions Transformative Characteristics
Of Distributed Infrastructure Implications For Market Participants within Financial Services
Information silos drive the need for detailed
reconciliation activities
Lack of a single version of the truth and
audit trails creates arbitrage concerns
Eliminates need for reconciliation Provides historical single
version of the truth
Asymmetric information between market
participants drives the proliferation of
central authorities
Lack of transparency increases regulations
on financial institutions
Eliminates imbalance of information
among market participants
Increases cooperation between
regulators and regulated entities
Lack of trust between counterparties
creates the need for central authority
oversight in contract execution Ensures agreements are executed
to agreed-upon business outcomes
Disintermediates entities
established to resolve disputes
(a) Immutability
(b) Transparency
(c) Autonomy
18 Information Classification: Confidential
• A convergence of market forces and new entrants
have spurred payment innovation to overcome
various challenges
• Banks and payment operators have launched
significant payment modernization efforts
• Blockchain has the potential to dramatically
modernize payments, but impact and timing is TBD
• BNY Mellon is invested in payment modernization,
with efforts underway to:
– Extend our capabilities with new solutions
– Play a leadership role in industry initiatives to
modernize payments
– Explore the transformative potential of blockchain
technology and other fintech solutions
Payment Modernization Is Underway…
19 Information Classification: Confidential
• Key industry requirements and evaluation of “maturity”
• When does emerging technology/business model
take hold? Business use cases will evolve
Distributed Ledger Technologies (DLTs) – SWIFT and Accenture
2016 White Paper
20 Information Classification: Confidential
• Existing DLTs are currently not mature enough to fulfil the requirements identified
• There are promising developments in each of these requirements
• Significant extra R&D work is needed in all these domains before DLTs can be
applied at the scale required by the financial industry
DLTs – Conclusions of the
Technology Assessment
21 Information Classification: Confidential
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