With the advent of new regional and local payment instruments backed by local legislative changes, South African payment processors, which includes all retail banks, most corporate businesses, as well as payment service providers, will be scrambling to ensure internal compliance over the coming years.
These new payment instruments are processed using a modern XML based messaging standard called ISO 20022, which is the de facto global standard for all new financial messages. Local payment processors will need to ensure their financial messages are consistently mapped, validated and conform to these increasingly complex and ever changing formats – or else face stiff penalties from the South African Reserve Bank.
What is ISO 20022 and how does it affect the South African electronic payments sector?
Ensuring consistent financial messaging across organisations in the financial services industry is not a new concept. Every transaction, every report, every confirmation or notification requires the sending and receiving of messages that conform to the standard required by the regulated service. Both the sending and receiving parties have to be able to ‘talk the talk’, and they are just two of the many different parties involved in the transaction chain, so data needs to be consistent and secured throughout the processing chain. Consequently, the transaction data that is passed between the multiple parties is based on industry defined message formats.
Since its launch 10 years ago, ISO 20022 has become the de facto global standard for such industry defined message formats. The standard contains hundreds of message formats, data elements, syntax and semantic validation rules, implemented through XML message structures. Each market can base new services upon ISO 20022, and then vary that service and the message standards to suit their particular processing needs. Therefore, each market player in South Africa will need to support additional validations and formatting rules beyond the global standard that are specific to the South African market.
Thus, payment processors in South Africa have reached a tipping point. Their existing systems were not developed to manage the diversity and flexibility of the new messaging standards. New data needs to be captured at the customer level and then processed within internal systems in accordance with the new rules. Failure to adhere to the new standards and implement significant internal processing changes will not only result in short-term punitive measures, but will also harm their long-term global growth prospects. The global marketplace is becoming more dynamic and competitive, and nowhere is this seen more than in payments, and in the flexibility that the banks and corporates must now support to keep up with the imposed changes and customer demands.
Over the coming years, a range of these new legislative changes with updated payment standards will cause major disruption in the local electronic payments sector, initially in the areas of debit orders through Authenticated Collections, but that will be followed by new ISO 20022 based credit transfers (to replace existing Bankserv EFT Credit Transfers) and SADC payments (which are ISO 20022 based messages that replace the use of existing SWIFT payments for low-value cross border transfers in the SADC region).
To remain competitive, South African payment processors must avoid incurring excessive costs during this period of change and so finding the right software platform to address their challenges is a top priority. Growth and profitability are non-negotiables for any organisation, regardless of their scale, and CIOs and CTOs will need cost-effective solutions to ensure compliance with the new payment standards without compromising these critical business objectives.
Delivering a cost effective solution
So what are the key issues that South African CIOs and CTOs must consider when addressing the take-on of Authenticated Collections (AC)? How can they ensure that their organisation is best placed to support the requirements? How can they de-risk the future and manage costs appropriately?
There are three fundamental principles that should drive each organisation’s approach to these significant changes and should guide their strategy and solution selection process:
1. Strategic message development solution: AC is the first of many ISO 20022 related projects that most organisations will be undertaking. Coupled with the many other financial messaging development projects that will continue to impact the development capacity of every organisation it is incumbent that each use the AC project as the catalyst for creating a strategic solution to messaging development for both ISO 20022 and all financial message formatting.
2. Flexibility: it may seem an obvious issue to highlight, but experience shows that new payment standards evolve during their initial rollout and systems will require regular adjustments. Over time, environments also evolve and diversify, as well as platforms changing as organisations expand. Therefore, flexibility of definition and deployment has to be at the heart of every organisation’s strategy.
3. Speed to market: finally, time to market is critical, not only for competitive advantage but also to address regulatory imposed deadlines and provide one’s organisation with the time it needs to test and roll out new services. Time to market = speed of development. The shorter the development lifecycle, the greater the competitive advantage.
Essentially, every organisation’s CIO and CTO, be they a bank or a payment processor, or a corporate business sending and receiving payments, needs to undertake a frank assessment of whether his or her organisation has the right tooling and systems in order to address the three highlighted principles above or else they face a difficult and uncertain future where they will not compete effectively.
Ultimately, it’s not just about whether an organisation will comply with the new standards, it’s whether they will comply with the need for agility in order to stay competitive in this fast paced, ever changing world of digital payments processing.
Information supplied by:
General Manager: Financial Services
Bytes Universal Systems
General Manager: MEA