Payments in the banking industry

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All banks worldwide must comply with the ISO 20022 standard for high-value messaging. This single common global business language for financial messaging is a global mandate for all jurisdictions, including financial institutions in the US. ISO 20022 is a major development in banking, expansive in scope as it impacts the entire payments ecosystem. It serves as the new global business language for payments, utilizing a new XML format. The new ISO 20022 standard also includes 30 percent to 40 percent incremental data that travels with the payment.

Furthermore, many US banks are also adopting Instant Payments, with TCH having already gone live with Real Time Payments (RTP) in 2017 and the Federal Reserve recently launching FedNow in July 2023. The launch of FedNow is intended to bring ubiquity in the market for US Instant Payments.

For US banks, many of them with legacy payment infrastructures, ramping up to meet ISO 20022 mandate and implementing Instant Payments will require modernizing their payment platforms.

A KPMG survey of 200 US bank executives conducted in January indicates that over 60 percent of US banks have made significant steps toward modernizing their payment infrastructures.

This and other findings show where the US banking industry is headed with a specific focus on payments.

Progress towards modernization

Compliance with ISO 20022 is mandatory for all jurisdictions. In the US, which was where our survey participants were based, financial institutions must comply with the ISO 20022 industry mandate by March 2025. There is still time to act, but time is of the essence. The survey asked participants to respond on their bank’s status with modernizing their payment infrastructure.

The majority of US banks are taking major steps toward modernizing their payment infrastructure with an awareness that payments are rapidly changing.

Almost two thirds of banks surveyed are on track to comply with ISO 20022 mandate within two years.

Sixty-five percent of banks surveyed are on the fast track to adopting the instate payments service, FedNow.

ISO 20022 action steps:

Perform an impact/gap assessment and develop a strategic execution roadmap: An impact/gap assessment analyzing the bank’s current payments ecosystem against the new ISO 20022 standard and execution roadmap to address the changes required to meet the industry mandate.

ISO 20022 implementation and enablement: Implementation of the required ISO 20022 across the payments ecosystem, including payments platform/processing, upstream and downstream interfaces, and integration and infrastructure components.

ISO 20022 value-added services: Determining how to leverage the incremental 30 percent to 40 percent data that ISO 20022 provides to generate new revenue opportunities for banks and new value-added services for corporates.

FedNow action steps:

Instant Payments readiness – strategy and enablement: How ready is your bank to move to a 24x7/365 high-availability environment? Getting to that answer requires a top-to-bottom review of a bank’s broader payments ecosystem, including but not limited to bank channels, risk and compliance, payments processing, deposits and limits management, and payments support functions.

Payments platform Instant Payments modernization/implementation: The implementation of Instant Payments includes a robust evaluation of vendor providers and thoughtful implementation of the new payments rail, inclusive of implementation planning, front to back technology implementation, and the bank’s move to a 24x7/365 operations environment to go-live with this new payment type.

Product design and corporate readiness: The benefits of Instant Payments will only be as successful as the adoption that banks realize from the new payment rail. Success centers on industry-specific value propositions and the readiness of clients to gain market traction.