The Future of Data-Rich Payments

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Kim Salti: Hi everyone, I'm Kim Salti, Director of North American Business Payments.

Charlene Lee: And I am Charlene Lee, Director of Cross Border Payments Transformation here at Scotiabank. So today we're going to be talking about ISO 20022, a global payment messaging standard that is being adopted around the world.

Kim Salti: And we're going to focus on the constraints of cross border processes and how data rich innovations are going to boost the speed of payments and make life easier for our customers.

So, let's get into it.

Charlene Lee: Let's bring our listeners up to speed. So, what we know of global cross border payments right now, there's a lot of issues in making money flow across borders. So why don't you give us a little bit of insight in terms of why is it so difficult to move money globally today?

Kim Salti: Currently the data information that flows with that payment is spotty. It's not structured, it can be free form text, it can be in different places in the message. So even though I'm sending you a hundred dollars for the invoice that you billed me for, you may not know that because the information didn't make it to you properly and now you have to guess what that is.

Charlene Lee: Where's my money is definitely one common question that we hear.

And so thinking about, you know, global transparency and the speed of payments, that is one item that we are globally trying to solve for. But I think the second piece that you touched on is quite important, which is the data, right? How do we get the right data into the payment so that it can facilitate that faster money movement?

Kim Salti: So that ties into an excellent example of ISO standardization. Recently India has started mandating the payment purpose code and has been actually rejecting and stalling payments that don't have it.

With ISO, what it's going to do, there's an actual field called purpose code. So it makes it easy for our customers to know where to put that information. There's a dropdown, so sometimes they're not even keying anything, they're just selecting from a menu, and off they go, simplifying everyone's life, our sender, the recipient, the Bank of India, regulators, so everyone's much happier that they're going to be implementing this standardization.

Charlene Lee: Absolutely. And another great point that you've touched on, right? What ISO 20022 really enables is the ability for data to be captured in a structured and unambiguous way, so that to everyone across the globe, it means the exact same thing.

But the analogy I'd like to think about here is, it's really about communication than about payments, right? When it crosses borders. So taking an analogy here, even when you say, speak to someone about football, depending on who you're talking to, a different thing will jump to mind. For example, if you're speaking with someone in Europe, they may think Ronaldo. Whereas if you're speaking to someone here in America, the thing that pops up might be Super Bowl. Tom Brady. And so, really, it means different things to many people. And when you pare it down to a payment, same idea. How do we make sure that when we use a certain data element or data point, it is always understood in the exact same way?

So, again, it removes that ambiguity, and you know that this is exactly the piece of information in the payment and what it is for.

Kim Salti: And so that, of course, is going to reduce service fees, possibly late penalties for our clients, because now we're all speaking the same language, to your point.

So talking about language we mentioned data rich previously.  that's really what this language is we're talking about. it's twofold. It's one, it's a standardization across the payment fields. So everyone is speaking the same language. And two, we actually have more payment fields. So now I can include information about what I'm paying you for, very detailed, or where it needs to go in the next hop in the chain.

Charlene Lee: And when we think about the business context of it as well, you mentioned invoices. So as a large corporate, if you are sending a number of payments to pay for invoices, instead of sending ten different payments, twenty different payments, you talked about cost efficiency. Now with this data format, you have the ability to send one aggregated payment and leveraging each of the data elements in there articulates specifically - what invoice does this payment actually apply for?

So from a sending perspective, you know how to reconcile your books but on the recipient end as well, think of what that can unlock because now you have a unique identifier to be able to match on your side that, yes, I have received cash. Hence, I know how to apply it, and now I can use it for something else.

So really, that, you know, liquidity is critical for day-to-day business operations.

Kim Salti: Hundred percent. And also with the standardization in data rich, I'm going to be able to just take that payment the way I got it. And move it down the chain faster versus having to translate, manipulate, move, etc., down the chain. So it's really helping everyone get more global, and really speeding up the process for our customers so they don't have to worry about it on their end.

Your payment is going to get where it needs to go as quick as possible.

Charlene Lee: Interoperability, I think that's a great point that we hear a lot in terms of what this really facilitates, right? Largely, when we think about cross border payments, and we think about payments moving through the SWIFT network.

That's just one network. But when you think about domestically, in particular here in Canada, we've offered Interac e-transfer for business for our customers, which is also built upon the same ISO 20022 language. So exactly, payments crossing borders that can now expand into domestic rails and really, again, facilitate more of that straight through processing for businesses to apply that cash quickly.

Kim Salti: Yes, and speaking of applying the cash quickly, that's one of the biggest problems that this is going to help unlock for our customers is this concept of trapped liquidity. So you've paid me. I have proof you've paid me. But until I can reconcile that with my books and which invoice and check it off on my list and my ARP systems, my ERP systems, etc., all the way down, I can't use that cash as a business.

So it's sitting there idle. And, you know, as a business even as a person, we know that idle money isn't the best thing. We like to make money off of our money. So either we're investing it in other business endeavors or we're surplus funds to gain interest. But sitting there doing nothing is like a business's worst enemy.

Charlene Lee:

Definitely a great use case in terms of how they can adopt the standard and make their business operations that much more efficient.

Kim Salti: Yes, exactly. And outside of the actual process flow for our clients, there's also some benefits from a compliance and security standpoint.

So I wonder if you have an example of something we can speak about.

Charlene Lee: Great question. I think compliance is one of those key considerations as it relates to money movement across border. Folks are aware that sanction screening does happen when money movement flows across borders. So when you think about that and the speed of money movement, one of the things we want to prevent is unnecessary stops along the chain.

So one example that is commonly used is as it relates to Cuba, payments destined to Cuba will get stopped and flagged. But now think about it, if you are a company that is in the scuba diving business, the fact that the word Cuba is inherent in the word scuba naturally results in it being stopped even though it should not be, right? And so when you think about the ability for the ISO 20022 standard and to have information belong in exactly the field that it should belong into, you don't miss scan a company name in an address field. And really what we're talking about here is that country field, which represents Cuba.

Kim Salti: Yeah, I definitely agree. And all those examples of false positives we'd like to get rid of with this new ISO structured data. Anything you can think about for cost savings examples you want to share?

Charlene Lee: From a cost perspective, when you think about the human capital that is reviewing these payments to confirm whether or not they are true hits versus false positives, that in of itself is quite significant in the bank-to-bank space. Now flipping the switch a little bit to large corporations when you think about the need to pay for invoices we know that wires are not a cheap payment method. And so to that end, if you have the benefit of aggregating a number of invoices into a single payment, this is one way the data rich standard and capability of ISO 20022 can really help. Because now you can send one $10 million payment that represents a number of invoices and distinctly identify each invoice contained within it so that you can facilitate that payment across borders, and on the receiving end, you know exactly which ten invoices this aggregate dollar value equates to.

Kim Salti:. And speaking of automation everyone's favorite friend in automation is AI. So, looking on how we can use all of this structured, lovely data in combination with AI to further streamline the processes. So, a few examples would be error correction. We know a lot of times these payments stop and not false positives because, to your point earlier, I don't know what a BIC is. I may have the wrong address. That can now be fixed and identified because the fields are structured, so AI has an easier job of knowing where to look and then what to fix. So that gets rid of some stops in the process, manual efforts are saved, straight through processing is improved, everybody's happy.

In the screening example, of course, AI not only can find the data better and structured, but it can learn from what's happening. So I may get your scuba example on Monday, but I see your payment come through again on Tuesday, and now I've learned that like, don't bother with this one, it's the same payment that came through, same company, everything else. Let it go down the chain without someone having to look and say, no, no, this is not Cuba. This is our scuba friend.

And then another example, of course, is transaction monitoring.

So AI can learn from those information. It can, model trends a lot easier than it could because the data is, again, structured. In the same place, very specific to what they're looking for. it's going to make everyone's payment process smoother, more transparent, quicker, and faster.

So a win for sender receiver. And of course, all the people in the middle as well.

Charlene Lee: And so that touches on the speed of payment processing, but the other thing that it can assist with is prioritization of payment processing. So going back to our earlier discussion about payment purpose code, I know you had brought up the India example, but there are jurisdictions globally that are already thinking about how to leverage this field.

And when you think about the UK and the Bank of England, one item that they are introducing later this year for domestic payments is the use of property payment purpose code. And so what. Just think about today, right? A mortgage transaction. If I'm buying your house, it is a time critical transaction. Not only does the money have to flow, you know, from the bank into a lawyer's trust account, and then eventually to another lawyer's trust account, and ultimately, to the seller.

That in of itself has a number of hops in between, even if it was largely straight through. Now, as a regulator or a country, you are able to identify the volume of property related payments that are shifting through the ecosystem. And as well, if there is stoppage, how to prioritize those very time critical payments itself.

Kim Salti: Yeah, and that's going to the point of data rich, not only helping the process itself, but really being a game changer in the industry. So it's not only more accurate for the banks to identify needs and use cases, but of course for our senders and receivers. If they're getting better information back from whoever's paying them, they know who better to track for late payment follow ups, for early payment discounts, for anything else they want to potentially offer to their customer base because they now have this data and they can use it accordingly to help streamline their processes and reconciliation.

So we've mentioned that ISO speeds up reconciliation multiple times. How does it do that, really? A lot of companies are using ERP systems, they're using Excel is everyone's best friend and still very widely used. And those systems are generally based on I look to the same place for the same information day in, day out.

So having the structured data in those fields in the message itself means that it can flow seamlessly into the ERP system or existing accounting processes. So really giving clients the benefit of one source of information, and then that's all they have to integrate with to continue their processes downstream.

So we talked about a lot of great things with ISO and standardization. When can we expect this to be live in our customers to take advantage of all this modernization?

Charlene Lee: Great question. It's a multi-year journey and it will take us until November 2025 for banks to be ready. ISO 20022 as a payment format has actually been around for quite some time. What needs to happen is that global adoption of the format. And so SWIFT has led the charge as it relates to the cross border payments facilitated through their network.

And so, while the migration or adoption of the SWIFT ISO 20022 payments takes us to November 2025, that really is just a starting point in terms of the innovation and the business value that this payment format can truly unlock.

We need to drive consistency and how each of the data fields are used across the industry, whether or not domestically or cross border. When you think about certain payment types, such as those in the trade finance space, if we can all agree that a certain data element will be used in a certain way, for example, for a bill of lading, then we now are all truly talking the same language in that capacity, right?

And so this is where the market guidance is critical to ensure that ABC company located in Canada sends and receives and understands the payment in the same way for a company that's based out of the UK, based out of Asia, based out of South America. We're all interpreting it into the same way. And that is what's really going to be critical for us to be able to unlock that additional innovation that ISO 20022 is the foundation for.

Kim Salti: So from a business standpoint, what that means for our companies, is it, now is the time to start looking internally. What does your data look like? How are you getting it today? Where are processes you may get improvements from?

How can you change your integration points and start those foundational questions internally? And then once everything is ready and all the banks are on board 2025, they'll be ahead of the game and ready to make those changes.

Charlene Lee: Great point, right? Because it's not only about in the bank-to-bank space that we are able to facilitate the movement of this data through payments, but it's also as a sender, how do you make sure you have the ability to attach this additional information?

So here at Scotiabank, that is one thing that is very top of mind, right? However, you as a business want to connect with us as a bank, whether or not it's through an online portal where you can manually enter these invoice numbers into specific fields, or if you're generating a payment file directly from your ERP system that you want to send to us directly through a host-to-host channel as an example.

Or further, we've talked a lot in the past about APIs, right? So the ability to facilitate money movement in that way. Well, our APIs do have the ability, again, to capture this extra information. So however you want to send it, have those conversations with your treasury systems and your ERP systems to make sure that they're ready to generate however it is that you want to send us the information.

On the flip side, we talk a lot about receiving the data, right? It's great and dandy that it can be moved across networks. But if an FI can receive it, but not make it available to you as a business, then how will it be valuable to you? And so another thing we are thinking a lot about is how do we present this additional rich information, whether or not it's invoice data or otherwise, to you as a customer.

And so one way certainly is again, logging into through an online portal to see that, hey, I have these five invoices now associated with this one payment. But the second piece, again, if you want to download a report, I spoke earlier about Interac e-transfer for business also being in the ISO 20022 format.

So, now you could potentially, you know, download an Excel report, if that is your choosing and have, you know, both e-transfers on there as well as wire payments on there that you, so that you can feed it into your own reconciliation systems. And then thirdly, going back to APIs, right? We are heavily thinking about our investments in the balance and transaction API to make sure we can pass through the right information so that if you as a company want to integrate with us directly through your ERP systems, We're ready to be able to facilitate that data transfer.

Kim Salti: So if I'm summarizing, we're making it easy.

Charlene Lee: Exactly.

Kim Salti: We've sort of taken the guesswork out a little bit. We've gone through the main fields, the main purposes, the main use cases. And put that either in our front end so that customers can just drop down, pick and then key in the data we've added to our file formats and we've even updated for the API so that we've taken a lot of the guesswork out of it for our business customers.

Those more sophisticated who want specific fields were ready for it for those that just want to send an invoice and don't really know or care about what ISO actually is. We've got you covered as well. Across the board.

Charlene Lee: Exactly. So however you want to interact with us, we will facilitate and ensure that the availability of that extra data is there for you to, again, help streamline your own reconciliation processes and to be able to have faster access to cash and minimize and mitigate the, the risk of trapped liquidity.

Kim Salti: Right. So this is a lot of work behind the scenes for us to make it easy for customers to move their money .

Charlene Lee: So from a Scotiabank perspective, 20022 is a global initiative being coordinated here at the center of the house. We are engaging with all of our business areas across the globe in LATAM, here in Canada, North America, Europe, Asia Pacific, to make sure they are all ready to be able to not only receive and capture, but also to send and facilitate payments out the door.

And this way, thinking about multinationals, whenever they want to bank with us, wherever they want to bank with us, we will ensure the facilitation of this data rich information.

Kim Salti: Perfect. And to that point of how we get our multinationals ready and our customers in general, I assume there's some varying degree as to how much they would have to do depending on what they do today.

So, you may have a client who is very automated, has a lot of processes downstream the uplift for them to start using ISO may be smaller versus somebody who's got three guys and they're still writing on a ledger document and move it over to Excel manually. But Scotiabank is considering both scenarios in the full spectrum of across the services, depending on how further down our businesses are in their own modernization journey, Scotiabank is there to support them

Charlene Lee: Absolutely. And so to that end, it is important for us as financial institutions to first and foremost make sure we are educating our clients As a corporate, what can they do to get ready for this change?

Kim Salti: I touched on it briefly, but the biggest one is start internally. So take stock of what you have. What are your operations? How many people do you have doing X? How many manual payments are you getting?

Are you working on any core modernization structures? Overall, not just specific to payments, but across your business. And then while you're thinking about that, think about how can I leverage what Charlene and Kim have just talked about. How can I use data rich structured information to streamline any processes I have.

Reach out to Scotiabank. We're here to help. Reach out to your own banks, of course, reach out to your ERP providers, your account platform services. They all have insights. Because again, you mentioned industry wide, so everyone has a little piece of the pie in what ISO means for them. So it's really about looking internally, and then reaching out to your partners to have those conversations early.

Charlene Lee: And it's understanding what is most important for yourself as an organization as well. And so multi-year journey, modernization, not only within banks, but also at companies and businesses of all size. And I know we internally, as we're thinking about this journey, it's how, while we're under the hood, do we make these additional changes that can optimize and facilitate more automation down the road so that really the time can be spent on more value added activities.

Kim Salti: And that's the same thing we tell our business customers. If you're going through a modernization journey, you happen to be switching ERP providers, you are looking at your HR processes, you're under the hood, as you say, that's the time to have these conversations with people about what's available to you in terms of ISO and data rich and what you can take advantage of and leverage.

Charlene Lee: Well, this has been a very insightful conversation today, Kim. Thank you so much for sitting down with me and talking about all of the opportunity and benefits available with the data rich payment formats. I hope we get to do it again soon.

Kim Salti: Couldn't agree more, Charlene. Looking forward to it.

Charlene Lee: Awesome.

Kim Salti: Thanks.

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