SWIFT Enabling The Future: A Payments Industry Vision

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The document discusses major trends in the payments industry such as ESG, cybersecurity, interoperability, and collaboration. It also outlines SWIFT's strategy and vision to further develop the payments landscape.

Some of the major trends impacting the payments industry discussed in the document include ESG, cyber-risk, interoperability, embedded payments, and collaboration between firms.

SWIFT aims to remove friction in foundational payments to achieve speed and efficiency, deliver instant transactions globally, enrich payment data through ISO 20022, and enhance customer experience by enabling new embedded payment services.

SWIFT Update

Saskia Devolder, Joe Halberstadt

ECB Operations Managers Group


23 June 2022
SWIFT Strategy
Market Landscape Update

Added trends Existing trends


Market Trends RTP MI
High Interoperability
Connectivity

• ESG is a significant focus for the industry, representing both a


Cyber-risk
financial risk and a business opportunity AI/ML
Post-trade LVP
transformation Growth
• Cyber-risk is becoming ever more critical, with digital innovation APIs
accelerating and an exponential rise in cyber-attacks CBDC
Cloud
Shortened
• Interoperability and the ability to connect to many settlement Settlement ESG
methods (wallets, crypto, etc.) and assets is fundamental Cycle
RegTech

Scale of Tokenised
• Payment MI interlinking continues to pick up speed in efforts to Assets
Opportunity
address FSB/CPMI cross-border payment building blocks or Threat “As-a-Service” FCC

• Embedded payments are becoming increasingly important as Stablecoins

transactions move to digital platforms for e-commerce and Trade Digital DeFi
Identity
Open
• Collaboration and co-opetition are in full effect as companies Financial
Banking
Inclusion
increasingly partner, acquire, invest, and compete
Domestic
Instant
• Business and operating model alignment within Securities Payment Cryptocurrency
Systems
firms to adapt to a changing market environment

Low BNPL

Low Pace of Change High

SWIFT Update - ECB OMG June 2022 3


SWIFT enabling the future: a Payments industry vision

Enhance customer experience, enable banks to embed new data-rich payment


services in front-end applications
• Embed in front-end e-banking channels, corporate TMS and ERP systems,
consumer wallets, trade ecosystems, consumer purchase-to-pay journeys –
leverage existing corporate-to-bank ISO 20022 standardisation efforts
• For financial institutions to deliver with their clients, underlying multi-bank back-
Advanced end must make it easy for members to provide innovative services in front-end

Facilitate interconnectivity of domestic payment systems, to enable instant


transactions globally

Core & • Core to SWIFT enabling interoperability between payment MIs and CBDCs
including interlinking. Several models can be considered, not mutually exclusive
Interoperability • Requires interoperability at business, technical, and legal level – important
industry action required

Remove remaining friction at foundational level, to achieve speed and cost


efficiency
Foundational • Operational excellence, security and strong cyber resilience
• Key developments by SWIFT and the whole community to deliver instant
frictionless transactions account to account globally
• Richer data to achieve friction free transactions based on ISO 20022 in
payments and reducing duplications and data inconsistencies
Platform/Network • SWIFT enhanced platform and transaction management capabilities
• Pre-validation and API enabled ecosystem
SWIFT Update - ECB OMG June 2022 4
To fuel the next phase of SWIFT’s strategy, we have expanded our innovation scope in 2022,
focusing on three disruptive trends…
1 With 82 central banks, covering over 75% of the world’s economic output, exploring CBDCs,
we are actively pursuing a three-prong approach to CBDC cross-border experimentation:
CBDCs • Participating in select relevant client experiments, e.g. advising the RLN initiative
• Joining BIS or key central bank experiments, e.g. engaging on projects in US and UK
• Undertaking our own next phase of experimentation: new interlinking experiment announced 19th May

2 With our securities clients looking to leverage the potential of a new USD 24trn market by 2027,
we are advanced in a collaborative experiment to connect tokenized asset platforms (source Finoa)
Tokenised Assets • Working together with Clearstream, Northern Trust and a major global custodian
• Demonstrating the feasibility of harmonised access and orchestration for tokenized assets through SWIFT
• Showing tokenization, detokenization, and DvP settlement – incl. movement over multiple token platforms

3 With AI emerging at enterprise scale, we are aiming to demonstrate its benefits through a
transformational new AI platform for the financial industry
AI • Actively working to bring the platform to production, with anomaly detection as the exemplar use case
• Collaborating with advanced research institutes to enhance AI speed and accuracy
• Exploring the potential of federated AI, together with major clients

…alongside pursuing core innovation sprints to solve longstanding industry challenges


such as API adoption, trade digitisation and corporate actions
SWIFT Update - ECB OMG June 2022 5
Setting a bold blueprint for a different payments model built around SWIFT’s
strategy

Instant, 24/7, 100% STP, all payments pre-validated

Rich data, in ISO 20022, enabling value-added services

Global reach, network of networks, linking instant MIs

Embedded in client experience, connected to wallets

Able to support new forms of settlement

Lower cost

SWIFT Update - ECB OMG June 2022 6


− FX Update
̶ Standards release 2021
̶ Standards release 2022
̶ Standards release 2023
̶ ISO20022 payments migration – impacts on FX
− SWIFT Strategy Update

SWIFT Update - ECB OMG June 2022 7


Standards Release 2021 – key enhancements

1. Remove free format ‘D’ options from MT 305/306 & MT 600/601 party fields
̶ To align with MT300/304 changes made in 2019
̶ Objective was to improve STP
2. Incorporate ISDA Benchmark Supplement in legal agreements for trades
Industry Requirements section and field 14C in MT 300, 304, 305, 306, 340, 360, 361
3. Add support for cash-settled forwards and options, aligned with new ISDA
provisions for these instruments.
̶ Extension of support for NDFs

SWIFT Update - ECB OMG June 2022 8


Standards Release 2022 – key enhancement

1. Add support for non-deliverable trades in digital currencies Treat trade as


̶ E.g. USD vs Bitcoin NDF
̶ Digital currencies are identified using (new) ISO 24165 identifier in a new field 35C

Sequence A – ctd.
Non-Deliverable Indicator :17F:Y Mnemonics to be
NDF Open Indicator :17O:Y defined
Settlement Currency :32E:GBP
Valuation Date :30U:20220128
Settlement Rate Source :14S:SCC01
Calculation Agent :26K:JOIN
Sequence B Transaction Details :15B:
ISO 24165 DTI
Trade Date :30T:20211201
identifier and optional
Value Date :30V:20220201 description
Exchange Rate :36:4676,3216
Digital Token Identifier :35C:X134/Sample coins
Subsequence B1 – Amount Bought Currency, Amount :32B:GBP116908,04
Receiving Agent :57A:SBOSGB2L XXX ISO 4217
Subsequence B2 – Amount Sold Currency, Amount :33B:XXX25, currency code in place
Receiving Agent :57J:/NOSI/NDFS of digital currency code
SWIFT Update - ECB OMG June 2022 9
SR 2023 – potential changes

• SR 2023 likely to be a relatively small release


• For FX & Commodities
• Two small changes to usage guidelines proposed (no technical impact)
• A substantial update to the MT 306, to align with the recently launched ISDA Barrier Supplement.
• This change was proposed last year, but postponed by the maintenance working group.
• It has been resubmitted by ISDA for consideration as part of SR 2023
• Proposed changes still to be reviewed by SWIFT Board and Maintenance
Working Group

SWIFT Update - ECB OMG June 2022 10


ISO 20022 Migration – FX impacts

• No current plan to migrate FX flows (Cat 3 & 6) to ISO 20022


• However, settlement payments will migrate from Nov 2022
• Details of how to use and populate FX settlement payments will be
published in CBPR+ section of MyStandards. Including.
• party fields
• reference fields,
• payment purpose and category purpose
• related statements and credit/debit advices
• See next slide for high-level flows example

SWIFT Update - ECB OMG June 2022 11


High Level - Foreign Exchange Settlement for FI to FI
1 It should be noted that steps 3-14
are not in chronological order e.g.,
MT300 step 9 may occur before step 3
dependent on currency, market,
A
MT300 B time-zone etc.

2 3
4 6 camt.057

pacs.009 pacs.009 pacs.009 7


camt.054
A pacs.002 C pacs.002
D B
5 8
camt.053
9
camt.057
12 10 10
Agent B sends a payment to
13 pacs.009 pacs.009 pacs.009 Agent F for benefit of Agent A.
camt.054
Agent F may return a payment
E pacs.002 F pacs.002 status report.
A 14 B
camt.053 11 11
1 7 Agent F forwards the payment to 12
4
Agent A and Agent B exchange Agent A sends a payment to Agent Agent D credits the account of Agent A’s Creditor Agent, Agent E.
and match FX confirmations. C for benefit of Agent B. Agent C Agent B and may send a real- This may go via a MI.
2 may return a payment status report. time credit notification. Agent D
5 also produces an end of day
Agent E credits the account of
13
bank to customer statement.
Agent B may send a notification 8 Agent A and may send a real-time
Agent C forwards the payment to credit notification. Agent E also
to receive to Agent D.
Agent B’s Creditor Agent, Agent D.
3 This may go via a MI.
Agent A may send a notification produces an end of day bank to
SWIFT Update - ECB OMG June 2022 customer statement. 12
6 to receive to Agent E.
14
9
High Level - Foreign Exchange Settlement for Corporate to FI
1 It should be noted that steps 3-14
are not in chronological order e.g.,
MT300 step 9 may occur before step 3
dependent on currency, market,
A MT300 B time-zone etc.

2 3
4 6 camt.057

pain.001 pacs.008 pacs.008 7


camt.054
pain.002 C pacs.002
A D B
5 8
camt.053
9
camt.057
12 10 10
Agent B sends a payment to
13 pacs.008 pacs.008 pacs.008 Agent F for benefit of Corporate
camt.054
A. Agent F may return a payment
E pacs.002 F pacs.002 status report.
A 14 B
camt.053 11 11
1 4 7 Agent F forwards the payment to 12
Corporate A and Agent B Corporate A sends a payment Agent D credits the account of Corporate A’s Creditor Agent, Agent
exchange and match FX initiation to Agent C for benefit of Agent B and may send a real- E. This may go via a MI.
confirmations. Agent B. Agent C may return a time credit notification. Agent D
2 payment status report. also produces an end of day 13
5 bank to customer statement. Agent E credits the account of
Agent B may send a notification 8 Corporate A and may send a real-
to receive to Agent D. time credit notification. Agent E
Agent C creates a payment to
SWIFT Update - ECB OMG June 2022
3 Agent B’s Creditor Agent, Agent D. Corporate A may send a also produces an end of day bank
13
notification to receive to Agent E. to customer statement.
This may go via a MI. 14
6 9
www.swift.com

SWIFT Update - ECB OMG June 2022 14

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