Real-time Data Platforms and ISO 20022 Drive Revenue Opportunities for Financial Institutions

Significant changes are underway in the payments industry today, driven by technology, customer demand, and business initiatives such as open banking and a new standardised, international communications system. While this evolution is not pain-free, the good news is that it provides some great opportunities for businesses, such as the availability of better-quality data, XDR found on real-time data platforms, and a chance to improve the customer experience. By Stuart Tarmy, Global Director (pictured), Financial Services Industry Solutions, Aerospike

The impact of ISO 20022

Let’s start with what’s known as ISO 20022. This is an international standard for all financial communications and data exchanges between financial institutions and payment systems. In other words, it creates a common language. More than 70 countries currently use it and ISO 20022 can be used by anyone in the industry on any network.

ISO 20022 has other benefits like providing a better payment experience.  With the new standard, payments are faster, more reliable, more secure, and cost less due to better interoperability and the elimination of different standards from various countries and financial institutions.

At the same time, institutions can also benefit from ISO 20022 because it dramatically improves the quality of data that is shared about customers. This enables businesses to understand customers better and provide improved experiences. While most financial institutions are in the early days of ISO 20022 migration, Citi is accelerating its ISO 20022 adoption in a partnership with Volante Technologies. One of Citi’s goals is to get better payments data to offer to corporate clients.

Another benefit: When banks aren’t forced to use unstructured and ambiguous data that can arise from cross-border payment systems and instead rely on common standards under ISO 20022, compliance and efficiency are improved.

“Moving to ISO 20022 is definitely worth the effort – and banks should use this watershed moment in the industry to ensure they make the right turns,” advises Accenture.

For example, Credit Suisse explains in a case study from ISO, an independent international organization, that using ISO 20022 has improved its communications with other banks and upgraded the quality and quantity of data it can provide to clients.Another major development within the industry is open banking, which also seeks to share more information among institutions.

The impact of Open Banking

Open banking – also known as PSD2 Second Payment Services Directive – was launched in 2018.  It requires the United Kingdom’s biggest banks (HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske, Lloyds, and Nationwide) to release their data in a standardised format. But while open banking may be closely linked to the UK and Europe, many other countries are also moving to implement a similar infrastructure, such as South Korea, India, Australia, Canada, Hong Kong, Japan, the U.S., and Singapore.

While this data sharing can provide information to customers such as the locations of various bank branches or where to find the best bank account deals, it also lets account holders give permission for their data to be shared with third parties or even other banks that can use it to create new products and services to attract and retain customers. An example of this type of third-party aggregation service is Intuit’s Mint, a free budgeting app launched in 2006 that puts all a customer’s information in one place, such as loans, credit cards, and investments. Mint has been a thorn in the side of banks for years as it acts as the customer’s ‘window’ into their accounts.  More banks are now seeking to become “aggregation hubs” – a sort of go-to portal for all their customers’ financial data, very similar to Mint.

Still, it’s worth noting that sharing of this data may not take off overnight since some consumers are leery of providing private information because of cybercrime and privacy protection concerns. Their acceptance should improve as better communication with customers helps them understand that steps have been taken to make sure privacy and security rules are followed.

 A real-time data platform is essential

When discussing the changes coming to the payments industry and open banking, you need to include cross-data centre replication (XDR). It’s crucial because XDR provides greater security and flexibility when handling critical data, allowing it to be moved where and when it’s needed (such as retaining some data in a home country because of data and privacy regulations). It also means that there isn’t a single point of failure that could crash an entire system, and data can be accessed globally when needed.

For XDR, it’s key to have a real-time data platform. Organizations need to make sure they have a data platform that can build globally distributed applications and access regional data easily and quickly. In addition, there needs to be ongoing compliance with local data regulations such as those being considered by the United Kingdom.

For example, now that the United Kingdom has left the European Union, it’s looking at how to also move away from European data protection regulations and forge its own path instead of complying solely with the General Data Protection Regulation (GDPR) as it agreed to do before Brexit.

It’s expected that the UK’s aim will be to convince other countries that any data protection plan they devise can meet international standards and easily allow for the transfer of information across borders. If not, the UK risks being locked out of data transfers to other countries.

There are numerous revenue opportunities for financial institutions because of open banking and ISO 20022, such as the chance to gain more valuable data, better understand customers and deliver improved experiences. But to be successful, it takes the right data platform and an understanding of local compliance demands. With all those pieces in place, financial institutions can realize exciting new opportunities.