In Europe we are familiar with our very own regional payments scheme, SEPA! But there are other regional payments schemes out there too, and the SWIFT Institute paper on Cross- border low value payments and regional integration: enablers and disablers offers a fascinating insight into some of the other regional payments schemes and the important ingredients that enable their success. In this post I will share some of the key points that I picked up from the paper, which is a MUST read for anyone interested in payments schemes around the world.
Its Not Just About SEPA:
The paper reviewed 9 regional payments schemes from around the world:
- ASEAN – Association of South East Nations
- COMESA – Common Market for Eastern & Southern Africa
- IPFA – International Payments Framework Association
- NPA – Nordic Payments Area
- SADC – Southern African Development Community
- SEPA – Single Euro Payments Area
- SML – Sistema de Pagamentos em Moedas Locais or System of Payment in Local Currency
- WAEMU – West African Economic & Monetary Union
- WAMZ – West African Monetary Zone
This was really enlightening for me as I was not aware of the other regional payments initiatives, and I was surprised to see the number of regional payments schemes in Africa.
1. Ingredients of a Success Regional Payment Scheme
The paper proposes the following 6 factors as key contributors to the success/failure of a regional payments project:
- Combining payments integration with a political goal
- A shared common currency
- A single and unified governance body
- Implementation of common data standards
- Shared vision of the goals across all of the key stakeholder groups
2. Key Objectives of a Regional Payment Scheme
All of the above listed regional payments schemes are different, and each has its own challenges. As you read the following, keep in mind that not all regional payments schemes have a single currency like we do with SEPA, and in some cases may not have a payments infrastructure in place that we have been accustomed to in Europe. In this section the paper identifies some of the similarities across the various regional schemes:
- Ensuring a common settlement currency – for example using the ZAR in SADC
- Implementing a single settlement system – such as TARGET2 in Europe
- Implementing a domestic payments system
- Focusing on specific payment instruments – for example ACH payments only
- Implementing the same data standards across the region to enable STP (Straight Through Processing)
- Common rules, guidelines and IT infrastructures to ensure compatibility across the region and its players
- A commitment to simplify and / or increase trade within the region
3. The Importance of Data, Specifically ISO 20022
In any regional payment scheme data exchange is key and need to happen in a consistent manner so that the overall process is efficient, reliable and straight through. ISO 20022 enables this and is important because:
- ISO20022 is a single and common language for all stakeholders
- ISO 20022 is a global financial messaging standard
- ISO 20022 has been developed by ISO, and as such is politically neutral – very important in any regional scheme where various political and economic factors may be at play
- Increased adoption of ISO 20022 around the world is ensuring the growth of the standard and is enabling interoperability
- Check out my post on XML in a Nutshell…
4. Enablers of a Successful Payments Scheme
- Early engagement from all of the key stakeholders in the payments initiative
- Given their pivotal role, buy in and collaboration with the banking industry
- Both regulatory and political engagement and support for the project
- Engagement from experts and learning from other regional implementations
- Collaboration when building systems and infrastructures within the region, especially when this is happening from scratch
- Modern IT systems that can be easily adapted to the current and future demands such as real time and mobile
- Simplify participation by limiting access to the settlement system
5. Obstacles for a Successful Payments Scheme
- Variations in the payment systems across the region
- Failure to implement standards in a consistent manner
- Where a common currency does not exist, using a third currency for conversion and / or settlement purposes
- Failure to engage key stakeholders in the payments initiative
- Legacy bank IT systems which cannot be easily adapted to new standards
- Failure to engage and educate stakeholders in the regional payments scheme from the outset
- Recognising the value of integration, but forgetting the importance of regional and international ties
- Concentrating on regulatory compliance and missing innovation opportunities in the cross border payments space
- Unstable energy supplies and communications channels
Thoughts…
As I read through the paper a couple of key themes emerged, Engagement and Collaboration. I know these are mentioned way too much, but in the regional payments space they really are important. Especially in regions where there maybe a need to build from scratch. Next I started thinking about the current Greek crisis happening in Europe, and how the economic and political challenges will strain and test the strength the unity of the region. When this unity is in doubt, the regional cracks begin to emerge. Finally I wondered how innovation by fintech’s in the cross border payments space will shape the industry, this is surely on the cards now. It will be interesting to see how developments in the coming days, weeks and months play out and the impact they have on the success or failure of the European regional payment scheme.