Modernising payments in Latin America with advanced data standardsJuly 1, 2020 | By Hayden Harrison
There are many payment system modernisations either planned or underway in Latin America and the Caribbean (LAC), many of which are making use of ISO 20022 data standards.
Vocalink, a Mastercard company, is implementing a managed service to support the region with these ‘rich data’ capabilities. Our multi-currency real-time, batch and cheque payment solution is available to operators, payment schemes and consortia of banks; the anchor tenant — the first to go live — is Peruvian operator Cámara de Compensación Electrónica (CCE).
CCE recognises the advantages of modernising its payment system using ISO 20022 data standards. For Martín Santa Maria, Managing Director of CCE, it’s an opportunity to diversify and enhance its offering: “We don’t just want to be a highway for digital payments; we want to expand into other kinds of financial services; we want to provide more value-added services for our participants and their customers.”
It joins other countries at the cutting edge of innovation in the LAC region. In Brazil, the central bank has mandated use of real-time payments via a framework known as PIX based on the ISO 20022 standard; Colombia’s Banco de la República introduced a high-value (real-time gross settlement) system using ISO 20022 standards in 2007.
For CCE, deciding on a data standard was a journey of discovery. “We weren’t looking for a particular flavour of ISO,” says Diego Alonso Rojas, Project Manager at CCE. “When we began our strategic planning to determine what we wanted CCE to be in the future, we looked around us to see what other markets were offering.
"This is the one standard towards which the rest of the world — and the most important markets in the world — are moving. If we wanted to reuse the capabilities that these global providers are developing for first-world markets, we were absolutely convinced that ISO 20022 was the way to go,” he adds.
The momentum towards ISO 20022 is driven by a wider modernisation agenda. According to a survey of 120 organisations, six key factors are triggering the worldwide reform of the payments system. Among the most important are the need to improve efficiency (83%), respond to technological innovations (69%), and market (51%) and end user (49%) demand for better payment services.
The benefits of ISO 20022 are wide ranging. The standard allows for a richer set of payment and non-payment transactions for financial institutions to maximise both revenue and relevance with their customers. “Peru has a lot of mobile solutions, eWallets and other digital payment services,” says Santa Maria. The enriched data capabilities provided by ISO 20022 could allow banks to compete effectively in a market that is increasingly saturated by fintech and alternative payment service providers. “We don’t want to be behind them; we want to be leading them.”
“The Vocalink team helped us understand enrichment services like ‘request-to-pay’ and other functionalities that can provide added value to our customers and end users,“ Santa Maria adds. The 'request to pay' message enables new use cases and services such as bill payments, payment on delivery of goods, and paying other people (P2P payments), all of which are currently dominated by cash in Latin American and Caribbean markets. Offering request to pay-enabled solutions attracts new customers— notably among those at the bottom of the pyramid (the poorest two-thirds of the economy) — to make use of the bank’s payment services, and an opportunity to promote other financial products.Read our research on people’s attitudes to payments in Latin America and the Caribbean
For businesses, whether large, medium or small, request-to-pay presents them with the opportunity to realise billing efficiencies and receive bill payments in real-time. The consumer paying bills meanwhile benefits from improved convenience and control. There are also a number of real-time payment use cases that can be designed to around bank lending products, such as invoice financing on the back of request-to-pay for business-to-business (B2B) payments.
“The main functionality we want to introduce to the market through ISO 20022 is ‘request-to-pay’. Not only that, we are also using other message capabilities in ISO 20022 to improve the current credit transfer experience for our participants and their customers; to provide account verification and to improve efficiencies," says Rojas. "That can be achieved through a combination of the Instant Payment Service [IPS, a real-time payment infrastructure] and ISO 20022 data standards.”
The ability to transfer and analyse structured transactional data also enables greater process automation, benefitting both banks and their business customers. For example, the ability to transmit remittance advice alongside a credit transfer improves the rates of straight through processing, which reduces the time and resource requirements associated with managing accounts-payable and accounts-receivable for sellers and buyers. In both cases the bank will participate on new payment flows or charge incrementally for the service. Indeed, ISO 20022 message flows involving corporates provide the most revenue potential for banks.
Smoothing the transition to ISO 20022 data standards
The benefits of ISO 20022 can range far, but they tend to accrue over the long term. The significant initial investment required in cost and resource, creates a potential stumbling block for implementation, making it difficult — but not impossible — to build a business case.
Mastercard has the expertise, experience and assets to support regulators and operators during the transition, including in critical phases such as the development of technical, business and operational playbooks and scheme rules, and to demonstrate the value of use cases that can be enabled by ISO 20022 data standards. “We’re very excited to bring all this new technology to Peru, and to leverage the capabilities of both IPS and the ISO 20022 standard to identify new market opportunities for CCE and our customers,” says Rojas.
There are challenges for participants of these schemes when migrating to ISO 20022, not least the fact that banks’ existing infrastructure requires complex integrations and interfaces. The cost and time required to do so competes with financial institutions’ other priorities. “Transactions on the new system are growing very fast.” The task now, says Santa Maria, “is to help the banks realise how important it is to move to the new standard; to understand the opportunities.”
Vocalink and CCE are working together to make Peru’s financial institutions aware of the powerful asset they have at their disposal. Mastercard Advisors, with the participation of CCE, can help financial institutions articulate a solid value proposition to support their internal decision-making process, priorities and resource allocation.
“The journey [to modernisation] will make a big difference to our operations," says Santa Maria. "It means improved capabilities and big potential in data standards like ISO 20022. This new platform will allow CCE to bring new functionality and new services to the market — to financial institutions and end users — that will add value across the ecosystem.”
As the industry migrates to ISO 20022 data standards, financial institutions, fintechs and the business community will develop new payment use cases to solve for additional customer segments and needs. It’s hard to predict which fascinating and innovative solutions will come to light, but broadly speaking, we expect to see the enablement of new payment flows that cannot be served by cards or cheques.
“This is one of the first ISO 20022 implementations in the region,” observes Rojas. “That puts us on the list of the most modern payment systems in the region.”
Of course, as Latin American and Caribbean countries migrate to ISO 20022 real-time payments, this lays the groundwork for regional interoperability. A fast, regional real-time payment network will help national operators and trans-national banks achieve economies of scale and deliver a more seamless payment experience for the people that live, work and do business there.
 Source: Payment Systems Worldwide, Outcomes of the Global Payments Systems Survey 2010, World Bank