Harmonization of Payment Transactions: the Role of Market Infrastructures

Author

Roman Locher

Published

6 June 2024

Reading time

minutes

Required knowledge

  • Familiarity with (inter)national ISO 20022 standardization
  • Knowledge of the Swiss payment traffic roadmap 

The terms “harmonization” and “interoperability” have become ubiquitous in the context of payment traffic in recent years. The global message standard ISO 20022 has transitioned from mere declaration of intent to practical implementation. This raises the question of whether the journey with ISO 20022 is already in the rear-view mirror or still ahead of us. When we look at the overall situation, it is clear that the journey is certainly not over yet.

Milestones in the Introduction of ISO 20022 in Switzerland

A review of the most important milestones in the introduction of ISO 20022 from the perspective of the systemically relevant Swiss financial market infrastructure, Swiss Interbank Clearing (SIC), is appropriate. At the end of 2009, SIX was commissioned to develop a concept for a future-oriented architecture of the SIC system. One of the fundamental requirements was a consistent focus on the ISO 20022 message standard, which laid the foundation for the initiative to migrate payment traffic in Switzerland. The implementation project for the fourth SIC generation commenced in 2011 and led to the gradual introduction of the SIC4 platform in 2015/2016, thus paving the way for the nationwide switch to ISO 20022 in Switzerland. In 2018, Switzerland successfully completed the migration to ISO 20022, thereby fully harmonizing payment transactions and laying the foundation for the further digitalization of the financial sector.

Factors Influencing the Implementation of ISO 20022

The introduction of ISO 20022 in Switzerland was influenced by a number of factors. One key driver was SEPA. Although Switzerland is not a member of the EU, it has been part of the geographical SEPA area since 2006. This integration is due to the strong economic ties between Switzerland and the EU. The SEPA initiative underscored the necessity of a uniform payment traffic infrastructure, thereby laying the foundation for the introduction of ISO 20022 in Switzerland. In the interim, ISO 20022 has become even more crucial. Two other external drivers that are of paramount importance to the Swiss financial center should be highlighted in particular:

  • Swift CPBR+ (Cross-Border Payments and Reporting Plus): In 2017, Swift announced its intention to convert its message formats to ISO 20022 in order to standardize international payment transactions. CPBR+, meanwhile, provides for a gradual transition to ISO 20022 in payment transactions between 2023 and 2025/2026.
  • Eurosystem T2: The system carried out a big bank migration to ISO 20022 for its T2 payment transaction platform in March 2023.

The conversion of various financial markets worldwide has gained significant momentum through corresponding programs of important market infrastructures, such as the High Value Clearing System (HVCS) in Australia in March 2023 and the Clearing House Automated Payment System (CHAPS) in the UK in June 2023. In the US, the Federal Reserve Bank has announced the introduction of ISO 20022 for the Fedwire Funds Service in March 2025. The FedNow instant payment service commenced operations in July 2023, utilizing ISO 20022. In April 2024, CHIPS, the largest private USD clearing and settlement system, operated by The Clearing House, transitioned to this standard. An early adopter outside Switzerland was the Canadian Payments Association, which launched its Lynx system in 2021 under the supervision of the Canadian central bank and has supported the end-to-end use of ISO 20022 since November 2022.

What Role Will Market Infrastructures Play Next?

To promote interoperability, market infrastructures must actively cooperate and exchange information. This dialogue enables the identification of local differences in the individual markets, while also facilitating the harmonization of the underlying framework as part of an overarching global market practice.

HVPS+: The Answer to the Challenges

High Value Payments Systems Plus (HVPS+) is an industry association of leading market infrastructures dedicated to harmonization and interoperability in global payments. However, what exactly does HVPS+ offer in response to the resulting challenges?

The HVPS+ defines principles and objectives to enable the further development and interoperability of cross-border and domestic payments according to ISO 20022. These principles are designed to ensure that the implementations of ISO 20022 messages in the various markets remain up-to-date and discrepancies are minimized. Another important objective is to promote the open exchange of information between market infrastructures.

SIX has been an active HVPS+ member since 2016. In the course of 2023, the HVPS+ underwent a reorganization and alignment with the current needs of market infrastructures. At the same time, it initiated the ISO 20022 Payments Interoperability Charter, which delineates the fundamental principles and is to be regarded as a declaration of intent by the parties involved. In April 2024, SIX and the SNB officially endorsed the charter on behalf of the Swiss financial market infrastructure.

The Impact of HVPS+ on the Swiss Payment Traffic Roadmap

In accordance with the principle of achieving goals step by step, SIX has been maintaining the Roadmap Swiss Payments for years. An important component of this roadmap is “exogenous drivers,” which it actively monitors on behalf of the Swiss financial center.

It should be noted that HVPS+ does not seek to supplant the independent market practice of the SIC infrastructure in accordance with ISO 20022 with the global market practice provided. Rather, HVPS+ is intended to complement the exogenous drivers as a further global initiative. It can be reasonably assumed that the jointly defined guidelines of the leading international market infrastructures will gradually find their way into Swiss market practice.

Of greater significance, HVPS+ is a global industry association in which all rel­evant stakeholders are represented. The degree of maturity and the needs of individual markets in dealing with ISO 20022 may still be heterogeneous in detail worldwide, but the overarching goal is the same. HVPS+ offers a suitable framework for an appropriate exchange of experience. Switzerland can contribute a great deal of experience here, but it can also benefit from the lessons learned by other markets in terms of continuous improvement.

 

Roman Locher
Senior Standards Manager, SIX

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