With the TARGET2/T2S consolidation, ISO 20022 will be the undisputed benchmark in European payment traffic. How does the standard perform in a global context?

It is becoming more and more widespread and is being implemented worldwide. It is now hard to imagine international payment traffic without ISO 20022.

What are the actual advantages of the ISO standard?

More enriched data in payment messages has the nice side effect of enabling compliance and risk management at banks and companies to work more effectively and economically to combat fraud. The keyword here is, among others, ultimate creditor. However, the main advantage of this standardized data exchange is undoubtedly the interoperability between different systems. Swift, for instance, allows cross-border transactions in real time with its gpi services. Thanks to ISO 20022, payments can be marked and consistently identified all the way from the bank to the corporate customer’s accounting software.

In general, it is said that market infrastructures will change radically in the coming years. What do banks need to be prepared for?

Market infrastructures must move with the times. Cyber risk, for example, is a challenge that operators must face continuously. Likewise, the nature of money and the way people make payments is changing. Cryptocurrencies, stablecoins, and CBDCs are innovations that will ultimately also be handled through regulated market infrastructures. So, change is part of the program ― also for banks and other regulated institutions that have access to these infrastructures. They must be prepared for the fact that the number of authorized market participants will continue to grow, market shares will shrink, and, as a result, competition among payment transaction providers will become tougher.

What happens to traditional payment platforms, such as TARGET Services, when central bank digital currencies (CBDCs) become mainstream?

The question is whether the new CBDC payment instrument has to be processed through TARGET at all. If smart contracts are implemented on the basis of distributed ledger technology, then the payment settlement will technically take place in the ledger. The EU would then have to revise and harmonize relevant regulations, such as the Settlement Payment Services Directive or the Finality Directive, in order to create legal certainty. CBDCs could also cause competition problems for non-banks. In addition, it is currently unclear how individuals and commerce can be motivated to use such CBDCs.

What role will fintechs play in this?

Fintechs play an essential role in the value chain. They may even be of substantial systemic importance. Regulators have already gone so far as to consider placing these institutions under their supervision as well. Therefore, the next reform step will surely come.