Meeting the SWIFT Challenge

Financial institutions that use the messaging network face a deadline for conversion to a new standard. Here’s one way to do that efficiently.

SWIFT is used by banks around the world to securely send messages about money-transfer instructions. In fact, around $5 trillion a day passes through SWIFT’s messaging system. This has made SWIFT the market leader for providing secure financial messages and the primary method for money transfers globally.

In 2021, SWIFT’s FIN (Financial Information) message service underscored SWIFT as the chosen platform for the financial industry globally. It demonstrated SWIFT’s significance for future growth in the digital economy, as 42 million payments and security transactions passed through FIN every day.

But the standard way of sending payment-instruction messages within the financial industry took on a significant revamp in November. By adopting the ISO 20022 standard, SWIFT can offer better-quality payment-transaction information and enhanced interoperability between international payment schemes.

In turn, this has transformed the scene for the management and transfer of cross-border payments. Indeed, ISO 20022 is no minor change, particularly as institutions in the financial industry are at varying stages of the change process. While some are still planning, others are starting to implement the change.

On the Clock

All banks are on the countdown clock to make sure their message interface at least supports the receipt of ISO 20022-compliant messages. The migration of SWIFT and a range of Real-Time Gross Settlement (RTGS) systems is broadly taking place over three years, from November 2022 to November 2025.

SWIFT won’t completely retire existing message formats (MT and MX) or the FIN number system until 2025, but the new ISO 20022-based Cross Border Payments and Reporting Plus (CBPR+) system became an option for early adopters in August and was generally available in November.

Digital-first fintech startups, of course, have the advantage of being much younger, founded in the digital age. Their systems are often created in the cloud and have a modern architecture that gives them the agility to adapt to market trends and regulation, the flexibility to innovate, and the opportunity to maximize the customer experience—especially across digital touchpoints.

In contrast, the legacy nature of older banking-institution IT systems means they generally encounter difficulties at the best of times when trying to adapt, particularly in terms of scalability, flexibility, reliability, and complexity. Banks still have numerous manual touchpoints when handling payments data, such as trying to reconcile missing data or incorrect data.

For example, multiple steps happen with each payment that can further complicate and stretch legacy architecture. First, there is the question of funding. Without this, we’re going nowhere. Does the institution have the money? Is the money there in the savings account? When you’re funding from a credit card account, can the funding occur within the credit limits?

Then, currency validation happens. This is further complicated when tax considerations are raised. Finally, we’re through to clearing and settlement, where the exchange actually happens.

A recent report from the consulting firm EY zeros in on the technology change required to meet the new ISO 20022 standards: “Setting up the right technology and infrastructure to benefit from this will be a key measure of success, as it is likely to bring notable cost savings. We expect banks to be increasingly focusing on this.”

There is a real opportunity here for banking organizations to build a tech stack that offers many more benefits and a richer environment than simply meeting ISO 20022 requirements.

Every bank has a different journey ahead based on its technical debt and its strategy. Software architects face decisions when moving forward with their infrastructure. Do they build their own tech stack to meet ISO 20022 and further modernize their payment process, or do they look to third-party vendors and/or opt for complex integrations?

For software architects, there are more questions: Are they going to use cloud for certain workloads, while staying on premise for others? Are they going to need real-time analytics, insights, and fraud management? How are they going to deal with bursts, with lowering value and cost, and with increasing volumes
of transactions?

An Eventful Network

This is where an event-driven architecture (EDA) and an event mesh can address not just the immediate need to comply with new ISO 20022 standards, but the pressing need to modernize banking and payments as a whole.

Event-driven architecture is a design pattern that has been adopted by digital leaders across industries reliant on real-time data dissemination, such as capital markets, retail, and aviation.

The core of EDA is the business “event,” where something occurs—for instance, a payment transaction—that drives the immediate distribution of information about that event so systems and people across the enterprise can react to it.

The fundamental building block of EDA is the event broker, an intermediary that routes data between systems that publish event information and those that subscribe to this information.

Events are published on “topics,” which are like addresses on courier boxes. They consist of a noun, verb, and some meta data. For example, “payment” might be the noun, “settled” the verb, and “SGD, Internet Banking, Hong Kong” the meta data, where “SGD” refers to Singapore dollars. Collectively, this gives us a topic like ‘pay/settled/sgd/ib/hk.’

Once published, events can be subscribed to by various applications, for example, “pay/settled/>” will generate all payments that have been settled, while “pay/*/sgd/ib/>” will give you all Internet banking payments in Singapore. These event topics can then be mapped to the meta data in the ISO2022 standard for easy event routing.

Now, enter the event mesh. This is a network of event brokers
that dynamically distributes information about events from one application to any other application, no matter where they’re deployed—cloud, private cloud, public cloud, or any combination.

This non-restrictive approach provides banks and financial institutions with the flexibility to consume whatever events they want, with no complex integrations. Even if they want to consume these events in a cloud or at another site, the event mesh takes care of making the right event stream available wherever
they want.

A network of event brokers incorporated within an event mesh will dynamically route all events throughout the payment ecosystem, making for quicker and efficient transactions. Unlocking legacy assets, leveraging the best technology, and preparations for open banking and simplified governance are just some of the benefits.

Maneuver And Adapt

But the benefits don’t stop there. Others include lowered transaction costs, quicker payments, shared institutional knowledge, and efficient partnerships to allow banks to offer products through other businesses and payments providers without an IT meltdown.

EDA also offers traceability and lifetime benefits within the payment ecosystem. An event mesh needs underlying distributed tracing to emit trace events in OpenTelemetry format to allow banks to gather, envisage, and analyze in a compatible tool, giving them the power to quickly understand all stages a message may go through as well as to publish the message.

Event-driven architecture has attracted significant interest in the financial-services industry. In fact, recent research shows that financial services is the most advanced industry exploring EDA, with 27% of financial-service businesses employing a core team to promote EDA inside their businesses and uncover how technology can help detect and respond to openings or threats in a timely manner.

The compulsory ISO 20022 standard threw the spotlight on the need to move data quickly and efficiently inside and outside of a banking organization. It also underlines the need for changes within banking tech stacks to enable this.

Converting to EDA will not only aid banks and financial-service companies in reaching ISO 20022 compliance, it will also allow them to maneuver and adapt to new and developing industry norms in the future.

—Sumeet Puri is chief technology solutions officer at Solace.