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ISO 20022: GLOBAL ADOPTION AND
BENEFITS TO CANADIANS
Neville
Arjani
CPA
Malene
McMahon
SWIFT
#BFCanada
IPFA
SEPA,EU
BR
DK
CH
US
CPA, CA
IPFA
T2, EU
AU
Zengin,
JP CNAPS2,
CN
IN
Low-
value
High-
value
BOJNet,
JP
CPA, CA Live
Live
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NZ
SG
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PG
CL
ZA
PL
BN
CIPS, CN
SADC
UK
ISO 20022 Global Adoption – Payment Market Infrastructures
US
EC
PE
CO
FI
ASEAN
BD
MY
Live
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TH
VN
KH
PH Live
DTCC, US
JASDEC, JP
[Post-trade]
Galgo, BR
T2S, EU
CSD, LI
EVK, EE
CSD, LT
ASX, AU
CLS
Treasury MI Securities MI
SGX, SG
[Corp Act, Post-trade)
JASDEC & TSE,
JP
[Corp.Act]
Live
CN
Live
Live
NSD, RU
VP Lux
VP Sec
DK
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CCP, PL
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SADC ID
LCH.Clearnet,
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Euroclear, ESES
NBB-SSS,
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ABMF
CSIF
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MY
ISO 20022 Global Adoption – Securities and Treasury Market
Infrastructures
Slide 7
Slide 8
• The ISO 20022 payment message standard
is a cornerstone of the CPA’s modernization
initiative.
• Implementation will require material
investment from Canadian financial
institutions and their customers.
• With assistance from its members, the CPA
was able to estimate this investment
requirement in 2014.
• At the time, there was no benefit estimate to
compare this investment requirement to.
• The research begins to address this gap.
Slide 9
Enhanced remittance
information to travel
with payment
Reduction in ongoing
compliance expenses
(e.g., AML, ATF)
Enhanced domestic
and global payments
interoperability
New product and
service opportunities for
FIs and their customers
Reduction in number of
payment message
standards in Canada
Flexibility and
adaptability in an
evolving global
payments landscape
Slide 10
• AFT payments have been a key contributor to growth of
electronic payments in Canada, serving as an important
substitute for cheques since the 1990s.
• Despite growth in electronic payments, cheque use remains
moderately high – 950 million cheques written in 2014.
• Rate of substitution between AFT payments and
cheques appears to be plateauing.
• High social cost of cheques is well documented in the
international payments research literature.*
• Small- and medium-sized businesses are major users of
cheques – particularly in B2B space – for various reasons.**
* Wells, K. 1996. Are checks overused? Federal Reserve Bank of Minneapolis Quarterly
Review. (Fall)
** CFERF. 2011. Electronic payments in Canada: What’s the hold-up?
Slide 11
Current pain points
Addressable
by the CPA’s
ISO 20022
initiative?
Electronic options generally do not support ease of linking payments made and received
with corresponding invoices and purchase orders. Error-prone and costly manual
intervention still needed to perform this matching.
Electronic options do not effectively support single payments covering multiple invoices,
and applied discounts can generate further complexity in trying to match payments
received with outstanding purchase orders.
Electronic options currently do not support automated posting and account reconciliation
for payments made and received via integration with firms’ accounting systems.
Entrenched customer and supplier payment preferences; lack of incentive to move to
electronic.
Security concerns – e.g., general online security concerns, lack of willingness to share
banking information and have it stored with business counterparts.
Electronic options afford less flexibility in regard to cash management on part of the
payor.
?
? ?
Slide 12
• Evidence to suggest that cheques are more costly to produce on an ‘end-to-end’ basis
compared to electronic payments.
• Cheque use in Canada is largely driven by current lack of straight-through-processing
(STP) and automated reconciliation capability with use of electronic (EFT) payments.
• ISO 20022 accommodates richer remittance capacity for EFT payments and integrates
with accounting and ERP systems, enabling STP and automated reconciliation.
• ISO 20022 should expedite migration from cheques to electronic payments in Canada.
• As this migration continues, the benefits in terms of reduced cost to Canadians from
payments processing should accrue year after year, for the foreseeable future.
Slide 13
1. Calculate range for the unit cost differential between cheques and electronic payments.
2. Determine a baseline cheque migration projection, i.e., without ISO 20022 adoption.
3. Determine alternative projections of cheque migration assuming ISO 20022 adoption.
4. For selected unit cost differentials, use baseline cheque migration projection to estimate
cost-saving to Canadians absent ISO adoption over a 5-year horizon.
5. For each cheque migration projection with ISO adoption, and for same unit cost
differentials, estimate annual saving – above the baseline – over a 5-year horizon.
6. Perform Discounted Cash Flow (DCF) analysis to report the 5-year stream of cost-saving
for each ISO projection in present-value terms.
Slide 14
• Estimates range from $2.00 to $3.85 – differential on a per payment basis.
• Reflects social cost, or aggregation of private costs incurred by each stakeholder
segment – consumers, businesses and governments, and financial institutions.
• Embedded in the unit cost of a payment instrument are the costs to “produce” or manufacture
the payment instrument, to “use” the payment instrument from the perspective of both originator
and beneficiary, and to “process” the payment which includes clearing and settlement costs
incurred by financial institutions.
• Studies are careful to avoid double-counting. It is critical in this work to distinguish
between resource costs and economic rents in each stage of the payments value chain.
• Business “use” cost includes resource costs (e.g., labour) associated with account
reconciliation – not just a pure “payment” cost.
Slide 15
Slide 16
Slide 17
• Talking here about reduction in use of cheques due to ISO 20022 adoption… not
cheque elimination.
• In the face of modeling uncertainty, we’ve chosen to err on the side of conservatism as
much as possible.
• Fixed versus variable costs in the payments value chain for cheques matters.
• Canadian businesses expected to benefit most as major cheque users.
• Estimated savings should be viewed as a small part of the overall economic benefit of
ISO adoption in Canada.
• I welcome your comments and suggestions on the paper.
Slide 18
Slide 19
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SWIFT Business Forum Canada - Real-time retail payments: Building for the future - 13 April 2016
