Last year, Visa announced B2B Connect, a shared-ledger initiative to facilitate cross-border payments that is yet another challenge to the traditional correspondent-banking model centered on Swift.
Visa is relying on more than its own bank relationships, however: it is counting on vendor partners such as Bottomline Technologies and FIS to connect their banking clients to Visa’s new platform.
To make this happen, software companies like Bottomline Technologies are expanding the role of financial messaging, a utility service that usually goes ignored – until something goes wrong.
“Banks don’t pay attention to messaging, but it’s highly visible if payment workflows get stuck and the bank misses the payment window,” said Daniel Bardini, Geneva-based managing director of financial messaging at Bottomline, which provides cloud-based payment, invoicing and digital banking services. Bardini made his comments earlier this summer at a conference organized by another tech company, Avaloq.
A bit less boring
A handful of organizations are built around financial messaging. In the securities world there’s FIX for securities transactions, Omgeo for post-trade settlement, and ISDA for derivatives transactions. In payments, on the other hand, Swift is the dominant provider for cross-border transactions, although credit-card companies also use internal messaging for facilitating electronic payments within their networks.
These in turn rely on standards set by the International Standards Organization, whose ISO 20022 format is becoming the finance industry’s favorite dictionary for how to communicate securities, payments, and credit card information.
It’s meant to be boring. Only bad things happen when it’s not.
But fintech has made messaging a little more interesting, particularly at the front end of finance: open APIs, digitalization and faster payments all require a new language to meet consumer demands. Vendors have shifted new messaging services to the cloud in order to offer more varied and faster connections.
Now that degree of changing is coming to the back office, says Bardini. Some of this has been driven by regulation such as Europe’s Mifid directives and efforts to combat fraud and tax evasion. Adapting financial institutions to ISO 20022 has also focused IT budgets on the back end, but it is not just an improved tool for sending payments. “This will allow banks to really interact with their clients,” Bardini said.
Connecting to B2B
Visa B2B Connect is a distributed ledger built by IBM using its Hyperledger open-source environment. It deploys tokens to digitize and protect banks or corporations’ sensitive business details, thus enhancing the security of transactions.
To be eligible, banks need to be customers of Visa, mainly issuers of its credit cards. In theory that makes for about 15,000 banks, almost double the 8,000-plus who are members of Swift. But those banks need a way to connect to Visa B2B Connect’s distributed ledger.
In other words, integration isn’t straightforward, but tech companies like Bottomline can use messages to bridge the gap. Financial messaging is how fintechs can reach end users and deliver additional services, such as KYC tools, fraud detection, matching and reconciliation services, and more secure payments.
These tech companies also do the same for Swift. They are becoming a strategically important source of cloud-based traffic on Swift, which is itself working with R3 to provide DLT-based complements to its own new standard for global payments, Swift Gpi. Bottomline’s traffic mainly consists of the digital arms of traditional banks or young challenger banks.
Nonetheless, the complexity of financial messaging and the volumes enabled by cloud computing is such that Swift’s legacy servers can’t handle everything. Moreover, competitors to Swift such as Visa, Ripple, and IBM’s WorldWire, are providing both transfer of money as well as transaction settlement. That functionality requires additional messaging.
It will take more than sophisticated messaging to unseat Swift, whose Gpi initiative has blunted many of the advantages of its nimbler, blockchain-based competitors. For now, it appears banks are considering using B2B Connect as a backup, not a replacement.
Bottomline expects its first bank clients to link to Visa B2B Connect by the end of this year. The company has partnered with Visa before: in 2015, it combined its payment network with Visa’s commercial card solution, to automate business payments.