How ISO 20022 launched one Swiss bank’s digital transformation
BCV reinvented digital payments—and its business—with Financial Transactions Manager
By Matt A.V. Chaban | 5 minute read | September 11, 2019
With rising digital payments, banks and regulators are pushing standardization.
- Switzerland’s second largest cantonal bank needed to comply with new national regulations for digital payments.
- A simple compliance solution with IBM turned into an unexpected platform to now remake many aspects of BCV’s business.
- The rise of digital payments will present many challenges and opportunities to companies around the world.
ISO 20022 may sound like a test for the tolerance of airplane wingnuts or the turbine efficiency in a hydroelectric dam.
It is both more complex and simpler than either. And, to the people of Switzerland, ISO 20022 will have even more bearing on their daily lives.
The ISO 20022 standard is what ensures money is in the bank twice a month when a paycheck clears. It executes the auto-payment on hundreds of thousands of outstanding home loans from Bern to Zurich to St. Moritz. ISO 20022 will cover that Toblerone bar at the Aldi supermarket and pass on tips to the Uber driver and Eat.ch delivery guy.
According to the Geneva-based International Organization for Standardization, ISO 20022 is “a set of XML and ASN.1 design rules” that enable “a modelling methodology to capture, in a syntax-independent way, financial business areas, business transactions and associated message flows.”
For the person waiting for cash to dispense from an ATM or their credit card to clear at the convenience store, the ISO 20022 standard is simply the common digital language that allows that machine to talk to their bank—as well as numerous intermediaries, such as credit card companies, payment processors, lenders—so their transaction can go through. And go through almost instantaneously, without any interruption from competing or legacy payments standards.
As the universe of digital payments has exploded in recent years, the need for universal ISO 20022 adoption is more urgent than ever.
Global non-cash transactions reached a new high of $483 billion in 2016, according to the 14th annual World Payments Report released in 2018 by Capgemini and BNP Paribas. That’s a 10 percent increase from the previous year and a 45 percent increase since 2012.
While much of this growth is driven by emerging markets, there is still plenty of payments expansion happening in Switzerland and Europe as a whole. Over the same half decade, digital payments grew 30 percent on the continent, reaching $109 billion in 2016. That’s up 30 percent from $84 billion in 2012, according to the World Payments Report.
Historically, these inter-institutional transactions were processed in myriad, sometimes competing, programming languages. Each additional step introduced vulnerabilities to their systems, both to system failure and hack, as well as creating friction and lag.
That’s why in 2015 the Swiss National Bank decided ISO 20022 adoption was essential to create a reliable national standard for payments. The country’s roughly 250 financial institutions, from global stalwarts like UBS and Credit Suisse to local lenders with only a few hundred depositors, would have to transition all their payments systems by 2021.
Banque Cantonale Vaudoise is the country’s sixth largest lender and second largest of its cantonal banks (each of Switzerland’s 26 states, or cantons, has its own public or semi-public bank). ISO 20022 implementation would be a considerable undertaking for BCV, as the bank is known, given its size and stature. The bank and its 74 branches serve Vaud, a crab-claw-shaped state on Lake Geneva bordering France.
When BCV began debating ISO 20022 adoption in 2016, it had a Matterhorn-sized task ahead.
“Our existing payment-processing system was not equipped to handle the new ISO 20022 message format,” Lars Kermode, the bank’s head of IT architecture, said. “To comply with regulations, we knew we would need to make significant changes to our payment processing infrastructure.”
That system had been cobbled together over the course of three-plus decades, dating to the dawn of electronic transfers and ATMs—a far cry from the XML standard required by the ISO 20022 format. BCV’s payments still ran on a similar COBOL framework similar to when it launched in the 1980s.
Beyond the technical challenges, many Vaudois livelihoods were at stake. According to BCV, the bank handles accounts for 370,000 of the canton’s 793,000 residents. One out of two Vaudois businesses banks with BCV, supporting around 200,000 jobs in the canton. BCV also handles more mortgages than any other lender in the canton, serving one in three property owners. At the end of 2018, its assets totaled roughly 48 billion Swiss francs.
After considering doing all the programming in-house or outsourcing it entirely, BCV decided that the best way to handle its migration to the ISO 20022 standards was to train its platform team on IBM’s Financial Transaction Manager. The platform can seamlessly integrate and replace legacy code with dozens of modern standards, including the XML and ASN.1 that ISO requires.
“The banking sector is undergoing major upheaval,” Serge Messin, BCV’s head of IT solutions, said. “With more people choosing digital payments over cash and governing bodies changing regulations to keep pace with that change, it can be difficult to keep up.”
Yet what started out as a simple exercise in compliance has proven so successful that it’s kicking off a far greater transformation of all digital banking at BCV.
In summer 2018, the bank decided to expand its work on the Financial Transaction Manager to deploy additional services to clientele. In the coming years, when a BCV customer opens an account online, makes a mortgage payment or transfers money between saving, checking and investment accounts, they will be doing so through applications built into the Financial Transaction Manager. BCV also upgraded its workhorse Z13 mainframe servers to even more robust and efficient Z14s in April 2018 in order to handle the expanded capacity its customers will require.
“In the long term, we want to extract legacy functionalities off our core banking platform,” Kermode said. “This will streamline our core banking system, make it more efficient, and modernize our architecture.”
And, thanks to this work, BCV’s payments system will now be just as reliable as a Swiss watch.