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EXCLUSIVE: “Major Surgery” – Elmar Handke, UBS and Chris Stares, Volante in ‘The Paytech Magazine’

UBS & Volante Paytech Magazine Issue 11 2022 | Fintech Finance

Or is there a less painful way for firms to get their IT systems fit for ISO 20022? Elmar Handke, from UBS, and Volante Techology’s Chris Stares, believe they’ve found the panacea.

Payments providers worldwide are working frantically to hit the winter 2022 deadline for implementing the new ISO 20022 messaging standard. But, do financial organisations need to put their legacy systems ‘under the knife’ and carry out costly infrastructure transplants to have a hope of achieving that?Chris Stares | Volante Technologies

No they don’t, says Elmar Handke, who is responsible for IT infrastructure and payments messaging at UBS – and even if that were the best option, they simply don’t have time.

He explains that UBS is currently in rude health, ISO 20022-wise, after discovering the ideal balance between timely and well-planned IT system redevelopment, and well-chosen plug-and-play solutions, such as those provided by technology partner Volante Technologies.

One of the most revolutionary changes so far in the way payments are handled, ISO 20022 is largely welcomed by industry players, who recognise its potential to radically improve failure rates by including significantly more data in every message, as well as cracking long-running conundrums such as real-time cross-border transaction processing – essential efficiencies for an industry battling to preserve bottom lines amidst the pandemic-induced explosion in high-volume, low-value payments.

However, the medicine needed to make their payment processing systems better, in time, is proving a bitter pill to swallow for many organisations.

Low- or no-code solutions such as those provided by Volante could represent the ‘spoonful of sugar’ the industry needs to help it go down though, explains Handke.

“We analysed the proposals – especially the CBPR+ push from SWIFT that will hit us in 2023 – and discovered we had close to 100 IT systems that required an update,” he says. “Looking at that, we also realised the timeline of the project did not start from that point of recognition; it had started already. Basically, at the beginning of 2020, we realised the timeline was too short to get all our systems up to the market standard, so we had to come up with a mitigation strategy.”

He adds: “The message broker I ‘own’ within UBS, is the last point in the UBS architecture before the dataflow is fed back and forth to the different subsidiary systems – the payment engines, accounting and client reporting systems, etc. So, we decided this was the point in the dataflow at which to build an enabling layer for these upstream applications, to gain the necessary time on the market side.”

Although its outside-the-box thinking means UBS is now fairly well-placed compared to many competitors, Handke firmly believes this is just the beginning of more sweeping changes that the new standard will herald.

“We’re incredibly busy, and are about two weeks in front of this year’s standard release, but that is only like a preview of things to come that will hit us next year,” he continues. Our advantage is that we aren’t doing this for the first time, we have supported other migrations in the past, especially in the ISO space. About four years back, the Swiss franc clearing, or SIC, migrated from a legacy system to an ISO 20022 standard, because, even within ISO 20022, there are multiple variants in different markets. 

“For that, we built a conversion layer capable of translating back and forth between MT and MX messages, and shielding upstream applications temporarily from the market change, to give the additional time needed to build, implement and test these new flows and message times.”

DON’T FORGET THE LEGACY!

One of ISO 20022’s core purposes is to marry up varying global payment requirements for more seamless cross-border flows. However, therein also lies one of its greatest complexities.“A lot of people are currently looking at the CBPR+ change upcoming in 2022,” says Handke, “but it’s not the only one. We have the British pound and Singapore dollar going live next June. Hong Kong dollar clearing, or CHATS, was originally the first-mover, in the planning in 2019, but in 2020 had some definition and specifying problems and is now probably going to hit us in 2023, together with the Fed and CHIPS side.

“But we also see movement in the Japanese market, Australia and Taiwan, away from the old SWIFT FIN, MT103, MT202 legacy formats, and the other subsidiary message types, to XML-based standards. That’s really a huge change for the whole industry.”

Although an advocate for low- and no-code for dealing with such issues, Handke also believes there’s a balance to be struck by giving long-term legacy system upgrades the attention they deserve.

“There are three different approaches to this. As a financial institution, you can rip out your existing payment engine and try to replace it with something new, nice, shiny, commercial, off-the-shelf. But you will still be challenged with integrating that into your accounting and reconciliation systems, etc, so it’s not as easy as it might seem,” he says.

“The second option, which is basically exactly the opposite, is to make sure all your existing systems are upgraded 100 per cent, at the point of market go-live, and look down on the rest of the world as it struggles to adopt the standards. But you still need to keep in mind that you have to continue to also support
the old standards in parallel, at least for the transition phase, until 2025, when CBPR+ is supposed to have switched everything to the ISO 20022 standards.

“Last, but not least, is something like the path UBS has chosen, with some applications ISO 20022-ready, especially the super-large payment engines we
have for our major business hubs. But we support 39 legal entities and, with 100 affected applications, not all of them will be ready. So, we need a man-in-the-middle approach, a provider that is the go-between, that takes the market format and switches that into something the current application can still understand, so that, from a consumer perspective, you have something like a regression test, at least for an intermediate period of time. It’s not the final solution. You pay money to purchase time and get to a solid and stable architecture within your organisation.”

Handke gives his perspective on just how far-reaching ISO 20022 is for the payments market.

“What we’re seeing at the moment, in the payments space, is one of the most fundamental changes to SWIFT-based flows ever made; and it’s not only SWIFT, but also quite a lot of regulators jumping onto that wagon. That’s also different to changes we saw in the past – like SWIFT’s – which were technology-driven, with in-depth details like upgrading from SAG 7.3 to 7.4, or switching certain services to Microgateway – IT topics for IT geeks like me that don’t affect business. However, with ISO 20022, we move from a payment format that was, at the end of the day, defined in the last century, to a more modern standard, meaning we will see a far more structured way of executing payments in the market. 

“If you just look at creditor or beneficiary information and at different payment types that are being defined, especially purposes and additional functionality on top of the payment itself, SWIFT started to move in that direction on other topics, as we saw in recent years, with UETR. And all this ties together in a new landscape that we will see in the upcoming five years.”

Volante has helped UBS overcome some of the potential pitfalls around doing this.

“We got a library from Volante, which did this conversion for us, plugging into the framework we already had in place for our in-house-built conversions,” says Handke.

“So, that’s what we are using at the moment. In the message broker itself, we have a so-called static data configuration. I would not want to go into too much into detail, but we have definitions for each of the dataflows, from the market to an upstream application and back. As part of that, we can define a dataflow, more or less, on a very easy switch level. Does the upstream application already understand ISO 20022? Yes/no. Does the application send out an old SWIFT FIN message, and does UBS want that SWIFT FIN message to go out as a MX message? 

“Having set up these switches, we can now go into the migration phase with SWIFT and move forward, switching all the different legal entities, from a market point of view, to MX, and still enable the upstream applications to work as they do today.”

Chris Stares, principal technical consultant at Volante Technologies, describes the range of use cases Volante is applying such plug-and-play technology to, to help organisations like UBS adapt.

“We’ve always had this development workbench, with what we call format plug-ins, message packs, or message libraries, that implement all the syntactical and semantic validation rules for different clearing schemes, standards-based specifications, and so on,” he says.

“And that is, essentially, what many of our customers use to accelerate building their own capabilities and functionalities: visual modelling, automatic code generation, documentation generation. Then the resulting Java runtime libraries can be deployed into the platform.

“But we also wanted to unlock the potential within that visual modelling development platform environment, and make it more generically consumable.
So, we provided the pre-built, runtime libraries Elmar is talking about, which perform those translations in accordance with the published specifications, in this case of CBPR+ by SWIFT.

“We also extend those services out for use with other schemes and standards, through standardised API mechanisms like REST and Java, or through a software development kit, so that, for organisations that have a different tool, or don’t want to buy or licence our development tool, we can still make services available in a more generic and standardised way, without that dependency on our development platform.”

Stares explains the sense of urgency his company is witnessing, market-wide.

“We’ve been talking to customers and prospects in all geographies. I’ve been on early morning calls with banks in Australia, and evening calls with banks over in the US and Latin America, and all manner of banks in between. Particularly organisations that have a highly distributed, maybe multi-country landscape. Because the other big challenge is that it’s not just about CBPR+.

There are other schemes, in different regions, that have their own cadence, as far as ISO 20022 adoption is concerned, and it’s being able to have solutions for that. I don’t think there’s any one-size-fits-all capability, so it’s about trying to standardise and harmonise, where you can, but also providing as much flexibility as possible to handle the adaptations for different schemes and go-live periods, with as much capability as possible around simplification, automation and testing. 

“The solution is one thing, but the ability to, in a consistent, accelerated way, automate testing around different flavours of ISO 20022 adoption, is also important.”

Handke agrees: “And here is one of the biggest challenges in the context of ISO 20022 – the data variance we get in these types of transactions is dimensions bigger than what we’ve seen before.

“If you look at the minimum definition of a bank-to-bank payment, in an old MT202 you only populate the mandatory fields, and you have maybe six, seven, or maximum eight attributes for a valid transaction. With the corresponding pacs.009 payment, that’s far from enough. There are a lot more attributes and, correspondingly, a lot more variance and mutations of your test data, and you need to keep that in mind for doing the necessary testing.”

He continues: “Even without looking at any special processes your bank or back-end system might require, these are, for me, the three major challenges, at the moment, in this context. 

“There are, of course, other ones – the timeline, a lot of things happening in parallel, and, certainly in our case, even if you are fully on with ISO 20022, what happens if such a message crosses the border of different clearing networks, which is what we’re looking at currently. 

“What happens if, for example, a CHAPS MX message, British pound payment, comes into UBS and has, worst-case scenario, a final beneficiary connected to Singapore dollar clearing? That would mean such a transaction changing hats, even in the ISO space, two or three times; it arrives as a CHAPS MX standard, is internally processed as a CBPR+ and has to go out to clearing again as a MEPS MX.”

Volante has the answer to such issues too, says Stares: “One of the potential pitfalls I’ve seen is people believing it’s purely a data transformation challenge. But when you consider that you have a valid MT202 message with eight mandatory data elements, but you have tens and tens in the corresponding pacs.009 equivalent that begs the question: if you’re receiving a pacs.009 payment, for example, and have to squeeze it into an MT202, where does the truncated data go? It’s not just about transformation from MT to ISO, and ISO to MT; it’s also a data truncation and management challenge. You need to have the capabilities to store those rich payloads and be able to glue them back, later on in the payment processing flow. 

“For example, when you execute a sanctions screening, you want to do so on the full-fat ISO message, not on the truncated version, because some of that key information that’s going to be screened may have been omitted from the corresponding MT message, which means you’re not getting the full effect of the sanction screening. 

“That’s just one, very high-level, simplified example of the importance of managing the truncated data through the lifecycle of that transformation exercise” ISO 20022 is complex but vital signs are good: there’s hope for the patient yet. 


 

EXCLUSIVE: “Major Surgery” – Elmar Handke, UBS and Chris Stares, Volante in ‘The Paytech Magazine’ | Fintech Finance

This article was published in The Paytech Magazine #11, Page 64-66

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