EXCLUSIVE: “Riding the Rails”- Cyrus Bhathawalla, JPMorgan Chase and Edward Ireland, Bottomline in ‘Discover Money20/20’
Interoperability between payment systems might be the defacto outcome of them adopting a common messaging standard, but it’s the future business models that ISO 20022 could unlock which really interest Cyrus Bhathawalla at JPMorgan Chase and Bottomline’s Edward Ireland
“People don’t generally do things for free; they do it to make a profit, they do it to make money. And that means payments exist everywhere we look, in almost every corner of an organisation.”
Thus Cyrus Bhathawalla, global head of real-time payments at JPMorgan Chase, a bank that every year handles 27 billion transactions to a value of US$1.4trillion on behalf of its clients, sums up the challenge and the opportunity that exists if you’re in the business of transactions. You don’t have to tell him that the world is in the midst of a payments revolution, as digital rapidly replaces cash or cheque. “
The whole mantra of our leadership is ‘any payment, anywhere, anytime’,” Bhathawalla says. And JPMorgan Chase is moving rapidly to achieve it.
By 2024, global digital payment volume is expected to grow by 64 per cent to 1.1 trillion transactions across consumer segments, borders and currencies. And, as the leading payment provider in the US for the seventh consecutive year, according to the 2021 Nilson Report, JPMorgan Chase is keen to secure an even more significant slice of that pie, skidding transactions ever faster across whatever rails are most suitable for a particular user and circumstance.
“Real-time payments is one of the higher priorities in our wholesale payments business, it’s probably one of three top things that hit Jamie’s [Jamie Dimon, CEO] desk on a frequent basis,” says Bhathawalla. “We are expanding rapidly, growing our product set quite aggressively and applying real-time payments, in the correct use cases, across our treasury services product suite.”
Among a dizzying range of digital payment options for its corporate and smaller business clients, the bank recently launched a pilot for a real-time payments tool called Request For Pay, which lets corporates send payment requests to the bank’s approximately 57 million retail customers who use its app or website, cutting the cost and time it takes for those companies to get paid. And its QuickAccept service, introduced in 2020, lets businesses take card payments, either through a mobile app or a contactless card reader, and merchants see sales hit their accounts on the same day. But that’s just scratching the surface of what might be possible, following the universal adoption of payments messaging standard ISO 20022, a data-rich format that is being embedded in global financial markets with the aim of improving not just speed, but also transparency, efficiency and – what’s often thought of as the holy grail of money movement – interoperability between both domestic and international payments systems.
It will, says Edward Ireland, ISO 20022 programme lead for payments technology firm Bottomline, create opportunities, both known and as-yet unknown, for financial services companies like JPMorgan Chase – for them to even, ultimately, remodel their payments businesses.
“The key thing is what new business ideas are going to come from ISO 20022,” says Ireland. “We have some ideas… we can see benefits around fraud monitoring and sanctions screening. We can get better visibility around foreign exchange; we can link through to trade documentation; we can see advantages in being able to offer credit off the back o f transactions. But I don’t think we necessarily know all the benefits that are going to accrue from ISO 20022.
“What we do know is that if you put in place analytics to review the information that comes with those messages, then the business ideas will flow. What we do know is that, if you don’t do that and try to do some sort of mapping exercise instead to reduce what you have to process using ISO 20022, then you won’t see that information. And, if you don’t see it, then you won’t know what more you can do with it, and you’ll miss out on the opportunities that exist.”
“That’s the most honest response anyone can give,” agrees Bhathawalla. “The reality is that this is not a traditional return on investment for an institution; it is not easy to see the long-term benefits from a dollar perspective.
“I agree that there will be benefits in reconciliation, automation and reducing manual operations inefficiencies, where you have people ticking and flicking registers. What’s more exciting, though, is in the areas of data analytics, forecasting and modelling, because you’re consuming, in some cases, a hundred times more data than you would in a traditional, batch, automated clearing house-style payment, where you’re limited to, in the US, somewhere between 16 and 18 characters in the payment message.”
That will unlock, he believes, a whole new revenue-generating opportunity for banks like his. If it knows the precise reason for a payment, it can offer a customer relevant, related financial products – for instance, insurance or warranties on the back of a car purchase.
“When you remove the friction in payments, all of a sudden they become an enabler of value-added services that banks, fintechs, other third parties and retailers can offer,” he explains. “And, as soon as that becomes the case, it will open up the market to a significant amount of change and evolution.”
Digital-first organisations are primed to capitalise on that; established financial players will have to work through a significant infrastructure upheaval first, observes Ireland.
“This is forcing a real root-and-branch upgrade, which is a good thing because what we’ll get out of this is solid foundations for payment solutions of the future,” he says. “Then, it won’t be payment processing that’s talked about, but transaction processing – the payment will simply be part of it. Today, in a BACS payment in the UK, for example, all we get is a line of somebody’s name and how much money is being paid to them – that’s it. What we’ll see in the future is the underlying transaction, the terms, when it’s going to be paid, what it has to be paid against, the foreign exchange that might go with it, and so on.”
According to Bhathawalla, this will be the real transformation.
“Interoperability no longer becomes just a question of connecting systems together,” he says. “While that may very well be the long-term outcome we achieve, I think we will see players who participate in more than one network becoming the pivot points for interoperability.
“JPMorgan is part of Zelle, we are part of The Clearing House’s RTP network, and we will be part of the Fed’s FedNow network in 2023, the Federal Reserve’s new real-time payment environment – we’re part of their pilot right now. And, as a result, we become this pivot point – the top of the pyramid, if you will – where transactions can flow to us, from our clients, and we can then help serve them across multiple rails.
“We shouldn’t be selling rails to clients; we should be selling a payment product that’s fast, that carries a certain amount of data, that meets their specific requirements, and then we determine, on the basis of account reach, cost, and functionality, which is the correct payment rail to use.
“So, interoperability is actually more about how we service our customers, reaching the correct endpoints with the right functionality.”
Ireland is already seeing that shift from ‘which rail and product?’ to ‘what’s the customer criteria for this payment?’, outside of the US.
“We’re seeing customers moving away from telling people ‘this is a CHAPS payment’ [in the UK] or this is a SWIFT payment’. They’re just saying ‘this is a fast payment’ or ‘this is a cheap payment’, then helping them to decide which rail is most appropriate in the background.”
But it’s nevertheless true that the standardisation offered by ISO 20022 over the next couple of years is going to make it far easier to manage that process In that way, he agrees with Bhathawalla that it will be the banks and other payment service providers triaging transactions and selecting the most appropriate route, rather than market infrastructures moving significantly closer, which will ease the passage of a transaction, both domestically and across borders.
“We’re already seeing enormous consolidation in Europe, with the drive towards [the pan-European instant payments schemes] Target Instant Payments (TIPS) and EBA Clearing’s RT1. P27 is another initiative, this time in the Nordics, which is breaking down the barriers between countries and the settlement of different currencies,” he explains. “But when we go beyond those initiatives and look to solve the customers’ pain points, we find it’s the role of the banks and the payment service providers to be the glue between regions. And I don’t see that changing.”