This article was originally written by Avanade alum Michelle Baxter.

Sibos, one of the biggest banking events globally, was back in person again in Amsterdam after a three-year break. There were over 10,000 attendees. Sibos has its roots in payments but has expanded to cover all aspects of banking (AI, cybersecurity, climate risk, FinTech/BigTech, etc.). Ironically, the hot topics at Sibos this year were still around payments. Here are three we’ve chosen: ISO 20022, CBDCs and the metaverse.

ISO 20022 migration
ISO 20022 is an international standard for exchanging electronic messages between financial institutions. Banks will migrate from legacy financial messaging to a highly structured and data-rich ISO 20022 standard. The standard applies to routing of domestic, cross-border, ACH, real-time, and high-value payments.

Banks can leverage ISO 20022’s increased interoperability to increase efficiency while reducing costs and exposure to risk. Improved data quality, enhanced STP and reconciliation, and higher automation enables the development of value-adding ISO 20022-based services and effective fraud-detection methods. SWIFT estimates that if deadlines are met, 79% of high-value payments by volume and 87% by value will already have migrated to ISO 20022 by 2023. “To see it as just another IT project is to dramatically underestimate the key components and overall importance of the migration,” commented Sulabh Agarwal, MD, Global Payments at Accenture. ISO 20022 is effectively a call to action to accelerate the modernization strategy and put steps in place to move to cloud.

The diversity and complexity of ISO 20022 migration presents major challenges for banks, payments companies, and businesses relying on legacy infrastructure. Some outdated systems are unsuitable for the new standard. Financial institutions may need to invest in a complete technological transformation to use these new message processing capabilities. As a result of the complexity and scale involved, SWIFT delayed its migration by a year until November 2022.

CBDC evolution
Central bank digital currency (CBDC) is money that a central bank can produce. This is different from cryptocurrency (Bitcoin, Ether etc) as that is not issued by a central bank. CBDC needs to be reliable and retain its value over time. Like existing forms of money, a CBDC would enable the public to make digital payments.

Over 100 central banks are exploring how this could be delivered. CBDC is managed on a digital ledger (which can be a blockchain or not), facilitating and increasing the security of payments between banks, institutions, and individuals. Nigeria launched its CBDC in October 2021. Norway's central bank has announced that its CBDC prototype infrastructure is based on Ethereum technology. China is the most advanced among major economies, testing the digital yuan at the 2022 Winter Olympics.

There are clear benefits: CBDCs could improve payment systems, promote financial inclusion, protect against financial fraud and accelerate the transition to a cashless society. But it means that governments have full control over any monies going in and out of a person’s account. Not only will this lead to a loss of personal privacy, but there could be potential data breaches, destabilization of financial institutions, and loss of security.

Payments in the metaverse
According to McKinsey, the global payments industry showed its resilience in 2021, more than recouping the revenue erosion experienced in 2020, which was the sector’s first decline since the 2008–09 financial crisis. Revenues grew at 11% and growth was strong across all regions, with APAC and EMEA having double-digit gains. APAC accounts for over half of global payments revenues.

Clearly, the metaverse offers opportunities for payment growth. Financial institutions, especially traditional ones, are well positioned to develop trust in this area, given this has restricted adoption of digital ID/payments or custody for NFTs or cryptocurrencies, for example. Whether it is buying property, offering wealth advisory services, providing currency services or building the infrastructure for processing metaverse payments, banks have many options.

Final observations
In addition, we spotted a number of trends:

• Resurgence in interest rates is changing business models
• Open banking and embedded finance are creating real value
• Rise in regional/local focus rather than global solutions
• Payments are embedded in commercial flows - we need to facilitate commerce, not money movement
• Tech modernization is moving from incremental to structural for the next wave of change.

This is just the tip of the iceberg. But the technology implications underlying all these opportunities are critical.

Please get in touch with Michelle or Geetha if you’d like to discuss any of these topics in detail. See you next year in Toronto!