Trade

Keeping Pace With Payments: Lessons Learned From a Dynamic Landscape

Hear from Deepa Sinha, VP Payments & Financial Crimes at BAFT on the transforming payments industry and the key topics to look for.

Via Trade Finance Global by Deepa Sinha

The payments industry is undergoing a profound transformation, fuelled by technological advancements, shifting consumer expectations, and regulatory developments.

ISO implementations, instant and real-time Payments, digital currencies, regulatory compliance, and financial crime concerns are all on the top of the agenda this year and for the near future.

As we navigate this complex ecosystem, it’s essential to reflect on the lessons learned, anticipate future challenges, and embrace opportunities for innovation. In this thought leadership article, we look at key initiatives and insights shaping the payments landscape, drawing from recent publications by BAFT (Bankers Association for Finance and Trade).

ISO 20022 Migrations: Lessons Learned

In January 2024, BAFT released a white paper highlighting lessons learned from ISO 20022 migrations. The adoption of ISO 20022, a global messaging standard for financial transactions, represents a significant milestone in modernising payment systems worldwide.

However, the migration process comes with its share of challenges, including technical complexities, data mapping issues, and coordination among stakeholders.

The paper’s target audience are those banks who have not yet started their ISO migration journey, or those who are in the middle of it. The paper is the collaborative work of several banks’ experiences to guide others through these challenges.

A key insight from the white paper highlights the significance of robust project management and the need for effective collaboration among institutions.

Effective communication and coordination help mitigate risks and ensure a smooth transition to ISO 20022 standards. Additionally, investing in training and education for staff members is vital to enhance awareness and proficiency in handling the new messaging format.

Uneven regulations in the payments industry

Despite the progress made in standardisation, regulatory frameworks governing the payments industry remain fragmented and uneven. BAFT is actively engaged in addressing these regulatory disparities to foster a more cohesive and transparent environment for payments players, including banks and non-bank financial institutions.

By advocating for harmonised and even regulations across jurisdictions, and among banks and non-bank financial institutions, BAFT aims to facilitate collaboration and promote financial inclusion on an even playing field for all.

The payments roadmap and G20 initiatives

BAFT’s Payments Roadmap aligns with the priorities outlined by the G20 to enhance the efficiency, resilience, and security of payment systems globally. This strategic initiative encompasses a range of objectives, including promoting interoperability, leveraging emerging technologies, and enhancing cybersecurity measures.

By aligning with G20 initiatives, BAFT seeks to drive consensus and collaboration among policymakers, regulators, and industry stakeholders. It is also the first of its kind as a collaborative effort among banks to outline their payments initiatives in place now, and what they have planned in the near future.

Digital currencies and financial crime concerns

The proliferation of digital currencies presents both opportunities and challenges for the payments industry. BAFT is actively researching the implications of digital currencies on financial crime prevention and compliance measures. As digital payment methods gain traction, concerns about money laundering, terrorist financing, and fraud have become more pronounced.

BAFT’s white paper on Digital Currencies and Financial Crimes, which will be published by summer 2024, will aim to provide insights into mitigating risks associated with the adoption of digital currencies.

By leveraging advanced analytics, artificial intelligence, and blockchain technology, financial institutions can enhance their ability to detect and prevent illicit activities. Moreover, collaboration between the public and private sectors is essential to develop robust regulatory frameworks that balance innovation with security.

ISO 20022 Migrations: Guidance and best practices

As a sequel to the lessons learned paper, BAFT is developing a guidance and best practices white paper, which will include use cases, for ISO 20022 migrations to support financial institutions throughout the transition process.

This comprehensive resource will offer practical insights into data mapping, testing procedures, and change management strategies. By leveraging the collective expertise of industry stakeholders, BAFT aims to provide a guide to facilitate a seamless migration to ISO 20022 standards.

Sanctions: Lessons learned

In its ongoing commitment to fostering best practices and enhancing compliance standards within the financial industry, BAFT will release a groundbreaking white paper focusing on “Sanctions: Lessons Learned.”

This publication will serve as a guide, drawing from real-world experiences and case studies, to illuminate the complexities and nuances surrounding sanctions compliance.

The new guide will take insights and best practices and focus on providing financial institutions with knowledge and practical strategies to manoeuvre through the constantly changing sanctions regulations landscape.

From mitigating risks associated with sanctions violations to implementing robust compliance frameworks, this white paper will offer guidance for industry professionals striving to uphold the highest integrity and regulatory compliance standards.

Key drivers for shaping the future of payments

The payments industry is undergoing a period of unprecedented change, driven by technological innovation, regulatory reform, and evolving customer preferences. As we navigate this dynamic landscape, collaboration, innovation, and adaptability are essential to driving progress and ensuring the resilience of payment systems.

By harnessing insights from these various white papers, and fostering collaboration and cooperation, financial institutions can navigate challenges, capitalise on opportunities, and shape the future of payments. Together, we can build a more inclusive, efficient, and secure payments ecosystem that meets the needs of a rapidly evolving digital economy.

The Great Balancing Act: Making Trade and Payments Faster, Cheaper, and Easier in 2024

BAFT’s inaugural 2024 International Trade and Payments Conference brought together experts to discuss the state of trade and payments.

Via Trade Finance Global by Deepesh Patel & Brian Canup

The trade and payments industry is at a crossroads in its digitalisation journey. Recent years have shown a clear shift towards a more digital world, but there has been asymmetric adoption across the industry, uneven regulation, unintended consequences, winners and losers.

While the progress is encouraging, the next steps are marked by the need for interoperability and uniform adoption of standards such as the full adoption of ISO 20022 by November 2025.

BAFT’s inaugural 2024 ‘International Trade and Payments’ conference covered many topics, but digitalisation and the transformation of trade and payments shone brightly. Bringing together over 200 industry participants, it was clear that the evolution of the trade and payments industry was moving ahead, and the need to talk about both, in sync, was tantamount.

During the conference, the industry heard from trade and payments leaders:

Avanee Gokhale, Global Head for Trade Strategy at Swift,
Renata Vilanova Lobo, Managing Director and Global Clearing Head of Payments at J.P. Morgan,
Gwynne Master, Managing Director and Head of Lending, Trade and Working Capital at Lloyds Bank,
Marc Recker, Global Head of Product, Institutional Cash Management at Deutsche Bank,
Deepesh Patel, Editorial Director, Trade Finance Global (moderator).

With real collaboration, trade and payments can become cheaper, more efficient, and more accessible worldwide. The industry can see the path forward, but much work must be done before claiming victory.

Digitalisation and standardisation in trade and payments

The journey toward a fully digital and interconnected global trade ecosystem is complex, particularly given the fragmented nature of existing digital platforms and the diverse current standards.

In the past two years alone, Marco Polo, we.trade and Contour have collapsed, leaving the digital trade world searching for longevity solutions.

This fragmentation poses significant challenges to the seamless execution of international transactions, leading to inefficiencies, increased costs, and reduced reliability.

Gokhale said, “We envision the ecosystem will continue to be multi-banked, multi-network, multi-platform, multi-solution. In order to have operational efficiencies, there must be interoperability between the various networks.”

Adopting ISO 20022 is critical to realising this vision, and promises enhanced data quality and operational efficiencies by standardising financial messages globally.

ISO 20022 is the next evolution in financial messaging standards, characterised bwlay adopting a unified language and comprehensive, structured data. Swift is actively transitioning its payment and cash management messages from the existing MT format to the ISO 20022 standard.

ISO 20022 sets a new benchmark in financial communication, offering unparalleled data richness and interoperability that streamline global transactions, potentially reducing costs and settlement times. Unified by ISO 20022, stakeholders across the trade and payments landscape can achieve seamless data exchanges, minimising errors and delays and fostering innovation through enriched, actionable insights.

This digital evolution also facilitates a more inclusive global trade system, where businesses of all sizes can participate on an equal footing, driving economic development and paving the way for a future where global trade is more integrated, resilient, and accessible to all.

The role of banks in facilitating smoother trade transactions

Banks have been instrumental in adopting new technologies and advocating for the standardisation of practices that enhance the efficiency and security of global transactions.

However, as the complexity of global trade increases, it is apparent that the challenges extend beyond the capabilities of banks alone; there must be a collaborative effort involving carriers, shippers, platforms, fintechs, and legislation.

Recker said, “I believe the biggest problem that we have in cross-border payments is the end-to-end cost. If we collaborate with regulators to get more harmonised frameworks, the creation of certain market utilities will help us to bring the cost base down as well.”

By fostering collaboration among this array of stakeholders, like the Lloyds Bank and Enigio partnership, the industry can work towards creating a more unified and efficient infrastructure that addresses the operational, regulatory, and cost-related challenges at hand.

Furthermore, legislation can pave the way for adopting new technologies and practices by setting clear guidelines and frameworks that ensure security, privacy, and trust among all parties involved.

Trust is becoming increasingly important amid the current widespread global uncertainty.

Opportunities and challenges in decoupling supply chains

The ongoing geopolitical tensions and macroeconomic instability have catalysed a decoupling of supply chains.

After slowly recovering from the nearshoring and supply chain volatility that happened as a result of COVID-19, the Russian invasion of Ukraine and the Red Sea attacks quickly caused another chain of disruption.

This trend is reshaping the international trade landscape as the vulnerability of the global supply networks to political, economic, and social upheavals becomes more apparent.

As countries and companies grapple with these challenges, the pursuit of resilience has led firms to reevaluate their dependency on distant suppliers and adopt a more localised and diversified sourcing strategy.

The complexities introduced by geopolitical tensions and economic uncertainties demand a coordinated response from all stakeholders involved in international trade.

Master said, “Regulatory requirements scream out for the need for collaboration. If we look at how we’ve handled KYC, AML, ESG, we’ve missed a beat in terms of collaborating as an industry to deliver best-in-class outcomes.”

This reflects a broader recognition that navigating the challenges of decoupling and building more resilient supply chains cannot be achieved in isolation, it requires a concerted effort from businesses, governments, and international bodies.

In this context, the shift towards decoupling and the search for alternative supply chain configurations are intertwined with the need for enhanced collaboration across the board.

Attempting to push back against the decoupling trend, (including the fact that a mere 2.1% of bills of lading and waybills in container trade were digital in 2022,) Swift, DCSA, BIMCO, FIATA, and ICC came together to create the FIT Alliance to secure a collective commitment to spearhead digital transformation, beginning with the implementation of electronic Bills of Lading.

Enhancements in cross-border payments

Efforts to make cross-border payments faster, cheaper, and safer have been a significant focus for the financial industry, particularly in alignment with the G20 agenda to make trade cheaper, faster, more accessible and transparent.

These efforts are driven by a shared recognition of the existing shortcomings in the international payments system, often criticised for its lack of speed, high costs, and insufficient transparency.

Lobo said, “There has been a lot of action among banks exploring how we can deliver faster, cheaper, safer payments with more transparency. Although there has been a lot going on behind the scenes, we have yet to see many concrete results towards enhancing cross-border payments.”

In 2023, J.P. Morgan partnered with ClearEye to enhance their digital trade solutions for their global clients. ClearEye’s technology to automate labour-intensive tasks such as KYC and TBML checks, and distributing this among J.P. Morgan’s global network is an example of the behind-the-scenes collaboration that will eventually pay dividends for the industry.

This reflects a collective acknowledgement of the gap between the aspirations of the FSB’s G20 roadmap for enhancing cross-border payments, highlighting the challenges of achieving tangible improvements.

Despite the slow pace of visible progress, there has been considerable effort behind the scenes to address these challenges.

Levelling the uneven playing field

One of the key initiatives has been the push towards adopting new messaging standards like ISO 20022, which aims to reduce the friction in payment processing by ensuring more structured, harmonised and comprehensive data accompanies each transaction.

ISO 20022 facilitates more interoperable cross-border payments, reducing data translation and truncation issues, and offers flexibility in using different technical syntaxes like XML and JSON.

This standard is expected to minimise errors, reduce the need for manual intervention, and enhance the efficiency of cross-border payments.

Through standardisation, automation, and collaboration, there is a path forward to creating a global payments landscape that is faster, cheaper, and safer.

By November 2025, it’s estimated that around 80% of RTGS volumes will be processed via ISO 20022, with major payment market infrastructures worldwide adopting the standard.

But it takes the entire ecosystem to embrace these changes. While large banks need to take the lead in adopting ISO 20022, small banks are equally important in achieving true interoperability.

A more standardised industry is a more efficient and equal industry, and that is what digitalisation is ultimately aiming for.

Confronted with the dual challenges of advancing digitalisation and navigating the intricacies of increasingly decoupled supply chains, the path forward requires collective action, innovation, and unwavering commitment to global standards.

The complete transition to interoperability will not be easy, given the complexity and reach of the industry. However, the expansive networks can be utilised to push the ISO 20022 message.

BAFT’s ISO 20022 whitepaper is an important starting point for the industry. Sharing lessons learned, along with the experiences and challenges, will only further the adoption of messaging interoperability.

By embracing transformative changes and fostering strategic alliances, the sector can surmount current challenges, setting the stage for a future where trade and payments are not only more efficient and secure but also universally accessible.

This vision, though ambitious, is within reach through collective determination and shared commitment to excellence and inclusivity.

BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers, and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth. BAFT engages in a wide range of topics affecting transaction banking, including trade finance, payments, and compliance.

BAFT and TFG Launch a Comprehensive Letter of Credit Guide

Washington D.C, February 27, 2024: Trade Finance Global (TFG) and BAFT (the Bankers Association for Finance and Trade) are excited to announce a jointly produced guide on Letters of Credit.

“Everything you need to know about Letters of Credit: A comprehensive guide to Documentary Credits” was launched at the BAFT International Trade and Payments Conference on February 27, in Washington D.C. You can find out more about the conference by following the link here: 2024 International Trade and Payments Conference

In a world where global trade is constantly shaped by shifting economic conditions and geopolitical uncertainties, Letters of Credit stand out as a reliable source of security and trust. With interest rates remaining “higher-for-longer” and financial access tightening for businesses worldwide — coupled with increasing logistics costs, supply chain challenges and geopolitical instability — the need for clear guidance on Documentary Credits has never been more critical.

While Letters of Credit are one of the most vital tools used in international trade, their complexity can create confusion among many practitioners. Recognizing the need to demystify this essential trade finance instrument, TFG and BAFT have come together to craft a guide that not only clarifies the basics of Letters of Credit but also breaks down further intricacies of when to use certain documents.

The aim is to broaden the understanding and use of this tool, removing barriers and fostering a more inclusive global trade environment. The guide is the result of a collaborative effort, drawing on the insights and experiences of industry veterans. Special thanks go to David Meynell, Pradeep Taneja, Deepesh Patel and Scott Stevenson for their contributions, and to the BAFT Commercial Letters of Credit Committee, who have made this publication possible.

Deepesh Patel, Editorial Director, Trade Finance Global said, “Letters of Credit are a vital tool for businesses to manage risk and facilitate trade. There is a strong demand for these financial instruments across many industries all around the world, and these financial guarantees remain crucial during times of uncertainty, changing trade corridors and risk.

“TFG are very excited to publish this important guide with BAFT at the Trade & Payments conference. We continue to break down the barriers in trade, treasury and payments, which is why we’ve launched this educational guide, for free. We want to thank all of the contributors, and especially BAFT for their help in producing this guide. We expect this guide to serve as a focal point for trade finance practitioners for years to come.”

“As the leading global forum for the transaction banking industry and their clients, BAFT is pleased to collaborate with TFG in the publication of this Documentary/Letter of Credit Guide,” said Scott Stevenson, senior vice president of trade, BAFT. “Documentary credits can be complex financial instruments involving multiple parties and intricate terms and conditions. This guide provides clarity and helps all parties, both banks and their corporate and SME clients, understand their rights, obligations and the procedures to follow. Overall this guide is a valuable tool for promoting transparency, efficiency, compliance, and trust in international trade transactions, thereby facilitating smoother and more secure trade relationships between parties across borders.”

Click here to read The BAFT and TFG Comprehensive Letters of Credit Guide. The white paper is also available within BAFT’s Library of Documents under the Guidance and Industry Practices section.

About BAFT

BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth. BAFT engages on a wide range of topics affecting transaction banking, including trade finance, payments, and compliance.

BAFT Media Contact:
Blair Bernstein
Senior Director, Public Relations
[email protected]
+1 (202) 663-5468

BAFT Response to U.S. Agencies Proposed Basel III Endgame Framework

On January 16, 2024 BAFT made its’ submission to the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC) in response to the agencies proposed Basel III Endgame Notice of Proposed Rule (NPR).

The association welcomed the opportunity to respond to the request for comment made by the Federal Reserve Board, the FDIC, and the OCC in respect of the Proposed Rule 88-FR-64-028, the “Basel Endgame”.

BAFT is an international financial services industry association whose membership includes U.S. banks which range in asset size from G-SIBs to Regional Banks with less than $200 billion in assets, as well as a broad range of other financial institutions throughout the global community, many of which also operate within the United States. As a worldwide forum for analysis, discussion, and advocacy in international financial services, BAFT member banks provide leadership to build consensus in preserving the safe and efficient conduct of the financial system worldwide.

BAFT closely monitors the impact that new regulatory initiatives could have on the provision of trade financing and payment services that support real economic commerce. To that end, our comments and recommendations are focused on the impact of the Final Basel III Reforms on trade finance.

BAFT supports the intent of the Basel III reforms to reduce variations in reported risk-weighted assets across banks. However, we are concerned that the proposed framework will likely have unintended consequences that negatively affect the availability of credit and liquidity supporting
international commerce conducted by US companies as a result of inappropriate calibrations.

Specifically, trade finance, which consists primarily of short-term, self-liquidating instruments, does not serve as a source of leverage and is vital to the settlement of international commerce involving hundreds of thousands of US companies.

READ MORE HERE >

BAFT Announces Future Leaders Program Class of 2024

Launched in 2015, the 2024 Future Leaders class includes 40 individuals from 16 countries representing a variety of disciplines within transaction banking around the globe.

WASHINGTON — BAFT, the leading global financial services association for international transaction banking, announced today its Future Leaders Program class of 2024. Now in its ninth year, the program recognizes upcoming talent in the global transaction banking industry.

Nominated by their respective member institutions, the class of 2024 includes 40 individuals from 16 countries across six continents representing a variety of disciplines within transaction banking.

This year’s group will be divided into five project teams to address current industry issues including developing a resource guide for digitization in trade, a client due diligence questionnaire for ESG, harnessing the power of generative language models to transform transaction banking, B2B payments and the G20 FSB payments report, and human resources challenges post pandemic.

The class of 2024 will start their program in January at the BAFT Europe Bank to Bank Forum and will conclude at BAFT’s Global Annual Meeting in May. Several Future Leaders Council members will support the current class as mentors, joining BAFT board members who will continue to serve as project sponsors.

“The continued record growth in applicants for this program underscores the value in both recognition and leadership development for tomorrow’s future leaders, and led us to expand this year’s class,” said Tod Burwell, President & CEO, BAFT. “The participants step outside of their day-to-day jobs to learn more about important industry topics and contribute a diverse perspective on how we can collectively approach them. I’m excited to hear their views on this year’s projects.”

BAFT congratulates the following individuals who were selected to this year’s program:

Tommy Babos, Barclays
Alyazia Bin Suwaidan, Commercial Bank of Dubai
Christophe Bock, Société Générale
Bridget Bonilla, BNP Paribas
Frank Burgman, Barclays
Adolfo Canales, StoneX
Christian Khouri Chalouhi, Intesa Sanpaolo
Iris Chen, ING Bank
Michael Chong, Standard Chartered Bank
Ana Laura Contelli, American International Group (AIG)
Pablo de Bacco, ANZ Banking Group
Mónica Dörr, Banco Santander
Jagoda Dul, Citibank
Amro El-Far, Arab Bank
Christopher Finan, BNY Mellon
Hilary Freedenberg, HSBC Bank
Carolina Gonzalez Marino, UBS
Petra Gross, UniCredit
Kubra Guler, Bank of America
Revina Guma, BMO (Bank of Montreal)

Sivine Halwani, JP Morgan Chase Bank
Oskar Jerrå, Skandinaviska Enskilda Banken (SEB)
Natalija Katic, Banco Santander
Jialing Li, Deloitte
Kaylee Karumanchi Lord, Bank of America
Anjana Mary Menasis, Surecomp
Antonio Muñoz, Deutsche Bank
Sarah Bachwitz Mruk, HSBC Bank
Giovanni Paolini, UniCredit
Astrid Perrin-Megret, BNP Paribas
Grayson Prickett, First Citizens Bank
Diego Puron Kelleher, Banco Mercantil del Norte (Banorte)
Maria Fernanda Quevedo, Deutsche Bank
Jose Reynoso, Umpqua Bank
Angel Spanos, PNC Bank
Cameron Stanton, Lloyds Banking Group
Amin ur Rehman, Standard Chartered Bank
Daniel Vallance, RBC Capital Markets
Patrick Wodetzki, Crédit Agricole CIB
Lianlian Zhao, BNY Mellon

About BAFT

BAFT Media Contact:
Blair Bernstein
Senior Director, Public Relations
[email protected]
+1 (202) 663-5468

BAFT to Host 2024 International Trade and Payments Conference

Set to take place in Washington, D.C from February 27 – 29, TFG announces 2024 event partnership with new BAFT trade and payments conference.

Via Trade Finance Global by Brian Canup

BAFT has announced the 2024 International Trade and Payments Conference, set to take place from 27-29 February 2024, in Washington, D.C.

TFG are delighted to announce that we will be partnering with this conference.

The conference, themed “Beyond Boundaries: a Collaborative Blueprint for the Future of Transaction Banking” aims to bring together leaders to explore the evolving relationship between international trade and global payments. The event will feature a range of sessions and discussions tailored to both trade and payments, allowing for a focused exploration of each field.

Key Highlights of the Conference:

Dedicated Tracks: Attendees will have the opportunity to engage in sessions specifically designed for trade and payments, facilitating detailed discussions on current topics relevant to these areas.
Expert Speakers and Panel Discussions: A variety of expert speakers, including global heads of trade and payments industry leaders, will address key topics, offering insights into current trends and future directions in trade and payments.
Networking Opportunities: The conference will provide numerous occasions for attendees to connect, including an opening networking reception and scheduled breaks.

Notable Sessions

The conference will cover a wide range of topics. Sessions will look into the complexities of global geopolitics and its impact on trade and payments, exploring the shifting dynamics of international relations.

Discussions on environmental, social, and governance (ESG) linked trade and supply chain finance will highlight the challenges in measuring and reporting ESG performance.

After creating the BAFT “Payments Roadmap Working Group” in 2023, the working group will provide an update on the trade and payments landscape going into 2024.

Additionally, the conference will address the evolving role of digital currencies, with a focus on the collaboration between public and private sectors in developing digital and Central Bank Digital Currencies (CBDCs).

Other sessions will explore deeper dive discussions on trade and payments specific sessions of interest, such as supply chain, trade digitization and export credit for the trade track, and ISO 20022 lessons learned, new payments rails, and cross-border payments for the payments track.

The 2024 BAFT International Trade and Payments Conference promises to be an informative and engaging event for those in the trade and payments industries. It offers a chance to gain valuable insights, share knowledge, and network with peers and industry leaders.

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