How can the fragmented payments market be harmonized? Interoperability.

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Differences between local and regional KRIIs is the prime reason behind fragmented payments market landscape.

Fragmentation remains the norm for payments due to dozens of key regulatory and industry initiatives (KRIIs) cropping up across both emerging and mature markets. Also fostering disharmony are customers’ omnichannel expectations, country-level digital payment systems/strategies, and demographic preferences such as payment method choices.

Differences between local and regional KRIIs are behind much of the overarching complexity. In addition to implementation governance, objectives (and interpretations of objectives) are fragmenting the payment service provider (PSP) regulatory marketplace, often with their cooperation as a way to protect their market.

Global entities are often forced to customize their compliance approaches to meet the disparate regulatory requirements of different markets. What are missing are global standards and interoperability measures to harmonize the market.

Fragmentation is an issue even in Europe where standardization is a focus. Although the Revised Payment Service Directive (PSD2) and Network and Information System (NIS) regulations are framed as pan-regional and overseen by a single entity, the European Commission, implementation has been subject to inherent industry and cultural factors within each European Union member state. [1]

API initiatives

PSD2 regulators aim to increase competition and innovation by requiring banks – through an application programming interface (API) framework – to give third-party providers access to their data. This open banking focus has emerged as a benchmark for other regulators within the EU and countries worldwide are now implementing open API banking initiatives. Participating countries include Australia, China (mainland), Hong Kong, India, Japan, Malaysia, Singapore, and the United States.[2]

As open APIs transform from a regional to a global trend, regulators are examining harmonization and interoperability. Several API standardization initiatives including the Berlin Group, STET, CAPS, PRETA, and NACHA have emerged, particularly in Europe and the US. Of these, the payments industry aligns mostly with the Berlin Group and STET. Industry stakeholders would welcome an initiative to align and ensure consistency of these initiatives, so a single standard emerges covering connecting parties across the globe.

How can the fragmented payments market be harmonized? Interoperability.

Source: Capgemini Financial Services Analysis, 2019.

Instant payments

The instant payments landscape is similarly fragmented. Before the launch of the European Payment Council’s (EPC’s) SEPA Instant Credit Transfer (SCT Inst) scheme in November 2017, diverse IP systems had been developed in European countries outside the Eurozone. Introduced by banks, these schemes leveraged the infrastructure of national clearing and settlement mechanisms (CSMs). SCT Inst enables implementation of IP schemes at a pan-European level, which facilitates the integration of interoperable solutions developed by countries or member states.

Italy and Spain are updating their mobile payments systems (Jiffy and Bizum, respectively) to comply with the EPC’s scheme, while Belgium, France, the Netherlands, and Portugal have developed new schemes and CSMs to align with SCT Inst. However, to date, only 2,057 banks adhere to the SCT Inst rulebook, representing just 20% of the region’s banks.[3]

To facilitate full interoperability of the SCT Inst scheme, the European Central Bank has extended its TARGET2 settlement system with TARGET instant payment settlement system (TIPS), which went live in late 2018. TIPS will now be part of all clearing strategies.[4] The future will tell, as the usage grows, if TIPS is the right solution to ensure interoperability and a seamless instant payment capability across Europe.

Messaging standards

Fragmentation is also hampering messaging standards. The rollout of ISO 20022 XML as the global standard for payments has been sluggish. While European regulators made it mandatory for domestic payments since the introduction of SEPA, large-value and cross-border payments continue to use legacy formats.

The plan for migrating SWIFT transactions to ISO 20022 XML is under discussion.[5] In the United States and other countries, bank formats are hampering the deployment of ISO 20022 and, therefore, the desired goal of a common messaging standard. ISO 20022 may potentially coexist with other standards in many countries. In the Eurozone, the migration is going to “Big Bang” and the Eurosystem participants have been given the deadline of November 22, 2021. In contrast, the US is going to take a phased implementation with full migration after SWIFT has made the necessary ISO messages available. In the Sterling area, the BoE, Pay.UK, and PSR plan to work together on the execution and tendering for a suitable partner to build the new payment system architecture.

Ultimately, it may take further modernization initiatives, IP systems, and corporate adoption of ISO 20022 to drive the industry to standardize global payments messaging … unless the regulator steps in with an end date for ISO 20022 adoption in all payments categories.

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[1] The NIS Directive was the first cybersecurity legislation passed by the EU. It aims to achieve a high common standard of network and information security across all EU member states.

[2] The Asian Banker, “Open Banking and API adoption accelerates,” Aman Kler, May 16, 2018,

[3] European Payments Council, Adherence Data and Projections, March 25, 2019,

[4] Ibid.

[5] SWIFT, “SWIFT community to embark on migration to ISO 20022 for payments traffic,” September 25, 2018,

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