Data: the new Eldorado of international payments?

It's a fact: every day, banking activities generate vast quantities of data. Cross-border payments are no exception, as each transaction involves the exchanging of a significant amount of information: identity of the issuer, address, name of the beneficiary, account details, amount and currency of the transaction, purpose of the payment, names of the bank’s involved in the chain, etc. Furthermore, the respondent banks are subject to a KYCⁱ, which enables other data to be collected which, when cross-checked with those from transactions, would make it possible in principle to detect almost in real time any discrepancies between expected payments and payments actually processed. 

All this data, aggregated and reprocessed, has virtually infinite potential regarding use cases in areas as diverse as advising clients, developing commercial relations, improving profitability, compliance, operational efficiency… For all that, cross-border payment players are only just beginning to grasp all the wealth this information represents, just like the banking sector in general. 

It should be said that, faced with all this data, financial institutions are facing a dilemma: to what extent can they use this data without jeopardising banking secrecy, compliance rules and privacy protection requirements?

The status of trusted third-party makes all the difference

One thing is certain, though: for all banks, collecting, storing, processing, analysing and sharing all data that directly or indirectly relates to their clients must be undertaken in compliance with a strict and exacting framework. Trust is a crucial asset that banks need to preserve at all costs. 

This status of trusted third-party is what differentiates banks from other players whose use of data already lies at the very heart of their business model, and in particularly the tech giants. The CNILⁱⁱ understood this when, in 2021, it gave the title “When trust pays off” to its White paper on “today’s and tomorrow’s means of payment methods facing the challenge of data protection”. Having said that, things are starting to move across the Atlantic with, for example, the creation of Chase Media Solutions last spring, which took place two years after the acquisition of the Figg marketing platform by JP Morgan, whose aim will be to help brands target the bank’s clients based on their spending history. 

Another certitude is that properly using banking data requires substantial work in terms of structuring, normalisation, organisation, governance and training the teams. This thus naturally requires a considerable human and technical investment effort. Building up a databank takes years of massive IT and project resources. The consistency of the effort, essential to succeed, can only be obtained with the long-term support of a top management team that also firmly believes in the strategic value for the bank of proper data usage. Let’s not kid ourselves: the few banking players who have made significant headway in this domain have been working on it for 10 or 15 years already. The task, which is already a massive one in itself, is made all the more laborious by banks’ IT Systems, which are generally complex and fragmented. This is due to each bank’s history, sometimes peppered with external growth operations combined with an integration effort that naturally varies from one establishment to the next. 

In-house and “out-of-the-box” use cases

Payments businesses are businesses of scale. That’s why these investments are only profitable if the companies have sufficient client numbers and revenues.

There are two types of banking data use cases: improving current activities and creating new services.

The former pave the way for improvements in operational efficiency – and therefore cost reductions. Now in the correspondent banking industry, the ability to operate in a safe and secure manner at a lower cost will increasingly enable the leaders to stand out from the competitors chasing them. This ability is a powerful virtuous circle, payments logically being routed towards intermediary banks that simultaneously offer quality, speed and price. 

In the cross-border payments sector, these first use cases can take various forms. At Societe Generale, data valorisation already allows the automated publication of mandatory and regulatory reports and the more accurate and real-time steering of certain operational processes or of our commercial activity. The scope of internal possibilities remains immense, notably in terms of the prevention or detection of fraud, the defining and calibrating of the AML/TF scenario and automatic disqualification or decision-making help with “sanctions and embargos” hits.  Provided of course, as the Financial Stability Board (FSB) suggests in its July 2024 report “Recommendations to Promote Alignment and Interoperability Across Data Frameworks Related to Cross-border Payments”, that national authorities provide a clear and reasonable legal framework allowing cross-border payment market players to exchange, across national borders, data concerning the processing of payments, the management of risks or the prevention of fraud and financial crime. Indeed, useful data exchanges can currently be compromised by very strict privacy frameworks or by policies that require data to be stored or processed locally. Improving the current situation can also benefit respondent banks, for example in the form of detecting cost or revenue improvements (sub-optimal intraday cash flows, repeated formatting errors, FX opportunities, etc.)

The second type of use cases concern genuinely new products and services, i.e. “out-of-the-box” innovations, with economic models to devise based on the use and valorisation of data. For example, in France, in recent years INSEEⁱⁱⁱ has been using the anonymised and aggregated data of several banking players (blog in French) to obtain a more accurate image of household consumption and its trends. 

ISO 20022: towards a universal language for payments

This is only the beginning, boosted by the adoption, by November 2025, of the ISO 20022 payment standard for cross-border transfers. The migration of exchange systems has already made substantial progress. We could for example mention, for the main currencies exchanged around the world, TARGET2 and EURO1 for the euro in March 2023, CHAPS for the pound sterling in June 2023 and CHIPS for the US dollar in April 2024. The remaining uncertainty today primarily comes from the community of banks with SWIFT codes: at the end of June, only a quarter of payment instructions (25.3%) had switched to ISO 20022. The rate of adoption is growing slowly. The Swift interbank cooperative estimates that the figure should be close to 40% by the end of this year and 60% by mid-2025. 

In practical terms, this standard will allow a universal language to be put in place between payment players (banks, vendors, exchange systems). Transported data will be better structured, in the same way everywhere. It will also be more detailed than in the past. This should accelerate the ongoing movement towards a better use of banking data!

Further reading: 
-    Faster, further and stronger with ISO 20022: the keys to a successful migration (societegenerale.com)
-    Faster, further and stronger with ISO 20022: the outlook for 2024 and beyond (societegenerale.com)

^{i     KYC: Know your Customer}

^{ii   CNIL: Commission Nationale de l’Informatique et des Libertés (the French data protection authority)}  

^{iii  INSEE: Institut National de la Statistique et des Etudes Economiques (the French National Institute of Statistics and Economic Studies)}