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One of the greatest challenges while building out your own brand and company and traveling on the road of self-discovery is working on building other companies’ brands, foundations, and frameworks.
Where did we start and where have we firmly stood by our beliefs? Over decades in the payments space, we have collectively learned that many folks have unbelievable ideas and are set to change the world of payments. In doing so, they are heads-down, product-focused, and ready to go to market. Exciting times for sure, ones filled with water hazards, wrong-way signs, caution tape and flashing warning lights. These are the signs that so many have ignored, pushed off or thought ‘we can come back and do that later.’ Unwelcome news: you cannot come back later, you cannot ignore it, as it won’t go away. One can’t dismiss the warning signs. If we look at the same news and recent actions from the OCC, we all will see the result of avoiding the work. However, other folks laid the proper foundations and then lost their focus. In the last few years, we have witnessed the end results of not having building blocks in place, ignoring compliance, operations governance, risk controls, and ensuring that they all work in harmony. Yes, harmony is possible, absolutely essential even. Essential, for any of us in the payments space to ensure that all players are reading from the same sheet of music. Let us share our music with you and we hope you enjoy the show. The first building block to be laid and embraced like a Miles Davis trumpet solo is compliance and risk. Building a solid compliance and risk program is paramount as it safeguards an organization’s integrity, reputation, and financial stability. It ensures adherence to laws, regulations, and ethical standards, mitigating legal and financial liabilities. Moreover, it fosters trust among stakeholders, including customers, investors, and employees, and enhances the organization’s credibility. By proactively identifying and managing risks, such a program bolsters resilience and helps prevent costly crises. It not only ensures legal compliance but also bolsters strategic decision-making, enabling sustainable growth and preserving the long-term viability of the organization. The second building block to be laid down, like a track from Dr. Dre, is operational governance. This refers to the processes, structures, and practices put in place to ensure that an organization operates efficiently, effectively, and in compliance with its objectives and policies. It is a crucial aspect of overall corporate governance and involves managing day-to-day operations, monitoring performance, and making decisions that align with an organization's goals. Why do we insist on these building blocks? In the context of operational governance, we refer to the fundamental components or elements that make up the framework for effective governance. These building blocks provide a solid foundation upon which an organization can build its governance structure. Within every fully orchestrated accompaniment there are the vital blocks that support or provide background for other others to be built upon. Policies and Procedures: Clearly defined policies and procedures set the rules and guidelines for how operations should be conducted. They provide a basis for decision-making and ensure consistency and compliance. Organizational Structure: A well-defined organizational structure outlines roles, responsibilities, and reporting relationships. It helps in delegating authority and accountability, which is essential for effective governance. Risk Management: Identifying, assessing, and mitigating risks is critical for operational governance. This building block helps an organization anticipate and manage potential challenges. Performance Metrics: Establishing key performance indicators (KPIs) and measurement mechanisms allows organizations to track their performance and make data-driven decisions. Communication: Effective communication channels ensure that information flows smoothly throughout the organization. Transparency and open communication are key elements of good governance. Compliance and Ethics: Ensuring that the organization operates within legal and ethical boundaries is fundamental. Compliance with laws, regulations, and ethical standards is vital for long-term success. Here we are, with a bunch of beats, solid tracks, and ready for the conductor to step up and lead us all on the way the way with a solid go-to-market strategy. Are we all on the same page right now? Have we worked together to foster harmony and syncopation? What we often discover is when these building blocks are embraced or brushed off like a snare while painting the perfect sound. Here are the key components: Leadership Buy-In: Ensure that leadership at all levels of the organization actively supports and promotes the importance of the building blocks. Leadership commitment sets the tone for the entire organization. Integration: Integrate the building blocks into the organization's culture and values. Make them a fundamental part of decision-making processes and day-to-day operations. Continuous Improvement: Emphasize that operational governance is an ongoing process. Encourage regular assessments and reviews to identify areas for improvement in the building blocks. One piece of advice we like to sing like its our mantra – because it is – first, one should be willing to collaborate, get out of their safe space, be open to other’s critical thoughts, take these in and learn how to iterate, and grow in understanding with your team. Move from collaborating to integrating with the goal of having evergreen work product. Evergreen work product ensures that your policies, procedures, and frameworks remain relevant, compliant, and valuable to regulators, and auditors. Unlike time-sensitive or trending topics, evergreen work products continue to keep your team focused on risks in this constantly changing payments environment. We are always collaborating, iterating, testing controls and ensuring we are doing all we can to control and mitigate risk. Serio Payments Consulting is your partner for a better future in the payments industry. They offer a comprehensive approach encompassing operational governance, risk assessment, product control catalogs, and compliance with ISO 20022 standards. Their expertise extends to developing robust payment strategies, seamlessly integrating digital payment solutions, and implementing stringent security measures to prevent fraud. With a deep understanding of the regulatory landscape, they guide businesses in achieving compliance while expanding their global footprint and navigating complex cross-border payments. We can be reached at [email protected] (Founder & CEO), [email protected] (Director of Operations), and [email protected] (Director of Customer Experience and Project Implementation).
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What’s the difference between MT and MX messages?
ISO 15022 was the MT message subset, based off the FIN protocol, organized by “MT” followed by a three-digit numeric ID that indicated the message category, group, and type. For example, a single-customer credit transfer is the classic MT103. ISO 20022 is known as MX, an XML-based iteration that promises easier if not seamless integration into STP systems. The MX message is composed of four parts, with four letters indicating the message type, three alphanumeric characters for the message number, three numbers highlighting the message variant, and finally two characters for the version number. That same single-customer credit transfer will now be known as the pacs.008.001.0x in MX format. Both are SWIFT standards. Both are messaging systems. However, the MX standard has a whopping 940 fields to the relative handful that the MT standard allows. As most systems still run off the MT standard (MX was introduced in the early 2000s) they may have to update to the newer, more data-rich MX format to be complaint with ISO 20022 standards. Why the change? The MT standard, while fair for its day in 1977, has failed to evolve with the changing needs of the payments sphere, and a system upgrade is needed. It limited characters to 144, making it difficult to send the larger amounts of information often necessary in payments, while the MX standard offers a much greater degree of freedom with a more generous character limit and character pool, as MT was never designed to use most characters due to the limited nature of computers at the time of introduction. Also, the STP features will grease the wheels for internal reconciliation, invoice management, liquidity management, and numerous other functions that previously could require manual processing or systems interface adaptation. When do I need to change? The US Federal Reserve switched over in November 2023, but the old MT format will be honored until 2025, when it will be finally sunset and MX will be the global standard. There’s some time to get systems in order, but it’s never too soon to take advantage of the new opportunities the ISO 20022 standard will provide. What challenges will the transition face? Until everyone gets on the same systemic page, sending MX messages to an MT may result in some confusion, but SWIFT’s transaction manager is already capturing all the data received in the ISO 20022 format. Areas of Impact from an ISO Assessment: Compliance improvement in ISO standards (e.g., ISO 9001, ISO 14001) Enhanced operational efficiency and process optimization Reduction in operational risks and errors Improved product/service quality and customer satisfaction Strengthened information security and data protection Potential cost savings from streamlined processes Supply chain and vendor management improvements Enhanced customer trust and brand reputation Rich Data and the ROI Potential revenue growth through increased customer trust and new market opportunities Cost reduction through streamlined processes and reduced errors Improved supplier and partner relationships, leading to better terms and collaborations Enhanced brand reputation and trust, potentially increasing customer loyalty Opportunities for international expansion and market access What do I need to upgrade? Payment platforms may need to be upgraded, as the MT standard is a flat-file and MX is not. MX involves hierarchy between the fields, meaning the platforms will have to accommodate. Nuances present in an ISO Framework Approach: Specific ISO standard(s) targeted (e.g., ISO 27001 for information security) Scope and scale of the ISO implementation (enterprise-wide or department-specific) Timeline and milestones for ISO certification Required resources and budget allocation Training and awareness programs for employees Internal auditing and corrective action plans Integration of ISO requirements into existing systems and processes Advantages of SWIFT MX Driven by ISO 20022 Standard Utilization of XML Format: Simplifies Straight-Through Processing (STP) within IT systems Multilingual Capability: Accommodates non-Latin alphabets, promoting inclusivity. Data-Enriched Messages: Empowers advanced data analysis and reconciliation efforts. Compliance with Regulations: Streamlines regulatory reporting, aids in Anti-Money Laundering (AML) and sanctions checks. Enhanced Customer Service: Enhances overall customer experiences. Improved Reconciliation: Promotes automated reconciliation between invoices and payments. In summation, the transition from MT to MX messages is a significant step toward modernizing payment systems, offering numerous advantages such as streamlined processes, improved data handling, and enhanced customer experiences. Embracing ISO 20022 standards is not just about compliance but also about unlocking new possibilities in the ever-evolving world of financial transactions. For more information or consultation on ISO 20022, or questions related to the world of payments, please reach out to our Director of Operations, Daniel Saleh, at [email protected] Please watch:
https://www.youtube.com/watch?v=VawyIoUNk9k As a reminder: Actionable steps to help you lower ACH Returns, mitigate return risks, and thwart fraudulent transactions and bad actors. For the uninitiated, money movement seems simple. There is the apparent ease at which mobile apps and financial institutions can move money in today’s instant manifestation of transacting. Beneath and behind the screen on one’s mobile device or laptop, however, live multiple elements that enabled such movement of money. Inherent in all money movement is a risk that a transaction will be returned as ‘insufficient funds’ ‘unauthorized,’ ‘unknown account’ or ‘account closed’ The risk of returns of ACH transactions is segmented into three distinct categories: Administrative, Unauthorized and Overall Return Rate. Within these categories, Nacha has established thresholds; Administrative Returns 3%, Unauthorized Returns 0.5%, and Overall Return Rate 15%. For further details please see https://www.nacha.org/rules/ach-network-risk-and-enforcement-topics. At Serio Payments Consulting (SPC) we believe in demystifying ACH Returns by introducing tested and successful methodologies that will help you build out a set of controls designed to reduce your overall risk of returns. Establishing the following building blocks are key to successfully navigating ACH transactions: 1) client education, 2) understanding the funds flow and what they are looking to accomplish, 3) examining any programmatic controls in place, and 4) - most importantly - ensuring Originator’s understand Nacha’s Operating Rules & Guidelines. Implementing these four steps has in our experience helped lower the risk of returns: · Require balance checks on all debits, set an additional thresholds 1.5%-5% · Develop velocity Controls · Set transaction limits; debit attempts per 24 hours and set dollar limits · Establish Fraud Protocols Of course, the best way to see these building blocks manifest would be to hear and see the direct results of our clients’ actions and hear from them how our sound methodologies helped them succeed. |
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