Moving towards real-time in the Nordics

The real-time payments landscape in the Nordics has been picking up pace in recent years, with a number of innovative solutions already live and others scheduled to arrive soon. One key development planned for launch in 2021 is Project 27 (P27) which aims to introduce a real-time cross border payments area for the Nordic region.

P27 promises to deliver real-time, multicurrency multi-country instant payment rails for all four Nordic currencies. The new payments infrastructure will be a world’s first and create the foundation for a number of initiatives and innovations in the four countries of the region.

Marta Stensheim Haugen, Head of TxB Payments at Nordea, says: “P27 will not only ensure that people and companies in the Nordics are able to make instant, cross border payments but it can also become the rails for our instant mobile payments. Currently, all of the mobile payment solutions in the four countries are already account to account based. These mobile payment schemes will also be able to make use of P27, being able to not only do domestic instant payments, but also cross border instant payments as well. We also see a lot of developments happening on the back of our ability to make mobile instant payments securely thanks to the national bank ID solutions in the Nordics which authenticate the payments.”

Standardisation as standard

Whilst P27 can be considered the important driver for enabling cross border real-time payments in the Nordic countries, other initiatives related to standardisation will also play a key role in supporting instant schemes going forward.

These include SWIFT’s  ISO 20022 Programme, scheduled to go live at the end of 2022, which aims to establish a harmonised modern global language for cross border payments messaging. Also, SWIFT’s gpi (global payments innovation) initiative to enhance cross border payments processing has already been adopted by more than 160 banks worldwide. SWIFT gpi enabled payment messages are already securing faster processing and include full end-to-end tracking for both the remitter and ultimate beneficiary of the payment. Furthermore, SWIFT gpi also has an instant offering which can be connected to domestic instant systems, thereby broadening the instant cross border payments area even further.

Marta continues: “From a global perspective, moving to ISO 20022 is crucial for supporting real-time cross border payments as well. First of all ISO 20022 messages are data-rich, providing more details, which is useful for creating more value from the additional information. Also, when we are able to have the same standards, as in we are speaking the same language for all payments, both cross border and domestic, we can make sure that all of the information related to the payments is consistent and that corporates and consumers can use the data, as well as banks. This will enable much faster and more effective processes for receiving and making payments, end to end cash management and managing accounts payables and accounts receivables. The plan is to base P27 on these global ISO standards in order to secure the foundation for future proof payments offerings.”

Bringing real value

On the technology side, Nordea has already implemented a number of API based solutions and launched a range of treasury management tools, some in partnership with fintechs.  All of the new offerings have the goal of meeting the needs of Treasurers and financial managers by providing them with transparent information in real-time in order to be able to make more meaningful decisions.

Katy Spicer-Eriksen, Head of TxB Liquidity Management and Corporate Channels says: “Whenever we talk about evolving infrastructures and technologies, it’s always from the starting point of how best can we add value for our customers. Where can the move to real-time bring real value? For treasuries, a key focus is on understanding and better managing various risks, including of course liquidity management risk. On the back of that, real time treasury risk management is becoming more and more important and our overall aim is to make sure our customers are able to access information in a smooth, immediate and user friendly way. Many companies are still struggling sometimes to access all of the data points. We want to make sure they get reliable cash management data by providing easy to use solutions which they can use in their cash forecasting to manage their risk.”

As part of the drive to provide more effective tools, Nordea has recently introduced a state of the art forecasting solution which uses machine learning to make accurate risk adjusted predictions of future cashflows. Another new offering is a multi-banking platform that enables financial decision makers to gain a full overview of all their bank accounts and ERP systems by connecting everything in one place.

Making use of data

In addition to new tools, Nordea has also developed a number of APIs (Application Program Interface) such as Instant Reporting, which provides companies with real time access to account balances and transaction details.

Katy continues: “I think we will see APIs such as Instant Reporting become crucial for companies as real time truly becomes the expected way of operating a business. There will of course still be challenges in the industry to make sure that companies are able to use this real time data effectively. Primarily, the providers of treasury management systems and ERP vendors need to ensure that their capabilities are enhanced or further developed to make use of real-time data. So far most of the ERP accounts payables and accounts receivables processes are still batch driven and not real time. In order to manage your real time treasury risk, you need to have real time data and real time systems to match.”

Marta adds: “Real time data is clearly key for customers in order to improve and make their reconciliation processes more efficient. Then obviously they are dependent on having ERP systems that can cater for that and the move from batch to instant payments. Increased standardisation will also lead to more enriched data, creating further possibilities for companies to gain a better overview of their processes.”

Innovative monitoring

As innovation and technology further enables a move towards real-time and STP (straight through processing) of payments, banks and corporates will need to increase the use of automation to monitor potential fraud without disrupting the customer experience.

Katy concludes: “What we currently see is that the bank systems are already using AI (artificial intelligence) to monitor and filter any attempts at financial crime. As real-time becomes the norm, we will see even more of the sanction screening, checking and fraud monitoring processes using new technology like robotics and machine learning. Automation is helping to improve our STP rates by removing manual checks. At the same time automation is improving the industry’s financial crime processes and AML (anti-money laundering) processes to ensure that we can use the data in a way that we are able to better track and monitor payments which are suspicious.”

Marta concludes: “It’s of critical importance that both the systems and procedures are in place in order to handle compliance and ensure that the instant real time payments process goes as expected. Instant cross border payments go hand in hand with technology that improves automated fraud monitoring.  Obviously, banks are securing that their fraud detection processes are adapted to the new rails and to meet the needs of instant payments. Companies also need to be aware of any potential risks and take precautions. The nature of instant means that a payment is final as soon as it is sent.”