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Card payments v real-time ACH: a global battlefield

Global card transaction volumes outnumber global interbank payment volumes by a wide margin: approximately 206 bn txns v 108 bn txns per year (Accenture Research).

Card transactions use almost universally the ISO8583 standard. This uniformity and ubiquity are a remarkable achievement, especially in comparison to the much lower volume interbank payments which use a diverse set of standards, often country-specific and typically incompatible.

However, ISO20022 is fast becoming the standard of choice for interbank payments (and for other financial services), in particular for the new breed of real-time payment systems, in preference to the highly successful ISO3583 standard.

The reasons for this are two-fold – the data-richness of the ISO20022 standard (although ISO3583 is more data-rich than many realise), and the sophisticated toolsets and utilities that come with it. These tools greatly simplify definition of new message sets and rules, and in turn, make ISO20022-based systems easier and less costly to maintain than ISO3583-based systems (which don’t have a similar set of tools).

However, just adopting ISO20022 does not guarantee interoperability between payment systems that use it. That is why there is a global standards initiative, the ISO Real-Time Payments Group (RTPG), led by Payments UK, and formed of over 40 payments organisations from around the world, which is defining a common approach to using ISO20022 for real-time payment messages and processing rules. 

Data and messaging interoperability is only part of the answer. Most importantly, settlement interoperability is also required, the ability to settle payments between banks across borders. Settlement interoperability is a key feature and strength of the international card schemes – for example a Visa card issued by a bank in Germany can be used to purchase from a merchant in Singapore, because Visa provides a mechanism for the issuer’s bank in Germany to settle with the merchant’s bank in Singapore.

So, we have a global payments landscape dominated by card networks, interoperable across-borders, enabled by powerful global interbank settlement capabilities, but operating on an out-of-date standard; and a set of country-specific ACHs migrating to real-time payments that greatly increase their relevance to real-time commerce, converging on the modern ISO20022 standard, but with little precedent for cross-border interoperability.

As commerce becomes digital, real-time and borderless, a global battlefield is developing between card payments and real-time ACH payments – standards have a part to play, as do, of course, the business model and customer proposition, but cross-border, interbank settlement is the key to success in winning this battle.


Comments: (2)

Chris Day
Chris Day - Perdl - Nottingham 17 May, 2016, 08:12Be the first to give this comment the thumbs up 0 likes

Hi Jeremy - not sure what the ISO 3583 has to do with cards (worth looking up). Also an issuer does not make payment to the merchant, that's the role of the acquirer. Perhaps it's worth opening up those CAPE and ATICA MDR's and having a look at the process flows. Another thing is that the use of ISO 8583 is highly subjective depending upon which scheme you are using.

Jeremy Light
Jeremy Light - pingNpay - London 22 May, 2016, 11:21Be the first to give this comment the thumbs up 0 likes

Hi Chris

ISO3583 is a typo, it should be ISO8583 throughout the blog.

You are right that merchants get paid by receiving funds from their acquirer. However, the funds originate from the cardholder who pays their issuer who passes the funds, or settles, with the merchant's acquiring bank. The strength of the Visa and MasterCard networks is they facilitate settlement between their participating banks (issuers and acquirers), thereby allowing Visa and MasterCard cards to be used globally, even though the issuer and acquirer in the transaction may have no relationship with each.

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