The payments industry has been a sticking point in financial services for quite some time. Vested interests and a concentration of far too much business between too few banks have created development inertia, best evidenced by the SEPA slow train. SEPA was virtually a universal agreed development, if you take banks out of the equation. However, the majority of banks have tried as many ways as humanly possible to slow the introduction of SEPA and limit its use. It was only once politicians and regulators took a hand that an impetus was introduced and SEPA started to achieve what it set out to do. Literally years were lost and heaven knows how much cost and lost opportunity as a result.

Today the financial services industry will be faced with another challenge as Legal Entity Identifiers become a reality. To date great progress has been made on the design of the new standard and a global structure of ownership and distribution is being organised. The scope of LEIs is a vital question that has to be answered, so that all types of financial services firms can mobilise and plan how to gain maximum benefit from this identity standard. I hope that unlike SEPA (although granted it’s an entirely different matter) the banks go for LEIs in a very big way, as it has multiple areas and levels of operational and risk benefits.

For payments, the opportunity is to tie together the payment and settlement instruction, enabling the possibility of guaranteed DVP (Delivery vs. Payment). The risk reduction would be enormous, for the bank, its customers and the overall finance industry. No longer would we have vertical silos and various databases involved in a payment instruction, with the huge likelihood of settlement failure, or at the very least operational intrusion. The customer account would be a single focus of all its activity enabling better risk management. If this became the case within some FIs and was then operated across markets, it would have a cumulative, positive impact, reducing risks on a scale not seen before.

LEIs have the potential to be the single most beneficial global industry project ever seen, providing far greater benefits than any previous standard. However, it needs the imagination and the commitment of FIs and their employees, to overcome any problems and steamroller through to implementation. You can hear about LEIs and their impact on payments at the next Post Trade Forum debate hosted by BT on the morning of the 25th September.