Harmony is a rare quality in today’s world, where dissonance seems to be the rule. But you can find it if you look and listen. For example, as the NextGen Nordics conference got underway last week, harmony was clearly on display and celebrated. Because the Nordics have achieved something no other region of the world has done. It has established a pan-regional payment infrastructure that will make real-time, domestic, and cross-border payments a secure and seamless reality.

Kudos to the P27 group. With positive developments like Denmark’s approval of the platform, which followed critical EU sign-off late last year, they deserve a victory lap. The Nordics are on the cusp of continuing a tradition of collaboration on the global stage. And they have created a system that not only harmonises real-time and cross-border payments but created a new connection between real-time infrastructure and liquidity management. When it goes into effect sometime in the back half of 2023, P27 will be connected, compliant and competitive.

But before I address the importance of harmonisation and liquidity, let’s make sure we cover the basics. Officially called P27 NPP (Nordic Payment Platform) is a corporation owned by the six largest Nordic banks. It’s stated purpose is to support trade within the region, but the platform will do that and more. Main differences between P27 and the current banking system include increased number of clearing cycles that will give banks the ability to send payments several times per day, 24/7/365 real-time payments for consumers and the adoption of the IS0 20022 format, which enriches and standardises financial messaging.

So, what does “harmonisation” mean in this context? And why is it important? I like the definition from Riksbank: It defines harmonisation as “a process of creating some form of uniformity. In the area of payments, for example, this is a matter of countries agreeing to use the same messaging standard and rules, which helps make payments easy and quick.” P27 does this in several ways. As stated before, it harmonises the region. Second, it will facilitate domestic and cross-border payments while at the same time connecting the Nordics with the EU regardless of currency.

Now let’s connect the concept of harmonisation in the Nordics between real-time infrastructure and liquidity management. Our last webinar with Finextra in March 2022– Real-time payments: What’s next after connecting to ISO 2022? found that forty percent called out transaction costs and trapped liquidity through maintaining so many Nostro accounts as their main pain point when it comes to cross-border business payments. According to the Bank of England, the value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years. This is supported by a  cross-border payments report from Oliver Wyman and JP Morgan stating that cross-border payments in 2021 represented $23.5 trillion - that’s, equivalent to 25% of global GDP across all countries annually. However, these numbers vary in the Nordics according to Martin Georgzén, Head of Strategy & Communications for P27: “Today, 25% of all the cross-border trade from the Nordic countries is staying in the Nordics. So, by solving that you really solve a big part of all these different things when looking at how we can get private persons and corporates to prosper. If we can make that simpler and more efficient, in the same way that we pay domestically, then we will have come extremely far.”

Therefore, before platforms like P27 started driving for innovation and modern cross-border payments practice, banks and their corporate clients had to rely on processes that were slow, expensive, and lacking in essential data. Oliver Wyman estimates that the costs involved in doing business via legacy cross-border payments represents $120 billion, which could be freed with a more efficient, real-time process.

Beyond freeing the trapped liquidity, real-time payments and settlements will have a positive effect on cash management for treasurers. They can move away from traditional cut-off times and end-of-day processing. They won’t have to wait until the next business day to find out whether cross-border payments have cleared. And for many treasurers, the ability to make decisions based on real-time settlements will strengthen visibility into the current cash position as well as the ability to forecast it. And if the platform is adopted properly, P27 will enable banks to automatically balance accounts across currencies. The liquidity position is seen automatically and in real-time. The changes brought by platforms like P27 have a chance to address another major pain point uncovered by our research: only 30% of respondents were satisfied with the automation of their cash flow positioning and 27% were satisfied with their ability to forecast.

Maybe the ultimate harmonisation factor is the ISO 20022 messaging standard that comes as part of the P27 platform. That same Finextra webinar in March 2022– Real-time payments: What’s next after connecting to ISO 20022? found that sixty percent of banks & FIs thought lack of visibility on payment status/slow or unknown speed for arrival was their greatest pain point when sending cross-border payments. As stated by SWIFT, ISO20022 brings financial institutions together and provides a “common framework and also provides a common, centralised technology platform to facilitate harmonisation for the benefit of the wider community.” Simply put: ISO 20022 is an international messaging standard, it’s interoperable and is built to facilitate cross-border transactions. Because ISO enables banks and their corporate customers to capture so much more data it can contribute to richer and more simplified reporting of payables, receivables, and the status of individual accounts. For example, as a recent report from HSBC points out, “quality data at source, more granular originator and beneficiary details, breakdown of invoices and accurate purpose codes for regulatory reporting, will all support better payment flows.”

The Bottomline: P27 defines the term “NextGen Nordics.” It has set a new standard for cooperation, technological efficiency, and futureproofed infrastructure. As former P27 CEO Lars Sjogren has said: “Once we have real-time cross-border infrastructure, we’ll see great use cases and a universe of cash-management solutions. Then comes global connec­tivity, with huge opportunities for a couple of players to connect regional hubs.”

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