ISO 20022 Migration for the Australian Payments System –
Issues Paper – April 2019 3. Strategic Issues – Scope of Migration

3.1 Australian payments, clearing and settlement systems

3.1.1 Current state

There is a range of payments, clearing and settlement arrangements used in the Australian payments system. The exchange of information takes place via clearing systems specific to the payment type. Settlement of clearing obligations occurs in the RBA's settlement systems, either via RITS or the RITS FSS (Figure 1). A range of different message formats is used for the exchange of clearing and settlement messages used by the different systems.

Figure 1
Figure 1: Australian Payments, Clearing and Settlement Systems

Box A: Current Australian Payments, Clearing and Settlement Systems

As shown in Figure 1, there are a number of payments, clearing and settlement systems that make up Australia's payment system.[2]

Industry-operated clearing systems

  • High value payments – used for AUD customer and financial institution to financial institution wholesale payments. These payments are bilaterally cleared using the SWIFT PDS between HVCS members and settled line by line in RITS.
  • Cheques – used for some retail payments by consumers and businesses, including some property transactions, though their use is declining rapidly. These payments are bilaterally cleared between Australian Paper Clearing System (APCS) members and settled periodically in multilateral batches in RITS.
  • Direct credits and debits – used for retail credit transfers (e.g. salary payments) and direct debits (e.g. utility payments). These payments are bilaterally cleared between Bulk Electronic Clearing System (BECS) members and settled periodically in multilateral batches in RITS.
  • NPP – used for instant funds transfers 24 hours a day, seven days per week (‘24/7’). These payments are bilaterally cleared between NPP participating financial institutions and settled line by line in the FSS.

Privately owned payment systems

  • BPAY – used for bill payments. These payments are bilaterally cleared between participating institutions through BPAY and settled periodically in multilateral batches in RITS.
  • Cards (eftpos, Mastercard, and Visa schemes) – used for retail point-of-sale and online payments. These payments are bilaterally cleared between financial institutions according to rules for each card scheme and settled periodically in batches in RITS (only Visa is a multilateral batch).
  • Property – used for e-conveyancing and settlement of property transactions through the Property Exchange Australia (PEXA) system. The properties and payments are exchanged between lawyers, conveyancers, financial institutions and land registries, on a near-delivery-versus-payment (DvP) basis and settled in periodic reservation batches in RITS.[3]
  • Debt securities – used for the electronic securities depository, cash transfers and settlement of debt securities through ASX Austraclear. These debt securities are exchanged on a DvP basis and the interbank obligations are settled line by line in RITS.
  • Equities – used for electronic securities depository and settlement of all equities and equities-related securities through the ASX CHESS. These equities securities are exchanged on a DvP basis and the interbank obligations are settled in a periodic batch in RITS.

RBA interbank systems

  • RITS – Australia's high value settlement system, which is used by banks and other approved institutions to settle obligations arising from payments clearing and financial markets transactions. Payments are settled on a line by line, real-time gross settlement (RTGS) basis, or via batch. RITS provides liquidity saving features and payments are settled on a queued basis according to a transaction's priority status and eligibility for settlement in the current session.
  • FSS – settles payments initiated via the NPP on a first-in, first-out (FIFO), line by line RTGS basis, and is available 24/7.

Table 1 shows the average value and volume processed through these channels on a daily basis.

Table 1: Payments in Australia(a)
Daily average(b), January 2018 – December 2018
  Number '000s Value $ billion
High Value Payments(c) 43.9 112.4
Cheques 274.8 3.3
Direct Debits and Credits (includes BPAY) 13,654.3 45.0
NPP 387.3 0.3
Debt Securities 3.7 61.1
Equities 1,260.6 5.2
Cards(d) 25,742.4 1.8
Property 4.2 1.2

(a) Includes payments between customers of the same financial institution.
(b) Daily average for active business days for each payment stream. 253 days for all streams except the NPP (92 days from October 2018 – December 2018), and cards (365 days).
(c) Includes SWIFT PDS and net Continuous Linked Settlement (CLS) payments. Net CLS payments represent the Australian dollar pay-ins to and pay-outs from CLS.
(d) Includes debit and credit card transactions.

Sources: RBA

3.1.2 Migration project scope

Given the broad range of payment types that make up the Australian payments system, there will be some degree of judgement as to what should be included in the final scope of the ISO 20022 migration project. The inclusion of some message sets will be driven by SWIFT's planned end of support for MT messages used outside of a SWIFT member administered CUG, while other message sets could potentially be included because they would deliver the objectives outlined in Section 2.4 above. One possible way to group payment messages for preliminary consideration is set out below.

Messages that should migrate to ISO 20022

A key assumption underpinning this paper is that Australia will continue to operate a dedicated high value payments system (HVPS). Maintaining a dedicated HVPS is necessary due to its systemic importance, the large share of payment values that flows through the system on a daily basis and the system's design to enable the efficient use of liquidity through settlement in RITS.

Given the widespread global migration away from SWIFT MT messages, all services and systems that use these messages should be migrated to an alternative solution. These include:

  • SWIFT PDS clearing and settlement messaging for high value payments – Given the importance of the HVPS, the industry-operated HVCS clearing and settlement messaging should migrate to ISO 20022 as part of this project.
  • RITS batch payments settlement messaging (SWIFT FIN AIF) – the interbank batch settlement instructions sent by Mastercard, eftpos and CHESS Batch Administrators (all privately owned entities) use SWIFT Category 1 messages. The RBA proposes to engage separately with each of these batch administrators to migrate interbank settlement messaging to ISO 20022, independent of broader industry consultation. Messages will be migrated based on bilateral agreement and implemented in a timeframe complementary with the wider ISO 20022 migration project. CHESS settlement messages are already in the process of migrating as part of a separate ASX project.
  • RITS AIF messaging – the AIF is a not payment system but an ancillary reporting and enquiry messaging service offered to a CUG of RITS members. SWIFT MT messages are used in the AIF service for Exchange Settlement Account (ESA) statements, liquidity and credit management, and enquiry and status reporting. The RBA is considering replacement of these messages either by developing an Application Programming Interface service or migrating the messages to ISO 20022.
  • Austraclear cash transfer messaging – Cash transfers between Austraclear participants can be submitted to Austraclear using SWIFT Category 1 messages. While this migration could be done separately to the high value payments migration, there may be some benefit to participants of having this included as part of the overall ISO 20022 migration project scope. Other SWIFT MT messaging submitted to Austraclear for debt securities settlement processing do not form part of the payments migration scope.
  • Other financial institution messaging – sent or received using SWIFT MT messages. For example, this may include downstream clients (corporates or client financial institutions) initiating or receiving MT payment messages.

Other messaging that could be migrated

As part of the migration to ISO 20022, there may be some benefit in including a broader set of payments messages within the migration scope. In considering whether these clearing system messages should be migrated to ISO 20022, the long-term future of some of these payment types should be considered along with the costs and benefits of migrating each. Some potential options could include:

  • Direct credits and debits (direct entry (DE)) clearing messaging – BECS credit and debit transaction messages could be migrated to ISO 20022 messaging, which could potentially be aligned with other payment messages such as HVCS and the NPP. This would improve the information-carrying capacity of DE payments, which currently limits the remittance description to 18 characters compared, for example, with ISO 20022 compliant NPP payment messaging which allows up to 280 characters.
  • RITS Low Value Settlement Service (LVSS) settlement messaging – current LVSS settlement files use an RBA proprietary eXtensible Markup Language (XML) format that could be aligned with the ISO 20022 standard.
  • Customer to financial institution/financial institution to customer messaging – an ISO 20022 migration provides an opportunity to define standards for messages between customers and their financial institutions.

Other payment messaging/ format standards

There are a number of other clearing arrangements that currently use clearing message sets/formats that are not aligned with ISO 20022. There are likely to be significantly greater costs and/or less benefit from migrating these to ISO 20022.

  • Card clearing messaging – the current AS2805 messages used for card payment clearing are based on an international standard. Any decisions on migration to ISO 20022 are likely to be made at the international level.
  • BPAY clearing messaging – the current messages are in a BPAY proprietary format.
  • Cheque clearing format standards – the current Electronic Presentment & Dishonour format used for cheque clearing is not considered to be a candidate for migration, given the continuing decline in the use of cheques.[4]
  • Property reservation and settlement batch messaging – the current RBA proprietary XML formats were designed specifically for property batch settlement purposes. They include the ability to reserve funds in an ESA to facilitate property settlement processes. Currently an ISO 20022 message format to reserve funds does not exist and there appears to be limited benefit to create and migrate to a new ISO 20022 message format.
Consultation Questions

Q6. Which, if any, of the messages categorised as “Other messaging that could be migrated”, should be included as part of an ISO 20022 payments migration? Are there any that you think could potentially form part of a later stage of migration? Please explain your views.

Q7. Do you have any other specific feedback you wish to provide on the overall ISO 20022 payments migration scope? Please explain your views.

Q8. For organisations that use the RBA's AIF reporting and enquiry service, what are your initial views on a replacement solution to modernise this service? Please explain your views.

3.2 Possible message enhancements

The ISO 20022 standard offers the capability to include enhancements to existing payment message content. The inclusion of enhanced message content as part of an ISO 20022 migration would meet a key objective of the project and offer a wide range of potential benefits, including the delivery of value-add services and improved processing efficiency. Some examples of enhancements that may be adopted include:

  • Payment purpose codes – this provides for a standardised method of identifying the purpose of a payment (e.g. salary payment, tax payment). The implementation of purpose codes can facilitate efficiency gains, such as the identification of time-critical payments, and identification for processing. Purpose codes may also be used to assist in compliance screening by flagging specific fields that need to be verified.
  • Identity information – structured fields to identify the ultimate originator and beneficiary, combined with enhanced fields for financial intermediaries (agents), can be used to trace a payment through the payment chain more efficiently. The use of structured identity fields can also help to streamline financial crime compliance activities.
  • Legal Entity Identifiers (LEIs) – LEIs can be used to identify organisations, linking to a database containing rich information about that entity. The use of LEIs can provide significant advantages for identification, Know Your Customer (KYC) screening, and AML/CTF monitoring and sanctions screening. However, achieving the full benefits of LEIs in payments would be reliant on a wide adoption of LEIs in Australia and overseas.
  • Remittance information – the current structural limitations of some message formats (e.g. in BECS) significantly limits the amount of remittance information that can be sent with a payment. The ISO 20022 standard offers both a structured way to send remittance information, as well as larger unstructured remittance fields.
  • International Bank Account Number (IBAN) – IBAN is a unique code that can be used to identify a customer's bank account. IBANs are widely used in Europe and growing in use globally, particularly in the Middle East. IBANs are designed to improve the processing of cross-border payments.

In addition to clearing messages, there are possible efficiency benefits in widening the project scope to include the standardised use of ISO 20022 payment investigation messages between participating institutions. This could help facilitate the automation of various investigation processes, which has proved beneficial for the NPP.

Consultation Questions

Q9 a) Please provide your views on whether to include each of the enhanced content items proposed in Section 3.2.

Q9 b) What other enhanced content considerations would you like to see included as part of the migration project? Please explain your views.

Footnotes

Payments arrangements that do not settle in central bank money (e.g. American Express cards) are excluded from this summary. [2]

DvP is an asset settlement mechanism that links an asset transfer and a funds transfer in such a way as to ensure that delivery occurs only if the corresponding payment occurs. [3]

See the Reserve Bank's Governor's recent speech Lowe, P. (2018) ‘A Journey Towards a Near Cashless Payments System’ Australian Payment Summit, Sydney, November, available at https://www.rba.gov.au/speeches/2018/sp-gov-2018-11-26.html. [4]