Volume 18 (2024)

Each volume of Journal of Payments Strategy & Systems consists of four 100-page issues, published both in print and online.

The articles published in Volume 18 include:

Volume 18 Number 3

Special Issue: The Importance of Data for the Payments Industry

Editorial
Gerard Hartsink, Editor
Practice Papers
Navigating the data economy: Key considerations for decision makers in banking
Mounaim Cortet, Vice President, Douwe Lycklama, Vice President, and Pepijn Groen, Manager, Innopay

The European Commission is advancing the data economy through a series of regulatory reforms aimed at giving customers control of their data and fostering innovation in third-party contexts. While the costs of developing existing banking infrastructures and creating open application programming interfaces have largely fallen on banks, third-party service providers have benefitted from new revenue streams and increased customer relevance. As a result, banks risk disintermediation with some customer segments. The impending Financial Data Access (FiDA) regulation is set to expand these dynamics by extending the range of financial data made accessible to third parties. Simultaneously, the entry into force of the Electronic Identification Authentication and Trust Services 2.0 (eIDAS2) introduces a digital wallet that allows consumers and businesses to share their identity credentials in online customer journeys, offering banks the potential to engage more effectively in the data economy. The key question is whether the new reforms will encourage banks to seek opportunities beyond compliance; more so than with the Revised Payment Services Directive (PSD2) and open banking. This paper analyses the opportunities arising from FiDA, eIDAS2 and the Data Acts, providing strategic considerations for banks navigating the data economy. It emphasises that banks are ideally positioned to become data custodians by offering customers tools for the secure and reliable exchange of data-driven digital transactions across all sectors. Ultimately, this approach will unlock new value and enhance the relevance of banks in the data economy.
Keywords: data economy, FiDA, open banking, digital identity, value creation, data custodian, Data Act
Clarifying to whom, where, and when payments are made: Recommendations from the ERPB Working Group on Transparency for Retail Payment End Users
Diederik Bruggink, Head of Payments, Digital Finance and Innovation, European Savings and Retail Banking Group

It has become increasingly difficult for consumers to identify to whom, where, and when they have made payment transactions, as the descriptions provided on account statements do not always match the expectations of the consumer. Given that multiple actors in the payment chain can influence the information provided to the consumer, this problem can only be addressed with the involvement of multiple stakeholders. This paper discusses the recommendations made by the working group established by the Euro Retail Payments Board (ERPB) to address this issue. As regards the name of the party to whom payment has been made, the working group recommended that the commercial trade name of the payee (defined as the name used by the merchant to identify itself to the consumer) should be used along the entire payments chain. Regarding the where element, the working group recommended that the account statement should indicate the precise geographical location of the transaction. In the case of online commerce, the commercial trade name displayed on the website, or the commercial trade name of the payee’s online platform should be mentioned. Related to the when element, the working group recommended that the account statement should indicate clearly the date and time of the transaction as it would be known by the consumer. The working group called upon all actors involved to create and maintain quality transaction data and to ensure that the underlying technical standards being used are capable of supporting the collection, preservation and safe transmission of the data required by the consumer. The industry was expected to implement these voluntary recommendations by June 2024, but although progress has been made, the overall progress seems to be lagging slightly as the various stakeholders are addressing the issue in isolation. In the meantime, the European Commission has adopted some of the working group’s recommendations into proposed new payments legislation.
Keywords: Euro Retail Payments Board, ERPB, transparency for retail payment end users, payment account statement, commercial trade name
Harmonising data standards for cross-border trade documents and cross-border payments to enable further digitisation of the financial and physical business processes of international trade
Gerard Hartsink, Adviser, International Chamber of Commerce

This paper discusses the ICC Digital Standards Initiative to further digitise the business processes relating to 36 trade documents used for international financial and/or physical supply chains. After describing the existing data standards for the subjects and objects used for those documents and for cross-border payments, the paper argues that the further digitisation of business and reporting processes needs both the public sector (central banks, customs, financial intelligence units, statistical organisations) and the private sector (exporters and importers and their service providers such as banks and logistical firms) to adopt a unique global identifier for businesses. This paper explains why the Legal Entity Identifier (LEI) initiative, driven by the Group of 20 and the Financial Stability Board (FSB), provides an appropriate solution for the realisation of paperless trade.
Keywords: paperless trade, trade documents, cross-border payments, data of subjects and objects, legal forms, legal entities, business registers, identifiers, data connectors, ISO 17442-1:2020 LEI, G-SIB, UN/CEFACT Buy-Ship-Pay Model
The power of data: Transforming compliance with anti-money laundering measures in domestic and cross-border payments
Alexander G. Rozman, Chief Compliance Officer, Exodus Movement and New York and Illinois Licensed Attorney

Financial crime is on the rise. The interconnectedness of global payments is making illicit cross-border transactions increasingly frictionless, while digitisation has not only increased the attack surface but also enabled criminals to employ increasingly sophisticated methods to evade detection, such as social engineering. Compounding the threat is the ever-growing mountain of data being generated, which is threatening to drown detection and prevention efforts. It is clear that a new level of defence is required in the fight against financial crime. This paper argues that the implementation of data-driven technologies, with a focus on artificial intelligence (AI), is a near-term imperative for effective risk-based anti-money laundering (AML) compliance programmes in the payments industry, where legacy AML programmes over-rely on a rule-based approach with a checklist of predetermined rules and indicators to flag potentially suspicious activity. To support the development and implementation of such data-driven enhancements, this paper hones in on the current hurdles, and explains the benefits and technical aspects of AI integration, emphasising the foundational importance of ISO/IEC AI-related standards. Finally, the paper discusses future opportunities for broader collaboration to build stronger collective defences.
Keywords: data, artificial intelligence, machine learning, anti-money laundering, compliance, ISO standards
Harnessing synthetic data to address fraud in cross-border payments
Johan Bryssinck, Head of Product AI and Federated AI, Swift AI Center of Excellence, Tom Jacobs, Data Science Team Lead, Swift Data & Services, Filippo Simini, Computer Scientist, Argonne National Laboratory, Ravi Doddasomayajula, Lead Data Scientist, Swift AI Center of Excellence, Martin Koder, AI Governance Lead, Swift AI Center of Excellence, Francisco Curbera, Lead, AI Infrastructure Innovation, Swift AI Center of Excellence, Venkatram Vishwanath, Computer Scientist, Argonne National Laboratory and Chalapathy Neti, Head, Swift AI Center of Excellence

The sharing of data between financial institutions is widely recognised as a key component in the industry’s efforts to combat fraud. Broader access to multiple sources of financial data is also critical to the development of high-quality fraud detection mechanisms based on artificial intelligence (AI). Given the challenges relating to sharing real financial data across countries and institutions, the use of synthetic data has recently become critical to enabling the exploration of broader data sharing and supporting open collaboration in AI model development. To generate synthetic data that can substitute for real data, computer algorithms closely mimic the key statistical properties of genuine data, while strictly preserving the privacy and sovereignty of the source data. This paper presents the results of an ongoing exploration into the generation of high-utility synthetic datasets of cross-border payment transactions using transformer models and discusses its application to the development of AI-based fraud prevention solutions.
Keywords: cross-border, fraud, data sharing, artificial intelligence, synthetic data, privacy-safe
The application of non-Latin language data in traditional cross-border payments: A discussion
Yi Zhang, Manager of Clearing Department, Bank of China

During the rapid development of globalisation observed over the last few decades, the English language has emerged as the default language for the communication of cross-border payments. Concurrently, the Latinisation of communication has resolved most of the problems related to the use of non-Latin languages. However, with the G20 cross-border payment roadmap promoting connectivity with local payment systems, this paper suggests that supporting the use of non-Latin language data in certain scenarios and transaction channels could improve the efficiency of cross-border payments and help enhance financial inclusion. This paper examines the use of language data in cross-border payments, reflects on how cross-border payments might support non-Latin language data, and makes relevant suggestions.
Keywords: cross-border payment, non-Latin language data
Why government should encourage and defer to, rather than compete with, private sector payment systems
Eric Grover, Principal, Intrepid Ventures

The paper discusses the huge and rarely acknowledged, much less addressed, issue of government payment systems competing with private sector payment systems that serve consumers, businesses and banks. This paper’s discussion of government payment systems, however, does not include central banks’ real-time gross settlement systems. It discusses a range of public and private sector payment systems, payment-network innovation, accountability and value, why governments develop and run payment systems, and why they should not.
Keywords: payment networks, payments innovation, central bank conflicts of interest, public versus private sector, payment system competition, cash, real-time payments.
The role of public-sector-led inclusive instant payment systems for growing the digital payments industry in Africa
Sabine Mensah, Deputy Chief Executive, AfricaNenda

Digital payments are the most popular financial service in Africa, having been adopted by half of all adults. Nevertheless, there remain significant barriers to access in Africa’s digital payment sector, stymieing growth. Cost and distance to a branch or agent are chief among them, exacerbated by the fact that many economies in Africa have small financial services markets, with payment sectors dominated by private sector financial service and payment system providers that have invested in proprietary, closed-loop digital payments processing infrastructure. These closed-loop systems can be inefficient and therefore expensive to operate, leaving payment services out of reach for millions of end users. With the goal of calling out fruitful approaches for expanding and maturing Africa’s payments market, this paper highlights lessons from four public or public–private instant payment systems (IPS) initiatives that aimed to build affordable and inclusive digital public infrastructure to enable broader access and therefore growth in Africa’s digital payments sector. Using case studies from Ghana, Malawi, Zambia and the Central African Economic and Monetary Community, this paper highlights lessons from these initiatives, including the need for enabling regulations, the need to craft a compelling business case for incumbent payment service providers, central bank involvement to ensure a focus on inclusive access, and customer-centricity to ensure the IPS can process high-demand payment types through the channels that end users prefer.
Keywords: financial access, financial inclusion, digital public infrastructure, instant payment systems.
Can cash and mobile pay co-exist? What the data tell us
Kevin Foster, Survey Director, Federal Reserve Bank of Atlanta, Claire Greene, Center Director, Payments Forum, Federal Reserve Bank of Atlanta, and Joanna Stavins, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston

As US consumers increasingly turn to multiple financial institutions, multiple FinTech providers and multiple payment apps, getting a full picture of the consumer’s wallet is rare. Drawing on data collected through the Survey and Diary of Consumer Payment Choice — a representative survey of US consumers conducted since 2008 — this paper provides insights into US consumers’ adoption of bank accounts and payment instruments, their recent use of payment instruments, their payment choices for purchases and bills, and the evolution in their practices over the last decade of innovation in payments.
Keywords: mobile payments, cash, consumer data, consumer behaviour, card data, payment apps.
Book review
Everything you need to know about letters of credit — A comprehensive guide to document credit by Dave Meynell and Pradeep Taneja
Reviewed by Lynn Ng, Chair, ICC Banking Commission

Volume 18 Number 2

Editorial
Gerard Hartsink, Editor
Practice Papers
The Indo–Russian payments corridor: Exploring and evaluating cross-border payment alternatives
Neha Vivek Dharurkar, Research Scholar, and Kanchan Patil, Deputy Director, Symbiosis Centre for Information Technology, Ameya Makarand Lonkar, Research Scholar, and Sonali Dharmadhikari, Associate Professor, Institute of Management and Entrepreneurship Development (IMED)

In response to the Russian invasion of Ukraine, western countries have imposed a number of economic sanctions on Russia, including freezing its foreign currency reserves, restricting the flow of trade and cutting off its access to SWIFT. The sharp fall in euro and US dollar denominated transactions has in turn impacted Russia’s trade with India, as it is now harder for the two countries to exchange payments. In this context, this paper explores the messaging, clearing and settlement alternatives available for making/receiving payments between India and Russia. Specifically, the paper examines a rupee–ruble trade arrangement, central bank digital currency, the linkage of faster payment systems and card infrastructures, the Russian System for Transfer of Financial Messages, and bilateral messaging systems. In addition, the authors evaluate various considerations pertaining to these options, as well as the implications, from the perspective of central banks, banks and merchants/customers.
Keywords: Rupee–Ruble Pact; CBDC; faster payments linkage; cross-border payments
Think globally, settle locally? Multilateral platforms for cross-border payments based on distributed ledger technology
David Ballaschk, Payments Expert, Constantin Drott, Payments Expert, and Stefan Mitzlaff, Payments Expert, Deutsche Bundesbank

Cross-border payments, especially between different currency areas, are still more expensive, slower and less transparent than domestic transactions. In addition to attempts to facilitate interoperability by harmonising message standards or legal frameworks, there is also the vision of using multilateral platforms to reduce existing inefficiencies. A particular focus here is on distributed ledger technology (DLT), which could create additional benefits beyond payment transactions, for example by facilitating broader economic activity by means of tokenised assets. Some private sector players, as well as international organisations such as the International Monetary Fund and the Bank for International Settlements, have already developed concepts for DLT-based multilateral platforms. However, their realisation faces broader policy challenges that are unlikely to be solved per se with the help of new technologies. Although a global multilateral platform does indeed harbour great potential for efficiency gains, regional solutions are more likely to emerge that could be linked together to achieve efficiency gains at a global level.
Keywords: cross-border payments; multilateral platforms; distributed ledger technology (DLT); digital money; central bank digital currency (CBDC); foreign exchange; central banks
Reserve-backed tokens: A money for the future?
Tirupam Goel, Senior Economist, Bank for International Settlements

Exactly what form the money of the future will take remains an open question. Central bank digital currencies (CBDCs), tokenised deposits and stablecoins have been discussed as potential candidates. This paper argues that reserve-backed tokens (RBTs) — backed solely and fully by central bank reserves — also represent a credible solution. RBTs pose a unique combination of benefits. Notably, they are safer than, and can crowd out, the unstable breeds of stablecoins. They can adopt a more flexible design than retail CBDCs and thus foster greater competition and innovation. Furthermore, compared with bank deposits, RBTs are immune to runs and are unencumbered by legacy features. Naturally, there are attendant risks and unknowns, but this paper argues that careful design and gradual rollout would help harness the benefits of RBT while mitigating the risks.
Keywords: CBDCs; stablecoins; tokenised deposits; crypto; central bank reserves; narrow banks
The role of the ISO 20022 messaging standard in improving payment transactions utilising participants’ data
Hari Prasad Josyula, Lead Product Analyst, FinTech

This paper critically evaluates the prospective influence of ISO 20022, a widely recognised communications standard, on payment services. ISO 20022 provides a standardised and extendable framework aimed at improving efficiency, interoperability, and customer experience in the financial sector. The paper examines how ISO 20022 application can drive revolutionary improvements in payment processing, speeding up transaction processes, and increasing data richness. It also emphasises the importance of taking a balanced approach to ISO 20022 adoption, taking into account both the benefits and obstacles. While ISO 20022 offers enormous opportunity for modernising payment services, organisations must overcome a number of challenges, including technological improvements, data migration and regulatory compliance, to fully realise its promise. By accepting ISO 20022 and addressing its related obstacles, stakeholders can realise the revolutionary benefits of this standard, paving the way for a more efficient and interoperable payment environment.
Keywords: ISO 20022; payments; standardisation; LEI; regulation; compliance
Declined card transactions: How online merchants can address the potential €15bn revenue hole caused by declines
Tom Hay, Senior Manager, and Nick Saywell, Senior Manager, PSE Consulting

Declined card transactions present a significant problem for the payment industry, causing inconvenience for consumers, lost sales for merchants and lost revenue for card issuers. An analysis of card-based e-commerce across the EEA and UK indicates a decline rate of 10 per cent for domestic transactions and 18 per cent for cross-border transactions, leading to a total declined value of €60bn per annum. Using data obtained from different sources, including merchants’ own records, and gateway, acquirer and scheme data, this paper identifies the main reasons why transactions are rejected, grouping them into four categories: valid business declines, avoidable business declines, risk-based declines, and technical declines. The study argues that merchants should focus on reducing decline rates in the latter three categories. Approaches might include use of the schemes’ account updater service; localisation of acquiring to the same country as the card issuer, where possible; smart routing to acquirers with higher success rates for the given transaction attributes; use of network tokens; leveraging of strong customer authentication exemption rules; and correction of technical issues in authorisation requests, such as incorrect setting of flags indicating the acceptance environment. According to PSE’s analysis, actionable codes account for around 25 per cent of all declines, totalling €15bn of transaction value (and €74m lost interchange for issuers). The paper therefore suggests that those merchants that are prepared to investigate and analyse the underlying causes of their declines have much to gain.
Keywords: card transaction; authorisation; optimisation; decline; merchant; acquirer
Explainability and operational resilience in the design of central bank digital currencies: A new generation of money-laundering deterrence software
Israel Cedillo Lazcano, Professor of Banking and IP/IT Law, and Director of Research and Graduate Studies, Universidad de las Américas Puebla

It has been argued that technologies such as blockchain could provide financial systems and societies with a better infrastructural solution to process information and identify illegal transactions. Building on this idea, this paper argues that if payment systems are to take advantage of the properties that define distributed ledger technologies, they must build on those models that have delivered improved trust in our economies. Accordingly, the model presented in this paper is based on a universal digital ID that could be interoperable among different jurisdictions. Such a digital ID would rely on an explainable framework structured around an understanding of the role played by central banks, intellectual property rights and personal data protection in the processing of information. Understanding the interaction between these elements may be the first step towards a better understanding of the infrastructures employed to tackle illegal activities, which could in turn contribute to the successful development of the standards on which the next generation of suspicious transaction or order reports will be based.
Keywords: CBDCs; money laundering; payment systems; operational resilience; distributed ledger technologies
The impact of migration and digitisation on global remittance volumes and socioeconomic development
Sachin Shah, Subject Matter Enthusiast – Financial Crime Compliance

This paper studies the impact of migration and digitisation on global remittance volumes. It finds that changes in migration trends are not only improving the financial status of the families affected but also positively affecting the flow of income for some low and middle-income countries, contributing significantly to their gross domestic product, and thus providing them with more money to spend on social infrastructure. At the same time, increasing digitisation within the remittance industry is driving greater efficiency and thus reducing the cost of remittance and, in turn, reducing reliance on traditional and less efficient information-based remittance approaches, such as hawala. The paper uses both graphical analysis and regression analysis to illustrate the economic impact of migration trends and technological innovation in the remittance sector. Looking to the future, the paper predicts exciting times for the remittance industry due to further shifts in migration patterns and the adoption of new digital technologies, such as distributed ledger technology and blockchain. The paper calls for more opportunities for similar investigations as well as studies into how factors such as stringent implementation and the enforcement of financial crime regulation and policy frameworks by governments have a bearing on the growth of the remittance industry.
Keywords: money transfer organisations (MTOs); international migrant workers; global remittance volumes; average cost of remittance fee

Volume 18 Number 1

Special Issue: Compliance in the payments industry

Editorial
Gerard Hartsink, Editor
Special Issue Practice Papers
Speed at the expense of safety? Economic crime security concerns in the implementation of the G20 Roadmap for Enhancing Cross-border Payments
Nick J. Maxwell, Head of the Future of Financial Intelligence Sharing research programme, Centre for Financial Crime and Security

This paper argues that, in its current form, the G20 Roadmap for Enhancing Cross-border Payments raises substantial risks for fraud and financial crime, and is highly likely to reduce the effectiveness of the financial sanctions regime. Furthermore, it holds that there is a fundamental disconnect between those G20 policy makers responsible for payment system reform and those authorities responsible for fraud prevention and tackling financial crime. This disconnect is leading to imbalanced policy-making that risks embedding fraud and financial crime vulnerabilities within cross-border payment systems. This paper argues that G20 policy makers need to ensure that payments reform does not create new economic crime vulnerabilities or undermine existing defences against fraud and financial crime. This should involve: (1) greater coordination and a sense of shared responsibility between payments and economic crime-related policy makers, internationally and at the domestic level; (2) the establishment of a policy principle of ‘economic crime security by design’ in payments reform policy; and (3) the deployment of a risk-based approach in faster cross-border payments that would enable customers to opt into safer corridors for payments, allowing for appropriate analysis, screening and the recall of payments where appropriate from a risk perspective.
Keywords: fraud; financial crime; sanctions; anti money-laundering; G20; cross-border payments; legal standards; ISO 20022; Financial Action Task Force; Bank for International Settlements; Committee on Payments Market Infrastructures; Financial Stability Board
Compliance requirements in the future EU Anti-Money Laundering and Countering the Financing of Terrorism Framework
Roger Kaiser, Head of Tax and Compliance, European Banking Federation

As gatekeepers of the financial system, financial institutions and payment service providers play a pivotal role in detecting suspicious activities and transactions. Recognising the inefficiencies and ineffectiveness of the current EU Framework for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT), in 2021 the European Commission issued a package to address these issues and improve the framework. This package is very likely to be adopted by the EU co-legislators in Q1 2024. It encompasses four legislative instruments: (1) the proposed AML/CFT Regulation will harmonise the rules and obligations for the private sector (COM/2021/420 final); (2) the proposed AML/CFT Directive will harmonise tasks and powers of public authorities (COM/2021/423 final replacing the existing Directive 2015/849/ EU); (3) the proposed AML Authority Regulation will establish the Authority for Anti-Money Laundering and Countering the Financing of Terrorism, amending Regulations (EU) No. 1093/2010, (EU) 1094/2010, (EU) 1095/2010 COM/2021/421 final); and (4) a proposal to recast the Fund Transfer Regulation to trace the transfer of crypto-assets (COM/2021/422 final reviewing Regulation 2015/847/EU). This paper will describe each of these legal instruments, with a focus on the AML/CFT Regulation, which provides financial institutions and payment service providers with a new ‘AML Rulebook’.
Keywords: compliance; payments; anti-money laundering; financing of terrorism; AML/CFT framework; regulation; directive; EU; financial system
Know your customer: Unravelling the challenges
Hans-Joachim von Haenisch, Director, Von Haenisch Consulting Ltd and Thomas Egner, Secretary General, Euro Banking Association

Regulated financial institutions must conduct regular know-your-customer (KYC) reviews on corporate clients to prevent money laundering and the financing of terrorism. However, national add-on requirements and regulatory discrepancies challenge the vision of a unified Europe, hindering the creation of an efficient, digital and hence scalable pan-European anti-money laundering (AML) process for all stakeholders who are active beyond their national borders. The current inability of banks to introduce efficient but robust pan- European KYC processes delays customers’ access to finance and other banking products, and indirectly impedes the free movement of goods, services and capital. The European Commission plans to introduce the Anti-Money Laundering Regulation (AMLR) to harmonise and strengthen the EU AML framework. This could reduce national divergences, allowing for a level playing field across the internal market and consistent application of provisions throughout the EU. Unfortunately, harmonised regulation alone does not solve the current issues faced by financial institutions. While a harmonised rulebook provides certainty related to ‘what’ needs to be done, significant pan-European discrepancies remain related to ‘how’ the requirements can be fulfilled. For example, the EU has directed all member states to establish commercial and beneficial ownership registers, but left the design of such registers under the authority of the member state. Consequently, banks active on a pan-European level have to adjust their processes based on the type and content of the national register. Also, the definition of what constitutes a politically exposed person (PEP) varies significantly across the EU, as do the enhanced due diligence requirements which are triggered upon the identification of such a PEP. This paper provides suggestions on how EU member states can help the financial industry in a joint effort to prevent money laundering and combat the financing of terrorism more effectively. The objective of this discussion is to create a streamlined and unified approach to KYC processes across Europe.
Keywords: know-your-customer; KYC; ultimate beneficial owner; politically exposed person; anti-money laundering; AML; Anti-Money Laundering Regulation; European business registers; financial crime compliance; harmonisation of regulations
Leveraging the Legal Entity Identifier to mitigate the risk of financial crime and enhance fraud prevention in cross-border payments
Clare Rowley, Head of Business Operations, Global Legal Entity Identifier Foundation

While today’s global digital economy promises a new era of commerce, its sheer complexity also presents opportunities for malicious actors to perpetrate money laundering, terrorism financing, and other forms of financial crime. Despite the escalating compliance costs faced by financial institutions needing to meet increasingly rigorous anti-money laundering (AML), counter-terrorist financing (CTF) and sanction screening obligations, the lack of harmonisation within cross-border data flows inhibits the identification of suspicious actors and exposure of criminal networks. This contributes to a cross-border payments ecosystem that can be broadly characterised by limited trust, high costs, low speed and insufficient transparency. This is leading to increasing industry recognition of the need to promote unified, data-driven approaches to combating financial crime globally. In view of this growing consensus, the Legal Entity Identifier (LEI) is emerging as a key enabler. This paper examines the drivers of this consensus by: (1) detailing findings from key industry organisations, such as the Bank for International Settlements (BIS) and Financial Action Task Force (FATF), outlining the need to increase data quality and standardisation of the data identifiers used within cross-border payment messages to counter complex global criminal enterprises; (2) outlining regulatory and industry momentum to leverage the unique benefits of the LEI within cross-border payment messages, to include an analysis of the implications and opportunities of ongoing initiatives to enhance payment market infrastructures; and (3) demonstrating how, by addressing inconsistencies in how legal entities are identified, connecting a greater range of datasets, and capturing entity relationships and ownership structures, the LEI mitigates AML–CFT risks, enhances fraud prevention, and supports more efficient sanction screening in cross-border payments. This is supported by examples of real-world industry initiatives.
Keywords: cross-border payments; digital identity; financial crime; FSB cross-border roadmap; FATF principles; fraud management; AML–CFT management; counterparty risk management; management of sanction risks
Transaction Monitoring Netherlands: Fighting financial crime through data collaboration and advanced analytics
Norbert Siegers, Chief Executive Officer, Transactie Monitoring Nederland

This paper discusses the experience of Transactie Monitoring Nederland (TMNL) — a collaboration between ABN AMRO, ING, Rabobank, Triodos Bank and De Volksbank, established in July 2020 to enhance financial security and compliance within the Dutch financial sector. The paper explores TMNL’s impact, the key lessons learned from its implementation and operation, best practices and its potential future role in safeguarding the integrity of the financial sector. As the paper explains, there is a growing consensus that more can be done to strengthen the framework for fighting financial crime through public–private partnerships and increased data/information sharing. To this end, TMNL works to identify potentially unusual transaction patterns that are not visible to individual banks in isolation, underscoring the significance of collaboration and information sharing among financial institutions (and with other key players in the prevention ecosystem), and developing a united front against financial crime. The paper calls for the integration of artificial intelligence and machine learning in identifying complex patterns and anomalies in transaction data and emphasises the need for this to happen in a secure, sustained and viable fashion. It also underscores the ongoing need for regulatory adaptability, arguing that as financial crimes evolve, regulatory frameworks must be dynamic to address emerging challenges effectively. In conclusion, the paper provides valuable insights into the successful implementation of collaborative compliance efforts and the continuous adaptations required to combat financial crime.
Keywords: Transaction Monitoring Netherlands; TMNL; financial crime; money laundering; payments; banks; risk management; terrorist financing
A pan-European fraud taxonomy: Do you speak fraud?
Annick Moes, Head of Industry Issues, Cooperation Initiatives and Communications, Euro Banking Association and Meral Ruesing, Communications Expert, Euro Banking Association

Understanding the myriad activities of fraudsters, and finding effective measures to rapidly counteract them, continues to be a vexing problem for payment service providers (PSPs) — a challenge that is being intensified by the move to a 24/7/365 and real-time payments environment. To strengthen the fraud detection and prevention tools available to PSPs, there are growing efforts within the industry to create a pan-European ecosystem for sharing fraud data and intelligence, facilitated by regulatory and legislative developments. To ensure that the benefits of these new tools can be fully reaped, this paper argues that there is a need for PSPs to get their own houses in order by harmonising the fragmented fraud terminologies and internal reporting requirements in practice today. By leveraging the Euro Banking Association (EBA) Fraud Taxonomy — a common pan-European vocabulary for fraud categorisation — PSPs can ensure their data are not just comparable across the European ecosystem, but also granular and actionable. This paper contends that the move to this pan-European fraud taxonomy will serve as a foundational step in the introduction of fraud data sharing solutions.
Keywords: fraud taxonomy; fraud combating; instant payments; data sharing; IBAN-name check; GDPR; PSD2 review
The imperative of building and fostering a strong compliance culture in the evolving cross-border payments space
Michele M. Fleming, New York State Licensed Attorney

It is a period of substantial change for the ever-growing cross-border payments space, with numerous new trends emerging, along with new technologies, new market entrants and participants, and unprecedented regulatory collaboration around the G20 Roadmap for Enhancing Cross-border Payments. This paper discusses the drivers for the changes underway, explains the continued context of elevated compliance risks in the cross-border payments space, and calls for the entire ecosystem, including banks, service providers, new entrants and regulators, to focus on building and fostering a strong culture of compliance. This imperative is even more critical for new entrants who may not be subject to the same level of stringency within their current applicable regulatory regime and who may believe that this gives them more flexibility than other service providers. Building and fostering such a culture of compliance will have numerous benefits, including the reduction of crime. This paper argues that the universal commitment to such a culture of compliance among all parties involved in the ecosystem must begin with the adoption of an inquisitive compliance mindset, that is, a mindset that acknowledges the critical importance of compliance requirements, the rationale for their adoption and a willingness to ask questions and get detailed responses on an ongoing basis. Such a dynamic understanding would facilitate any future changes required by evolving regulations.
Keywords: cross-border payments; compliance requirements; compliance culture; inquisitive compliance mindset; new entrants; criminals; regulators
A model of decentralised oversight for the digital asset industry with an example anti-money laundering/know-your-customer standard
Ben Van Vliet, Director, Center for Strategic Finance, Illinois Institute of Technology

The financial industry makes wide use of data standards for both subjects — people and firms — and objects — digital assets and messages. Having the correct data is critical for achieving operational and compliance goals. Rarely employed, however, are management standards that define the obligations of subjects. In traditional finance, the need for such standards is supplanted by compliance with rules-based regulations. Decentralised finance presents a new paradigm that is not necessarily optimally overseen in the traditional way. This paper explores the potential usefulness of industry-defined ISO management standards for decentralised oversight of the digital asset industry. ISO standards are known to promote the diffusion of norm-driven practices and responsible innovation, and to potentially reduce costs and facilitate global trade. The paper includes a simple, theoretical model to verify a firm’s adherence to such standards as a way to establish trust when needed. The appendix presents an example management standard for anti-money laundering/ know-your-customer procedures, which defines obligations with respect to customer onboarding and transaction monitoring, similar to traditional banking regulations, as well as the travel rule. It follows the structure and style of ISO 27001. Firms could potentially be audited against such a standard (potentially alongside others) as a way of signalling their trustworthiness.
Keywords: decentralised finance; cryptocurrencies; regulation; anti-money laundering; trustworthiness; virtual asset service providers; ISO standards
Payments Practice Paper
Instant payments: Providing the rails for new payment solutions
Niels M. Pranger, Policy adviser, Dutch Payments Association

In November 2023, European legislators reached an agreement on legislation to increase adoption of instant payments. Instant payments enable consumers and corporates to make transactions in real time and 24/7. These unique features allow for value-added services such as e-commerce and point-of-sale payment solutions that can compete with card payments. Through a discussion of a number of successful payment solutions built on instant payments, this paper explains how instant payments could help Europe in its quest to develop a homegrown payment solution. The analysis starts with a discussion of Brazil’s Pix and India’s Unified Payments Interface, providing interesting insights into the possibilities of instant payments. The paper then moves on to a description of the European Payments Initiative — the consortium of European banks that recently acquired iDEAL, the Dutch accountto- account e-commerce payment solution. The paper also shows how Swish — the Swedish payment solution — provides valuable lessons to Europe as regards the launch of a payment solution, notably with respect to the importance of realising network effects.
Keywords: instant payments; pan- European payment solution; payments soreveignty; European Payments Initiative; Pix; UPI; Swish