Key Points

References

Key Concepts

FX costs are 60% of cross border payments

https://www.linkedin.com/posts/tomzschach_financial-stability-board-fx-is-60-of-cost-activity-7117438343486795776-9IpG?utm_source=share&utm_medium=member_desktop

There is a misconception that wholesale cross border #payments are slow and expensive, but the vast majority of payments are very fast and most of the cost is in foreign exchange. In fact, 89% of its transfers arrive at the recipient bank within one hour, rising to 99% in one day. However, a high proportion of payments are stalled at the recipient bank. The drivers are well known and work in progress. Only 54% of the transfers are credited to the customer’s account in one hour, and 93% within a day. The G20 targets are 75% and 100% respectively.

There is still a lot of work to do to make payments instant and frictionless.

https://www.ledgerinsights.com/cross-border-payments-financial-stability-board-fx/

Swift CBDC payment solution POC sandbox

hope everyone is doing well and has had a great start to 2023. I wanted to provide an update on the CBDC Sandbox initiative and share our plans for H1 2023 with
you.
14
in; First, I would like to start by saying thank you to everyone who was involved throughout the course of the Sandbox for the valuable input and contributions. Your
(if strong engagement has been vital to the success of this initiative so far
16 Over January, we have been actively working on what's next for our collaboration:
pH
In 1. We are currently in the process of writing up a results report outlining what the CBDC Sandbox involved and the themes and topics we uncovered.
We aim to have a draft of this report ready shortly and will share with you for feedback and comment.
2. Based on your feedback, we are now developing a beta version of the CBDC interlinking solution that we experimented on together, and intend to have that ready
By for further testing in Q2
Di 3. In parallel, we are looking at what the next iteration of the CBDC Sandbox should looks like, with further use cases. Naturally, we would be very keen to continue to
work with you as we go forward

The proposed timeline and key dates are as follows:

1. 7" February: we will send the draft CBDC sandbox results report to you for comment

2. 14th February: please return the draft results report to us with any' feedback or comments. At the same time, please let us know if y you are happy for your institution to be named publicly in the report

3. if we do not hear from you, we will assume your institution would rather not be named)

4. |6" February: we will organize a session to share in more detail progress with the beta version of the CBDC interlinking solution and plans for the next phase of the CBDC Sandbox

5. In parallel, we are also very open to organizing bilateral or small group sessions if you would like to engage with us directly

6. Week of 20" February: we will share a final draft of the result report for information

7. By end of February: publication of the CBDC sandbox results report.

Once again, thank you for your contribution so far and we look forward to continuing on this exciting journey together in 2023!
Kaleb Fry
Product Strategy & Innovation | Banking & Payments | SWIFT

Working with Swift on VCE solution design is key for 2023

Process

• Define

• Design

• Plan

• Deliver

• Implement

• Support

Solution Decision Process for ERP

https://www.bizjournals.com/boston/news/2019/09/16/how-to-make-the-right-decisions-about-your-erp.html?fbclid=IwAR3-kMOCx-iCWABvypEylZvNlTQvvAIx79bJnO9DmahMAdxle4IxhKT-Tm8

If your company is evaluating a major change to your ERP systems, here are the steps to consider.

Value planning

1. Defining how the systems will add value to the business – both quantitatively and strategically.

2. Aligning the strategic direction of the company with the operational changes you need to make.

3. If they don’t exist yet, blueprinting your business’s processes and evaluating the types of changes that will drive the most value.

4. Assessing the pain points in the current business and understanding how changes to underlying systems can address them.

Selection

1. Defining the processes of the business – How will you communicate what your business is as an operating entity to software vendors?

2. Defining your key requirements – What does your business do to compete more effectively and run more efficiently than other companies?

3. Knowing how to separate technology that adds value from technology that demos well.

4. Evaluating and short listing the most qualified solutions and implementation vendors.

5. Working with short-listed vendors to create demos that allow your staff to compare them “apples to apples.”

Budgeting

1. Accurately budgeting licensing and infrastructure, including understanding the various discounting levers available.

2. Accounting for hidden costs like bandwidth, additional hardware, and your people’s time.

3. Ensuring adequate investment in change management and training.

4. Staffing adequately and ensuring the right people are in place to oversee the program.

Program management / implementation

1. Executing the implementation with discipline and predictability.

2. Structuring governance over key decisions on the project.

3. Containing scope and budget.

4. Understanding how the project interacts with day-to-day business activities and other projects, and being able to make decisions about tradeoffs of staff’s time and attention.

Governance and sustainability

1. How will the business create ideas for improving the system once it is live?

2. How will the ideas be grouped into projects and prioritized?

3. How will the projects be executed in a way that controls risk to the business?

4. How will you ensure that future decisions about system changes control risk and don’t create unnecessary complexity and chaos?

ERP Implementation Design

ERP Implementation Planning

Payment Services Security and Regulation Concepts

We follow a strict set of rules set by regulatory agencies in every single country we operate in, from the FCA in the UK to FinCen in the US. These agencies are there to protect you. And they make sure that we’re always acting honestly and fairly.

On top of that, we have bank level data security. We will never sell your data.

Plus, we have a specialised, in-house team that look after security. It’s their job to keep Wise watertight. They do training regularly — and they’re always reviewing our processes. Because of their w

Payments API standards - ISO20022

https://www.iso20022.org/

Payment Workflow Messages

Open

credit transfer example

Open

bank to bank settlement flow

reporting the deposit

P2P payments with W2W and crypto 

Payments Meta model

https://iso20022.plus/model/metamodel/

Message Delivery Architecture

coming support for JSON-LD

https://iso20022.plus/2021/03/20/iso20022-api-2020-09-14/

For the ISO20022.org e-Repository of 2020-09-14,
we provide the following experimental packages for:

• JSON Schema and RESTful OpenAPI

  • adding support for JSON-LD

• SHACL – for Semantic Web Technology, supporting all RDF formats.

  • now with improved validation reporting.

ISO20022+API+20200914+SHACLDownload

ISO20022+API+20200914+JSON+LDDownload

Release Notes

JSON schema now supports JSON-LD, an RDF serialisation format,
by permitting the use of @type, @context, and decimal value objects.
This enables JSON with or without JSON-LD enhancements.

To Learn

https://www.oracle.com/technetwork/oem/s318122-ebs-vision-release-roadmap-181622.pdf

Potential Value Opportunities

Swift Phase 2 CBDC Trade Finance Use Cases shows opportunity for faster settlement

https://www.thebanker.com/Swift-tests-show-cross-border-digital-currency-potential-1712215202

In the latest phase of sandbox testing, more complex use cases were explored, employing Swift’s solution to link and orchestrate transactions across simulated digital trade and tokenised asset and FX networks as well as CBDCs for payments. More than 750 transactions were executed during the course of the experiments. 

Swift looked at each kind of use case and how a CBDC, or digital currency more broadly, could add benefit to each. One of the use cases examined was whether a cargo ship entering a port could trigger a payment. 

“We saw that by combining the digital trade and digital trade documents with digital money, you could achieve some real benefits in terms of automation and efficiency,” said Kerigan. “This could be very significant for digital trade in the future.” 

Another finding from the sandbox centred around the digital securities use case. “We were able to show that you could successfully achieve delivery versus payment for securities, when the security and the money were on two different platforms,” he said.

The Swift system could offer additional consumer benefits, according to Paul Darby, delivery lead at quality engineering consultancy Roq. “There would appear to be potential benefits from CBDCs linked to transparency, financial inclusion and mitigating the risk of institutional failure, as well as reducing the costs of cross-border transactions for individuals and small to medium-sized enterprises using those services via the Swift network today,” he added. “There will be much academic dialogue about CBDCs, what they offer and how they improve things.” 

However, he warned, “We only need to look to open banking to realise that consumer adoption is not always straightforward if the process involves behavioural change.”

Reducing Payment Card Processing Fees

https://www.linkedin.com/pulse/reducing-payment-card-processing-fees-ira-chandler/?trackingId=%2BkFD845J40M1ZUcKYNhxag%3D%3D

Payments by cards have been a massive enabler for both merchants and consumers by allowing quick and easy payments as the world transitions rapidly to a cashless society.

The cost to merchants when they accept card payments is a major business expense. A component of these fees is unavoidable. The card brands dictate specific percentages for specific cards for specific transactions in what are called "INTERCHANGE" tables.

Our long experience here at Curbstone Corporation has shown there are STILL a number of ways of minimizing the merchant fees. The parties involved are shown here:

STEP 0 - WHAT ARE FEES and DOWNGRADES

Transactions are billed to the merchant based on a small, per transaction, set fee, plus a percentage of the transaction value as dictated by the Interchange table. These fees are so small, they are discussed as "BASIS POINTS". One Basis Point is one-one-hundredth of a percent (0.01%). Even a small reduction in the percent charged has a major effect on a merchant's bottom line, which makes it worthwhile to pursue every opportunity.

The transaction fee is based on the Interchange fee levied by the credit card brands, such as Visa, Mastercard or Amex. That is the starting point for the best case transaction. But...

Various factors increase the base Interchange fee, called "DOWNGRADES". The downgrades are levied when the transaction is performed in a way that increases the chance a cardholder will protest it and do a "CHARGEBACK".

Typically, the amount of the downgrade varies according to the risks of fraud or likelihood of Chargeback associated with each transaction.

STEP 1 - DETERMINE YOUR CHARGEBACKS

The first step in reducing transaction fees is for the merchant to determine exactly what their current charges are for. This will point to possible areas where improving transaction security could result in a fee reduction. The company who processes your card charges is called the "ACQUIRER" and can be you rlocal bank, another bank, or a company specializing in that. They provide a fee report periodically. The report they provide may not give you the detail required to know what your downgrades are being caused by. Request a detail report from them, explaining that you want to evaluate your individual chargebacks. Once you have that report, review the causes, and get them to help you understand what they are. Alternatively, engage a processing Partner like Curbstone to assist.

STEP 2 - UNDERSTAND THE CATEGORIES

The chargebacks will fall into the following categories:

The primary areas that incure Downgrades include:

1. Timeliness

2. Fraud Prevention Compliance

3. Category

4. Content

CATEGORY 1 - TIMELINESS

The longer it takes for the cardholder to see the charge on the card, the more likely they will forget it. If they forget, they can protest the charge and cause a "CHARGEBACK" where the merchant has to jsutify the charge, an expensive and time-consuming process for the Acquirer. So, to encourage the merchant to "SETTLE", deposit the authorization and request payment, as soon as possible, the card brands will charge HIGHER FEES the longer it takes. If a card is pre-authorized on Monday and setled that night, the base Interchange is applicable.

However, if the card is settled the next day, a Donwgrade is applied and the merchant pays a higher fee. The Downgrades continue to increase after one day, three days, and 7 or 10 days (MC or Visa). \

So performing a pre-authorization that you cannot settle quickly works aginst you.Some businesses must work this way and absorb the downgrades. Most can work to settle transactions quickly.

CATEGORY 2 - FRAUD PREVENTION

see Blockrails for payment fraud prevention

The biggest way to prevent fraud is to use the two functions provided for all US-issued cards:

• AVS - Address Verification Service

• CVV - Security Code Validation

AVS requires the merchant to provide AT LEAST a 5 digit US zip code to be checked against the billing address of the cardholder at their issuing bank. The zip does not have to match, BUT THE ATTEMPT MUST BE MADE, or a large downgrade is levied. For the merchant's protection, an attempt should also be made on the street address at the same time. Many smart merchants will not accept a card without an AVS match.  

If you accept the card, and it turns out to be a fraudulent use, you get the biggest fee of all, a chargeback, where you lose both you payment and the goods or services.

CVV is the security code on the card, 3 or 4 digits. Since it is not coded in the magnetic stripe, it cannot be stolen if the stripe contents are stolen. While cards can be authorized and approved without the security code, that exposes the merchant to an indefensible chargeback. Not attempting a match will not result in a 

CATEGORY 3 - CATEGORY

This refers to the type of transction. For instance, you are a retailer and accept physical cards in an EMV terminal. A customer, for any reason, cannot get their card to work, so you KEY in the card number into the terminal. It is a CARD PRESENT terminal, doing RETAIL transacitons, typically. But the act of keying the card is another cATEGORY of processing, not "retail", but "MOTO" - mail order, telephone order. Since the connection is for retail, you will pay a significantly higher rate for that keyed transaction.

Another area here is behind the scenes, where your software is not populating the fields correctly. At Curbstone, we commit to provide ALL of the required fields to allow merchants to get the best rate, so our software will never stand in the way.

CATEGORY 4 - CONTENT 

Content covers a lot of things, specifically that data contained in the fields submitted. For one example, if a pre-authorization is done on Monday for $1200, and settled on Monday for $1106, there will be a downgrade. This is levied because the amount held on the pre-auth does not match the settled amount. This presents a great opportunity for the cardholder to do a chargeback because they don't recognize the amount! The downgrade for timeliness was avoided in Category 1, but the differening amounts cost the merchant.

Another aspect of CONTENT is when a Corporate Purchasing Card (CPC) is used, which are typically issued to companies for B2B purchases. If the card is a Level II CPC, and the merchant does not provide the additional four fields of tax amount, tax flag, destination zip code, and customer purchase order number, there is a stiff downgrade.  

If the card is a Level III CPC, and the detailed line items are not also submitted, the downgrade is even more. This is primarily affecting B2B businesses. Curbstone assisted on merchant in svings about $40,000 in downgrade fees by providing support for Level II and Level III. Each month. Yes, they saved $40,000 per month by just providing fields for Level II and Level III for their B2B operation.

SUMMARY

Curbstone Corporation has long experience in assisting clients to maximize their transaction security, thus minimizing the fees they pay. We welcome questions from any merchant on the IBM i Operating System.

Curbstone Corporation’s secure technology processes about $2.4 Billion per year for merchants on the IBM i (AS/400, iSeries) platform, for phone orders, e-commerce, and retail.

Potential Challenges

Candidate Solutions

Solana Pay - digital payments 

https://www.fool.com/investing/2022/02/23/this-is-why-visa-mastercard-and-american-express-a/

On Feb. 1, 2022, Solana Pay was introduced to the public, and it could revolutionize financial transactions as we know them. Buyers and sellers can make transactions with a few clicks. They don't have to use a cryptocurrency like Solana but can instead use a stable coin like USDC, just like using dollars on a credit card transaction. In time, other tokens from the Solana ecosystem could likely be used as well. 

Similar in concept to the solution we designed using custom Stellar tokens, Wise payments, wallets for F2P

Solana Pay using stable coins eliminates significant valuation risks

Potential gains

• faster payments, settlements

• Significant savings in credit card charges

Potential challenges

• Standards and implementation lack maturity of existing credit systems

• Regulations not yet 

Expected impacts of Crypto payments

• some impacts on debit cards

• longer term impacts on credit cards margins, volumes

Today, there are merchants in Silicon Valley who already accept Solana Pay. And millions of users already have Phantom wallets, a common crypto wallet that can hold Solana or USDC. All users need to do is scan a QR code, and the transaction is completed in seconds. 

Step-by-step guide for Example

sample code block

sample code block

Recommended Next Steps

Related articles