The financial services industry is facing an unprecedented wave of regulatory mandates, particularly in the payments space. These changes are reshaping financial messaging more intensely now, presenting significant challenges for banks worldwide. Important technical deadlines are a metaphorical moving target in 2025 and a bit of a fire drill.
For example, the European Payments Council mandated that Payment Service Providers (PSPs) be able to receive SEPA Instant payments starting January 2025. The relevant rulebook was finalized in November 2023, leaving just 14 months for implementation. Such ambitious deadlines often require extensions. In another instance, the Federal Reserve Financial Services (FRFS) announced in February that the original deadline to implement the new ISO 20022 message format for Fedwire has been moved from March 2025 to July 2025.
That’s just a taste of deadline switcheroos, and more may come. Driving the shifting regulatory sands is the evolving nature of payments and related global financial trends. "We're seeing a move from days-long payments to seconds-long payments, plus global adoption of the ISO 20022 standard," said Sadiq Javeri, Financial Messaging Product Lead at Bottomline.
This is also partly led by the rise of payment services such as Venmo, Zelle, FedNow, and RTP® from The Clearing House. All are setting new expectations around payment speed and convenience for both consumers and corporate users. For their part, regulators are pushing banks to adopt newer schemes and implicitly upgrade the infrastructure behind them. "The pressure is on banks to evolve their technology infrastructure to keep pace with these changes," Javeri notes.
Banks Tackle Regulatory Realities
Banks face several hurdles in their efforts to comply with new regulations. Many operate on legacy systems that struggle to accommodate new standards and fast processing. Tight timelines set by regulators often don't account for the complexity of implementations.
Additionally, banks must balance regulatory projects with ongoing operations and other strategic initiatives. The lack of coordination between multiple regulatory bodies can also lead to overlapping or conflicting requirements, further complicating the situation.
Despite these challenges, Javeri believes banks can successfully manage regulatory overload by adopting the right strategies and mindset. He emphasizes two critical areas where banks should focus, now and going forward:
1. Present: Strategies for Successful Compliance
There are several reliable strategies for banks to succeed in delivering projects under tight regulatory deadlines. Javeri advises early engagement with vendors for a start. "Don't wait until mandates are finalized to bring in your technology partners," he stresses. “Timelines dictate your organization needs to be primed and ready to execute once the final text is published, with people, plans and tools mostly secured.”
Early collaboration can also help identify and coordinate potential issues to raise with the regulating bodies and streamline implementation.
And while vendors can play a significant role, he cautions against outsourcing entire projects. "Banks need to maintain their own expertise to manage these transitions effectively," he said. Having in-house knowledge is vital for making informed decisions and maintaining control over critical processes.
Investing in connectivity and data aggregation infrastructure is another core recommendation. "Banks should focus on building a robust infrastructure for connectivity and data aggregation," Javeri advises. This investment can facilitate compliance with current and future regulations while also improving overall operational efficiency.
Finally, an agile approach to implementation is also advisable. By making changes incrementally, banks can manage complex projects more effectively and adapt to evolving requirements. Such flexibility is crucial in a rapidly changing regulatory environment.
2. Future: Investing in Agile Payment Connectivity and Data Aggregation
There’s no end in sight for innovation around digital payments, and it’s expected that the regulatory burden and pace will continue. Javeri identifies four key areas of change in financial messaging that are driving this activity in connectivity and data aggregation:
- Proliferation of payment methods: Banks need to support an increasing variety of payment options to meet customer demands and regulatory requirements.
- Greater payment transparency: Regulators and customers alike demand more visibility into payment processes and statuses.
- Format standardization: Global adoption of ISO 20022 is reshaping how financial messages are structured and processed, and there are other standards to manage.
- Emergence of embedded finance: Financial services are increasingly being integrated into non-financial platforms and applications, adding complexity.
These changes underscore the critical role of financial messaging connectivity in modern banking. "Banks need to adopt a technology-first approach to meet regulatory demands and stay competitive," Javeri said.
The impact of these changes extends beyond regulatory compliance. They are fundamentally altering the landscape of B2B payments. "These developments are driving investments in connectivity and data aggregation, which are essential for handling the increasing complexity of payment systems," he added.
Banks that invest in connectivity infrastructure will be better positioned to handle current and future regulatory mandates and meet the evolving needs of commercial customers. This includes the ability to support a wider range of payment methods, provide greater transparency, and offer embedded finance solutions.
To make future regulatory transitions more manageable, Javeri suggests several improvements to the regulatory process. He advocates for earlier and more transparent guidance from regulators, with clearer timelines and expectations provided well in advance of the final text being published.
Avoiding multiple rolling deadlines, as consistent, well-defined targets are preferable to a series of shifting goalposts, is also high on the list.
When extensions are necessary, Javeri argues they should come with sufficient time for thorough implementation. Involving technology vendors in discussions about timelines to ensure more realistic expectations is critical. As the regulatory landscape continues to evolve, banks have an opportunity to turn these challenges into competitive advantages.
Proactive and Agile Wins Every Time
By adopting a proactive approach, investing in technology infrastructure, and collaborating effectively with vendors, banks can not only comply with regulatory requirements but also gain a significant edge in the market.
Javeri's advice to banks is clear and actionable: "Invest in your connectivity infrastructure, engage early with vendors, and adopt an agile, incremental approach to project delivery,” he says. “These strategies will help you navigate the complex regulatory environment and position your institution for success in the rapidly changing world of payments and financial messaging."
The financial services industry is undergoing a profound transformation, driven by modernization, changing customer expectations, and regulatory pressures. Banks that embrace these changes and build adaptable systems will be best equipped to thrive in the new era of payments and financial messaging. By focusing on robust connectivity, strategic compliance, and agile implementation, banks can ride the wave of change and emerge stronger and more competitive in the evolving financial landscape.
In short, the future belongs to banks that can adapt quickly, innovate continuously, and turn regulatory compliance into a springboard for broader digital transformation.