VIVA-Tech International Journal for Research and Innovation Volume 1, Issue 5 (2022)

ISSN(Online): 2581-7280
VIVA Institute of Technology
10th National Conference on Role of Engineers in Nation Building – 2022 (NCRENB-2022)

AI-powered digital payments

Milan George1, Aditya Gurav2
1(MCA, Viva Institute of Technology / Mumbai University, India)
2(MCA, Viva Institute of Technology / Mumbai University, India)

Abstract: This research paper explains how a payment can be automated and how we can remove a lot of manual
work from the back office that goes on to verify the payment. This research paper is an overview of the
International Payments domain and by using ML, AI, and NLP we can automate the entire process and we can
verify each payment using STP.

Keywords: STP, SEPA, SWIFT, IBAN, BIC

I.Introduction

When making an international transaction there are a lot of things that need to be considered i.e., IBAN,
BIC Code, NCH code of the respective country, etc. So, to make sense of all these terminologies and details we
need a system and luckily there is a system present which is known as STP.

II. STP

The ability to send, receive and process a financial transaction from start to finish using an electronic
system and without any manual intervention is known as STP. STP stands for straight-through processing. STP
requirements for different banks can be different depending on their back-office systems. STP mainly uses AI
(Artificial Intelligence) and NLP (Natural Language Processing) to process payments.

III. How did STP come into existence?

The banking industry is under permanent pressure for the innovation of banking services and banking
products. According to World Payments Report 2018 during 2015-2016, global non-cash transaction volume grew
at 10,1% to reach 482,6 billion and it is growing rapidly. We must agree with Chris Hamilton, Group CEO,
BankServ Africa that without a developed payment system we cannot have a developed economy. The growth of
the economy depends upon the digital payment systems that are implemented. The head of international payments
and receivables at BNP Paribas Mr. Bruno Mellado stated that the whole market infrastructure worldwide is
moving fast to real-time payments and taking away the restrictions of end-of-days and validations as things would
be working 24/7. Together with digitization and the development of new technologies, they are creating new
opportunities for entrepreneurship in a volatile, uncertain, resulting in a revolution of demand and supply in the
field of the energy supply side, which requires an adequate transformation of existing business models.

Technological innovation such as smartphone adoption has reached 70% in developed countries, while
in various developing countries smartphones are replacing cash and banking cards i.e., debit cards, credit cards,
etc. Payment providers are regularly popping up due to catalysts like social platforms: nearfield communication
(NFC) based payments and digital currencies. While the traditional financial industry once controlled the

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VIVA-Tech International Journal for Research and Innovation Volume 1, Issue 5 (2022)
ISSN(Online): 2581-7280
VIVA Institute of Technology
10th National Conference on Role of Engineers in Nation Building – 2022 (NCRENB-2022)

payments world, new-age fintech start-ups and partnerships are introducing new options for the payments sector.
In the last few years, numerous new FinTech start-ups have launched with a focus on mobile payments. The main
aim is to provide new services such as security with fraud detection and authentication, improved customer
experience, or making funds available quickly to small businesses when their line of credit is approved. Nowadays,
secure development has become a real and urgent matter in many countries around the world. The future step for
these organizations is to determine whether real-time payment becomes a core business element and a way to
design an operating model to help optimize that service delivery.

In 2014 all members of the Eurozone implemented a new payment system developed under the Single
Euro Payment Area project (SEPA). SEPA makes the euro payments in Europe unified. In 2016 other member
states of the European Union joined this platform. SEPA enables consumers, business owners, and administrators
to send and receive credit transfers, direct debit payments, and credit cards under the same basic conditions. SEPA
bank transfer is affected in the system in one banking day. The competition in nonfinancial institutions led banks
to go further and as a result, it was the implementation of the first SEPA instant payment in 2017, realized in max.
10 seconds. The Society for Worldwide Interbank Telecommunication (SWIFT) is one of the most important
institutions that fast-forwarded innovations in international payments, which offers a new cross-border payment
system known as SWIFT global payments innovation (SWIFT). To achieve this aim we are using STP which
supports SEPA and SWIFT.

IV. Why STP is required?

Problem Areas:

- Incorrect information e.g., IBAN, BIC, NCH Codes

- Unwanted punctuations in Account Numbers, NCH Codes
- Incorrect routing of transactions
- Information embedded in Narrative

Issues due to non STP:

- Delay in the processing of Payments

- Increase FTE costs for processing payments and in turn increase costs.
- Process lower volumes and reduction in revenue
- Higher cost in supporting customer enquires

V. How does STP work?

STP applies analysis rules to the messages received and raises appropriate warnings if the messages do
not meet the STP guidelines. The warnings raised by STP can then be appended to the messages and sent back
to the back-office application if required.

Before Repair:

- STP checks the message for syntactic and semantic validation.

- The messages are checked to see if they conform to the applicable structural and inter and intra field
validations.

VI. Reference Database supported by STP

- Bank Directory Plus and IBAN Plus directories published by SWIFT

- BSB database published by Australian Payments Clearing Association
- BLZ database published by Bundesbank
- IFSC database published by RBI
- CHIPS database published by CHIPS Clearing House Association
- Fedwire database published by Federal Reserve Bank

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VIVA-Tech International Journal for Research and Innovation Volume 1, Issue 5 (2022)
ISSN(Online): 2581-7280
VIVA Institute of Technology
10th National Conference on Role of Engineers in Nation Building – 2022 (NCRENB-2022)

VII. STP Functionalities

1. Standard Repair: It consists of BIC repair, NCH code repair, reformats account number, redundant
information cleans up, and insertion of STP code.
2. Advance Repair: It consists of account number repair, intra field repair, removing receiver information
from credit party, ignore codes for no repair, repair of BIC/NCH/Account number using hierarchy
logic, the correspondent lookup based on Standard Settlement Instruction (SSI) table and CHIPS
preferred correspondent repair.
3. IBAN Repair: It supports DAN (Domestic Account Number) validation, IBAN (International Bank
Account Number) validation, IBAN to BIC validation, IBAN Composition, IBAN Inconsistency.
4. Customization: This is specific to different financial and non-financial institutions that are using STP
they can specify what they want.

VIII. Different Message Families and types

SWIFT CHIPS IFML FEDWIRE

MT 103 Payment Message Native Message Bank Transfer [BTR]

[010] SWIFT

MT 103 + Receive Notification Native Message Customer Transfer [CTR]

[031] FEDWIRE

MT 200 Native Message New Customer Transfer

CHIPS Plus [CTP]

MT 202

MT 202
COV

MT 205

IX. SEPA

One of the most important payment projects of the new century is the SEPA project, an initiative of the
enabled European banking industry which was managed by the European Payments Council (EPC). SEPA aims
to eliminate the differences between domestic and cross-border bulk payment transactions within the Automated
Clearing House (ACH), increase efficiency, and reduce costs for all parties involved. The biggest achievement
of the European project is the implementation of a new payments landscape that will be able to realize cross-
border payments at the same time simultaneously price conditions as domestic ones, and even more important is
the standardization possibilities.

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VIVA-Tech International Journal for Research and Innovation Volume 1, Issue 5 (2022)
ISSN(Online): 2581-7280
VIVA Institute of Technology
10th National Conference on Role of Engineers in Nation Building – 2022 (NCRENB-2022)

SEPA bought a lot of changes in banking systems: banks had to change their national codes and
account numbers - IBAN (International Bank Account Number) and BIC (Bank Identification Codes). This shift
represented a challenge for banks within SEPA, as they were using previously different codes for bank accounts
in member states. The introduction of SEPA focused on SEPA’s benefits in retail payments to consumers,
retailers, and banks. In recent years, globalization reached such importance that currently multinational and
transnational companies can benefit from SEPA the most. There are now simpler system configurations at hand,
thanks to the elimination of domestic formats. Corporates can harmonize and use one database format (XML)
for the whole of Europe.

Instant payments can be extremely useful in several situations, for instance, to urgently send money to
a relative living abroad. But the thing that is more relevant is instant payment can be an excellent substitute for
cash. These are very convenient when paying for goods or services that require on-the-spot payment, such as
moving company services or buying antiques. Concerning payments functionalities and reach, corporates have
probably more requirements than individuals and their demand for instant payments may be lower because they
have alternatives. For a B2B environment, the limitation of EUR 15,000 could become an obstacle and that is
the reason that they are watching it closely and, if necessary, they will increase that amount. However, for many
purposes, having instant payments functionality is something valuable and beneficial, and corporates and
businesses will benefit from it as well.

X. SWIFT

The SWIFT global payments innovation is the largest change in cross-border payments over the last 30
years and is a new standard. SWIFT dramatically improves the customer experience in cross-border payments
by increasing their speed, transparency, and end-to-end tracking. Hundreds of thousands of cross-border
payments are today being sent, using this standard, and payments are made quickly, typically within minutes,
even seconds. SWIFT allows corporates to receive an enhanced payments service, with the following key
features:

- Faster, same-day use of funds within the time zone of the receiving member
- Transparency of fees
- End-to-end payments tracking and
- Remittance information transferred unaltered.

Launched in 2017, one year later already accounts for 25% of SWIFT cross-border payment traffic.
More than 165 banks, representing 80% of SWIFT’s cross-border payments traffic, and including 49 of the
world's top 50 banks, have signed up for the service. To date, 50 million payments have been processed, with
hundreds of thousands of payments sent daily across 350 country corridors, in more than 100 currencies.

XI. Conclusion

In the past ten years or so, we have seen huge changes in technology and business models. The New
payment platforms and solutions updated regulations deals with efficiency and security of payments and can be
most notable with higher expectations from traders and consumers. It allows consumers, businesses owners, and
public administrations to send and receive credit transfers, direct debit payments, and credit cards under the
same basic conditions. STP methodology using SEPA, and SWIFT is the future of transactions.

Acknowledgment

The success and outcome of this research paper required a lot of guidance and assistance from many
people, and we are extremely privileged to have got this all along with the completion of the paper. All that we
can achieve is by the guidance and supervision of our mentors and we would not forget to thank them.

We thank our project guide Prof. Pradnya Mhatre, who took a keen interest in our work and guided us
all along, till we complete our research. We are thankful for and fortunate enough to get constant encouragement,
support, and guidance from all Teaching staff which helped us in completing our work.

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VIVA-Tech International Journal for Research and Innovation Volume 1, Issue 5 (2022)
ISSN(Online): 2581-7280
VIVA Institute of Technology
10th National Conference on Role of Engineers in Nation Building – 2022 (NCRENB-2022)

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