The Nordic banking sector has faced significant challenges in modernizing its payment infrastructure in recent years, most notably with the terminated P27 project. Now, Bankgirot has initiated a national-level transformation of the Swedish payment infrastructure. In this article, Mikael Hjorth, Partner at 421, shares his insights from P27 and how he guides a Swedish bank in their transformation journey.
From P27 to Bankgirot’s transformation – a brief background
Back in 2019, the Nordic banks got together to build a new shared infrastructure system for payments in the Nordics. The initiative, P27, had an optimistic vision but a short timeframe – creating a real-time cross-border payment platform in only four years. It meant phasing out the Nordic countries’ local infrastructures and adopting the internationally established ISO 20022. However, after much hard work and dedication, it was later announced that the project had become too complex as the conditions had changed. Finally, in the spring of 2023, the project was terminated entirely. Mikael Hjorth, Partner at 421, who was assigned to help a Swedish bank adapt to P27, gives his take on the project.
– In hindsight, there was over-optimism in how quickly such a large-scale, border-crossing transformation could occur. The idea was good, and regardless of whether change takes place within the framework of P27 or not, the fact is that change needs to be made here in Sweden, Mikael Hjorth explains.
Mikael is correct; although P27 was terminated, Sweden’s payment infrastructure needs modernization to meet changed customer expectations, new international file standards, and the EU regulation 2015/847. So, in 2023, the Swedish clearing house Bankgirot announced that it would develop a new infrastructure based on standardized payment formats that enable innovation, regulatory compliance, and continued development for Swedish banks.
– In essence, the transformation led by Bankgirot has many similarities with P27, but on a national level. Bankgirot has been able to rely on the robust system architecture they have used for years, but today, in a globalized and digitized world, there’s a need for change.
How does the transformation affect Swedish banks?
Every day, 8 million transactions, or 76 billion SEK, flow through Bankgirot’s payment system. It has been essential for the Swedish payment landscape since the early 1960s. Now, when Bankgirot starts its transformation journey, the banks must follow. Even though it is a welcomed transformation, its complexity and potential effect on banking operations can not be underestimated.
– In Sweden, payments are still entered and handled in a fairly rudientary way. With the upcoming transformation, the file format will change to XML, leading to new possibilities for what type of information banks can enter and how it is processed, interpreted, and registered. This means new opportunities but also challenges, Mikael says.
When Bankgirot changes the file format, the banks must do the same, and they need to adapt the content of the files to the information structure in the ISO standard.
– What will change for the banks? In short, a lot! From the customer interface to payment streams, system integrations, file generation, and file transport. Even working hours and schedules can be affected as the clearing rounds could potentially be more than double in number.
Following the recently launched transformation plans, every bank must reevaluate its payment infrastructure and capacity. Then, rebuild or replace it to meet the new requirements set to be mandatory in 2026. When the day of the transformation finally arrives, Bankgirot and every bank in Sweden must push the big red button at basically precisely the same time.
Learning from experience – how should banks approach the transformation?
Mikael Hjorth is not new to transformations, not at leading them, to say the least. As a Partner at 421, he guides banks through new regulations, sets up roadmaps, and helps them organize and manage transformation successfully. Mikael is currently working as a project manager at a Swedish bank, using his insights from the P27 initiative to drive the internal transformation over the finish line. He will be involving stakeholders and experts from departments such as tech, legal, accounting, and management.
– First of all, it is of the highest importance that the whole organization understands what a transformation like this means. It will affect various aspects of the business, and honestly, it is not a choice; it is mandatory. My job is to create an understanding of the change and then lead the work going forward.
Since the P27 was put on ice, Mikael has done his homework on where he believes the project went left. He is now applying the lessons learned to his latest assignment. For instance, he has worked closely together with a requirements analyst and a test leader focusing on end-to-end strategies.
– We have spent much more time on the feasibility study. We now understand where we are, where we are going, and how to get there. It has been followed up by an in-depth analysis of the bank’s architecture, which payment streams exist, and the technical conditions for change.
The feasibility study was the first step in Mikael and his colleagues’ roadmap, and it is now followed by establishment, execution of the project. When being asked which of the upcoming phases is the most critical, Mikael is confident in his answer.
– The testing is absolutely critical, as it is the final stage before production. We will be sitting down with other banks to do an industry acceptance test and see how the new payment infrastructure actually will work when fully implemented. Together, we set a test plan, and it is in everyone’s interest to get as far as possible until then.
In conclusion, Mikael highlights three keys to succeed in the transformation where the bank’s internal payment infrastructure must match with Bankgirot. It all goes back to ensuring that the development process is coordinated and is working towards a clear goal. Finally, everything must be tested before it goes into production.
– First, map out in detail all payment streams from when a payment is started to its completion and reporting. Second, the organization must realize that this change requires more than a tech focus, as it will affect many parts of the business, including reporting on how payment processes work. Therefore, understanding must be created throughout the organization. Finally, do solid test planning. It makes it easier to follow up on the project’s progress and quickly adapt if the conditions change, Mikael finishes.
Summary and conclusion
The transformation of Sweden’s payment infrastructure, led by Bankgirot, is a critical modernization effort that will affect every aspect of banking operations. Swedish banks now face the challenge of adapting to new standards, processes, and regulations, with careful planning, organizational involvement, and thorough testing being key to a successful transition. The deadline is approaching, and the pressure is increasing for banks that are still finding it difficult to create a clear process going forward. Despite the challenges, there is still a range of support available on the market, and payment consulting firms can offer valuable guidance and tools to assist in the transition.
