The adoption of ISO 20022 for cross-border transactions has a range of impacts on payment providers and users. ISO 20022 is a financial messaging standard prepared by the ISO (International Organisation for Standards), with the aim of enabling communication interoperability between financial institutions. It achieves this by providing a consistent format and protocol to all financial services providers. It also uses a set of XML (Extensible Markup Language) and ASN.1 (Abstract Syntax Notation One) design rules that allow the conversion of messages into models. These models and messages are published in a catalogue of messages and stored in the ISO 20022 financial repository, which allows for message sets to be defined by an internationally agreed approach.
The format of ISO 20022 messages makes it more suitable for machine reading, allowing for greater automation – which is key for instant payments. It also provides richer data, allowing additional services to be built off payment systems using this standard.
The adoption of ISO 20022 has helped to improve and standardise the payment data being collected. This enhanced data collection can be used to create more advanced screening algorithms, lessening manual workload. It is this reduction of manual intervention that will be needed to make compliant instant payments. By using the rich data it provides, ISO 20022 can also be used to minimise friction in the reconciliation process. This data can be made available to users – with many payment providers offering data-based, value-added features to their instant payment offering. This can take the form of data presentation, data manipulation, or support for more complex data analysis. Payment data can offer valuable insights and allow businesses to make better-informed decisions and adopt a more data-driven approach to decision-making.
However, ISO 20022 is not without limitations. One of its primary constraints is the timescale for putting it into effect – with banks and financial institutions needing multiple years to plan and implement the standard. This can be seen with SWIFT (Society for World Interbank Financial Telecommunication) using a phased three-year migration plan for implementing ISO 20022, with a coexistence period between new and legacy systems from March 2023 to November 2025. Another issue exists within banks and financial institutions. Rather than the standard, many of these institutions use legacy systems – which may employ language that is not easily compatible with ISO 20022, adding further complexity to the implementation process.
Despite these drawbacks, its benefits mean that ISO 20022 has been adopted by several of the major cross-border payment systems, notably SWIFT and SEPA (Single Euro Payment Area). These cross-border payment rails utilise ISO 20022 to offer instant payments. The primary advantage of this is the speed of the transactions – which will significantly improve cash flow. This will disproportionately benefit SMEs (small and medium enterprises), for whom cash flow is often tighter.
There is also a wide range of additional services that can be added on top of instant payments – with the majority of these offerings being designed to integrate with ISO 20022. Examples of additional services include automated anti-money laundering (AML), fraud detection, and sanction compliance checks. These systems utilise artificial intelligence (AI) to perform checks in real time, ensuring payments are secure and compliant, without slowing down the payment process. The ability to make payments secure, without slowing the payment process, will be key to the wider adoption of cross-border instant payments.
With many major markets already having domestic instant payment systems that utilise ISO 20022, such as Pix and FedNow, the next phase of instant payment rollout will be interconnecting these fractured networks with cross-border instant payment rails. The adoption of a single messaging standard, such as ISO 20022, will help streamline these integrations. With this momentum growing, Juniper Research forecasts the total value of cross-border instant payments will grow by over 500%, from USD2 trillion in 2023 to over USD13 trillion in 2027.
Figure 1: Total value of instant cross-border payments ($m), 2023 and 2027
Source: Juniper Research
The availability of cross-border instant payments will have a significant impact on the cross-border ecommerce market. This will take different forms in the B2B and B2C cross-border ecommerce markets. Businesses will use instant payments for cross-border ecommerce to reduce friction in international supply chains. This will be particularly the case for SMEs, where time spent by employees on resolving payments has a disproportionate impact. It will also significantly improve the delivery time for digital goods and services – which is often held up by payment terms. By leveraging instant payments and improved invoicing from ISO 20022 data, it becomes possible to deliver these goods and services in very short time frames.
B2C ecommerce will also benefit from instant cross-border payments. Many legacy payments can take multiple days to clear when sent internationally. Instant payments allow suppliers to begin the delivery process for physical goods the same day, soon after receiving payment. In the case of legacy systems, a merchant would either need to dispatch a delivery before payment had cleared, or slow down delivery to await payment.
Juniper Research expects ISO 20022, and the additional services layered on top of it, to streamline cross-border payments in the coming years. The additional services will increasingly utilise AI processes to speed up the most time-consuming aspects of cross-border payments and provide greater value to users.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2023–2024, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Michael is currently analysing data on the latest developments within fintech and payments markets to help stakeholders understand their best opportunities. Visit the website to download a sample of our instant payments research.
Juniper Research specialises in providing best-in-class market research across mobile, online, and disruptive technologies. We offer in-depth reports, forecasts, annual subscriptions, and consultancy. Our global clients include banks, payment providers, and many others. To find out how we can help you, contact info@juniperresearch.com or visit our website.
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