Voice of the Industry

SWIFT ISO 20022 and its impact on cross-border payments

Friday 8 April 2022 12:34 CET | Editor: Raluca Constantinescu | Voice of the industry

Susannah Hampton, Senior Analyst at Juniper Research: 'A key element of the ISO 20022 standards within cross-border settlements is their potential to enable the provision of additional remittance information, vital for reconciliation, as well as improving traceability and transparency'

Financial messaging network provider SWIFT’s ISO 20022 standard was first published in 2004, proposing an international open messaging rulebook to replace SWIFT’s existing messaging standards. It was designed to simplify and improve the way financial information is processed and exchanged worldwide more effectively. The planned migration to ISO20022 for cross-border payments was originally scheduled for November 2021. However, in March 2020, SWIFT extended the date from which it planned to enable ISO 20022 messages for cross-border payments and cash reporting businesses to November 2022. This came as the result of banks and regulators reporting problems implementing the required infrastructure and system changes in time for the 2021 transition date. 

SWIFT has said that the year delay is aimed at reducing the costs to the payments industry by allowing banks and regulators to implement the standards at their own pace, but the move was criticised by the European Central Bank, citing the potential impact of the delay on Target2 (the real-time gross settlement system owned and operated by the Eurosystem). The final deadline for decommissioning SWIFT’s legacy messaging standards is 2025. 

If adopted globally on a broad scale, the ISO 20022 standard has the potential to completely transform cross-border payment processes, which at present are mired in delay, high costs, and opacity due to a lack of standardisation and a reliance on legacy systems. The new standard will allow for improved payment transaction data quality and greater interoperability between international payment schemes. However, it is important to note that at present, the adoption of the ISO 20022 standard remains disjointed and inconsistent from country to country. Most payments regulators have ISO 20022 adoption roadmaps in place, but many of these have unclear timelines or significant windows until they are fully complete. 

A key area in which the new ISO20022 standard will add significant value is that it enables schemes to evolve into instant payment schemes. These enable payment transactions to be completed within 10 seconds and offer an alternative to the slow, expensive, and complex methods of cross-border payments currently in use. Instant payment schemes are generally built upon the ISO 20022 standards and have the potential to revolutionise the way cross-border payments are transacted and managed, reducing the resource burden, simplifying processes, and allowing faster payment reconciliation. 

The value potential for instant payments over the next five years is clear from the figure below. 

Figure 1 – Global instant payments transaction value (USD bln), 2021 and 2026 

Source: Juniper Research 

A key element of the ISO 20022 standards within cross-border settlements is the potential they hold to enable the provision of additional remittance information, vital for reconciliation, as well as improving traceability and transparency, which is a key enabler for automation – something that is urgently needed in the cross-border payments process. Indeed, increased adoption of these standards has the potential to transform a range of real-time payment schemes, such as UPI, SEPA Instant Credit Transfer, and the Real-time Payments Network. Additionally, the ISO 20022 standard has already been implemented by blockchain payments network RippleNet, which has backing from several financial institutions (FIs) and money transfer operators (MTOs) and represents the first adoption of these standards using distributed ledger technology. 

Juniper Research anticipates that greater integration between payments providers and payment platforms will be key to driving the implementation of instant payment schemes for cross-border settlements in the coming years. As ISO 20022 is adopted, instant payment schemes will join up, and instant cross-border rails will be established. This clearly poses a huge challenge to the business models of traditional cross-border remittance players and their ability to monetise their offering. 

Some words of caution though: the unification of global instant payment schemes is a complex process, and currently, these schemes face similar interoperability issues to other cross-border payment methods because the adoption of the ISO 20022 standard has not yet reached a point where it can facilitate the process of linking international payment schemes on a large scale. As a result of SWIFT extending the ISO 20022 migration, the move towards the integration of these schemes will be delayed further, and so, true interoperability of instant payments is still some way off. 

As the adoption of ISO 20022 increases, Juniper Research anticipates that the barriers presented by a lack of interoperability will begin to fall rapidly. Several other obstacles will still need to be overcome, however. For instant payments to gain traction from a wider ISO 20022 rollout, payment stakeholders will need to convince traditional payment form users that instant payments are both a straightforward and practical solution to the current problems facing cross border settlements. Additionally, the revised date may still represent a challenge for smaller stakeholders in terms of preparedness for implementing the move to ISO 20022. 

Despite the barriers facing global ISO 20022 implementation, it is important to note here that the movement to ISO 20022 has generally been positive, and instant payments are expected to continue to gain traction and market share going forward. Furthermore, in addition to offering strong potential for cross-border settlements, the ISO20022 standard is likely to bring efficiencies in other areas, such as domestic and international B2B payments and P2P payments. 

This editorial was first published in our Cross-Border Payments and Ecommerce Report 2021–2022, 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. 

About Susannah Hampton 

Susannah is a Senior Analyst at Juniper Research. Her key area of focus is analysis in the financial ecosystem, helping key stakeholders understand the latest areas of digital payment innovation, including market forecasts and competitive landscaping. Her recent research reports include Digital Money Transfer, eCommerce Payments, Blockchain in Financial Services, and Digital Ticketing. Susannah has over 15 years’ research experience across the FMCG, QSR, automotive, and retail industries. 


About Juniper Research 

Juniper Research, founded in 2001, specialises in providing best-in-class market research across mobile, online, and disruptive technologies. We offer in-depth reports, forecasts, annual subscriptions, and consultancy via a team of dedicated specialists – all knowledgeable and experienced in their field. Our global clients include Tier One operators, vendors, and financial institutions, the majority being based in North America, Western Europe, and the Far East. To find out how we can help you, contact info@juniperresearch.com or visit our website.

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Keywords: Juniper Research, cross-border payments, ISO 20022, remittance, regulation, reconciliation, instant payments
Companies: Juniper Research
Countries: World

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