David Chance, Fiserv: The adoption of ISO 20022 as a global messaging standard is set to have a significant impact on payments as financial institutions and their customers will be affected by the shift
ISO 20022 is a new data model for financial transactions and includes a set of semantics and message constructs that will transform the payments world. It is a global standard, which means payments professionals worldwide will need to learn a new language. Message types, file names and party names, for example, will all change from the terminology to which operators in the various market infrastructures are accustomed.
Prior to ISO 20022, payment messages were sent to multiple, dispersed and often unrelated parties. However, the single standardised approach of ISO 20022 will provide a common language for the payments industry and support all aspects of an international financial interaction, including business models, messages and data elements.
With more than 70 market infrastructures likely to move to the new standard by 2025, financial institutions and payment users alike will benefit from understanding and preparing for the opportunities that ISO 20022 brings.
It’s a global shift
Migration to the ISO 20022 messaging standard is no longer just a regional conversation. It is happening now across the globe, with different regions taking different routes. In Europe, Target2 and Euro1/Step1 have announced November 2021 as their migration date, with the Federal Reserve and The Clearing House in the U.S. and CHAPS in the U.K. moving in 2022. Add to that list SWIFT, which is moving its correspondent banking messaging to ISO 20022 standards over a four-year period starting in November 2021, and it becomes clear there is a significant push.
Delays are unlikely because regulatory authorities are holding firm to their rollout dates. Market infrastructures will make the change to accept only ISO 20022 messages, so financial institutions will need to be able to send and receive those messages to participate.
Value beyond compliance
From compliance-based transparency to the ability to hold and use information-rich data, the benefits and uses of ISO 20022 are many.
Some could argue the change is being driven by regulators to support financial crime compliance because of the fact that the structured information in the new messages enables regular and better reporting. However, viewing the move simply as another regulatory requirement would be overlooking an opportunity.
ISO 20022 provides a wide range of messages that benefit the users of the payment systems, including request to pay, notification of receipt of funds and query messages.
Extended and better-structured data will open up new use cases for financial institutions. The new standard uses common message components, and financial institutions could benefit from the interoperability that this characteristic facilitates. Complex payments become simpler because data can be carried over different systems that use the same messaging standard.
Moreover, the extended data in messages will mean organisations can do more with payments information, including developing new services for clients. When the information is available among various parties, the potential benefits include automating the reconciliation process for payments and remittances, reconciling invoices to shipment notes and tying those back to the original orders, removing manual processes, and reducing costs and expensive exception processes.
Understanding the opportunity
Migration to ISO 20022 will not only affect financial institutions. All payments users, from consumers to large corporates, will need to provide the new, structured information, including names, addresses and payment purpose, as required by market infrastructures and regulators. In addition, payments, securities, cards and foreign exchange will also be affected by the shift.
If the focus only remains solely on the ISO 20022 messages that are required when interacting with the market infrastructure or CSM (Clearing and Settlement Mechanism), then the potential benefits may be limited.
Whether through real-time payments, high-value payments or cross-border payments, the shift to ISO 20022-based messaging offers numerous opportunities and should be viewed as a transformative move in the payments world. Providing support for electronic invoice presentment and payment systems, along with support for those additional messages, extends the reach of the financial institution into the entire value chain of the business interaction and turns data into the most valuable of commodities – information.
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