Common language standards with robust data are poised to help businesses and individuals streamline regular payments, including cross-border transactions, while cutting down on waste, fraud, and confusion. ISO 20022 is emerging as the top choice in today’s payments ecosystem, offering extensive benefits to the entire payments ecosystem, including banks, market infrastructures, and bank customers. This adoption is crucial for the financial industry, serving as a common language for financial transactions globally and ensuring seamless integration and real-time visibility across various financial services organizations.
What is ISO 20022?
ISO 20022 is an open global standard for financial information, as defined by SWIFT, the world’s leading provider of secure financial messaging services. SWIFT states that ISO 20022 will provide “consistent, rich, and structured data that can be used for every kind of financial business transaction.”
In other words, it is a common, global language used by financial institutions when exchanging electronic messages, including payments messages. This standard enables the inclusion of richer, more structured transaction data in payments messages and supports the exchange of payments data between financial institutions and market infrastructures. It aims to offer more transparency and remittance information when making payments, enhancing the ability to carry structured data which will help legitimate transfers and help identify fraudulent ones.
When does ISO 20022 go live for cross-border payments?
ISO 20022 messages are crucial for enhancing payment services, particularly in the context of real-time payment processing, enabling enhanced analytics, and offering valuable new levels of payment services to customers. While many banks, payment networks, and other firms have already migrated to the ISO 20022 global standard for payments and information reporting, the SWIFT network’s mandate is for global adoption of the standard by 2025. Until then, there will be a coexistence period, during which SWIFT states that customers can decide when to enable ISO 20022 for cross-border payments.
There may be exceptions including SWIFT traffic between corporations and banks. SWIFT also noted that U.S. payments services such as CHIPS and Fedwire will migrate within a few years while The Clearing House’s Real-Time Payments (RTP) network and the Federal Reserve’s FedNow instant payments service “were both built from the ground up with ISO 20022.”
What will change and why is it needed?
J.P. Morgan Chase points out that ISO 20022 is emerging as a common language and model for financial messages across the world, but that the significance of the shift will be better understood over the next few years. As more major currencies adopt ISO 20022 formatting, SWIFT estimates that 80% of global, high-value payments by volume will be processed through ISO 20022.
Today, the payments industry is continuing its rapid evolution. SWIFT says the adoption of the ISO 20022 data standard is helping speed up the move towards greater integration and digitization of the entire payments industry. It’s also supporting the drive for enhanced interoperability, and creating more visible, usable data and analytics. The introduction of ‘richer data’ through ISO 20022 is pivotal in enhancing interoperability, providing streamlined processes, real-time tracking, improved fraud prevention, better regulatory reporting, secure payment information, and more detailed remittance information for better interoperability.
Accenture noted that the new standard introduces many new data fields for the transmission of payments and while some will be mandatory, many will be optional. These new fields could ease friction for some making cross-border payments today — if they are widely used, that is. Like any standard, the impact of ISO 20022 will be proportional to the scale of its adoption. Additionally, the adoption of ISO 20022 facilitates ‘straight through processing’, enhancing efficiency and automation in the payments industry by enabling end-to-end automation and business processes, leading to improved STP rates, reduced manual intervention, and operational efficiencies.
What are the advantages of ISO 20022?
In addition to its advantages in international payments, PNC Financial notes the standard will “help streamline domestic payment capabilities, particularly for businesses that have relationships with multiple U.S.-based banks.” It will also assist companies, “leveraging the ISO format when sending files to their various financial institutions, rather than creating transmissions proprietary to each bank’s formats and channels.”
The enhanced reporting information available through the format offers additional efficiencies, as it integrates smoothly with many ERP and Treasury Management System (TMS) platforms.
According to Accenture and J.P. Morgan Chase, potential use cases may include:
- Automated receivables matching (ARM), which match incoming payments to invoice details on the customer’s ERP engine and reconciliation is automatic. ISO 20022 aims to significantly increase matching rates and lead to more accurate reporting and accurate compliance processes, ensuring that businesses meet regulatory requirements more efficiently.
- Post-payment communication services that will help automate payment status reports from banks to corporate clients.
- Customer dashboards will feature real-time payments data, with improved accuracy and expanded information on the dashboard display. One anticipated feature in ISO 20022 is the new “purpose” field that may help organize and identify payments.
- Financial crime and fraud prevention will be enhanced by greater data in an ISO 20022 payment instruction. The purpose code or LEI will improve transparency, identifying where a payment is going and why it’s being sent, leading to improved fraud prevention measures, more accurate compliance processes, and less manual intervention.
- Hyper-personalized offers will likely be offered by banks as they analyze purpose codes and identify cross-selling opportunities for customers. Accenture points to mortgage providers getting greater insight into originations and refinancing opportunities.
This standard not only streamlines operations but also brings significant benefits to corporates and financial institutions alike, enhancing operational efficiencies, data quality, and crime risk management processes.
What should customers be preparing for?
HSBC recommends that corporate customers prepare for the wider implementation of ISO 20022, a transition that is set to streamline the financial services industry by converging from legacy financial message formats to structured data exchanges and improving message flows across the industry. The considerations include onboarding technologies ahead of the possibility that more market infrastructures recommend ISO as a messaging standard.
Additionally, HSBC noted that structured data requirements have already been mandated for structured addresses not currently supported in MT, such as “Initiating Party, Ultimate Debtor, Ultimate Creditor.” The bank advises financial institution clients to make required updates to static data to get ready for wider ISO integration, emphasizing that this will lead to more accurate compliance processes by enabling improved accuracy and efficiency in adhering to compliance standards.
Lastly, the bank said corporates that are early adopters can capitalize on streamlined end-to-end processing and more transparent information in remittances and end-to-end references that are available through ISO-based cash management statements.
What changes will Convera’s customers experience?
Convera’s integration of ISO 20022 means that customers will benefit from streamlined payment processes. With PACS messages already traveling seamlessly from origin to destination with some of our bank partners, our customers are already benefiting from enriched data that ensures faster payment status updates, thanks to the inclusion of richer data elements. This enhancement in data quality not only accelerates the payment process but also improves the accuracy and efficiency of cross-border transactions. We’ll follow the lead of our bank partners in adopting ISO 20022 standards and routing payment accordingly, enhancing interoperability between different payment systems globally.
Our Swift Bureau’s swift adaptor guarantees smooth transitions, offering clients enriched data flows, automated processes, and ERP/AP system interoperability. If your ERP/AP system is compatible with ISO messaging, Convera can accept those file formats – please contact your account manager for further information. We’ll continue to support existing channels for non-ISO payment instructions so that you can embrace the future of payments without disruption.
In terms of Real-Time Payment (RTP) capabilities, Convera links you to three RTP schemes today: UK FPS, SG Fast, and HK FPS (with more to come). Our platform will allow customers to select their preferred delivery method, ensuring near real-time payments. FEDNOW is an example of the RTP schemes we’re exploring. Our roadmap includes integration with RequestToPay (a messaging system that enables a payee to initiate a digital request for a specific transaction from a payer) and Open Banking capabilities for seamless funding and settlement processes.
Join Convera on the forefront of modern payment solutions, where ISO 20022 and Real-Time Payment schemes revolutionize transaction efficiency and speed, catering to your evolving payment needs.
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