There’s five months to go until the adoption of ISO 20022 in Europe – the international standard for exchanging electronic messages between financial institutions, covering cards, payments, securities, FX and trade. Here’s a reminder of what it is and the progress so far.
The International Organisation for Standardisation (ISO) first published ISO 20022 – a global standard for payments messaging – in 2004. The new standard creates a common language for payments data across the globe, enabling faster processing and improved reconciliation.
Benefits of ISO 20022 include increased transparency, automation and digitisation of payments. It provides richer and higher quality data which means much more detailed information about the payment is available.
Which sounds promising when the cost of failed payments – due to inaccurate or incomplete information, or poor reference data and validation tools – is estimated to cost the global economy $118.5billion in fees, labour and lost business a year, according to Accuity data.
There is a global ISO 20022 programme underway to assist all banks to adopt ISO 20022 for all payments and reporting exchanges, which will complete in 2025. The standard has already been adopted in 70 countries to replace domestic or legacy formats, including Switzerland, China, India and Japan.
SWIFT, the global provider of secure financial messaging services, will enable ISO 20022 messages for cross-border payments and cash reporting businesses, starting from August 2022, on opt-in basis, and November 2022 for general availability. MT messages supporting cross-border payments and reporting transactions will be decommissioned in November 2025.
Bank of England and Pay.UK will implement ISO 20022 in the CHAPS and NPA (New Payments Architecture) in April 2023. In the US, The Clearing House (TCH) – operator of CHIPS, the largest private sector USD clearing and settlement system in the world – plans to implement the ISO 20022 message format by November 2023.
ISO 20022 is ‘good news’
According to financial services consultancy Projective Group, the new framework will alter the way in which payments are received forever, unlocking the speed and transparency associated with low-value domestic payments, and connecting the financial world with far less friction.
Jacob Rider, head of payments for Projective Group, said: “The transition to ISO 20022 needs to happen – and fast – if the industry wants to reap the many benefits it provides. Payments have already become faster, more transparent and more trackable thanks to the widespread adoption of SWIFT gpi, but the current MT standard does not offer the quality of data needed in today’s digital world.
“With better customer experience, better compliance and better efficiency, ISO 20022 is good news for financial institutions, provided they manage this transition quickly and carefully.”
In the latest chapter of Mastercard‘s payment system modernisation insights series, publishd this month, it describes ISO 20022 as enabling several key pain points that exist for both banks and their end users to be addressed.
It says: “In an increasingly competitive landscape, ISO 20022 message standards can smooth the process of innovation, which is critical to long-term success. ISO 20022 delivers operational efficiencies while promoting and supporting the development of value-add products and services for banks, businesses
and consumers alike. As the shift to ISO 20022 rapidly picks up pace, those financial institutions that stay wedded to older standards risk being left behind.”
ISO 20022 adoption
A recent Mastercard review of 61 real-time payment systems around the world found almost two-thirds were based on ISO 20022 data standards.
Banking Circle says it has already adopted the ISO 20022 messaging standard, three years ahead of the 2025 deadline for completion.
Laust Bertelsen, CEO of Banking Circle, said: “To conduct business, financial institutions exchange massive amounts of information with their customers and other institutions. Such exchanges only work if the sender and receiver of a message have a common understanding of how to interpret this information. Rather than managing multiple market systems that speak different languages, ISO20022 offers a universal messaging language. Many real-time, low-value and high-value clearing systems around the world have begun their migration and are using ISO20022, with many more to follow by the end of this year.
“We are delighted to be part of the early wave of businesses that have adopted the new standard. It is perfectly aligned with our mission of simplifying cross-border payments, breaking down barriers to international trade by removing unnecessary delays and challenges with reconciliation and by being ready ahead of the deadline our clients can benefit immediately.”
What’s next for fintechs?
According to BrightBridge, a Midlands-based technology consultancy, banks who fail to initiate moving to the messaging standards of ISO 20022 sooner rather than later risk further setbacks down the line.
In a blog, it said: “With much change yet to pass in the coming years, 2025 may seem a long while off. Yet the institutions able to act now stand a greater chance of making the transition on time – before their existing products and services become obsolete.
“Compared to legacy formats, bank systems will need to process larger data volumes at higher speeds to allow for the real-time payments, daily liquidity management, and compliance checks of the modern world; and not forgetting sophisticated fraud detection and prevention.
“In an ideal world, testing should begin to take place from 2022 onwards – from ensuring the syntax and formatting information is accurate, to data within associated payment and clearing systems being mapped correctly.”
Are you ready for ISO 20022?