Heralded as one of the most challenging adoptions within the payments ecosystem, ISO 20022 aims to make payments more effective for markets, banks, and customers globally.
ISO 20022 is defined as an open global standard for electronic data interchange between financial institutions. As a global standard, it uses a common language to both send and exchange payment data, enhancing the current interface within companies, payment schemes, and financial institutions worldwide. Using consistent information leads to more efficient payment processes.
Previous standards used inconsistent and unstructured data, leading to delays and requiring manual intervention. On the contrary, ISO 20022 messages contain more data that is both richer and more structured, leading to greater transparency.
Challenges to ISO 20022 Adoption
With additional benefits to ISO 20022, including invoice payables and automatic reconciliation, you would think that banks are eager to come on board and make way for adoption. However, it’s not as straightforward.
Banks and corporations have the monumental task of upgrading their current payment systems, especially if they’re currently using legacy systems.
If organizations lack an ISO 20022-native payment system, banks will be required to have a translation layer in between the payment system and the market scheme. This solution is slower and banks risk losing data by using this process. With the loss of data also comes the loss of insights that the new system brings to the table.
The Evolution of Payments
ISO 20022 is set to revolutionize payments by offering payment data that is enriched, enabling more robust fraud controls, behavioral predictions, and building better resilience. The launch of this protocol was essentially to coincide with the rise of real-time payments systems seen worldwide.
“There is not much of choice here on the conversion discussion regarding ISO 20022,” said Steve Murphy, Director of Commercial Payments at Mercator Advisory Group. “The transition is already underway at SWIFT and in the U.S. both Fedwire (Federal Reserve) and CHIPS (TCH) are expected to implement the new messaging standard by the end of 2023.”