The push to adopt a messaging standard that is truly global — that would be ISO 20022 — stops at the U.S. water’s edge, to borrow a phrase from politics.
As has been much documented, Europe has embraced the payments initiative, which expands messaging capabilities and has as its central core tenet standardized (but flexible) messaging across FX, transactions and payments rails.
The U.S., by way of contrast, has been relatively slower to adopt and adapt to the payments schema, the key argument tying into financial institutions’ contention that there is no real demand (via customers) for the services offered by the messaging standard.
While other markets around the world have already committed to adhere to ISO 20022 in compliance with mandates already in place, or payments technology that already demands adoption, the fact remains that the U.S. is still in exploratory stages of what ISO 20022 may mean for the payments market at large.
Among the stakeholders in the official working group: Federal Reserve Bank of New York, The Clearing House Payments Co. LLC, NACHA and Accredited Standards Committee X9.
In an interview with PYMNTS, Nell Campbell-Drake, vice president of the Federal Reserve Bank of Atlanta, and Claudia Swendseid, senior vice president of the Federal Reserve Bank of Minneapolis, said that efforts dominating ISO 20022 adoption still center on education and interaction through dialogue between stakeholders.
One of the key issues before the group’s discussion comes with a bit of bifurcation. As Campbell-Drake noted, there are essentially two payments classifications: high-value transactions conducted across banks or ACH transactions, which tend to be lower in value, executed more frequently and involve recurring payments, such as payroll, bill payments and batch processes. The Fed, working in collaboration with stakeholders, is exploring whether integration makes sense — in effect, layering ISO 20022 on top of existing processes — or whether total conversion represents a better pathway.
And, said Swendseid, while the “financial case for the [payments firms] may not be as compelling” at the moment, there is still value at the strategic level — chiefly, as has been noted by the group, in conducting cross-border payments, likely first at the wire level and then at the ACH level. As for the benefits to the ACH level, value lies in the adoption of a single instruction for all payment types and at least some flexibility in data transmittance, which would allow for more detailed information, say, tied to invoices. In addition, the ability to incorporate more data means that straight-through processing becomes easier. There’s also, as always, the increasing need for regulatory compliance, and that is likely to grow, no matter the size of transactions, through ISO mapping. “The U.S. is embracing the opportunity,” said Swendseid, “to adopt ISO 20022 and see how it fits in the payments system.”