Faster Payments

The Challenges And Benefits Of ISO 20022 Migration

Quickly sending large sums of money abroad in 1803 might have meant loading gold bars onto ships and hoping for good weather and safe seas. In today’s digital age, however, speedy transactions depend on payment rails that support rapid settlement and messaging standards that enable sending and quickly processing comprehensive payment details. 

The ISO 20022 messaging standard has been seen as a potential way of achieving the latter, and has been drawing increasing global attention. Seventy countries had adopted the standard as of May 2018, and it is expected to support 87 percent of the world’s financial transactions by 2023. Such adoption rates require investments, however, and FIs must consider the service’s potential benefits and frictions before implementation. 

Deep Data For Swift, Secure Payments 

ISO 20022 introduced a range of data fields that allow transactional details to be remitted along with payments. The messaging standard’s proponents assert that businesses can analyze this data to improve customer interactions and add functionalities, such as transmitting links to paystubs alongside payroll disbursements. This would enable recipients to see detailed payroll information when viewing their personal bank account balances. More precise payment information could also facilitate quick, straight-through processing. 

Better data can help prevent international payment delays or failures caused by “unstructured and ambiguous” data, as well. Justin Ferrabee, chief operating officer of Canadian payments clearing and settlement system operator Payments Canada, told PYMNTS in a recent interview that reliable data is also key to supporting anti-money laundering (AML) and know your customer (KYC) compliance efforts. 

Interoperability And Adoption  

ISO 20022 supports interoperability between various financial systems, an important factor as a rising number of major players are adopting the standard and pushing other FIs to follow suit. High-value payment systems operated by the U.S. Federal Reserve and TCH, Europe’s Eurosystem and EBA CLEARING and the U.K.’s Bank of England are slated for ISO 20022 migration within five years. SWIFT’s decision to replace its existing cross-border payment messaging service with ISO 20022 represents another significant push in that direction — one that could have ripple effects. SWIFT’s decision caused the Australian Payments Council (APC) and the Reserve Bank of Australia to migrate some of the country’s payments systems to ISO 20022 as well.

Hurdles And Supports 

ISO 20022 is becoming more prominent, but many FIs must adopt it before its interoperability can be fully realized. Achieving widescale implementation also means getting FI technology providers — such as IBM, Fiserv and FIS — to also use ISO 20022, George Throckmorton, managing director at NACHA – The Electronic Payments Association, said in a recent PYMNTS interview. Mass adoption requires companies to prioritize implementation and dedicate the necessary funds and staff to do so. Companies may also need to upgrade legacy systems so they can improve data storage and management practices, as well as take advantage of ISO 20022’s data offerings. 

Setting aside resources for improvements and adoption is not the only potential challenge, either. Some financial players suggest that companies may have to make serious choices between ISO 20022 and other modern technologies. Craig Ramsey, head of real-time payments at payment systems company ACI Worldwide, asserted at an April 2019 industry conference that ISO 20022 is incompatible with another growing trend — application programming interface (API) usage and open banking. 

“You wouldn’t want modern, agile APIs using ISO 20022 standards because [the standard] is too thick and too heavy,” he explained. 

Not all agree with this viewpoint, with SWIFT releasing a consultation paper stating that the standard is intended for use with APIs and is adaptable to any new technologies that may develop. Treasury management software provider TreasuryXpress released an API in 2017 that uses ISO 20022 to convert system data in a treasury management and enterprise resource planning platform into payments to prove compatibility. 

SWIFT has been seeking to foster ISO 20022 adoption by providing a resource center about the standard, mapping solutions and validator tools to help businesses make the transition. NACHA also offers a tool to help firms send ISO 20022-approved remittances data for B2B payments. 

ISO 20022 adoption may not be the one-stop solution to a faster, modern payments system — but with rising implementation worldwide, businesses would be wise to carefully consider whether it can benefit them, and in which areas.

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