ISO 20022, Open Banking Will Transform Cross-Border Payments

Nilesh Dusane, global head of institutional payments at Amazon Web Services (AWS), told Karen Webster that there’s one common refrain among financial institutions (FIs) and payment companies.

It’s a refrain that’s almost universal, no matter where AWS’s customers are, what functions they serve or which end markets they target.

When it comes to transactions, he said: “Everyone wants to reduce friction in the payments process, and everyone’s coming at it from different angles.”

That’s especially true in the case of international transactions, where there is no “silver bullet” or one solution that will work everywhere as banks seek to work more efficiently with one another. There have been some advances in the tokenization of assets and liabilities, he said. Stablecoins represent another avenue; cryptos have evolved into Web3. There’s still promise in leveraging blockchain and distributed ledger technologies to facilitate cross-border payments.

Open banking is grabbing its share of headlines, especially with the October announcement by the Consumer Financial Protection Bureau (CFPB) that it has proposed a rule on data sharing and access, and a commentary period is underway. Open banking has already been evolving in other parts of the world, said Dusane, who added that FIs are listening to their corporate and retail customers about how they can send payment instructions to their banks and get confirmation in real time — and embedded finance is changing the ways payments take place across any number of verticals.

Enhanced Messaging

Beyond the bank-to-bank connections, there’s another approach, tied to market infrastructures connecting to one another, he said.

AWS is enabling FIs to easily and quickly connect to the new networks, he said, adding that interoperability will help govern the ways in which FIs flock to participate and serve new payments use cases.

For the banks, ISO 20022, the open global standard for financial messaging, is top of mind as there are several different, staggered timelines and compliance deadlines for varying market infrastructures around the globe, he said. Many of these FIs began their journeys to embrace ISO 20022 a few years ago, and many others are on the tail end of their upgrade efforts. SWIFT, to name one example, has published a timeframe for its ISO migration, and any bank that wants to use SWIFT wires will have to upgrade messaging to ISO standards into the last few weeks of 2025.

ISO 20022, he said, “has the potential to bring additional data flows into the payment systems.” The data, standardized and robust, can and will do much to eliminate the frictions that can lead to delays and mistakes when sending payments across borders.

“Once they complete their migrations, the data will start flowing,” Dusane said.

And that data is incentivizing FIs to come to AWS in a bid to understand how they can harness the additional information to offer better payment experiences for their customers, ranging from retail banking customers to corporate cash management, where high-value payments dominate, he said.

The conversions to ISO 20022 standards will have another positive ripple effect, as they mean that anti-fraud efforts will improve too, he said. Better messaging details will give FIs more comfort as they seek to verify the identity and legitimacy of the customers and accounts that are transacting.

Addressing the Heavy Lift

As is always the case with revamping legacy processes and back-end systems, FIs have a choice to make: buy or build.

Dusane noted that the complexities of switching over to new messaging standards have meant that these firms must go about “assembling a new payment stack.” Partnering with firms like AWS and linking with its network of providers across various regions have helped shorten the time to market and reduce the costs associated with the upgrades, he said.

As more than 70 countries are rolling out or are in the process of rolling out instant payments, we’ll see a multistep process, moving toward critical mass, he said. In the first step, the market infrastructures build the real-time payment systems, banks connect, and then the stage is set to incentivize end customers to use those payments systems, especially with account-to-account payments.

“The more options you can offer the customer, and the more you can educate them on the pros and cons of each option, that will drive consumer behavior for each use case,” Dusane said.