ISO 20022 To Spearhead New Era In Payments, Experts Say

April 11, 2022
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With the deadline approaching to adhere to the new global standard for payments messaging, stakeholders have been clear that the industry needs to consider ISO 20022 as a way of enhancing innovation, rather than a new compliance requirement.

With the deadline approaching to adhere to the new global standard for payments messaging, stakeholders have been clear that the industry needs to consider ISO 20022 as a way of enhancing innovation, rather than a new compliance requirement.

ISO 20022 is a common language for payments data developed to facilitate electronic data interchange between financial institutions.

It provides greater harmonisation and integration across different payments systems, both domestic and international. Its extensible message set means it can be adapted to and support new payments innovation and types, meaning it can evolve and grow with the market.

This standard was developed by the International Organisation for Standardisation (ISO), a Swiss-based non-governmental body that encompasses the membership of 167 standard-setters internationally.

Although the prospect of the new standard and, therefore, new rules, could be intimidating for market players, it is anticipated that payments will run more efficiently once the protocol is in place.

“The main point is that rather than to see this as a burden of regulatory change,” said Charles de Rougé, head of SaaS solutions at Bottomline Technologies, the industry needs to see this as a new era and an opportunity for market change.

Speaking at the "Fraud, Cash Positioning, and the Route to ISO 2022 Native" webinar, he told the audience: “This will give people a competitive advantage and change the way that things are done.

“Payments in banks are going through a revolution and ISO 20022 is the basis of this new revolution,” he said. “There is much more to come, and it’s a land of new opportunities.”

As a system, the ISO 20022 standard can define financial data and is able to standardise that data before grouping it into transactions.

“As we grow to understand what is happening with the ISO changes through various industry forums, industry participants and partner banks and clients, we’re becoming more and more aware that this isn’t a standard tech initiative,” said Christopher Gardner, ISO 20022 lead at Deutsche Bank.

It is going to have a wide-ranging impact on how the industry communicates with one another as a community, he continued.

There have been challenges within the industry as the go-live dates get closer, Gardner said. “We are working with our partners to work with those changes and make sure that we are ready for when the payment market infrastructures are ready as well, in making sure that the different levels of maturity in the industry are still working easily with each other.”

Proponents of the standard say that the true value of ISO 20022 is that it defines common data components that can be reused and grouped together to define complex concepts.

And meanwhile, the reusability makes it possible to establish data interoperability.

“From a banking perspective, if you’re a global bank, this is huge and it is happening all around the world,” said Becky Clements, industry engagement chief at Pay.UK. “It is a huge investment, and I think that people need to take advantage of that investment and implement it properly and with rich data.

“This data can be used in lots of ways,” she continued. For example, via additional information, such as adding the country code, account or customer number related to the transaction or risk score, as well as transaction types, product ID, customer segments and the payment method, the standard will enrich data in the payment message.

For global banks, this is such a huge change, agreed Gardner. “We have to break it down into manageable proportions so that success criteria are achieved.”

It is also an opportunity for banks to overhaul and revitalise their systems, he pointed out. “While we have the hood up on all of these applications, we’re taking this as an opportunity to simplify and modernise our architecture.”

“Within lots of organisations, when we’ve grown with acquisitions over the decades, we are left with legacy architecture,” he said.

“It is very difficult to remove the architecture without a very significant driver for that. With ISO, we’ve found that this is our driver and with the funding and the priority of resourcing to get this done,” he noted, all the while “taking away the monolith applications and replacing with more agile, stable environments”.

The co-existence period is the part that is causing the most complexity, he said, but it is allowing the industry to slowly develop and bring things into the production landscape.

“It means that we have different organisations on different levels of maturity for messaging,” he said, indicating the challenge of sending data through different parts of the correspondent banking chain.

It is anticipated that 50 percent of cross-border transactions will have switched to the new standard by November this year, progressively moving cross-border payments to the standard through a period of six to nine months.

The aim is for the industry to have fully migrated to the standard by 2025.

During this period, de Rougé stressed the fact that it is important to remember that there is no one-size-fits-all approach to the situation. “There is a variety of approaches depending on the size or the type of banking, and type of customers.”

“The first mandatory requirement is to be able to receive a message and be able to interact,” he said. “On that connectivity basic requirement, it is fair to say that the whole industry is getting ready.”

Approaches differ depending on if people want to go full ISO native or partner with a supplier, he continued. “What ISO brings is that this standard is going to be the future, and you need a long-term plan and you need to be able to use that.”

The use of ISO, combined with the use of an application programme interface (API), gives you the ability to have much less errors and much faster-processed payments, he said.

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