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ISO 20022: Paving the way for unified payments systems

Vishal Motwani, Head of Customer Solutions, India and South Asia, SWIFT,
explains how adopting ISO 20022, a uniform standard for domestic and international payments, will improve data quality and transform the financial ecosystem.

The payments landscape has shifted dramatically in recent years, and it now operates on an unparalleled global scale. This, coupled with changing consumer expectations, has fueled the financial industry’s ongoing efforts to facilitate faster, more transparent, seamless, and secure payments. The adoption of a uniform standard for domestic and international payments, such as ISO 20022, is another step toward offering a better payment transaction experience for all.

ISO 20022 will not only transform the financial ecosystem by providing a standard for transmitting and receiving payment instructions across market infrastructures, but it will also modernise payments and enable greater efficiency. It is already used by payment systems in over 70 countries and is expected to become the de facto standard for high-value payment systems of all reserve currencies, supporting 80% of global volumes and 87% of transaction values worldwide.

Interoperability through a common standard

ISO 20022 is a flexible standard that can meet the industry’s present and future requirements. By developing a uniform language and model for payments data, ISO 20022 significantly improves data quality across the payment ecosystem. Richer, structured, meaningful data reduces friction and gives customers greater visibility into the status of payments, while also facilitating improved reconciliation, supply chain, and working capital efficiencies. With access to insightful data, banks and financial institutions are empowered to provide a better client experience by developing new business innovations and delivering solutions that are suited to the demands of their customers.

The adoption of ISO 20022 is part of a larger global trend toward standardization of payment processing. Banks around the world hope that standardisation will help them create corporate efficiencies and keep pace with fast-changing market trends. With richer and standardised data, financial institutions will also be better equipped to improve analytics and straight-through processing rates while reducing manual interventions and allowing for greater accuracy and adherence to compliance regulations, or improving fraud prevention.

As a single standard, it enables improved interoperability among banks, allowing for end-to-end automation. It also provides institutions with more agility in complying with new regulations or adopting new technologies as they emerge, through its flexible XML-based foundation, ultimately allowing for cost optimisation through automation.

Challenges and roadmap

While ISO 20022 will improve the transaction experience, the industry will face a number of obstacles as a result of its implementation, including:

  • Upgrading the technology: Migrating to ISO 20022 will necessitate an elaborate modification in the information technology and process landscape of the industry. Financial institutions will need to evaluate the impact on their systems and middleware. The support functions will also be on the edge of substantial updates. For banks, the most challenging part of this transition will be updating legacy technology. Early engagement with their vendors will be crucial to implementing the change. API-native banks, on the other hand, will be able to seamlessly integrate with the larger cross-border payments ecosystem.
  • Understanding the format: Another challenge associated with ISO 20022 implementation is understanding its complexities as a new business format. Payment providers using legacy technology will need to map those of their systems that pre-date the new standard using a translation system that will need to incorporate the appropriate rules for AML, fraud, and compliance checks, as well as understand how to archive the new messages.

The adoption and execution of ISO 20022 pose significant challenges for banks, ranging from investments across the payment chain to completely overhauling systems. Simultaneously, the standard presents several opportunities for the industry that are waiting to be unlocked through enriched data that will fuel deeper insights, increase innovation and improve interoperability. The adoption of ISO 20022 is a turning point that will transform the payments industry and make it agile, insightful, and drive innovative customer experiences.

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