ISO 20022 – a new messaging standard for payments
Despite the rapid evolution of technology over the last 40 years, messaging formats have remained largely unchanged, even as the volume of payment transactions exploded to over six billion in 2020. Finally, the world’s biggest payment schemes, banks and SWIFT are coming together to adopt a single messaging standard across the globe, ISO 20022.
A common payments language for the modern world
For a long time, we have been constrained by the amount and structure of data that can pass through the industry’s infrastructure. Over the next four years, ISO will revolutionise the banking sector, improving efficiency, data quality and establishing enhanced controls. Whilst over 70 countries have already adopted ISO 20022 in their domestic markets, this will bring global harmonisation.
I regularly hear a desire from clients for a more efficient and easier reconciliation process. This standardisation and simplification will enable banks to deliver the information that will support your enhanced internal reporting, invoice information at scale and even cash flow forecasting.
The words that you will see in every article focusing on ISO 20022 are ‘more structured’ and ‘richer data.’ Put simply, ‘structured data’ means that in every ISO 20022 payment the information will appear in the same place in a specific format, whilst ‘richer data’ provides the opportunity to include more information within that structured format.
This may mean some changes to your own working practices, as there will be an increase in available payment message fields that can be used to pass on specific information. Some fields will be mandatory for certain payments. It is likely that your regular beneficiaries will ask for certain data fields to be populated so that they have visibility of the nature of the payment, to aid their reconciliation approach. Conversely, as a result of a richer set of data being available, you may want to start considering what data would be beneficial for you to receive.
There has been a huge rise in sophisticated levels of fraud over recent years. One of the primary issues associated with this growing problem is that with legacy messaging standards, such as SWIFT MT, short field lengths can truncate elements like names and addresses. This makes it harder to corroborate identities or understand full beneficiary details. The additional data available through the new standard can help to identify fraudulent payments and improve the automation of investigations.
A watershed moment
ISO 20022 is quickly becoming the global language for financial messaging; as major currencies adopt ISO 20022 formatting, SWIFT estimates that 80% of global, high-value payments by volume will be processed through the standard by 2025.
This is the biggest change that we’ve seen within the domestic and global payments industry for a generation and I’m hugely excited by the potential it has to improve the way we all work.