ISO 20022: When to Take the Plunge

Data Science, Machine Learning, Cloud and Data Security Writer

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The ISO 20022 standard is paving the way to achieving a long-standing dream of end-to-end interoperability for financial transactions. However, in many sectors, there still exist some shreds of uncertainty about migrating to this new standard. Would it be cost-effective? What are the benefits and the scope of work? Would peers simultaneously adopt the standard? 

Allow us to help clear up some of this uncertainty.

What is ISO 20022?

It is an international financial services messaging standard, created with the objective of becoming a universal, well-structured messaging scheme for the finance industry. It enables global automated straight-through-processing (STP). This is due to its utility in diverse areas like securities, Forex, cards (ATM transactions), trade, payments, and investment funds. It also does an excellent job of unifying the varied syntax (data organization) and semantics (meaning of data) of older standards. This reduces duplicate work and accelerates the time-to-market.

What is the current adoption rate? 

Adoption is gaining pace globally; ISO 20022 is already used by payment systems in over 70 countries. In the next five years, ISO 20022 is expected to make up 79% of the volume and 87% of transaction value worldwide.

In the United States, The Clearing House RTP network introduced a central clearing and settlement system based on ISO 20022 in 2017. The US Federal Reserve Bank has announced an ISO 20022 – based service for its new FedNOW payment rails and will transition its current messaging formats to ISO 20022 by 2023.

SWIFT are a global organization offering a wide range of payment services including cross-border and cash reporting, which will all be enabled on ISO 20022 starting at the end of 20022.

In Canada, Payments Canada have published ISO 20022 messages for Lynx, the new high-value payments system, with full implementation planned for late 2022. Participants financial institutions can use these standard to preparing the system changes needed to leverage this standard.

Is ISO 20022 required?

Since domestic transactions are well established with legacy standards, it is understandable that the utility of ISO 20022 may be questioned. However, ISO 20022 should not be viewed as merely a means of moving money between entities. It provides an opportunity to re-think sub-optimal business processes and enhance them with value added services like request-to-pay (RTP). Real-time payments (also shortened to RTP, unfortunately) have the advantage of operating beyond business hours.  The securities market would also benefit from improved asset servicing and collateral management.

Global payments revenue in 2019 and 2020 almost reached $2 trillion, and every little delay in this massive volume of transactions adds up quickly. Transactions that rely on cheques, wires, fax, emails, manual verification, and fragmented cross-border payments can be improved. Such well-regulated, secure e-payment options can reduce fraud. 

Benefits of ISO 20022

The payments sector is rapidly evolving; consumers’ experience with web and mobile application is becoming a key differentiator. The applications being introduced from large financial institutions and new Fintech companies require a real-time payment infrastructure to provide the immediate feedback on payment status that end users expect. The real-time nature of ISO 20022 – based payment networks can provide this, and will enable your organization to participate in these new payment ecosystems, providing a competitive advantage over traditional solutions that can take days to settle payments.

Additional benefits include:

  • ISO 20022’s schema reduces risks of incorrect data and interpretation by providing excellent business validation. Messages contain richer information per transaction, which allows screening, fewer false positives, compliance with regulations, and also data mining.
  • ISO 20022 is hardware and software agnostic. It future-proofs your business with its capability to accommodate varied syntaxes based on the business need.
  • It enables convenience with solutions like RTP, e-invoicing, bank-agnostic transfers, resilient message re-routing, and message re-usability.
  • It is politically neutral and enables global interoperability, simplifying cross-border payments (thus lowering long-term operating costs).

How long does ISO 20022 implementation take?

Implementation is decided based on business drivers. Depending on the changes required, it can take anything from four weeks (as in the case of Danish banks) to five years. The process involves obtaining a consensus from stakeholders, defining governance structures, leveraging existing infrastructure, defining the scope, the phases of implementation, estimating the budget, implementing it, and verifying the implementation.

New-market infrastructure (greenfield implementations) or firms replacing traditional fax-and-phone operations can migrate quicker. Established players (brownfield implementations) can either choose a lengthy “big-bang” legacy standard overhaul or choose a phased transition. Smaller players using mature standards and operating in just one business area, can migrate at their own pace by 2025.

Is ISO 20022 right for your firm?

The ISO 20022 standard does not enforce an XML syntax or any specific technology. Therefore, firms using dependable mainframe systems or legacy standards like ISO 7775 or 15022 can continue using those. However, mapping legacy systems to ISO 20022 and switching from manual processes is indeed necessary. To remain competitive in a world that is gravitating toward real time payments, it helps to have a common business dictionary with other financial institutions and the corporate space. Moreover, implementing it via a cost-effective cloud-based middle-ware helps the organization remain agile.

Indellient’s ISO 20022 solutions

Indellient’s hybrid approach utilizes Amazon Web Services (AWS) cloud solutions that integrate with existing on-premises systems. Our client-specific, cloud-native integration modules are highly scalable and resilient. Our experts can also validate AWS service selection and architecture patterns. Reach out to our Cloud Team for a no-obligation conversation on your needs.

Custom Cloud Applications

Indellient takes a customer-first approach to help you build a modern cloud strategy on Amazon Web Services. Our team can help you build, re-platform, migrate and integrate applications, so you can benefit from the scalability, agility, and performance available through cloud technologies.

Indellient is an IT Professional Services Company that specializes in Data AnalyticsCloud Development & Management, Managed IT SolutionsDevOps Services, and Business Process Management.

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I'm an AI engineer, here to offer my services to those who require good technical depth and knowledge incorporated into the information they present to the world.